<PAGE>
As filed with the Securities and Exchange Commission on December 20, 1996.
Registration No. 333-__________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
----------------
RACOM SYSTEMS, INC.
(Exact Name of Small Business Issuer
As Specified In Its Charter)
DELAWARE 3674 84-1182875
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code No.) I.D. Number)
6080 GREENWOOD PLAZA BLVD.
GREENWOOD VILLAGE, CO 80111
(303) 771-2077
(Address, including zip code, and telephone number, in-
cluding area code, of Registrant's principal executive offices)
RICHARD L. HORTON, PRESIDENT
RACOM SYSTEMS, INC.
6080 GREENWOOD PLAZA BLVD.
GREENWOOD VILLAGE, CO 80111
(303) 771-2077
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of all communications to:
Gary A. Agron, Esq. Michael J. Tauger, Esq.
5445 DTC Parkway, Suite 520 5445 DTC Parkway, Suite 520
Englewood, CO 80111 Englewood, CO 80111
(303) 770-7254 (303) 713-0363
(303) 770-7257 (Fax) (303) 770-7257 (Fax)
Approximate date of commencement of the Offering: As soon as practicable
after the date of the Offering.
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------
Title of Each Class Amount To Proposed Amount of
of Securities Be Maximum Price Offering Registration
to be Registered Registered Per Security Price Fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units consisting of
one share of $.01 par
value Common Stock
and one Common
Stock Purchase 1,725,000
Warrant(1) Units $5.25 $ 9,056,250 $2,745
Common Stock, $.01
par value, underlying
Common Stock 1,725,000
Purchase Warrants(2) Shares $6.56 $11,316,000 $3,429
Units Underlying
Representative's Unit 150,000
Warrants(3) Units $6.30 $ 945,000 $ 287
Common Stock, $.01
par value, underlying
Common Stock
Purchase Warrants
included in
Representative's Unit 150,000
Warrants(2) Shares $6.56 $ 984,000 $ 298
Common Stock
Purchase Warrants
held by the Selling 260,000
Stockholders(4) Warrants $2.00 $ 520,000 $ 158
<PAGE>
Common Stock $.01
par value underlying
Common Stock
Purchase Warrants
issued to the Selling 260,000
Stockholders(2) Shares $6.56 $ 1,705,600 $ 517
----------- ------
Totals . . . . . . . . . . . . . . . . .. . . . . . . . . . . $24,526,850 $7,434
</TABLE>
(1) Includes the overallotment option granted to the Representative of 225,000
Units.
(2) The exercise price of the Common Stock Purchase Warrants ("Warrants") (and
Bridge Warrants as defined below) is equal to 125% of the price of the Units
("Unit Price") on the effective date. Pursuant to Rule 416 of the Securities
Act of 1933, as amended, the number of shares issuable upon exercise of Warrants
is subject to adjustment in accordance with anti-dilution provisions of such
Warrants.
(3) Each Unit consists of one share of Common Stock and one Warrant. The
exercise price of the Representative's Unit Warrant is equal to 120% of the Unit
Price on the effective date hereof.
(4) Represents the maximum anticipated aftermarket price of the common stock
purchase warrants ("Bridge Warrants") on the effective date hereof.
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
(EXHIBIT INDEX LOCATED ON PAGE __ OF THIS FILING)
(ii)
<PAGE>
RACOM SYSTEMS, INC.
Cross Reference Sheet
<TABLE>
Item Caption Location or Caption in Prospectus
- ---- ------- ---------------------------------
<S> <C> <C>
1. Forepart of Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back Cover Pages
Cover Page of Prospectus
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Risk Factors; Underwriting
6. Dilution Dilution
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Underwriting
9. Legal Proceedings Not Applicable
10. Directors, Executive Officers, Management; Principal Stockholders
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Not Applicable
Counsel
14. Disclosure of Commission Position Item 24; Item 28
on Indemnification for Securities
15. Organization Within Last Five Prospectus Summary; Certain Transactions
Years
16. Description of Business Risk Factors; Business
17. Management's Discussion and Management's Discussion and Analysis of
Analysis or Plan of Operations Financial Condition and Results of
Operations
18. Description of Property Business--Properties
(iii)
<PAGE>
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Description of Securities
Related Stockholder Matters
21. Executive Compensation Management--Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
</TABLE>
(iv)
<PAGE>
SUBJECT TO COMPLETION Preliminary Prospectus dated December 20, 1996
1,500,000 UNITS
[LOGO]
RACOM SYSTEMS, INC.
Racom Systems, Inc. (the "Company") is offering (the "Offering") through
Spencer Edwards, Inc. as the representative (the "Representative") of the
underwriters herein named (the "Underwriters") 1,500,000 Units of the Company's
securities ("Unit(s)"), each Unit consisting of one share of $.01 par value
common stock ("Common Stock") and one redeemable common stock purchase warrant
("Warrant(s)"). It is currently anticipated that the initial public offering
price of the Units (the "Unit Price") will be between $4.25 and $5.25 per Unit.
The Common Stock and Warrants are separately transferable as of the date of the
Prospectus. Each Warrant is exercisable to purchase one share of Common Stock
at $_____ per share (125% of the Unit Price), for a period of two years from the
date hereof and may be redeemed by the Company for $.01 per Warrant on 30 days'
written notice to the Warrantholders if the closing price of the Common Stock on
the NASDAQ SmallCap Market ("NASDAQ") is at least $_____ per share (150% of the
Unit Price) for 20 consecutive trading days, ending not earlier than five days
before the Warrants are called for redemption. The Unit Price and Warrant
exercise price have been determined by negotiations between the Company and the
Representative and such prices are not necessarily related to the Company's
financial condition, net worth or other established criteria of value. For a
description of the factors considered in determining the Unit Price and the
exercise price of the Warrants, see "Risk Factors" and "Underwriting."
This Prospectus also covers 260,000 common stock purchase warrants (the
"Bridge Warrants") held by certain Bridge Warrantholders ("Selling
Stockholders") and 260,000 shares of Common Stock issuable upon exercise of the
Bridge Warrants. The terms and conditions of the Bridge Warrants are identical
to those of the Warrants. The Bridge Warrants and underlying Common Stock may
be sold from time to time after the date hereof in public or private open market
transactions directly to purchasers or through brokerage firms at prevailing
market prices less customary commissions. See "Selling Stockholders."
There is no trading market for Common Stock and Warrants and there can be
no assurance that a trading market will develop in any of these securities upon
completion of the Offering. The Common Stock and Warrants have been approved
for listing on NASDAQ under the symbols "RCOM" and "RCOMW," respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED
ONLY BY PERSONS ABLE TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT.
SEE "RISK FACTORS."
The Units are offered on a "firm commitment" basis by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain conditions, including the right of the
Underwriters to reject orders in whole or in part. It is expected that delivery
of certificates representing the Common Stock and Warrants will be made against
payment therefore in Greenwood Village, Colorado, on or about __________, 1997.
UNDERWRITING PROCEEDS
DISCOUNTS AND TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)(3)
Per Unit . . . . . $_____ $_____ $_____
Total(3) . . . . . $__________ $__________ $__________
(1) Excludes (i) a nonaccountable expense allowance payable to the
Representative of $__________ ($__________ if the Overallotment Option is
exercised) equal to 3% of the gross proceeds of the Offering, and (ii) the
issuance of warrants to the Representative (the "Representative's Unit
Warrant") to purchase up to 150,000 Units at $_____ per Unit (120% of the
Unit Price) at any time after 12 months from the date hereof and for a
period of four years thereafter. The Company has granted certain
antidilution and registration rights with respect to the Units underlying
the Representative's Unit Warrant and has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "1933 Act"). See "Underwriting."
(2) Before deducting costs of the Offering estimated to be $250,000, excluding
the Representative's nonaccountable expense allowance.
(3) Assumes no exercise of the Representative's option, exercisable within 30
days from the date of this Prospectus, to purchase from the Company up to
225,000 Units on the same terms as the Units offered hereby solely to cover
overallotments, if any (the "Overallotment Option"). If the Overallotment
Option is exercised in full, the Price to Public, Underwriting Discounts
and Commissions and Proceeds to Company will be $__________, $__________
and $__________, respectively. See "Underwriting."
SPENCER EDWARDS, INC.
The date of this Prospectus is __________, 1997.
2
<PAGE>
The Company will furnish annual reports to its stockholders which will
include audited financial statements. The Company may also furnish to its
stockholders quarterly financial statements and such other reports as may be
authorized by its Board of Directors. See "Available Information."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING TRANSACTIONS MAY BE EFFECTED IN THE OVER THE COUNTER MARKET
AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS SET
FORTH IN THIS PROSPECTUS INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THESE RISKS
AND UNCERTAINTIES ARE DETAILED THROUGHOUT THE PROSPECTUS AND WILL BE FURTHER
DISCUSSED FROM TIME TO TIME IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE
COMMISSION. THE FORWARD-LOOKING STATEMENTS INCLUDED IN THE PROSPECTUS SPEAK
ONLY AS OF THE DATE HEREOF.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION PRESENTED DOES NOT
REFLECT EXERCISE OF THE WARRANTS, THE OVERALLOTMENT OPTION OR THE
REPRESENTATIVE'S UNIT WARRANT. SEE "UNDERWRITING"
THE COMPANY
The Company is a leading developer and marketer of contactless smart card
systems ("Smart Card(s)" or "Smart Card System(s)") used primarily in electronic
commerce. Generally the size of a credit card, Smart Cards are used in a number
of consumer applications including (i) access to restricted areas (replacing
keys and identification cards), (ii) public transportation fare collection
(replacing bus tokens, taxi cab charge cards, airline and railway tickets),
(iii) point of sale purchases (replacing cash or credit cards at cafeterias,
news stands and related point of sale locations where speed of purchase is
important), and (iv) miscellaneous small monetary transactions (replacing coins
and cash at parking lots, in vending machines, public telephones, and the like).
Smart Card technology is also used in industrial applications such as attaching
a "tag" containing the Smart Card technology to a manufactured product in order
to track the product from the assembly line through quality control,
warehousing, inventory control, distribution and warranty.
The Company's Smart Cards are "contactless" and therefore do not require
the use of a magnetic stripe or insertion in a terminal as is required by
contacted cards ("Contacted Card(s)"). Instead, the Company's Smart Card System
involves direct wireless radio frequency communication between a ferroelectric
random access memory ("FRAM") chip in the Smart Card and a terminal. The
Company's FRAM chip does not require battery power and allows for processing the
Smart Card transaction in a fraction of a second by waving the Smart Card near
the terminal. Moreover, the Smart Card does not require insertion in the
terminal or the use of a keypad and therefore may be used by all members of the
population, regardless of age or physical health and in both indoor and outdoor
locations.
For consumers and goods and services providers, the Company's Smart Cards
offer the convenience and accuracy of high speed contactless transaction
processing without the requirement of carrying cash, checks or credit cards,
thereby reducing the threat of theft,
4
<PAGE>
inventory shrinkage, and payment fraud resulting from the handling of cash or
the counterfeiting of cash or credit cards.
The Company sells its Smart Card Systems through its own direct sales,
force through a combination of joint ventures and strategic alliances and
through selective licensing and distributorship arrangements and agreements with
independent sales representatives in foreign countries. Since 1993, the Company
has designed Smart Card Systems for over 100 customers in cities throughout the
world including Singapore, Macau, Hong Kong, Tokyo, Manchester, Paris, Milan,
Los Angeles, Chicago and Denver. The Company's Smart Card users have included
the new Hong Kong International Airport, the Los Angeles Department of
Transportation, the Lubbock International Airport, the Chicago Transit Authority
and Yamatake Honeywell Limited (Japan).
The Company's business strategy is to (i) expand the Company's Smart Card
Systems applications, (ii) grow revenues through strategic alliances, joint
ventures and selective licensing, (iii) emphasize marketing of the Company's
Smart Card products in North America, and (iv) continue to outsource
manufacturing to control fixed costs.
The Company was incorporated in Delaware in June 1991 and initially issued
2,000,000 shares of its Common Stock to each of Ramtron International
Corporation ("Ramtron"), Intag International Limited ("Intag") and AWA Limited
("AWA") in connection with the Company's organization. Subsequently, AWA sold
its 2,000,000 shares of the Company's Common Stock to Intag. As a result of
subsequent Common Stock sales, Ramtron and Intag (both of which are
publicly-held companies) currently own 4,800,000 shares and 5,262,532 shares,
respectively, of the Company's Common Stock representing 41.6% and 45.6%,
respectively, of the total shares of Common Stock outstanding. As indicated
under "Certain Transactions," Ramtron and Intag have entered into a number of
related party transactions with the Company including the issuance of license
rights to the Company from Ramtron, the issuance of license rights between
Ramtron and Intag and the issuance of Common Stock and warrants to Ramtron
and Intag in exchange for loans and other financings extended by Ramtron and
Intag to the Company. Ramtron and Intag control the Company's operations,
elect all of the Company's directors and will continue to control the Company
upon completion of the Offering. See "Principal Stockholders" and "Certain
Transactions."
In December 1996, the Company completed the borrowing of an aggregate of
$1,040,000 from a group of lenders (the "Bridge Loan") evidenced by promissory
notes bearing interest at 2% over the prime interest rate and due the earlier of
December 1997 or the closing date of the Offering. As additional consideration
for the Bridge Loan, the Company issued one Bridge Warrant for each $4.00 loaned
to the Company or a total of 260,000 Bridge Warrants. Each Bridge Warrant
entitles the holder to purchase one share of Common Stock at $_____ per share
for a period of two years from the date hereof. The Bridge Warrants and the
Common Stock underlying the Bridge Warrants are being registered by this
Prospectus. See "Selling Stockholders."
The Company's executive offices are located at 6080 Greenwood Plaza Blvd.,
Greenwood Village, Colorado 80111 and its telephone number is (303) 771-2077.
5
<PAGE>
THE OFFERING
Securities offered............ 1,500,000 Units, each Unit consisting of one
share of Common Stock and one Warrant
Offering price ............... $_____ per Unit
Common Stock outstanding
prior to the Offering ...... 11,532,532 shares
Common Stock outstanding
after the Offering(l) ...... 13,032,532 shares
Description of the Warrants... Each Warrant is exercisable to purchase one
share of Common Stock at $_____ per share for
a period of two years from the date hereof
and may be redeemed by the Company for $.01
per Warrant on 30 days' written notice to the
Warrantholders if the closing price of the
Common Stock on NASDAQ is at least $_____ per
share for 20 consecutive trading days ending
not earlier than five days before the
Warrants are called for redemption.
Use of proceeds .............. Repayment of debt, sales and marketing expenses,
research and development expenses, and working
capital. See "Use of Proceeds."
NASDAQ symbols ............... RCOM (Common Stock)
RCOMW (Warrants)
Transfer and Warrant Agent ... American Securities Transfer, Inc.
- ----------
(1) Does not include shares issuable upon exercise of (i) the Warrants, the
Overallotment Option and the Representative's Unit Warrant, (ii) 1,559,000
stock options issued under the Company's 1993 Employee Stock Option Plan,
(iii) the 260,000 Bridge Warrants, or (iv) other outstanding stock options,
common stock purchase warrants and convertible securities. See "Dilution,"
"Capitalization" and "Management - 1993 Employee Stock Option Plan."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables set forth certain summary financial data of the
Company. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the Financial Statements of the Company and Notes thereto
included elsewhere in this Prospectus. The summary financial data as of
December 31, 1995 and 1994, and for the years ended December 31, 1995 and 1994,
have been derived from the Company's financial statements which have been
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this Prospectus. The summary financial data for the nine months
ended September 30, 1996 and 1995, have been derived from unaudited financial
statements which are also included elsewhere in this Prospectus. In the opinion
of management of the Company, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and the results of
operations for these periods. Operating results for the nine months ended
September 30, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
<TABLE>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
----------------- --------------------
(unaudited)
1995 1994 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................... $ 1,147,915 $ 354,586 $ 1,419,892 $ 692,016
Gross margin ............... 501,446 177,369 577,205 362,233
Loss from operations ....... (2,837,935) (2,682,589) (1,730,333) (2,240,062)
Net loss ................... (2,878,034) (3,480,171) (1,761,030) (2,223,109)
Weighted average shares
outstanding .............. 10,853,633 8,254,344 11,844,793 10,578,801
Net loss per share ......... $ (.27) $ (.42) $ (.15) $ (.21)
</TABLE>
<TABLE>
AS
HISTORICAL ADJUSTED(1)
---------- ----------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA AT SEPTEMBER 30, 1996:
Working capital (deficit) ............................ $(1,827,603) $3,261,147
Total assets ......................................... 2,476,683 7,565,433
Total liabilities .................................... 2,699,612 1,839,612
Stockholders' equity (deficit) ....................... (222,929) 5,725,821
</TABLE>
(1) As adjusted to reflect $1,040,000 of proceeds from the Bridge Loan, and
$170,000 of loans from Intag and Ramtron both of which were incurred
subsequent to September 30, 1996, and the sale of 1,500,000 Units offered
hereby (after deducting underwriting discounts and commissions and
estimated Offering expenses) and the application of the net proceeds
therefrom for repayment of $2,070,000 of debt (including the approximate
$1,210,000 of debt, described above, incurred subsequent to September 30,
1996) and assuming a price of $4.75 per Unit. See "Use of Proceeds" and
"Capitalization."
7
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
following risk factors and the other information contained in this Prospectus
before making an investment in the Common Stock. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g., "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business - Strategy." No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered in
such forward-looking statements.
LIMITED OPERATING HISTORY AND LIMITED REVENUES; LOSSES; DEFICIT IN WORKING
CAPITAL AND GOING CONCERN QUALIFICATION. The Company began operations in
June 1991, and has a limited operating history upon which potential investors
may base an evaluation of its performance. Since inception, the Company has
focused its efforts and resources on developing its technology and on
identifying products and applications for introduction into the market. The
Company has only recently begun generating revenues from its operations and
therefore the Company has historically incurred significant operating losses and
cash flow deficits. For the year ended December 31, 1995 and the nine months
ended September 30, 1996, the Company had revenues of $1,147,915 and $1,419,892,
respectively, and net losses of $2,878,034 and $1,761,030, respectively.
Moreover, at September 30, 1996, the Company had a deficit in working capital of
$1,827,603. Accordingly, substantial doubt exists regarding the Company's
ability to continue as a going concern. The Report of Independent Public
Accountants covering the Company's December 31, 1995 financial statements,
included elsewhere in this Prospectus, contains a qualification about the
Company's ability to continue as a going concern. There can be no assurance
that the Company's operations will generate sufficient revenues to fund its
operations and to allow it to become profitable. The likelihood of the
Company's success must be considered relative to the problems, experiences,
difficulties, complications and delays frequently encountered in connection with
the operation and development of a new business and the competitive environment
in which the Company operates. See "Business" and "Financial Statements."
DEVELOPING MARKET; UNPROVEN MARKET FOR THE COMPANY'S SMART CARD PRODUCTS.
Smart Card products and markets have only recently begun to develop, are rapidly
evolving and are characterized by an increasing number of market entrants who
have developed or are developing a wide variety of products. As is typical in a
new and rapidly evolving industry, demand and market acceptance for new products
are subject to a high level of uncertainty. There can be no assurance that the
Smart Cards designed by the Company will become widely accepted. Because the
market for the Company's Smart Cards is new and evolving, it is also difficult
to predict
8
<PAGE>
with any assurance the future growth rate, if any, and size of the market.
If a market fails to develop, develops more slowly than expected or becomes
saturated with competitors, or if the Company's Smart Cards do not achieve
market acceptance, the Company's business, operating results and financial
condition will be materially adversely affected. See "Business -Marketing."
COMPETITION; FREQUENT PRODUCT INTRODUCTIONS. The market for Smart Card
products is new, intensely competitive, quickly evolving and subject to rapid
technological change. Competitors may develop superior Smart Card products or
products of similar quality for sale at lower prices. Moreover, there can be no
assurance that the Company's Smart Cards will not be rendered obsolete by
changing technology or new industry standards. The Company expects competition
to persist and increase in the future. The Company's current and potential
competitors are primarily subsidiaries of multinational companies with
established Contacted Card and contactless Smart Card businesses who have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than the
Company. This intense level of competition could materially adversely affect
the Company's future business, operating results and financial condition.
Competitive factors in the industry include transaction speed, the extent
and flexibility of Smart Card memory, reliability, transaction accuracy and
cost. Current competitors include such multinational firms as Gemplus,
Schlumberger and Group Bull which primarily offer Contacted Cards and Philips
GmbH, Sony Corporation and Micron Communications, Inc. which offer primarily
contactless Smart Cards. Moreover, Matsushita Electronics Corporation intends
to market a contactless ferroelectric chip-based Smart Card in the spring of
1997.
There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially adversely affect its business,
operating results and financial condition. Many of the Company's competitors
have the financial resources necessary to enable them to withstand substantial
price and product competition, which are expected to increase, and to implement
extensive advertising and promotional programs, both generally and in response
to efforts by other competitors to enter into existing markets or introduce new
products. The industry is also characterized by frequent introductions of new
products. The Company's ability to compete successfully will be largely
dependent on its ability to anticipate and respond to various competitive
factors affecting the industry, including new products which may be introduced,
changes in customer preferences, demographic trends and pricing strategies by
competitors, which could adversely affect the Company's operating margins. See
"Business - Competition."
RISKS OF NEW PRODUCT DEVELOPMENT. The Company may experience difficulties
that could delay or prevent the development, introduction and marketing of new
Smart Card products. The Company will be substantially dependent in the near
future upon Smart Card products that are currently being developed. There can
be no assurance that, despite testing by the Company, errors will not be found
in the Company's Smart Card products, or, if errors are discovered, corrected in
a timely manner. If the Company is unable to develop on a timely basis existing
9
<PAGE>
or new Smart Card products or enhancements to existing products, or if its Smart
Card products do not achieve market acceptance, the Company's business,
operating results and financial condition will be materially adversely affected.
See "Business."
RISKS ASSOCIATED WITH EXPANSION. The Company will seek to develop and
expand its Smart Card products and increase its marketing operations using
proceeds from the Offering. Expansion will place substantial strains on the
Company's management and its operational, accounting and information resources
and systems. Successful management of growth will require the Company to
improve its financial controls, operating procedures and information systems,
and to hire, train, motivate and manage its employees. The Company's failure to
manage growth effectively would have a material adverse effect on its results of
operations and its ability to execute its business strategy. See "Business -
Strategy."
OBSOLESCENCE AND TECHNOLOGICAL CHANGE. The markets for Smart Card products
are characterized by rapidly changing technology and evolving industry standards
which result in product obsolescence and short product life cycles.
Accordingly, the Company's success is dependent upon its ability to anticipate
technological changes in the industry and to continually identify, develop and
successfully market new Smart Card products that satisfy evolving technologies,
customer preferences and industry requirements. There can be no assurance that
competitors will not market Smart Card products which have perceived advantages
over those of the Company or which render the Company's Smart Card products
obsolete or less marketable. See "Business - Marketing."
IMPEDIMENTS TO MARKET ACCEPTANCE OF PRODUCTS. As with other new products
designed to replace existing products or change product designs, potential
customers may be reluctant to integrate the Company's Smart Card products into
their systems unless the products are proven to be both reliable and available
at a competitive price in an assured quantity. Even assuming product
acceptance, the Company's customers may be required to redesign their systems to
effectively use the Company's Smart Card products. The time and costs necessary
for such redesign could delay or prevent market acceptance of the Company's
Smart Card products. A lack of, or delay in, market acceptance of one or more
of the Company's Smart Card products could adversely affect the Company's
operations. See "Business - Marketing."
DEPENDENCE ON MANUFACTURERS AND SUPPLIERS. The Company purchases FRAM
semiconductor chips for its Smart Card products from two affiliated
manufacturers, Ramtron and Rohm Co., Ltd. and purchases other components used in
assembly of its Smart Cards from other key suppliers. The Company has no
written agreements with any manufacturer or supplier. The Company's reliance
upon outside manufacturers and suppliers is expected to continue and involves
several risks, including limited control over the availability of components,
delivery schedules, pricing and product quality. The Company may also
experience, delays, expenses and lost sales should it be required to locate and
qualify alternative suppliers. See "Business - Manufacturing and Assembly."
10
<PAGE>
RELIANCE UPON PATENTS AND TRADE SECRETS. The Company relies on its
patents, trade secrets and copyrights and the patents, trade secrets and
copyrights of its licensors to protect its Smart Card technology. Although the
Company intends to enforce its patents, trade secrets and copyrights
aggressively, there can be no assurance that such protection will be available
in any particular instance or that the Company will have the financial resources
necessary to adequately enforce its rights. The unavailability of such
protection or the inability to enforce adequately such rights could materially
adversely affect the Company's business and operating results. The Company
operates in a competitive environment in which it would not be unlikely for a
third party to claim that certain of the Company's present or future Smart Card
products may infringe the patents or rights of such third parties. If any such
infringements exist or arise in the future, the Company may be exposed to
liability for damages and may be required to obtain licenses relating to
technology incorporated into the Company's products. The Company's inability to
obtain such licenses on acceptable terms or the occurrence of related litigation
could materially adversely affect the Company's operations. See "Business -
Patents and Trade Secrets."
NEED FOR ADDITIONAL FINANCING. The Company anticipates, based on currently
proposed plans and assumptions relating to its operations that the proceeds of
the Offering, together with projected cash flow from operations, will be
sufficient to satisfy its contemplated cash requirements for at least 12 months
following the Offering. In the event that the Company's plans change, its
assumptions prove to be inaccurate or if the proceeds of the Offering or its
cash flow prove to be insufficient (due to unanticipated expenses, inadequate
revenues, difficulties, problems or otherwise), the Company may be required to
seek additional financing or curtail its activities. Any issuance of equity
securities would result in dilution to the interests of the Company's
stockholders and any issuance of debt securities would subject the Company to
risks that interest rates may increase or cash flow may be insufficient to repay
such indebtedness. The Company has no arrangements or understandings for
additional financing and there can be no assurance that additional financing
will be available to the Company if required. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE UPON CUSTOM SYSTEM DEVELOPMENT PROJECTS. The Company relies
upon custom system development projects for a significant part of its revenues.
The inability of the Company to replace completed projects with new projects
would adversely affect the Company's operations. See "Business - Marketing."
OFFERING TO BENEFIT INSIDERS. A substantial portion of the proceeds of the
Offering will be used to repay outstanding indebtedness to the Company's two
principal stockholders (aggregating $1,030,000) and to the Selling Stockholders
(aggregating $1,040,000). See "Use of Proceeds."
DEPENDENCE UPON QUALIFIED PERSONNEL AND EXECUTIVE OFFICERS. The Company's
operations depend in part upon its ability to retain and hire qualified
personnel, of which there can be no assurance. The Company's operations are
also dependent upon the continued services of Richard L. Horton, its Chief
Executive Officer and President and certain other executive
11
<PAGE>
officers. The loss of services of any of the Company's executive officers,
whether as a result of death, disability or otherwise, could have a material
adverse effect upon the Company's operations. The Company does not have
employment agreements with any of its executive officers but intends to apply
for key person insurance upon Mr. Horton's life in the amount of $1,000,000.
See "Management."
CONTROL BY PRINCIPAL STOCKHOLDERS; AUTHORIZATION AND ISSUANCE OF PREFERRED
STOCK; PREVENTION OF CHANGES IN CONTROL. Upon completion of the Offering,
Ramtron and Intag will together own approximately 77.2% of the then issued and
outstanding shares of Common Stock (assuming no exercise of the Warrants, the
Representative's Overallotment option or the Representative's Unit Warrant) and
will continue to elect all of the Company's directors and control the affairs of
the Company. The Company's Certificate of Incorporation authorizes the issuance
of up to 5,000,000 shares of Preferred Stock with such rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly,
under the Certificate of Incorporation, the Board of Directors may, without
shareholder approval, issue Preferred Stock with dividend, liquidation,
conversion, voting, redemption or other rights which could adversely affect the
voting power or other rights of the holders of the Common Stock. The issuance
of any shares of Preferred Stock having rights superior to those of the Common
Stock may result in a decrease of the value or market price of the Common Stock
and could further be used by the Board of Directors as a device to prevent a
change in control of the Company. The Company has no other anti-takeover
provisions in its Certificate of Incorporation or Bylaws. Holders of the
Preferred Stock may have the right to receive dividends, certain preferences in
liquidation and conversion rights. See "Principal Stockholders" and
"Description of Securities."
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to the
Offering, there has been no public trading market for the Units, Common Stock or
Warrants. The Offering price of the Units and exercise price of the Warrants
were determined by negotiations between the Company and the Representative and
do not necessarily bear any relationship to recognized criteria for the
valuation of such securities. There can be no assurance that a regular trading
market for the Common Stock or Warrants will develop or continue after the
Offering or, if such a market develops, that the market prices of the component
securities will exceed the Unit Price. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION. The Offering involves an immediate and
substantial dilution of $4.44 per share of Common Stock or a 93.5% reduction
between the Offering price of $4.75 per share of Common Stock (ascribing no
value to the Warrants included in the Units) and the net tangible book value of
$.31 per share of Common Stock upon completion of the Offering, assuming no
exercise of the Warrants, the Overallotment Option, the Representative's Unit
Warrant or other outstanding stock options, common stock purchase warrants or
Convertible Securities. See "Dilution."
NO DIVIDENDS. The Company has not paid any dividends on its Common Stock
and does not intend to pay dividends in the foreseeable future. See
"Description of Securities-Dividends."
12
<PAGE>
POSSIBLE VOLATILITY OF SECURITIES PRICES. The market price of the Common
Stock and Warrants following the Offering may be highly volatile, as has been
the case recently with the securities of other companies completing initial
public offerings. Factors such as the Company's operating results or public
announcements by the Company or its competitors may have a significant effect on
the market price of the securities. In addition, market prices for the
securities of many small capitalization companies have experienced wide
fluctuations due to variations in quarterly operating results, general economic
conditions and other factors beyond the Company's control.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the open market or the availability of such shares for sale following
the Offering could adversely affect the market price of the securities offered
hereby. Following the Offering, all 1,500,000 shares of Common Stock offered
hereby together with 1,500,000 Warrants and 260,000 Bridge Warrants may be
purchased and sold in the open market without restriction or further
registration under the 1933 Act. The currently outstanding 11,532,532 shares of
Common Stock are "restricted securities" as that term is defined under Rule 144
of the 1933 Act and are comprised of 10,032,532 shares which are currently
eligible for resale under Rule 144, 1,000,000 shares which become eligible for
resale in February 1997 and 500,000 shares which will become eligible for resale
in August 1997. However, all of the Company's officers, directors and 5% or
greater stockholders have agreed, pursuant to a lock-up agreement with the
Representative, not to sell or otherwise dispose of any of their shares of
Common Stock for a period of 12 months from the date of this Prospectus and to
sell no more than 50% of their shares of Common Stock during the following
12-month period without the prior written consent of the Representative.
There are no arrangements, agreements or understandings with respect to a
release of the lock-up agreement by the Representative and it is not the
Representative's general policy to grant such a release. Nevertheless, the
Representative will consider requests for such releases on an individual
basis and may in the future grant such requests in connection with this or
other offerings. See "Description of Securities-Common Stock Eligible for
Future Sale" and "Underwriting."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the Common
Stock and Warrants offered hereby may be sold to customers of the Representative
and the Underwriters. Such customers subsequently may engage in transactions
for the sale or purchase of these securities through or with the Underwriters.
Although it has no obligation to do so, the Representative intends to make a
market or otherwise effect transactions in the securities, although this
market-making activity may terminate at any time. The Representative may
exert a dominating influence on the market, if one develops, for the
securities. The price and liquidity of the securities may be significantly
affected by the degree, if any, of the Underwriters' participation in such
market.
LIMITATIONS ON LIABILITY OF DIRECTORS. The Company's Certificate of
Incorporation substantially limits the liability of the Company's directors to
the Company and its stockholders for breach of fiduciary or other duties to the
Company. See "Description of Securities - Limitation on Liabilities."
13
<PAGE>
REDEMPTION OF WARRANTS. The Warrants may be redeemed by the Company under
certain circumstances upon 30 days' written notice to the Warrantholders at $.01
per Warrant. In such event, the Warrants will be exercisable until the close of
business on the date fixed for redemption in such notice. Any Warrants not
exercised by that time will cease to be exercisable, and the holders will be
entitled only to the redemption price, which is likely to be substantially less
than the market value of the Warrants. Accordingly, such redemption could force
the Warrantholders to exercise the Warrants and pay the exercise price at a time
when it might be disadvantageous for them to do so or sell the Warrants at the
then market price when they might otherwise prefer to hold the Warrants. See
"Description of Securities - Warrants."
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES OF COMMON STOCK
UNDERLYING THE WARRANTS AND BRIDGE WARRANTS. The Warrants and Bridge Warrants
are not convertible or exercisable unless, at the time of exercise, the Company
has a current prospectus covering the shares of Common Stock issuable upon
exercise of the Warrants and Bridge Warrants and such shares of Common Stock
have been registered, qualified or deemed to be exempt under the securities laws
of the states of residence of the holders of such Warrants and Bridge Warrants.
There can be no assurance that the Company will have or maintain a current
prospectus or that the securities will be qualified or registered under any
state laws.
The Common Stock and the Warrants, which comprise the Units offered hereby,
are detachable and separately transferable as of the date hereof. Purchasers of
the Warrants or Bridge Warrants may reside in jurisdictions in which the shares
of Common Stock underlying the Warrants and Bridge Warrants are not registered
or qualified during the period that the Warrants and Bridge Warrants are
exercisable. In this event, the Company would be unable to issue Common Stock
to those persons desiring to exercise their Warrants and Bridge Warrants unless
and until such shares could be qualified for sale in jurisdictions in which the
purchasers reside, or an exemption from qualification exists in such
jurisdiction. Accordingly, Warrantholders would have no choice but to attempt
to sell the Warrants or Bridge Warrants in a jurisdiction where such sale is
permissible, or allow them to expire unexercised. See "Description of
Securities - Warrants."
REPRESENTATIVE'S LIMITED UNDERWRITING EXPERIENCE. The Representative was
organized in Colorado in June 1992, and was registered as a broker-dealer under
the name World Securities Corporation in March 1994. In April 1994, the
Representative changed its name to Spencer Edwards, Inc. To date, the
Representative's business has primarily been limited to open market purchases
and sales of securities as a broker-dealer on behalf of its customers. The
Representative has acted as a representative of underwriters in only one prior
public offering although it has participated as a dealer in offerings
underwritten by others. The Representative's limited underwriting experience
may (i) adversely affect the development or continuation of a trading market for
the Company's Common Stock, (ii) limit the effectiveness of the Representative's
due diligence responsibilities to review and verify the information in the
Prospectus, or (iii) influence the after market price of the Common Stock. The
Representative had no material relationship with the Company or its promoters
prior to the Offering except for acting as the Selling Agent for the Bridge
Loan. See "Selling Stockholders," "Description of Securities - Bridge Warrants"
and "Underwriting."
14
<PAGE>
DILUTION
At September 30, 1996, the negative net tangible book value of the
Company's Common Stock was $(1,979,586) or $(.17) per share. Net tangible book
value per share represents the total amount of tangible assets of the Company,
less the total amount of liabilities of the Company, divided by the number of
shares of Common Stock outstanding. Without taking into account any changes in
net tangible book value after September 30, 1996, other than to give effect to
the sale by the Company of the 1,500,000 Units offered hereby, less underwriting
discounts and commissions and estimated costs of the Offering, the net tangible
book value of the Company at September 30, 1996 would have been $3,969,164, or
approximately $.31 per share. This represents an immediate increase in net
tangible book value of $.48 per share of Common Stock to existing stockholders
and an immediate dilution of $4.44 per share to new stockholders. "Dilution"
per share represents the difference between the price to be paid by the new
stockholders of $4.75 per share (ascribing no value to the Warrants included in
the Units) and the net tangible book value per share of Common Stock immediately
after the Offering.
The preceding discussion is illustrated in the following table:
Public offering price per share of Common Stock
included in the Units...................................... $4.75
Negative net tangible book value per share of Common
Stock before the Offering................................ $(.17)
Increase in net tangible book value
per share of Common Stock attributable
to new investors purchasing
in the Offering.......................................... $ .48
Net tangible book value per share of Common Stock
after the Offering......................................... $ .31
Dilution of net tangible book value per share of
Common Stock to new investors.............................. $4.44
-----
-----
The following table sets forth the number of shares of Common Stock
purchased, the total consideration and the average price per share paid by
existing stockholders of the Company as of September 30, 1996, and by new
investors purchasing the shares of Common Stock included in the Units offered
hereby:
<TABLE>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
New investors........... 1,500,000 11.5% 7,125,000 41.7% $4.75
Existing stockholders... 11,532,532 88.5% 9,958,798 58.3% $ .86
---------- ----- ---------- -----
Totals.............. 13,032,532 100.0% 17,083,798 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
15
<PAGE>
The preceding discussion and tables do not include shares issuable upon
exercise of (i) the Warrants, the Overallotment Option and the Representative's
Unit Warrant, (ii) 1,559,000 stock options issued under the Company's 1993
Employee Stock Option Plan, (iii) the 260,000 Bridge Warrants, or (iv) other
outstanding stock options, common stock purchase warrants and convertible
securities issuable into an aggregate of 817,653 shares. See "Dilution,"
"Capitalization" and "Management - 1993 Employee Stock Option Plan."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, as adjusted to give effect to the sale by the Company of
1,500,000 Units offered hereby at $4.75 per Unit and application of the
estimated net proceeds, without giving effect to the exercise of (i) the
Warrants, the Overallotment Option and the Representative's Unit Warrant,
(ii) an aggregate of 1,559,000 shares issuable under the Company's 1993
Employee Stock Option Plan, (iii) the 260,000 Bridge Warrants, or (iv) other
outstanding stock options, common stock purchase warrants and convertible
securities issuable into an aggregate of 817,653 shares. See "Use of
Proceeds" and "Description of Securities."
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
(unaudited)
Stockholders' equity (deficit)
Preferred Stock, 5,000,000 no par value
shares authorized, none issued.............. $ -- $ --
Common Stock, 20,000,000 $.01 par value
shares authorized, 11,532,532
issued and outstanding,
13,032,532 shares issued and
outstanding, as adjusted.................... 115,325 130,325
Additional paid in capital.................... 10,272,591 16,206,341
Accumulated deficit........................... (10,610,845) (10,610,845)
------------ ------------
Total stockholders' equity (deficit)........ (222,929) 5,725,821
Total capitalization...................... $ (222,929) $ 5,725,821
------------ ------------
------------ ------------
17
<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be $5,948,750
($6,878,563 if the Overallotment Option is exercised) assuming a price of
$4.75 per Unit. The Company intends to use the net proceeds of the Offering
in the following order of priority:
PERCENT
OF NET
PURPOSE AMOUNT PROCEEDS
- ------- ------ --------
Repayment of debt(1).................................. 2,070,000 34.8%
Sales and Marketing expenses(2)....................... 1,600,000 26.9%
Research and development expenses..................... 1,530,000 25.7%
Working capital....................................... 748,750 12.6%
--------- ------
TOTALS............................................ 5,948,750 100.0%
--------- ------
--------- ------
__________
(1) Comprised of $934,000 principal and interest due on promissory notes
payable to Intag, $96,000 principal and interest due on promissory notes
payable to Ramtron and $1,040,000 of bridge loans payable to the Selling
Stockholders. The Intag and Ramtron promissory notes bear annual interest
at 10% and prime plus 2%, respectively, and are due on demand. The funds
borrowed were used for working capital. Intag and Ramtron are principal
stockholders of the Company. Does not include repayment of a $400,000
non-interest bearing convertible note issued to Intag which is due if and
only if the Company receives sublicense revenue from Intag. See "Certain
Transactions."
(2) Includes salaries, wages, advertising and travel expenses to be incurred in
connection with the expansion of the Company's North American marketing
activities. See "Business - Strategy."
The Company estimates that the net proceeds of the Offering together with
its anticipated operating revenues will be sufficient to fund its cash
requirements for at least 12 months from the date of the Prospectus. There may
be changes in the Company's proposed use of net proceeds due to the availability
of other business opportunities or modifications to the Company's plan of
operation. Management is not currently aware of any such business opportunities
or planned modifications to its operations. Pending use, the net proceeds will
be invested in bank certificates of deposit and other fully insured investment
grade securities.
Any funds received by the Company upon exercise of the Warrants, the
Overallotment Option or the Representative's Unit Warrant and any funds not
applied to sales and marketing or research and development expenses will be
added to working capital. The Company will not receive any proceeds from the
sale of the Bridge Warrants by the Selling Stockholders. Any proceeds received
by the Company upon exercise of the Warrants, the Overallotment Option, the
Representative's Unit Warrant or the Bridge Warrants will be added to working
capital.
18
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data of the
Company. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the Financial Statements of the Company and Notes thereto
included elsewhere in this Prospectus. The selected financial data as of
December 31, 1995 and 1994, and for the years ended December 31, 1995 and 1994,
have been derived from the Company's financial statements which have been
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this Prospectus. The selected financial data for the nine months
ended September 30, 1996 and 1995, have been derived from unaudited financial
statements which are also included elsewhere in this Prospectus. In the opinion
of management of the Company, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and the results of
operations for these periods. Operating results for the nine months ended
September 30, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
<TABLE>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------ -------------------
(unaudited)
1995 1994 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 1,147,915 $ 354,586 $ 1,419,892 $ 692,016
Gross margin..................... 501,446 177,369 577,205 362,233
Loss from operations............. (2,837,935) (2,682,589) (1,730,333) (2,240,062)
Net loss......................... (2,878,034) (3,480,171) (1,761,030) (2,223,109)
Weighted average shares
outstanding.................... 10,853,633 8,254,344 11,844,793 10,578,801
Net loss per share............... $(.27) $(.42) $(.15) $(.21)
</TABLE>
<TABLE>
AS
HISTORICAL ADJUSTED(1)
---------- -----------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA AT SEPTEMBER 30, 1996:
Working capital (deficit)........................................ $(1,827,603) $3,261,147
Total assets..................................................... 2,476,683 7,565,433
Total liabilities................................................ 2,699,612 1,839,612
Stockholders' equity (deficit)................................... (222,929) 5,725,821
</TABLE>
(1) As adjusted to reflect $1,040,000 of proceeds from the Bridge Loan, and
$170,000 of loans from Intag and Ramtron both of which were incurred
subsequent to September 30, 1996 and the sale of 1,500,000 Units offered
hereby (after deducting underwriting discounts and commissions and
estimated Offering expenses) and the application of the net proceeds
therefrom for repayment of $2,070,000 of debt (including the approximate
$1,210,000 of debt, described above, incurred subsequent to September 30,
1996) and assuming a price of $4.75 per Unit. See "Use of Proceeds" and
"Capitalization."
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading developer and marketer of contactless smart card
systems ("Smart Card(s)" or "Smart Card System(s)") used primarily in electronic
commerce. Generally the size of a credit card, Smart Cards are used in a number
of consumer applications including (i) access to restricted areas (replacing
keys and identification cards), (ii) public transportation fare collection
(replacing bus tokens, taxi cab charge cards, airline or railway tickets and the
like), (iii) point of sale purchases (replacing cash or credit cards at
cafeterias, news stands and related point of sale locations where speed of
purchase is important), and (iv) miscellaneous small monetary transactions
(replacing coins and cash at parking lots, in vending machines and public
telephones, etc.). Smart Card technology is also used in industrial
applications by attaching a "tag" containing the Smart Card technology to the
manufactured product in order to track the product from the assembly line
through quality control, warehousing, inventory control, distribution and
warranty.
The Company principally generates revenues from licensing, fee based custom
product development projects and sale of its Smart Card products. In the
future, the Company anticipates that a substantial portion of its revenues will
be generated from custom product development projects and the sale of its Smart
Card products. For instance, revenues from one licensing transaction and one
product development contract represented 36.2% and 42.3% respectively of the
Company's revenues for the nine months ended September 30, 1996. If the Company
is unable to continually replace larger custom product development projects as
these projects are completed, its operations will be adversely affected. Custom
product development projects are billed in stages based on certain agreed upon
performance milestones. Accordingly, financial results for any calendar quarter
may fluctuate widely depending on the stage of a custom product development
project or the amount of licensing payments in a particular quarter.
As reflected in the Company's Financial Statements, the Company has
generated substantial operating losses since inception and has yet to generate
sufficient revenues to fund its operations. To date, the Company has completed
a series of smaller scale projects; however, the Company has not yet completed a
significant number of larger projects and as a result it is uncertain whether
the Company will be able to successfully market and sell its Smart Card products
in sufficient quantities and at sufficient prices and volumes to fund its
operations. During 1995, the Company experienced significant cash flow deficits
and liquidity shortages and funded its operations primarily through the sale of
nonexclusive sublicenses to its technology, through proceeds from the sale of
its Common Stock and through borrowings from affiliates.
During 1996 and 1997, the Company anticipates that increased operating
revenues will be achieved through a combination of product sales, custom product
development projects and the sale of non-exclusive licenses. In addition, the
Company anticipates incurring increased
20
<PAGE>
operating and research and development expenditures in order to further
develop and market its Smart Card products.
Prospective purchasers of the Common Stock should carefully consider the
following risk factors and the other information contained in this Prospectus
before making an investment in the Common Stock. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," expects," "may," "should"
or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g., "Business -
Strategy." No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results covered in
such forward-looking statements. Other factors could also cause actual results
to vary materially from the future results covered in such forward-looking
statements.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data expressed as a
percentage of revenues for the periods indicated:
<TABLE>
Years Ended Nine Months Ended
December 31, September 30,
---------------------------------- --------------------
(unaudited)
1995 1994 1993 1996 1995
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue..................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues............ 56.3 % 50.0 % 22.9 % 59.3 % 47.7 %
Gross margin................ 43.7 % 50.0 % 77.1 % 40.7 % 52.3 %
Research and development
expenses.................. 91.4 % 244.6 % 477.4 % 28.5 % 104.6 %
General and administrative
expenses.................. 109.2 % 350.8 % 449.7 % 46.1 % 153.4 %
Sales and marketing
expenses.................. 61.7 % 138.8 % 214.6 % 45.7 % 75.0 %
Equity in loss of joint
venture................... 13.9 % 37.8 % -- % 32.9 % 23.0 %
Amortization expense........ 14.7 % 34.6 % 106.4 % 9.3 % 20.0 %
Loss from operations........ (247.2)% (756.6)% (1,171.0)% (121.8)% (323.7)%
Other income (expense)...... (3.5)% (224.9)% 8.9 % (2.2)% 2.4 %
Net loss.................... (250.7)% (981.5)% (1,162.1)% (124.0)% (321.3)%
</TABLE>
21
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES. Revenues increased 105.2% to $1,419,892 for the nine months ended
September 30, 1996 ("interim 1996") from $692,016 for the nine months ended
September 30, 1995 ("interim 1995"). This increase reflects the initial payment
and completion of one milestone under a custom product development contract
totaling $600,000 and recognition of revenues on a license from Racom Japan
("RJ") the Company's joint venture with Nittetsu Shoji Co., Ltd. ("NS"), for the
manufacture and sale of FRAM based radio frequency products in Japan of
$513,682. The amount received for the license was $933,968. At the time of
sale, the Company owned a 50% interest in RJ and, accordingly, 50% of this
amount (representing the Company's intercompany profit due to its 50% equity
ownership in RJ on the date of the sublicense) was deferred and is being
recognized over the life of the related technology license asset owned by RJ,
which is five years, commencing on the date of sale, of which $46,698 had been
recognized as of September 30, 1996. (See "Certain Transactions").
COST OF REVENUES AND GROSS MARGIN. As a percentage of revenues, gross margin
decreased to 40.7% in interim 1996 from 52.3% in interim 1995. The gross margin
is primarily a result of license revenues which have no associated cost of
revenues. The Company has not generated high profit margins on product sales in
part because of competition the Company encounters with Contacted Cards which
typically are sold at a lower price than the Company's Smart Cards. The Company
expects to be able to lower its prices to compete more directly on price with
Contacted Card products as it builds manufacturing volumes for its Smart Cards
and ferroelectric technology becomes available from additional licensed
semiconductor manufacturers. Cost of revenues for interim 1996 also includes
$387,765 of costs associated with a custom product development project.
RESEARCH AND DEVELOPMENT EXPENSES ("R&D"). R&D decreased 44.0% to $405,341 in
interim 1996 from $723,659 in interim 1995. R&D efforts relating to the
Company's Smart Card expanded significantly in 1995 and continued through 1996.
During 1996, the Company began work on a joint development project with Bull
CP8. Engineering personnel resources and development costs totalling $292,857
were directly related to the project and are included in cost of revenues for
interim 1996.
GENERAL AND ADMINISTRATIVE ("G&A"). G&A decreased 38.4% to $654,075 for interim
1996 from $1,061,527 for interim 1995. For interim 1995, the Company incurred
salary, travel and consulting expenses of approximately $465,000 including
$105,848 of consolidated expenses of ISI which was sold in June 1995. In
addition, the Company's legal fees decreased $31,264 between the interim
periods. Finally, the Company eliminated monthly fee payments to directors in
early 1995, resulting in a decrease of expenses of $12,000.
SALES AND MARKETING. Sales and marketing expenses increased 25.1% to $649,438
in interim 1996 from $518,944 in interim 1995. This increase is due to the
hiring of the Vice President of Product Development in June 1996. The Company
also increased its travel spending in
22
<PAGE>
conjunction with sales activities by $27,000 between interim periods.
Additionally, the Company paid $5,000 per month beginning in July 1995 for
consulting fees related to developing its products for use in the airline
industry.
EQUITY IN LOSS OF JOINT VENTURE. The Company currently owns 40% of RJ,
decreased from 50% as of March 29, 1996. RJ was formed in 1993 for the purpose
of marketing, distributing and supporting the Company's Smart Card products to
be sold in Japan. The Company accounts for its investment on the equity method
and has recorded its share of RJ's losses in its financial statements to the
extent of capital invested in RJ by the Company. The equity in the losses of RJ
increased 193.0% in interim 1996 to $466,984 from $159,403 in interim 1995. In
early 1996, the Company and NS invested an additional $466,984 each in RJ.
Subsequently, third parties also invested in RJ reducing the Company's ownership
to 40%. During both interim periods, the Company's portion of the net losses in
RJ exceeded the carrying value of the investment. During interim 1996, the
Company recognized $141,953 of previously unrecognized losses from the prior
year in excess of its investment through December 31, 1995. As of September 30,
1996, the Company's unrecognized share of RJ losses in excess of its investment
was $48,314. RJ's losses were primarily related to ongoing research and
development activities as well as longer sales cycles and trial tests demanded
by Japanese customers.
AMORTIZATION EXPENSE. The Company's primary asset is a technology license
("Technology License") related to the design and manufacture of its Smart Card
products. The Company originally purchased the technology from Ramtron pursuant
to a technology license agreement (See "Certain Transactions.") for $2,000,000
in cash and 2,000,000 shares of the Company's Common Stock. The technology
license was recorded at the original cash acquisition cost of $2,000,000. In
interim 1995, the Company acquired certain additional rights with respect to the
technology. The net cost of obtaining the additional rights was $400,000 and
was capitalized in 1995. The asset is amortized over its estimated useful life
on a straight line basis.
OTHER INCOME (EXPENSE). During interim 1996, the Company incurred $42,154 in
interest expense on various notes payable to Intag International Limited
("Intag") and Ramtron. The notes are due on demand and bear annual interest of
10% and prime plus 2%, respectively. Other income and expense in interim 1995
primarily included $130,438 in interest expense related to the notes payable to
Intag, a $170,647 gain on the sale of Intag Systems, Inc., a wholly-owned
subsidiary ("ISI") to Intag and $25,000 in taxes withheld by Australia related
to the foreign licensing revenues earned by the Company.
NET LOSS. The Company is a C Corporation under the Internal Revenue Code and
for income tax reporting purposes as of December 31, 1995 has approximately
$8,400,000 of net operating loss carryforwards that expire at various dates
through the year 2010. The Tax Reform Act of 1986 contains provisions which may
limit the net operating loss carryforwards available to the Company in any given
year if certain events occur, including significant changes in ownership
interests.
23
<PAGE>
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
The results of operations for the year ended December 31, 1994 consolidate
ISI which was formed in October, 1994, had limited operations and generated no
significant revenues from its inception until its sale to Intag in June, 1995.
REVENUES. Revenues increased 223.7% to $1,147,915 for the year ended December
31, 1995 ("1995") from $354,586 for the year ended December 31, 1994 ("1994").
This increase reflects the completion of a development contract of $90,000,
initial payments of $500,000 on the sale of a license to Rohm for the
manufacture and sale of FRAM based radio frequency products in Japan only and
increased sales of the Company's Smart Card products.
COST OF REVENUES AND GROSS MARGIN. As a percentage of revenues, gross margin
decreased to 43.7% in 1995 from 50.0% in 1994. During 1995, the gross margin is
primarily a result of the license revenues which have no associated cost of
revenues. The Company has not generated high profit margins on product sales.
Additionally, the Company incurred increased manufacturing overhead as it hired
the Director of Manufacturing and Quality during 1995.
RESEARCH AND DEVELOPMENT EXPENSES ("R&D"). R&D increased 21.0% to $1,049,162 in
1995 from $867,237 in 1994. R&D efforts relating to the Company's Smart Card
products significantly expanded in 1995, and efforts relating to the Company's
newer Smart Card products began in 1995. Additionally, the Company incurred
$182,000 in development costs related to a joint development project with a
related party. See "Certain Transactions."
GENERAL AND ADMINISTRATIVE ("G&A"). G&A was consistent between 1995 and 1994,
with expenses of $1,253,252 and $1,244,016 in each year, respectively. Salaries
and wages increased as a result of the hiring of a Chief Financial Officer in
April 1994, and an Accounting Manager in July 1994. Consulting and professional
fees decreased between 1995 and 1994 upon the resignation of the Company's
former Chairman.
SALES AND MARKETING. Sales and marketing expenses increased 44.0% to $708,566
in 1995 from $492,053 in 1994. The increase was attributable to the hiring of a
Vice President of Sales and Marketing and a Marketing/Communications manager in
late 1994. The department expanded its marketing efforts through trade shows,
magazine articles and the Internet.
EQUITY IN LOSS OF JOINT VENTURE. The Company's equity in the losses of RJ were
consistent between 1995 and 1994 with equity in losses of RJ of $159,403 and
$133,862, respectively. As of December 31, 1995, the Company's unrecognized
share of RJ's losses in excess of its investment was $141,953. RJ's losses
increased 125.1% as a result of operations including expanded research and
development as well as sales and marketing activities. RJ began operations in
1994.
AMORTIZATION EXPENSE. As discussed above, the Company's cash acquisition cost
of the Technology License is amortized over its estimated useful life on a
straight line basis.
24
<PAGE>
OTHER INCOME (EXPENSE). In 1995, other income and expense included $143,645 in
interest expense related to the notes payable to Intag, $170,647 gain on the
sale of ISI to Intag and $70,000 in taxes withheld by Australia and Japan
related to the foreign licensing revenues earned by the Company. Other income
and expense in 1994 included $108,864 in interest expense on notes payable to
Intag. 1994 also included a bad debt write off of $753,317 from a note
receivable from a related party. In February 1995, Concord Services, Inc.
("CSI"), a corporation owned by a significant stockholder of Ramtron, filed for
protection under Chapter 11 of the United States Bankruptcy Code. Prior to the
bankruptcy filing, the Company had numerous transactions with CSI, including
advances to and repayments from CSI under the terms of various secured note
agreements. Under United States bankruptcy laws, certain repayments received by
the Company may have been deemed to be preferential transfers. If such
repayments had been deemed to be preferential transfers and subject to any
defenses or counterclaims of the Company, the Company could have been required
to repay certain material amounts. During 1996, the Company returned the
security granted under the notes in consideration for the bankruptcy court
releasing the Company from any potential claims for preferential transfer.
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993
The results of operations for the year ended December 31, 1994 consolidate
the wholly owned subsidiary, ISI. The subsidiary was formed on October 17,
1994. The subsidiary had limited operations and generated no significant
revenues from its inception until its sale to Intag on June 30, 1995.
REVENUES. Revenues increased 207.2% to $354,586 for the year ended December 31,
1994 ("1994") from $115,412 for the year ended December 31, 1993 ("1993"). This
increase reflects the initial payment on a development contract of $45,000 and
the introduction to the market of the Company's second generation Smart Card
products.
COST OF REVENUES AND GROSS MARGIN. As a percentage of revenues, gross margin
decreased to 50.0% in 1994 from 77.1% in 1993. The decrease is primarily due to
the increased production costs of newer Smart Card products. Additionally, the
Company expanded its manufacturing capabilities during 1994 by adding two
manufacturing technicians and increasing the lab facilities. License revenues
and custom product development projects were not material during 1994 and 1993.
RESEARCH AND DEVELOPMENT EXPENSES ("R&D"). R&D increased 57.4% to $867,237 in
1994 from $550,988 in 1993. R&D efforts relating to the Company's Smart Card
products began in 1994, and included the hiring of several engineers. The
Company also incurred $256,298 for consulting and professional fees.
GENERAL AND ADMINISTRATIVE ("G&A"). G&A increased 139.7% to $1,244,016 in 1994
from $519,024 in 1993. During 1994 the Company incurred approximately $640,000
in consulting,
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<PAGE>
management and professional fees and hired a Chief Financial Officer and an
Accounting Manager.
SALES AND MARKETING. Sales and marketing expenses increased 98.7% to $492,053
in 1994 from $247,654 in 1993. The increase was partially attributable to the
hiring of a Director of Sales in late 1993. The Company also hired a
Marketing/Communications manager and two sales managers and expanded its sales
and marketing efforts through trade shows, magazine articles, and the product
data sheets. Travel expenses increased as a result of increased product
inquiries.
EQUITY IN LOSS OF JOINT VENTURE. The Company made its initial investment in RJ
in 1993. The operations of RJ were not material until 1994, when the Company
recognized its equity in the losses of RJ of $133,862.
AMORTIZATION EXPENSE. As discussed above, the Company's cash acquisition cost
of the technology license is amortized over its estimated useful life on a
straight line basis.
OTHER INCOME (EXPENSE). Other income and expense in 1994 primarily included the
bad debt write off of $753,317 described above and $108,864 in interest expense
on notes payable to Intag. In 1993, the other income and expense included
$8,768 in interest expense related to the notes payable to Intag, and $19,117 in
interest income on notes receivable and other income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital has been to finance expansion of
research and development of new Smart Card products, sales and marketing of its
products and operations. Annual product revenues growth has been limited due to
limited financial resources and an inability to expand receivables, build
inventory and effectively sell and market Smart Card products. The following
table sets forth for the periods presented certain items from the Statement of
Cash Flows of the Company.
<TABLE>
Nine months ended
September 30 Years ended December 31,
------------------------- ------------------------------------------
(unaudited)
-------------------------
1996 1995 1995 1994 1993
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash used in
Operating Activities $(338,130) $(1,758,271) $(2,089,990) $(2,410,354) $(1,161,243)
Net Cash used in
Investing Activities (491,011) (21,765) (25,410) (1,779,133) (130,197)
Net Cash provided by
Financing Activities 344,358 1,799,262 2,399,160 4,358,089 1,222,531
</TABLE>
26
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
OPERATING ACTIVITIES. Net cash used in operations decreased to $338,130 in
interim 1996 from $1,758,271 in interim 1995. This is a result of the improved
operating results (see "Results of Operations") in addition to the funding of
approximately $249,844 of the Company's FRAM chip purchases by Ramtron.
INVESTING ACTIVITIES. Net cash used in investing activities increased to
$491,011 in interim 1996 from $21,765 in interim 1995. During interim 1996, the
Company invested an additional $466,984 in RJ and $24,624 in fixed assets. In
interim 1995, the Company increased its investment in the Ramtron technology
license by $400,000, purchased $59,795 in fixed assets, and received $237,116
from a related party on repayments of notes receivable. The Company also
received $200,000 from Intag for a technology sublicense.
FINANCING ACTIVITIES. Net cash provided by financing activities decreased to
$344,358 in interim 1996 from $1,799,262 in interim 1995. During interim 1996,
the Company borrowed $90,000 and $255,000 from Ramtron and Intag, respectively.
During interim 1995, the Company sold 300,000 shares of its Common Stock at
$3.00 per share. Also, the Company borrowed $900,000 (net of repayments) from
Intag on short term convertible notes bearing interest at 10% during interim
1995.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
OPERATING ACTIVITIES. Net cash used in operations decreased to $2,089,990 for
the year ended December 31, 1995 ("1995") from $2,410,354 for the year ended
December 31, 1994 ("1994"). The decrease is consistent with the improved
operating results (see "Results of Operations"). Similar to interim 1996,
Ramtron funded the Company's FRAM chip purchases during 1995, increasing related
party payables by $193,253.
INVESTING ACTIVITIES. Net cash used in investing activities decreased to
$25,410 in 1995 from $1,779,133 in 1994. In 1995, the Company increased its
investment in the Ramtron technology license $400,000, purchased $63,440 in
fixed assets, received $200,000 from Intag on sublicense revenues and received
$237,116 on repayments of notes receivable. In 1994, the Company increased its
investment in RJ by $153,000, purchased fixed assets related to its facilities
expansion of $236,225, made a deposit of $400,000 with Intag on a technology
license and loaned $990,433 (net of repayments) to a related party.
FINANCING ACTIVITIES. Net cash provided by financing activities decreased to
$2,399,160 in 1995 from $4,358,089 in 1994. During 1995, the Company sold
500,000 shares of its Common Stock at $3.00 per share. Also, the Company
borrowed $900,000 (net of repayments) from Intag on short term convertible notes
bearing interest at 10%. During 1994, the Company completed a private placement
of 970,000 shares of its Common Stock at $2.50 per share, for net proceeds
27
<PAGE>
of $2,154,118, borrowed $1,203,971 (net of repayments) from Intag and received
$1,000,000 on a deposit for a technology license from Intag.
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993
OPERATING ACTIVITIES. Net cash used in operations increased to $2,410,354 for
the year ended December 31, 1994 ("1994") from $1,161,243 for the year ended
December 31, 1993 ("1993") The increase is consistent with increased operations
in terms of labor costs, consulting and professional fees, production and
marketing of the Company's Smart Card products.
INVESTING ACTIVITIES. Net cash used in investing activities increased to
$1,779,133 in 1994 from $130,197 in 1993. In 1994, the Company increased its
investment in RJ in Japan by $153,000, purchased fixed assets related to its
facilities expansion of $236,225, made a deposit of $400,000 with Intag on a
technology license and loaned $990,433 (net of repayments) to a related party.
In 1993 the Company made its initial investment in RJ in Japan of $140,265,
purchased fixed assets totaling $43,959 and received $54,027 on loans made to a
related party.
FINANCING ACTIVITIES. Net cash provided by financing activities increased to
$4,358,089 in 1994 from $1,222,531 in 1993. During 1994, the Company
successfully completed a private placement of 970,000 shares of its Common Stock
at $2.50 per share, for net proceeds of $2,154,118, borrowed $1,203,971 (net of
repayments) from Intag and received $1,000,000 on a deposit for a technology
license from Intag. In 1993, the Company borrowed $497,531 from Intag and
received $725,000 on the sales of its Common Stock.
The Company currently has minimal capital expenditure requirements.
Management plans to continue to outsource substantially all of its manufacturing
operations for the foreseeable future. Management believes that the Company's
cash reserves and the net proceeds of the Offering are sufficient to fund its
cash requirements for the next 12 months. If such funds are not sufficient to
satisfy the Company's needs, the Company may seek to sell additional equity or
debt securities or obtain new credit facilities. The sales of additional equity
securities will result in additional dilution to the Company's stockholders.
In December 1996, the Company completed the borrowing of an aggregate of
$1,040,000 from a group of lenders (the "Bridge Loan") evidenced by promissory
notes bearing interest at 2% over the prime interest rate and due the earlier of
December 1997 or the closing date of the Offering. As additional consideration
for the Bridge Loans, the Company issued one Bridge Warrant for each $4.00
loaned to the Company or a total of 260,000 Bridge Warrants. Each Bridge
Warrant entitles the holder to purchase one share of Common Stock at $_____ per
share for a period of two years from the date hereof. The Bridge Warrants and
the Common Stock underlying the Bridge Warrants are being registered by this
Prospectus.
In October 1996, the Company consented to allow RJ to enter into a custom
product development contract with Fujitsu of Japan, pursuant to the technology
license granted to RJ in March 1996 under which the Company is entitled to 50%
of all sublicense revenues earned by
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<PAGE>
RJ. The sublicense is for a specified amount, as defined in the contract, a
portion of which is to be paid to RJ upon execution of the agreement and the
remainder to be paid upon RJ meeting certain performance criteria.
Additionally, certain discounts will be granted to RJ for purchases of
specified products related to the sublicense. Under the agreement, RJ will
be entitled to royalties as defined in the contract, over the next five years.
29
<PAGE>
BUSINESS
CURRENT OPERATIONS
The Company is a leading developer and marketer of contactless smart card
systems ("Smart Card(s)" or "Smart Card System(s)") used primarily in electronic
commerce. Generally the size of a credit card, Smart Cards are used in a number
of consumer applications including (i) access to restricted areas (replacing
keys and identification cards), (ii) public transportation fare collection
(replacing bus tokens, taxi cab charge cards, airline or railway tickets),
(iii) point of sale purchases (replacing cash or credit cards at cafeterias,
news stands and related point of sale locations where speed of purchase is
important), and (iv) miscellaneous small monetary transactions (replacing coins
and cash at parking lots, in vending machines and public telephones and the
like). Smart Card technology is also used in industrial applications such as
attaching a "tag" containing the Smart Card technology to a manufactured product
in order to track the product from the assembly line through quality control,
warehousing, inventory control, distribution and warranty.
The Company's Smart Cards are "contactless" and therefore do not require
the use of a magnetic stripe or insertion in a terminal as is required by
contacted cards ("Contacted Card(s)"). Instead, the Company's Smart Card System
involves direct wireless radio frequency communication between a ferroelectric
random access memory ("FRAM") chip in the Smart Card and a terminal. The
Company's FRAM chip does not require battery power and allows for processing the
Smart Card transaction in a fraction of a second by waving the Smart Card near
the terminal. Moreover, the Smart Card does not require insertion in the
terminal or the use of a keypad and therefore may be used by all members of the
population, regardless of age or physical health and in both indoor and outdoor
locations.
For consumers and goods and services providers, the Company's Smart Cards
offer the convenience and accuracy of high speed transaction processing without
the requirement of carrying cash, checks or credit cards, thereby reducing the
threat of theft, inventory shrinkage, and payment fraud resulting from the
handling of cash or the counterfeiting of cash or credit cards.
30
<PAGE>
The Company sells its Smart Card Systems through its own direct sales
force, through a combination of joint ventures and strategic alliances and
through selective licensing and distributorship arrangements and agreements with
independent sales representatives in foreign countries. Since 1993, the Company
has designed Smart Card Systems for over 100 customers in cities throughout the
world including Singapore, Macau, Hong Kong, Tokyo, Manchester, Paris, Milan,
Los Angeles, Chicago and Denver. Examples of the Company's Smart Card projects
(the first three of which are discussed below as representative of the Company's
projects) include the following:
<TABLE>
USER (LOCATION) DESCRIPTION OF INSTALLATION
--------------- ---------------------------
<S> <C>
Chep Lap Kok International Airport-
(Hong Kong) access control, point of sale and payroll
City of Lompoc and Ventura County, California-
(United States) automatic fare collection
Lubbock International Airport-(United States) parking facility fee collection
Chicago Transit Authority-(United States) automatic fare collection
Yamatake Honeywell Limited-(Japan) factory automation
City of Winston-Salem Transit Authority-
(United States) automatic fare collection
LWD, Inc.-(United States) hazardous waste tracking
Microlise Engineering Limited-(United Kingdom) access control
Boreal Ridge Corp.-(United States) maintenance tracking
Nittetsu Shoji Co., Ltd.-(Japan) point of sale/cafeteria and access control
ST Electronic & Engineering Limited-(Singapore) access control
UVM s.r.l. Ufficio Vendita Macchine-(Italy) point of sale
Transmac Transportes Urbanos DeMacau,
S.A.R.L.-(Macau) automatic fare collection
</TABLE>
The Company implemented a Smart Card System at the Chep Lap Kok
International Airport under construction in Hong Kong which accepts Smart Cards
as a form of access by employees onto the airport site and is the only form of
payment accepted at airport cafeterias, in vending machines, and at other
employee facilities. The Smart Cards may be used to charge expenses to the
employee's employer and offer an additional purse for the employee's own
purchases.
A Smart Card System installed by the Company in the City of Lompoc and in
Ventura County, California collects bus fares using a Smart Card. Passengers
purchase Smart Cards loaded with bus fares and wave the Smart Card near a
terminal as they board the bus. The Company has been advised that bus dwell
time has been reduced and passenger boarding has become more efficient.
A parking facility payment system developed by the Company at Lubbock
International Airport uses Smart Cards for access into parking areas and for fee
collection. The Smart Card
31
<PAGE>
System allows parkers to enter the facility by presenting the Smart Card at
the gate. When leaving, the customer again presents the Smart Card, which is
debited for the parking fees. The Company has been advised that the Smart
Card System has lowered overhead costs and decreased waiting times at the
parking gates.
In April 1996, the Company began customer testing a new Smart Card,
designed to be used for both contacted and contactless applications. The
Company believes the new Smart Card will be of interest to Smart Card System
providers who wish to install contactless systems without substantially
modifying their Contacted Card applications software or eliminating expensive
Contacted Card terminals and related hardware.
SMART CARD INDUSTRY OVERVIEW
Smart card products including the Company's Smart Card (collectively
referred to as "generic smart cards"), are credit card size pieces of plastic
containing an integrated circuit chip ("chip") which can process and store
information. Today's generic smart cards typically have the processing power of
an early 1980's vintage personal computer, minus a keyboard and display.
Because generic smart cards are really portable computers, they can be
programmed to perform virtually any function which can be implemented by
software. Generic smart cards benefit directly from ongoing advances in
semiconductor technology making available continuously increasing performance
and features at declining cost.
There are two basic types of generic smart cards, memory cards and
microprocessor cards, each of which can interface between the generic smart card
and a terminal on a contacted or contactless basis. Memory cards are typically
used to store and retrieve information only and do not have the capability of
performing complex processing of information. Microprocessor cards are true
"smart" cards in that they contain a central processing unit within a chip which
can perform a number of functions, including complex arithmetic operations
required for security. In excess of 90% of all generic smart cards sold in 1995
were memory cards with contacted interfaces requiring alignment and insertion of
the generic smart card into a terminal to complete an electrical circuit with
the metal contacts on the surface of the card. While contacted generic smart
cards have found broad use in high volume, cost sensitive applications such as
pay phones, systems using contacted generic smart cards are expensive to
maintain, less reliable and are too slow for applications such as
transportation. To address the perceived shortcomings of the contacted generic
smart card, a contactless generic smart card was first developed and introduced
in the early 1990's.
According to the U.S. Federal Reserve, 68% of the approximately 360 billion
financial transactions completed in 1995 were for transactions of less than
$2.00 each. Electronic commerce using electronic funds transfer, magnetic
stripe cards and generic smart cards accounted for less than ten percent of all
such transactions with an annual growth rate of seventeen percent versus one
percent growth for transactions using cash, coin and checks. The Company
believes that the evolution of personal computers, the Internet and generic
smart cards represent technologies which will contribute to the growth of
electronic commerce in the future.
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<PAGE>
By the year 2000, over four billion generic smart cards are expected to be
in circulation worldwide, up from approximately 500 million in 1996. In the
United States an estimated 25 percent of households are expected to be using
generic smart cards to access information from computers or television sets, to
communicate by cell phones, to access healthcare and to make electronic
payments. Generic smart card based phone cards are now being used in over 60
countries accounting for the issuance of over 200 million such cards per year.
According to the SMART CARD GROWTH FORECAST, by the year 2000, generic
smart cards used in transportation are expected to increase from 2 million to
150 million and identity/access generic smart cards are expected to increase
from 3 million to 300 million.
STRATEGY
The Company's business strategy is to:
CONTINUE TO DEVELOP NEW SMART CARD SYSTEMS. The Company believes it was the
first to introduce contactless Smart Cards using FRAM technology and batteryless
powered radio frequency communication. The Company intends to continue to
design and develop Smart Card Systems in order to maintain what it believes to
be its leadership in Smart Card technology. The Company's research and
development efforts will focus on developing new Smart Card products for
automating financial transactions and further enhancing Smart Card performance,
reliability and cost effectiveness.
EXPAND THE COMPANY'S SMART CARD SYSTEMS APPLICATIONS. The Company will seek to
expand the applications for its existing Smart Card products and to develop new
Smart Card products. Emphasis will be placed on developing Smart Card products
outside the fare collection and access control industries, including new point
of sale Smart Card products as well as expanded industrial applications.
GROW REVENUES THROUGH STRATEGIC ALLIANCES, JOINT VENTURES AND SELECTIVE
LICENSING. The Company will continue to pursue strategic alliances, joint
ventures and licensing agreements with firms such as Nippon Steel Information
and Communication Systems, Inc., Perot Systems Corporation, General Signal, Inc.
and Rohm Co., Ltd. in order to gain access to new markets. The Company will
also continue to license its technology in order to generate revenue from
operations, develop royalty income and gain access to the manufacturing
facilities and complimentary technologies of its licensees.
EMPHASIZE MARKETING OF THE COMPANY'S SMART CARD PRODUCTS IN NORTH AMERICA.
Although the Smart Card market, as well as the Company's own marketing efforts,
has generally been focused on Europe and Asia, the Company will seek to
participate in new Smart Card projects being developed in such North American
cities as Los Angeles, San Francisco and Seattle. In order to enhance the
Company's efforts in the North American market, the Company recently reorganized
its North American sales activities along industry market segments including
33
<PAGE>
(i) transportation, (ii) automation and control in industrial applications, and
(iii) point of sale for entertainment and leisure.
CONTINUE TO OUTSOURCE MANUFACTURING TO CONTROL FIXED COSTS. Since inception,
the Company has subcontracted substantially all of its manufacturing operations.
The Company will continue to contract with third parties to manufacture the
Company's Smart Card products in order to avoid capital intensive investments
and to focus the Company's limited resources on new product applications and
software development.
COMPETITION
The market for Smart Card products is new, intensely competitive, quickly
evolving and subject to rapid technological change. Competitors may develop
superior products or products of similar quality for sale at lower prices.
Moreover, there can be no assurance that the Company's Smart Card will not be
rendered obsolete by changing technology or new industry standards. The Company
expects competition to persist and increase in the future. The Company's
current and potential competitors are primarily subsidiaries of multinational
companies with established Contacted Card and contactless Smart Card businesses
who have longer operating histories, greater name recognition, larger customer
bases and significantly greater financial, technical and marketing resources
than the Company. This intense level of competition could materially adversely
affect the Company's future business, operating results and financial condition.
Competitive factors in the industry include transaction speed, the extent
and flexibility of Smart Card memory, reliability, transaction accuracy and
cost, all of which are discussed below. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and financial
condition. Many of the Company's competitors have the financial resources
necessary to enable them to withstand substantial price and product competition,
which are expected to increase, and to implement extensive advertising and
promotional programs, both generally and in response to efforts by other
competitors to enter into existing markets or introduce new products. The
industry is also characterized by frequent introductions of new products. The
Company's ability to compete successfully will be largely dependent on its
ability to anticipate and respond to various competitive factors affecting the
Smart Card industry, including new products which may be introduced, changes in
customer preferences, demographic trends, pricing strategies by competitors and
consolidation in the industry where smaller companies with leading edge
technologies may be acquired by larger multinational companies.
Contacted Cards represent the Company's primary competition in electronic
commerce applications. Contacted Card competitors include such multinational
firms as Gemplus, Schlumberger and Group Bull. The Company believes that it is
able to compete favorably against Contacted Cards because the Company's
contactless Smart Cards (i) operate at higher speeds, (ii) do not require the
time and effort involved in inserting the Smart Card in a terminal
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<PAGE>
or removing the Smart Card from a wallet or purse, (iii) use reliable solid
state electronics with no moving parts, exposed contact points or magnetic
stripes which can be erased by a magnetic field, and (iv) are lower in cost
over the product life.
The Company also competes against contactless Smart Cards designed by
Philips GmbH, Sony Corporation, Gemplus and Micron Communications, Inc., which
use contactless technologies other than the Company's FRAM technology. The
Company believes that its Smart Cards compete favorably against these other
contactless technologies because the Company's contactless Smart Cards operate
at higher speeds and do not require batteries for power.
The Company's Smart Cards are priced at parity with competitors'
contactless Smart Card products but sell at a premium to Contacted Cards. The
Company expects, but cannot assure, that its Smart Card manufacturing costs will
diminish as anticipated volumes increase and as other semiconductor
manufacturers begin to offer FRAM chips for use in the Company's Smart Cards.
Recently, Matsushita Electronics Corporation ("Matsushita"), a
multinational semiconductor manufacturer, announced it intends to market a
ferroelectric chip-based Smart Card which will also communicate by radio
frequency. The Company believes that Matsushita's initial Smart Cards will
offer smaller memories than those of the Company, but there can be no assurance
that the introduction of these competitive Smart Cards (anticipated in Spring
1997) will not materially adversely affect the Company's operations.
MARKETING
The Company sells its Smart Card Systems through its own direct sales
force, through a combination of joint ventures and strategic alliances and
through selective licensing and distributorship arrangements and agreements with
independent sales representatives in foreign countries.
In North America, the Company's direct sales force is organized by market
segment with primary emphasis on the transportation industry and to a lesser
extent industrial applications, health care and entertainment and leisure. At
September 30, 1996, the Company's direct sales force included nine full-time
employees.
Examples of the Company's joint ventures and strategic alliances include
(i) the Company's arrangement with Perot Systems Corporation and the GFI-GENFARE
unit of General Signal, Inc. to develop automatic fare collection systems and
services for public transportation projects in North America which combine the
subsystems of each company, and (ii) a joint product development agreement with
Rohm Co., Ltd. ("Rohm") to design custom FRAM based Smart Card products solely
in Japan.
In Japan, the Company has formed Racom Japan, Inc. ("RJ"), a joint venture
based in Tokyo, with Nittetsu Shoji Co., Ltd. ("NS"), a subsidiary of Nippon
Steel Information and
35
<PAGE>
Communication Systems, Inc., to market and sell the Company's Smart Card
Systems in Japan. RJ is 40% owned by the Company and acts as the exclusive
distributor in Japan of certain of the Company's Smart Card products.
In France, the Company has entered into a non-exclusive distribution
agreement with Bull CP8, a division of Group Bull. Bull CP8 distributes the
Company's Smart Card products worldwide, with emphasis on the European market.
In Canada, Mexico, Germany, Italy, the Netherlands, the United Kingdom
and South America, the Company uses commissioned independent sales
representatives.
The Company also markets its Smart Card Systems through participation in
trade shows, publication of trade articles, participation in industry forums
and technological standard-setting organizations, and through distribution of
sales literature. The Company also encourages customer referrals and has
used certain customer Smart Card installations as demonstration sites for its
Smart Card products.
The selling process for the Company's Smart Card Systems often involves a
team comprised of individuals from the Company's sales, marketing,
engineering and operations departments as well as senior management. Teams
frequently engage in combined sales efforts directed toward a variety of
customers such as systems integrators, financial services providers and end
users. The selling period often exceeds a year because some customers
require Smart Card Systems to be tested against various performance standards
and competitive products. The Company is also frequently required to
complete field trials of its Smart Card Systems as a pre-condition to
purchase.
MANUFACTURING AND ASSEMBLY
The Company's manufacturing and assembly operations consist primarily of
final assembly, test, burn-in and quality control of Smart Card terminals as
well as programming, testing and quality control of the Smart Cards
themselves (and tags in the case of industrial applications). The Company
subcontracts assembly of Smart Cards, terminals and card lamination to
multiple United States, Japanese, and Asian based companies who specialize in
this kind of contract work. Should production volumes increase, the Company
intends to consolidate its outside contract manufacturing in order to gain
greater economies of scale and to better control product quality. The
Company's current capacity through its contract manufacturers is
approximately 25,000 Smart Cards/tags and 200 terminals per month. The
Company also operates its own prototype Smart Card manufacturing facility to
support new product introductions and lower volume customer requirements.
The Company purchases a wide variety of electrical and mechanical
components as well as sub-assemblies for integration into the Company's Smart
Card Systems. With two notable exceptions, most materials are available from
several supply sources. The FRAM chips used in the Company's Smart Cards and
tags are currently supplied by two sources, Ramtron located
36
<PAGE>
in Colorado Springs, Colorado, and Rohm located in Kyoto, Japan. Ramtron and
Rohm own 41.6% and 4.3% respectively of the Company's Common Stock. By 1998,
the Company expects that two additional semiconductor manufacturers will be
available to supply the Company's FRAM chips. The Company is dependent on
maintaining at least one reliable source of supply for its FRAM chips and its
business would be materially adversely affected if no such source was
available. Currently, all of the Company's terminals include a component
manufactured by only one United States company. If necessary, the Company
could redesign its terminals to use a similar component available from other
semiconductor manufacturers, although such a redesign would be time-consuming
and expensive and would adversely affect the Company's operations. The
Company has no written agreements with any manufacturer or supplier.
PATENTS AND TRADE SECRETS
The Company relies on its own patents, trade secrets and copyrights as
well as the patents, trade secrets and copyrights of its licensors to protect
its Smart Card technology. Due to rapid changes in the generic smart card
industry, the Company believes that development of trade secrets and
unpatented proprietary knowledge in connection with new products and
technologies are generally as important as patent and copyright protection in
establishing and maintaining a competitive advantage. Nevertheless, the
Company has obtained patents and copyrights on certain of its Smart Card
technologies and will continue to aggressively pursue patents and copyrights
when available. To date the Company has been awarded six United States
patents and is pursuing additional patents, both in the U.S. and in certain
foreign countries.
There can be no assurance that any of the Company's future patent
applications will be granted, that any current or future patent or patent
application will provide significant protection for the Company's products or
technology, be of commercial benefit to the Company, or that the validity of
such patents or patent applications will not be challenged. Moreover, there
can be no assurance that foreign patent, trade secret or copyright laws will
protect the Company's technologies or that the Company will not be vulnerable
to competitors who attempt to copy or use the Company's Smart Card products
or processes.
The Company has a license with certain exclusive rights, including the
right to grant a limited number of sublicenses, to use Ramtron's FRAM chip
technology, patents and improvements specifically for the development,
manufacture and sale of radio frequency identification devices, including the
Company's contactless Smart Cards. The exclusive provisions of the Company's
license with Ramtron become non-exclusive on January 1, 2006.
REGULATION
The Company's Smart Card products use radio frequency communications and
other technologies which make them subject to regulation by the Federal
Communications Commission ("FCC") in the United States and to export
licensing by the United States Government when sold
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<PAGE>
internationally. Smart Card products are subject to similar regulation by
some foreign governments for use within their countries. All of the
Company's products currently comply with FCC regulations, similar regulations
of the foreign countries in which the Company sells its products and United
States export license requirements. Future compliance with FCC regulations,
similar regulations in foreign countries and United States export license
requirements may be costly and time-consuming. Moreover, a failure to comply
with such regulations and requirements could result in the Company being
denied the right to sell its Smart Card products in the jurisdiction of
non-compliance.
Market needs and competitive pressures will require that the Company's
products contain certain regulated cryptographic algorithms in order to
protect information and cash substitutes stored in the Smart Cards. Export,
import and usage of such cryptographic algorithms is covered by a large and
rapidly changing body of regulations in the United States.
Contactless Smart Cards and terminal devices produced by the Company emit
radio frequency energy in order to function. Such emissions are governed by
federal and other regulations in most countries including the United States.
The Company's products currently comply with United States regulations.
While similar regulations exist in most countries where sales of the
Company's products are anticipated, regulations can vary significantly from
country to country and can change frequently. Approvals can only be obtained
after product development is complete and therefore variations with United
States regulations or significant changes in each country's regulations could
hinder product sales to that country and thereby adversely affect the
Company's business and operating results.
Federal, state and local regulations impose various environmental
controls on the discharge of chemicals and gases which may be used in the
Company's present or future assembly processes. Moreover, changes in such
environmental rules and regulations may require the Company to invest in
capital equipment and implement compliance programs in the future. Any
failure by the Company to comply with environmental rules and regulations,
including the discharge of hazardous substances, could subject it to serious
liabilities and could materially adversely affect its operations.
PROPERTIES
The Company's headquarters are located in an 8,900 square foot leased
facility in Greenwood Village, Colorado, a suburb of Denver, Colorado. The
current lease requires a base monthly rental of $8,419 and expires in
November 1998. The Company believes its existing facility is adequate for
its current needs and that suitable additional or substitute space will be
available as needed on commercially reasonable terms.
EMPLOYEES
The Company employs an aggregate of 26 employees including its five
salaried executive officers and believes its relations with its employees are
satisfactory.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows.
OFFICER/DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- ----------------
Charles A. Fear(1) 43 Chairman of the Board of Directors 1995
Richard L. Horton 51 Chief Executive Officer, President, 1992
Chief Financial Officer and Director
Mark R. Davison 51 Director 1995
L. David Sikes 56 Director 1995
George J. Stathakis(1) 65 Director 1995
Charles R. Broshous 56 Vice President of Transportation 1996
Michael M. Malmer 56 Vice President of Engineering 1992
William H. Jacobs 40 Vice President of Business Development 1996
Douglas J. Sheldon 37 Vice President of Operations 1996
__________
(1) Members of the Compensation Committee
Directors are elected at the Company's annual meeting of shareholders and
serve a term of one year or until their successors are elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion
of the Board of Directors, subject to the bylaws of the Company.
The Company's Compensation Committee administers the Company's 1993
Employee Stock Option Plan and makes recommendations to the full Board of
Directors concerning compensation, including incentive arrangements, of the
Company's officers and key employees. The Compensation Committee is
comprised of at least two independent directors.
Upon the closing of the Offering, the Company will establish an Audit
Committee composed of at least two independent directors. The Audit
Committee will review the engagement and independence of the Company's
independent accountants, the audit and non-audit fees of the independent
accountants and the adequacy of the Company's internal accounting controls.
The Company has agreed with the Representative that, for a period of 24
months from the date of closing of the Offering, the Company will allow an
observer designated by the Representative and acceptable to the Company to
attend all meetings of the Board of Directors. The observer will have no
voting rights, will be reimbursed for out-of-pocket expense incurred
39
<PAGE>
in attending meetings and will be indemnified against any claims arising out
of participation at the meetings, including claims based on liabilities
arising under the securities laws.
The principal occupation of each director and executive officer of the
Company, for at least the past five years, is as follows:
CHARLES A. FEAR was appointed Chairman of Intag International Limited
("Intag"), a publicly-held Australian developer and marketer of data capture
technologies in April 1995. Intag was a promoter and founder of the Company,
is currently one of its principal stockholders and also holds an exclusive
license from the Company to use the Company's FRAM technology in connection
with certain airline, postal and courier applications. Since 1992 Mr. Fear
has been an Executive Director of Poynton Corporate Limited, the corporate
advisory arm of Hartley Poynton Limited, a regional Australian stockbroker,
of which he is also a shareholder. He is a director of Intag Systems Pty
Limited and Intag Microelectronics Pty Limited. Mr. Fear is a Fellow of the
Institute of Chartered Accountants and a Fellow of the Australian Institute
of Company Directors. From 1985 to 1992 he was a partner of KPMG Peat
Marwick ("KPMG") where he provided corporate advisory services for KPMG
clients involving business valuations, mergers, acquisitions, corporate
reconstructions and capital raisings.
RICHARD L. HORTON joined the Company as President in June 1992 and has
acted as its Chief Executive Officer since May 1995 and its Chief Financial
Officer since January 1996. From 1988 to June 1992, he was President of
Ramtron International Corporation ("Ramtron"), a publicly-held specialty
semiconductor manufacturer. Ramtron was a promoter and founder of the
Company and is currently a principal stockholder and licensor to the Company
of the FRAM technology upon which the Company's Smart Card products are
based. From 1981 to 1987, Mr. Horton founded two start-up ventures in the
computer systems and semiconductor industries which were subsequently
acquired by other firms. From 1985 to 1987, Mr. Horton also acted as the
Director of the digital products division for Honeywell, Inc. Mr. Horton
served in the United States Navy from 1962 to 1966 and earned B.S.E.E. and
M.B.A. degrees from Southern Methodist University and Pepperdine University,
respectively.
MARK R. DAVISON was a partner with the law firm of Freehill Hollingdale &
Page from 1978 to 1984, a Director of Rothschild Australia Limited from 1984
to 1985 and a founding Director of Gresham Partners Limited from 1985 to
1991. He has been a director of Intag since July 1992. In December 1991 Mr.
Davison founded the AusAsean Group which provides investment banking,
development and venture capital funds management. Mr. Davison is also a
director of BRL Hardy Limited, Tasmanian Univalve Pty Limited and other
Australian public and private companies. Mr. Davison is an investment banker
and has been a solicitor of the Supreme Court of New South Wales. He holds a
degree in Arts (1971) and Law (1973) from the Australian National University,
a Masters of Laws from the University of London (1976) and has completed the
Advanced Management Programme at Harvard School of Business Administration
(1983).
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<PAGE>
L. DAVID SIKES became Chairman of the Board and Chief Executive Officer of
Ramtron in April 1995 and has been a director of Ramtron since September 1992.
Prior to becoming Chairman of the Board and Chief Executive Officer of Ramtron,
he was its President and Chief Operating Officer from July 1992 until
January 1995, at which time he left Ramtron and joined Micro Component
Technology Inc., a semiconductor equipment manufacturer, as Chairman, President
and Chief Executive Officer from January 1995 until April 1995. Mr. Sikes was
President and Chief Executive Officer of ASM America, Inc. ("ASM America"), a
semiconductor equipment company, from January 1991 until June 1992, and
Executive Vice President and General Manager of ASM Epitaxy, a semiconductor
equipment manufacturer, from February 1989 until December 1990. Prior to his
tenure with ASM, Mr. Sikes spent 18 years with Motorola, Inc. ("Motorola"), in
various management and executive positions including Vice President and Director
of the Semiconductor Research and Development Lab. His experience also includes
several management and engineering roles with Eastman Kodak and National
Semiconductor Corporation. Mr. Sikes received his Bachelor of Science degree in
Electrical Engineering from the Massachusetts Institute of Technology.
GEORGE J. STATHAKIS has been a director of Ramtron since March 1990.
Mr. Stathakis also served as Chairman of the Board and Chief Executive Officer
of Ramtron from March 1990 until June 1994 and, in an interim capacity, from
February 1995 until April 1995. Since 1991, he has acted as a consultant to
Calpine Corporation, a publicly-held independent power company. From 1986 until
1989, Mr. Stathakis served as Chairman of the Board and Chief Executive Officer
of International Capital Corporation, a subsidiary of American Express.
Mr. Stathakis retired from General Electric Corporation ("GE") after 32 years in
management and executive positions. In 1971, he was appointed Vice President of
GE and General Manager of the Nuclear Energy Division. His responsibilities
included technology research and development, engineering design, manufacturing,
construction and marketing, as well as strategic business planning and
investments for an organization of approximately 10,000 people. In 1977, he was
appointed General Manager of GE's International Trading Operations, an
organization of approximately 35,000 people. Mr. Stathakis founded the General
Electric Trading Company in 1982 and was appointed its first President and Chief
Executive Officer. The General Electric Trading Company was instrumental in
developing export opportunities for countertrade and barter. Mr. Stathakis
graduated from the University of California at Berkeley with Bachelor of Science
and Master of Science degrees in engineering. In 1985, Mr. Stathakis was
appointed by President Reagan as a member of the President's Export Council, and
he served on such Council until 1987.
CHARLES R. BROSHOUS, the Company's Vice President for Transportation is
responsible for managing the Company's transportation related Smart Card
business, including its automated fare collection (AFC) systems for public
transit. From August 1993 until he joined the Company in January 1996,
Mr. Broshous served as the first President of the MTA Card Company, a fare
collection subsidiary of the New York Metropolitan Transportation Authority
("Authority"). From 1982 to August 1993, Mr. Broshous served the Authority in a
variety of capacities, completing service as its Senior Vice President for
Operations Support. In this capacity, Mr. Broshous managed the logistics
portfolio of the Authority, overseeing among other
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<PAGE>
functions a $2 billion per year fare collection operation which covered
approximately 60% of the Authority's operating expenses. During his tenure,
he converted the Authority from its historic reliance on tokens to a new,
all-electronic AFC system. Mr. Broshous is a West Point graduate and U.S.
Army veteran who holds Masters degrees in civil engineering and in economics
from Princeton University.
MICHAEL L. MALMER is the Company's Vice President of Engineering and is
responsible for the engineering development of the Company's Smart Card
products. Prior to joining the Company in February 1992, he was Engineering
Vice President of Destron/IDI, an early participant in radio frequency
identification technologies from July 1986 to October 1991. In 1980, he was a
founder of Prolink Corporation and acted as its Vice President from 1980 to
1984. Mr. Malmer held engineering positions at Unisys and Boeing from 1961 to
1973. He holds a B.S.E.E. degree from Case Institute of Technology and engaged
in computer engineering masters degree work at the University of Michigan (Ann
Arbor) and other universities.
WILLIAM H. JACOBS is the Company's Vice President of Business Development
and is responsible for the development and marketing of new Smart Card products.
From March 1990 until he joined the Company in June 1996 he was Director of
Product Marketing for Netwise, Inc. Mr. Jacobs marketed the Netwise, Inc. line
of network software integration tools to support personal computers, UNIX
systems and IBM mainframes systems until the line was sold to Microsoft in
November of 1995. Prior to his employment with Netwise, Inc., Mr. Jacobs
managed computer operating system product lines for 11 years as an employee of
Apple Computer, Inc. and Hewlett Packard Co. He holds a B.S.E.E. degree from
the University of Missouri.
DOUGLAS J. SHELDON is the Company's Vice President of Operations. Prior to
joining the Company in August 1995 he had over 14 years experience in the
semiconductor manufacturing industry. From 1994 to 1995, he led the
manufacturing engineering activities of a family of advanced nonvolatile memory
products for Atmel Corporation and from 1988 to 1994 he was the Manager of
Reliability and Quality Assurance for Ramtron. Mr. Sheldon has a Bachelors and
Masters degree in Physics from University of Colorado and University of Oregon,
respectively, and is completing a Doctorate degree in Systems Management.
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<PAGE>
EXECUTIVE COMPENSATION
The following table discloses certain compensation paid to the Company's
executive officers for the years ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
ANNUAL COMPENSATION(1)
(a) (e) (f)
NAME AND PRINCIPAL (b) (c) (d) STOCK OTHER ANNUAL
POSITION YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)
-------- ---- --------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Richard L. Horton, President 1995 158,244 0 0 0
1994 158,244 0 0 0
1993 126,122 0 500,000 0
Michael M. Malmer,
Vice President of Engineering 1995 104,200 0 0 0
1994 102,200 0 0 0
1993 99,275 0 250,000 0
John Shoemaker,
Vice President of Sales and
Marketing 1995 104,958 0 150,000 0
1994 0 0 0 0
1993 0 0 0 0
</TABLE>
__________
(1) The Company has not paid or granted any long-term compensation awards or
payouts.
The Company's independent directors do not receive compensation for
attending Board meetings but are reimbursed for out-of-pocket expenses incurred
in connection therewith.
1993 EMPLOYEE STOCK OPTION PLAN
In May 1993, the Company's stockholders adopted the Company's 1993 Employee
Stock Option Plan (the "Plan") which provides for the grant of stock options
intended to qualify as "incentive stock options" and "nonqualified stock
options" (collectively "stock options") within the meaning of Section 422 of the
United States Internal Revenue Code of 1986 (the "Code"). Stock options are
issuable to any officer, director, key employee or consultant of the Company.
The Plan also allows for the granting of limited stock appreciation rights upon
a change of control as defined in the Plan, although no such rights have been
granted.
The Company has reserved 1,700,000 shares of Common Stock for issuance
under the Plan. The Plan is administered by the Compensation Committee of the
Board of Directors, which, subject to approval by the Board of Directors,
determines which individuals shall receive stock options, the time period during
which the stock options may be exercised, the number of shares of Common Stock
that may be purchased under each stock option and the stock option price.
The per share exercise price of incentive stock options may not be less
than the fair market value of the Common Stock on the date the option is
granted. The aggregate fair market
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<PAGE>
value (determined as of the date the stock option is granted) of the Common
Stock that any person may purchase under an incentive stock option in any
calendar year pursuant to the exercise of incentive stock options may not
exceed $100,000. No person who owns, directly or indirectly, at the time of
the granting of an incentive stock option, more than 10% of the total
combined voting power of all classes of stock of the Company is eligible to
receive incentive stock options under the Plan unless the stock option price
is at least 110% of the fair market value of the Common Stock subject to the
stock option on the date of grant.
No incentive stock options may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the stock option may only be exercisable by the optionee. Stock
options may be exercised only if the stock option holder remains continuously
associated with the Company from the date of grant to the date of exercise. The
exercise date of a stock option granted under the Plan cannot be later than 10
years from the date of grant. Any stock options that expire unexercised or that
terminate upon an optionee's ceasing to be employed by the Company become
available once again for issuance. Shares issued upon exercise of a stock
option will rank equally with other shares then outstanding.
As of the date of this Prospectus, 1,559,000 stock options have been
granted under the Plan, including an aggregate of 1,090,000 stock options
granted to officers and directors of the Company at exercise prices ranging from
$1.00 to $2.50 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
ownership of the Company's Common Stock as of the date of the Prospectus, by (i)
each person who is known by the Company to own of record or beneficially more
than 5% of the Company's Common Stock, (ii) each of the Company's directors and
(iii) all directors and officers of the Company as a group. The stockholders
listed in the table have sole voting and investment powers with respect to the
shares of Common Stock.
PERCENTAGE OF CLASS(1)
----------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
- ---------------- ------------------ -------- --------
Charles A. Fear(2).................... 25,000 .2% .2%
Level 22 Allendale Square
77 St. Georges Terrace
Perth, Western Australia 6000
Richard L. Horton(3).................. 500,000 4.2% 3.7%
6080 Greenwood Plaza Blvd.
Greenwood Village, CO 80111
Mark R. Davison(4).................... 25,000 .2% .2%
9th Floor, Kyle House
27-31 Macquarie Place
Sydney NSW 2000
Australia
L. David Sikes(5)..................... 25,000 .2% .2%
1850 Ramtron Drive
Colorado Springs, CO 80921
George J. Stathakis(5)................ 25,000 .2% .2%
One Bush Street, 15th Floor
San Francisco, CA 94104
Intag International Limited(6)........ 5,828,733 48.2% 42.9%
9th Floor, Kyle House
27-31 Macquarie Place
Sydney NSW 2000
Australia
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<PAGE>
PERCENTAGE OF CLASS(1)
----------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
- ---------------- ------------------ -------- --------
Ramtron International Corporation(7).. 5,051,452 42.9% 38.0%
1850 Ramtron Drive
Colorado Springs, CO 80921
All directors and officers as a group
(9 persons)(2)(3)(4)(5)............. 860,000 6.9% 6.2%
(1) Does not include shares issuable upon exercise of the Warrants, the
Representative's Overallotment Option or the Representative's Unit Warrant.
Includes all stock options and common stock purchase warrants exercisable
within 60 days from the date hereof.
(2) Includes options to purchase 25,000 shares of Common Stock at $2.50 per
share until October 26, 2000, or 90 days after termination, whichever is
earlier, issued under the Company's 1993 Employee Stock Option Plan. Does
not include 5,262,532 shares or 321,766 common stock purchase warrants held
by Intag, a publicly-held Australian company for which Mr. Fear serves as
Chairman.
(3) Comprised of options to purchase 500,000 shares of Common Stock at $1.00
per share until June 30, 1997 issued under the Company's 1993 Employee
Stock Option Plan.
(4) Includes options to purchase 25,000 shares of Common Stock at $2.50 per
share until May 15, 2001, or 90 days after termination, whichever is
earlier, issued under the Company's 1993 Employee Stock Option Plan. Does
not include 5,262,532 shares or 321,766 common stock purchase warrants held
by Intag, a publicly-held Australian company for which Mr. Davison serves
as a director. See "Management - Directors and Executive Officers."
(5) Includes options to purchase 25,000 shares of Common Stock at $2.50 per
share until October 26, 2000, or 90 days after termination, whichever is
earlier, issued under the Company's 1993 Employee Stock Option Plan. Does
not include 4,800,000 shares or 251,452 common stock purchase warrants held
by Ramtron, a publicly-held company for which Mr. Sikes serves as Chairman
and Chief Executive Officer and for which Mr. Stathakis serves as a
director. See "Management - Directors and Executive Officers."
(6) Includes 200,000 common stock purchase warrants exercisable at $2.50 per
share at any time until June 13, 1999 and 121,766 common stock purchase
warrants exercisable at $2.50 per share at any time until October 4, 2001.
(7) Includes 251,452 common stock purchase warrants exercisable at $2.50 per
share at any time until October 4, 2001.
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<PAGE>
SELLING STOCKHOLDERS
In December 1996, the Company completed the borrowing of an aggregate of
$1,040,000 from a group of lenders (the "Bridge Loan") evidenced by promissory
notes bearing interest at 2% over the prime interest rate and due the earlier of
December 1997 or the closing date of the Offering. As additional consideration
for the Bridge Loans, the Company issued one Bridge Warrant for each $4.00
loaned to the Company or a total of 260,000 Bridge Warrants. Each Bridge
Warrant entitles the holder to purchase one share of Common Stock at $_____ per
share for a period of two years from the date hereof.
The Company is registering by this Prospectus all 260,000 Bridge Warrants
and the 260,000 shares of Common Stock issuable upon exercise of the Bridge
Warrants. The Bridge Warrants and underlying shares of Common Stock may be sold
from time to time after the date hereof in public or private open market
transactions directly to purchasers or through brokerage firms at prevailing
market prices less customary commissions. The names and addresses of the
Selling Stockholders who hold the Bridge Warrants and the number of Bridge
Warrants held by them are set forth below. None of the Selling Stockholders are
officers or directors of the Company or own any other securities of the Company
and all Selling Stockholders intend to sell all Bridge Warrants and/or Common
Stock underlying the Bridge Warrants following completion of the Offering. The
Selling Stockholders may be deemed to be "underwriters" within the meaning of
the 1933 Act.
NUMBER OF NUMBER OF
BRIDGE WARRANTS AND BRIDGE WARRANTS AND
UNDERLYING SHARES UNDERLYING SHARES
NAME AND ADDRESS OWNED AND TO BE OWNED
OF SELLING STOCKHOLDER OFFERED FOR SALE AFTER OFFERING
- ---------------------- ------------------- -------------------
Michael M. Arnouse 25,000 0
Three Edward Lane
Syosset, NY 11791
William P. Bennett 12,500 0
P.O. Box 4240
Boulder, CO 80306
Steven Bloechl 6,250 0
4540 S. Decatur Street
Englewood, CO 80110
Roland J. Christensen 12,500 0
192 E. 100N
Fayette, UT 84630
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NUMBER OF NUMBER OF
BRIDGE WARRANTS AND BRIDGE WARRANTS AND
UNDERLYING SHARES UNDERLYING SHARES
NAME AND ADDRESS OWNED AND TO BE OWNED
OF SELLING STOCKHOLDER OFFERED FOR SALE AFTER OFFERING
- ---------------------- ------------------- -------------------
Ellis V. Couch 6,250 0
2926 Rocky Oak Street
San Antonio, TX 78232
Thomas L. Dutcher 6,250 0
P.O. Box 897
Montrose, CO 81402-0897
John A. Duke Trust 25,000 0
9100 Boyd Road
P.O. Box 430
Rogue River, OR 97537
Frederick M. Galloway 6,250 0
375 Ammons Street
Lakewood, CO 80226
John R. Hannifan 12,500 0
1366 S.W. Tamarind Way
Boca Raton, FL 33486
Arthur Kassoff 6,250 0
7600 State Street
E. St. Louis, IL 62203
Kaufmann Survivors Trust 6,250 0
(c/o Carl J. Kaufmann)
2000 Royal Marco Way #906
Marco Island, FL 34145-1800
Gary A. Mosko 12,500 0
234 Garfield
Denver, CO 80206
Heribert Obser 12,500 0
P.O. Box 697
Quogue, NY 11959
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<PAGE>
NUMBER OF NUMBER OF
BRIDGE WARRANTS AND BRIDGE WARRANTS AND
UNDERLYING SHARES UNDERLYING SHARES
NAME AND ADDRESS OWNED AND TO BE OWNED
OF SELLING STOCKHOLDER OFFERED FOR SALE AFTER OFFERING
- ---------------------- ------------------- -------------------
Mitchell & Elizabeth Pearlman 6,250 0
27157 Highlands Lane
Valencia, CA 91354
Robert R. Peterson 6,250 0
P.O. Box 3460
Estes Park, CO 80517
Max Quimby & Armond Quimby 6,250 0
Revocable Living Trust
(c/o Max Quimby)
10409 Riverside Drive #302
Toluca Lake, CA 91602
S. G. Construction Company 12,500 0
(c/o Ronald W. Massner)
2850 Mt. Pleasant St., Suite 102
Burlington, IA 52601
David M. Schneider 12,500 0
721 Redwood Drive
Lincoln, NE 68510-5219
Shepler & Thomas, Inc. 6,250 0
Profit Sharing Plan FBO
(c/o William R. Bell)
28650 Cavan Lane
Evergreen, CO 80439
Deloris J. Sherwood 6,250 0
15111 Bushard Street #84
Westminster, CA 92683
Charles W. Wafer 37,500 0
P.O. Box 2174
Rancho Santa Fe, CA 92067
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NUMBER OF NUMBER OF
BRIDGE WARRANTS AND BRIDGE WARRANTS AND
UNDERLYING SHARES UNDERLYING SHARES
NAME AND ADDRESS OWNED AND TO BE OWNED
OF SELLING STOCKHOLDER OFFERED FOR SALE AFTER OFFERING
- ---------------------- ------------------- -------------------
David Wank 10,000 0
5200 White Oak Ave. #35
Encino, CA 91316
Barbara L. Westrick 6,250 0
11786 Decatur Drive
Denver, CO 80234-2554
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CERTAIN TRANSACTIONS
In January 1992, the Company initially issued 2,000,000 shares of its
Common Stock to each of Ramtron International Corporation ("Ramtron"), Intag
International Limited ("Intag") and AWA Limited ("AWA") in connection with
the Company's organization. In June 1993, AWA sold its 2,000,000 shares to
Intag for $1.50 per share. Ramtron and Intag, which are publicly-held
companies, are founders, promoters and principal stockholders of the Company.
See "Principal Stockholders."
In October 1991, the Company entered into a technology license agreement
with Ramtron (the "Technology License") which was amended in March 1994,
February 1995 and May 1995. Under the Technology License and amendments
thereto, Ramtron granted the Company the worldwide, nonexclusive,
nontransferable right to design, manufacture, sell, lease and distribute
products which incorporate FRAM and contactless technologies regardless of
memory size (the "Contactless Products"). As a part of the Technology
License, the Company also acquired the rights to any and all improvements in
the FRAM technology developed by Ramtron and the right, through December 31,
2006, on an exclusive basis, to design, manufacture, sell, lease and
distribute certain contactless products which functionally incorporate a
microprocessor. In May 1995, the Company consented to Ramtron granting to
Intag, a principal stockholder of the Company, an exclusive right to use (but
not manufacture) the FRAM and contactless technology solely for use in
conveyor fed or tunnel reader equipped airline, postal and courier
applications. In turn, Ramtron agreed to pay the Company royalties, as
defined in the Agreement, on any contactless products which Ramtron sells,
leases or distributes to third parties. Ramtron is also obligated to pay the
Company 50% of any license fees it receives on contactless products. The
Company may sublicense its rights up to five times with Ramtron's consent and
to date has sublicensed its rights two times. The Company is required to
purchase certain minimum quantities of FRAM chips from Ramtron.
In July 1993, the Company entered into a joint venture agreement with
Nittetsu Shoji Co. Ltd. ("NS") pursuant to which the Company and NS each
purchased a 50% ownership interest in Racom Japan ("RJ"), a Japanese
corporation. RJ was formed for the purpose of marketing, distributing and
supporting the Company's FRAM technology in Japan. Under the terms of the
joint venture agreement, the Company and NS each invested $140,265 in RJ.
Subsequently, in August 1994, both parties invested an additional $153,000.
In March 1996 the Company entered into a technology licensing supply
agreement (the "Supply Agreement") with RJ pursuant to which RJ paid the
Company $933,968 for the nonexclusive right and license to use the Company's
FRAM technology and for the limited right to design, develop and manufacture
FRAM Smart Card products for sale and use in Japan only. The license
specifically excludes the right to use FRAM technology in connection with the
airline, postal and courier applications granted to Intag. Under the Supply
Agreement, RJ is obligated to pay a portion of its sublicense revenues and a
royalty on net sales of FRAM Smart Card products to the Company. Also in
March 1996, the Company and NS each made a further equity investment in RJ of
$466,984 each, and third parties invested $373,587 in RJ, reducing the
Company's ownership of RJ to 40%.
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Between April and December 1994, Intag loaned the Company $300,000 which
was repaid by the Company in December 1994.
In February 1995, the Company sold a license to Intag covering marketing
rights to sell FRAM technology for Smart Cards in certain Middle Eastern
countries.
In February 1995, the Company issued 1,000,000 shares of its Common Stock
to Ramtron in connection with a February 1995 amendment to the Technology
License which provided the Company with certain additional rights thereunder.
In May 1995, Intag and the Company entered into a series of transactions
resulting in Intag contributing a net of $700,000 to the capital of the
Company in exchange for the Company causing Intag to obtain from Ramtron
worldwide rights to the FRAM technology for conveyor fed or tunnel reader
equipped airline, postal and carrier applications.
At September 30, 1996, the Company was indebted to Intag and Ramtron in
the aggregate amount of $1,002,300 and $90,833, respectively. The Company
will repay to Intag and Ramtron from proceeds of the Offering $934,000 and
$96,000, respectively, which represents the net amounts due as of the date
hereof. See "Use of Proceeds."
In June 1995, Intag cancelled an aggregate of $2,033,798 of debt due it
from the Company in exchange for the issuance to it of 1,062,532 shares of
the Company's Common Stock, at an average price of $1.91 per share.
Subsequently, in November 1994, Ramtron sold 200,000 shares of the Company's
Common Stock to Intag for $3.00 per share.
In August and December 1995, the Company sold an aggregate of 500,000
shares of its Common Stock to Rohm as a part of a license agreement pursuant
to which the Company granted to Rohm a nonexclusive, nonsublicensable,
nontransferable right and license to use the FRAM technology in connection
with the design, development, manufacture and sale of custom FRAM Smart Card
products, solely in Japan. In addition to the Common Stock purchased, Rohm
agreed to pay a $1,000,000 license fee to the Company in four equal
installments upon reaching certain sales milestones. As of September 30,
1996, the Company had received $500,000 in license fees from Rohm.
Between August and October 1996, Intag loaned the Company $255,000 and
deferred payments of miscellaneous payables due to Intag totalling $49,414 in
exchange for which Intag received warrants to purchase 121,766 shares of the
Company's Common Stock at $2.50 per share any time until October 4, 2001.
During the same time period, Ramtron loaned the Company an aggregate of
$175,000 and deferred payments for product purchases which, to date, have
totalled $453,630 in exchange for which Ramtron received warrants to purchase
251,452 shares of the Company's Common Stock at $2.50 per share at any time
until October 4, 2001.
The Company owes Intag $400,000 for funds it borrowed in order to pay
Ramtron a fee in connection with an amendment to the Technology License. The
loan is to be repaid upon the
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<PAGE>
Company receiving $400,000 in sublicense revenues from Intag. However, as
the Company believed it will not receive the sublicense revenues from Intag
and thus will not repay the loan, the Company recorded the $400,000 as a
reduction in the Technology License as of December 31, 1995. The loan is
convertible into the Company's Common Stock at $2.50 per share at any time,
but in no event later than, June 30, 1997. Accrued interest on loans
previously converted of $55,452 and $93,380 is also convertible into Common
Stock at $2.50 and $1.50 per share, respectively.
The Company believes the terms of the above transactions were fair,
reasonable and consistent with terms that could be obtained from nonaffiliated
third parties. Any future transactions with affiliates of the Company will be
approved by the disinterested members of the Company's Board of Directors.
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<PAGE>
DESCRIPTION OF SECURITIES
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
Warrant. The Common Stock and Warrants have been approved for listing on
NASDAQ and are separately transferable as of the date of this Prospectus.
The Units have not been listed with, and will not trade on, NASDAQ.
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of $.01 par value
Common Stock of which 11,532,532 shares are outstanding as of the date of
this Prospectus. Upon issuance, the shares of Common Stock are not subject
to further assessment or call. The holders of Common Stock are entitled to
one vote for each share held of record on each matter submitted to a vote of
stockholders. Cumulative voting for election of directors is not permitted.
Subject to the prior rights of any series of preferred stock which may be
issued by the Company in the future, holders of Common Stock are entitled to
receive ratably such dividends that may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of the
liquidation, dissolution or winding up of the Company, are entitled to share
ratably in all assets remaining after payment of liabilities. Holders of
Common Stock have no preemptive rights or rights to convert their Common
Stock into any other securities. The outstanding Common Stock is, and the
Common Stock to be outstanding upon completion of the Offering will be,
validly issued, fully paid and nonassessable.
WARRANTS
Each Warrant represents the right to purchase one share of Common Stock
at an initial exercise price of $_____ per share for a period of two years
from the date hereof. The exercise price and the number of shares issuable
upon exercise of the Warrants are subject to adjustment in certain events,
including the issuance of Common Stock as a dividend on shares of Common
Stock, subdivisions or combinations of the Common Stock or similar events.
The Warrants do not contain provisions protecting against dilution resulting
from the sale of additional shares of Common Stock for less than the exercise
price of the Warrants or the current market price of the Company's securities.
Warrants may be redeemed in whole or in part, at the option of the
Company, upon 30 days' notice, at a redemption price equal to $.01 per
Warrant if the closing price of the Company's Common Stock on NASDAQ is at
least $_____ per share for 20 consecutive trading days, ending not earlier
than five days before the Warrants are called for redemption.
Holders of Warrants may exercise their Warrants for the purchase of
shares of Common Stock only if a current prospectus relating to such shares
is then in effect and only if such shares are qualified for sale, or deemed
to be exempt from qualification, under applicable state
54
<PAGE>
securities laws. The Company is required to use its best efforts to maintain
a current Prospectus relating to such shares of Common Stock at all times
when the market price of the Common Stock exceeds the exercise price of the
Warrants until the expiration date of the Warrants, although there can be no
assurance that the Company will be able to do so.
The shares of Common Stock issuable on exercise of the Warrants will be,
when issued in accordance with the Warrants, fully paid and non-assessable.
The holders of the Warrants have no rights as stockholders until they
exercise their Warrants.
For the life of the Warrants, the holders thereof are given the
opportunity to profit from a rise in the market for the Company's Common
Stock, with a resulting dilution in the interest of all other stockholders.
So long as the Warrants are outstanding, the terms on which the Company could
obtain additional capital may be adversely affected. The holders of the
Warrants might be expected to exercise them at a time when the Company would,
in all likelihood, be able to obtain any needed capital by a new offering of
securities on terms more favorable than those provided by the Warrants.
BRIDGE WARRANTS
In December 1996, the Company borrowed an aggregate of $1,040,000 from a
group of lenders (the "Bridge Loans") evidenced by promissory notes bearing
interest at 2% over the prime interest rate and due the earlier of December
1997 or the closing date of the Offering. As additional consideration for
the Bridge Loans, the Company issued one Bridge Warrant for each $4.00 loaned
to the Company or a total of 260,000 Bridge Warrants. Each Bridge Warrant
entitles the holder to purchase one share of Common Stock at $_____ per share
for a period of two years from the date hereof. The remaining terms and
conditions of the Bridge Warrants are identical to the terms and conditions
of the Warrants. The Bridge Warrants and shares underlying the Bridge
Warrants are being registered by this Prospectus. See "Selling Stockholders."
OTHER WARRANTS
The Company has issued to Intag common stock purchase warrants to
purchase 200,000 shares at $2.50 per share at any time until June 13, 1999
and common stock purchase warrants to purchase 121,766 shares at $2.50 per
share at any time until October 4, 2001. The Company has issued to Ramtron
common stock purchase warrants to purchase 251,452 shares at $2.50 per share
at any time until October 4, 2001.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock,
no par value (the "Preferred Stock"). The Preferred Stock may, without
action by the stockholders of the Company, be issued by the Board of
Directors from time to time in one or more series for such consideration and
with such relative rights, privileges and preferences as the Board may
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<PAGE>
determine. Accordingly, the Board has the power to fix the dividend rate and
to establish the provisions, if any, relating to voting rights, redemption
rate, sinking fund, liquidation preferences and conversion rights for any
series of Preferred Stock issued in the future.
It is not possible to state the actual effect of any other authorization
of Preferred Stock upon the rights of holders of Common Stock until the Board
determines the specific rights of the holders of any other series of
Preferred Stock. The Board's authority to issue Preferred Stock also
provides a convenient vehicle in connection with possible acquisitions and
other corporate purposes, but could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock. Accordingly, the issuance of Preferred Stock may be used as an
"anti-takeover" device without further action on the part of the stockholders
of the Company, and may adversely affect the holders of the Common Stock.
The Company has not issued any Preferred Stock and has no current intention
to do so.
COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 13,032,532 shares of
Common Stock outstanding, (excluding shares issuable upon issuance of the
Warrants, the Overallotment Option or the Representative's Unit Warrant), of
which 1,500,000 shares are being registered in the Offering and will be
freely tradeable without restriction under the 1933 Act (unless purchased by
"affiliates" of the Company as this term is defined under the 1933 Act), and
the remaining 11,532,532 shares have not been registered under the 1933 Act
and are therefore "restricted securities" under Rule 144 of the 1933 Act.
("Rule 144")
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a two-year holding period, subject to certain
requirements concerning the availability of public information, and the
manner and notice of sale, may sell within any three-month period, a number
of shares which does not exceed the greater of one percent of the then
outstanding common shares (approximately 130,325 shares immediately after the
Offering assuming no exercise of the Warrants, the Overallotment Option or
the Representative's Unit Warrant) or the average weekly trading volume
during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of shares by a person without any
quantity limitation, so long as such person is not an affiliate of the
Company, has not been an affiliate for three months prior to the sale and has
beneficially owned the shares for at least three years. An aggregate of
10,032,532 shares are currently available for resale under Rule 144, of which
1,000,000 shares will become eligible for resale in February 1997 and the
remaining 500,000 shares will be eligible for resale in August 1997, all
subject to the lock-up agreements described below. The Company is unable to
predict the effect that any sales, under Rule 144 or otherwise, may have on
the then prevailing market price of the Common Stock.
The Company's officers, directors and 5% or greater stockholders have
agreed not to sell or otherwise dispose of any of their shares of Common
Stock for a period of 12 months from the date of this Prospectus and to sell
no more than 50% of their shares of Common Stock for the next 12-month period
without the prior written consent of the Representative. No prediction
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<PAGE>
can be made as to the effect, if any, that sales of Common Stock or the
availability of such shares for sale will have on the market price of the
Common Stock. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market with the Representative's
consent soon after completion of the Offering, may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
The Company has also registered pursuant to this Prospectus the Warrants,
the Bridge Warrants and the shares issuable upon exercise of the Warrants and
Bridge Warrants. The Company has granted certain demand and piggy-back
registration rights to the Representative with respect to the
Representative's Unit Warrant as well as the Common Stock issuable upon
exercise of the Representative's Unit Warrant. The Company may also register
Common Stock underlying its 1993 Employee Stock Option Plan in the future.
See "Management - 1993 Employee Stock Option Plan," "Selling Stockholders" and
"Underwriting."
TRANSFER AGENT AND WARRANT AGENT
The Company has appointed American Securities Transfer, Inc., 1825
Lawrence Street, Suite 444, Denver, Colorado 80202, as its transfer agent and
warrant agent.
DIVIDENDS
The Company has not paid dividends on its Common Stock since inception
and does not plan to pay dividends in the foreseeable future. Earnings, if
any, will be retained to finance growth.
LIMITATION ON LIABILITY
The Company's Certificate of Incorporation provide that a director shall
not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director. The effect of this
provision in the Certificate of Incorporation is to eliminate the rights of
the Company and its stockholders, through stockholders' derivative suits on
behalf of the Company, to recover monetary damages from a director for breach
of the fiduciary duty of care as a director including breaches resulting from
negligent or grossly negligent behavior. This provision does not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of care or to seek monetary damages for (i) violations of the
federal securities laws, (ii) unlawful payment of dividends or (iii) acts or
omission not in good faith or that involve intentional misconduct or a
knowing violation of law.
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UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase on a firm commitment
basis from the Company the number of Units set forth opposite their names.
NUMBER OF
UNDERWRITER UNITS
----------- ---------
Spencer Edwards, Inc....................................
Total................................................. 1,500,000
---------
---------
The Company has been advised by the Representative that the Underwriters
propose to offer the Units purchased by them directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at a maximum price of $_____ per Unit. Any changes in the price
of the Units or selling terms after the initial distribution of the Units
offered hereby will not affect the amount of net proceeds to be received by the
Company as set forth on the cover page of this Prospectus. The Underwriters are
obligated to purchase and pay for all of the Units, if any Units are taken.
After the initial public offering of the Units, the offering price and the
selling terms may be changed by the Underwriters.
The Company has granted the Representative an Overallotment Option,
exercisable within 30 days from the date of this Prospectus, to purchase up to
225,000 Units solely to cover overallotments.
The Underwriters will purchase the Units (including Units subject to the
Overallotment Option) from the Company at a price of $_____ per Unit. In
addition, the Company has agreed to pay to the Representative a 3%
nonaccountable expense allowance on the aggregate initial public offering price
of the Units, including Units subject to the Overallotment Option. The
Overallotment Option may only be exercised by the Representative.
The offering price of the Units and the exercise price of the Warrants were
determined by negotiations between the Company and the Representative based upon
such factors as the Company's historical revenues and earnings, the percentage
of the Company's outstanding securities to be offered hereby, the experience of
the Company's management and the prospects for the Company and its competitors
within its industry.
The Company has agreed to issue the Representative's Unit Warrant to the
Representative for a consideration of $100. The Representative's Unit
Warrant is exercisable at any time during the four-year period commencing one
year from the date of this Prospectus to purchase up to 150,000 Units for
$_____ per Unit. The terms of the Warrants comprising a part of the
Representative's Unit Warrant are identical to the terms of the Warrants.
The Representative's Unit Warrant is not transferable for one year from the
date of this Prospectus except (i) to an Underwriter or a partner or officer
of an Underwriter or (ii) by will or operation of law. During
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<PAGE>
the term of the Representative's Unit Warrant, the holders thereof are given
the opportunity to profit from a rise in the market price of the Company's
securities. The Company may find it more difficult to raise additional
equity capital while the Representative's Unit Warrant is outstanding. At
any time at which the Representative's Unit Warrant is likely to be
exercised, the Company would probably be able to obtain additional equity
capital on more favorable terms. Any profit realized on the sale of the
Representative's Unit Warrant or the underlying securities may be deemed
additional underwriting compensation. The Company has registered the Units
underlying the Representative's Unit Warrant under the 1933 Act. If the
Company files a registration statement under the provisions of the 1933 Act
at any time for a period of four years commencing one year from the date of
this Prospectus, the holders of the Representative's Unit Warrant or
underlying Units will have the right, subject to certain conditions, to
include in such registration statement, at the Company's expense, all or part
of the underlying Units at the request of the holders. Additionally, the
Company has agreed, for a period of four years commencing one year from the
date of this Prospectus, on demand of the holders of a majority of the
Representative's Unit Warrant or the Units issued thereunder, to register the
Units underlying the Representative's Unit Warrant one time at the Company's
expense. The registration of securities pursuant to the Representative's
Unit Warrant may result in substantial expense to the Company at a time when
it may not be able to afford such expense and may impede future financing.
The Company may find that the terms on which it could obtain additional
capital may be adversely affected while the Representative's Unit Warrant is
outstanding. The number of Units issuable under the Representative's Unit
Warrant and the exercise price are subject to adjustment under certain events
to prevent dilution.
The Company's officers, directors and 5% or greater stockholders have
agreed, pursuant to a lock-up agreement with the Representative, not to sell or
otherwise dispose of any of their shares of Common Stock for a period of 12
months from the date of this Prospectus and to sell no more than 50% of their
shares of Common Stock during the following 12-month period without the prior
written consent of the Representative.
The Company has agreed with the Representative that, for a period of 24
months from the date of closing of the Offering, the Company will allow an
observer designated by the Representative and acceptable to the Company to
attend all meetings of the Board of Directors. The observer will have no voting
rights, will be reimbursed for out-of-pocket expense incurred in attending
meetings and will be indemnified against any claims arising out of participation
at the meetings, including claims based on liabilities arising under the
securities laws.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Representative, the Company and the Commission. See "Available
Information."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the 1933 Act, or to contribute to
payments that any Underwriter may be required to make in respect thereof.
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LEGAL MATTERS
The validity of the Common Stock and Warrants comprising the Units offered
hereby will be passed upon for the Company by the Law Office of Gary A. Agron,
Englewood, Colorado. Certain legal matters in connection with the Offering will
be passed upon for the Representative by Michael J. Tauger, Esq., Englewood,
Colorado. Mr. Agron and Mr. Tauger maintain separate law practices although
they share office space and from time to time may represent the same client on a
particular matter or may refer clients to each other.
EXPERTS
The financial statements of the Company for the years ended December 31,
1995 and 1994, appearing in this Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report. Reference is
made to said report which includes an explanatory paragraph that discusses
substantial doubt about the Company's ability to continue as a going concern.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the 1933 Act with
respect to the Units offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Units,
reference is hereby made to the Registration Statement and such exhibits and
schedules filed as a part thereof, which may be inspected without charge at the
public reference section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission upon payment of
prescribed fees.
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may
be inspected at the public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material
can be obtained at prescribed rates from the Commission at such address. Such
reports, proxy statements and other information can also be inspected at the
Commission's regional offices at the addresses indicated above.
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RACOM SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants F-2
Balance Sheets as of December 31, 1994 and 1995, and
September 30, 1996 (Unaudited) F-3
Statements of Operations for the Years Ended December 31, 1994
and 1995, and for the Nine Months Ended September 30, 1995
and 1996 (Unaudited) F-5
Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1994 and 1995, and for the Nine Months Ended
September 30, 1996 (Unaudited) F-6
Statements of Cash Flows for the Years Ended December 31, 1994
and 1995, and for the Nine Months Ended September 30, 1995
and 1996 (Unaudited) F-7
Notes to Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Racom Systems, Inc.:
We have audited the accompanying balance sheets of RACOM SYSTEMS, INC. (a
Delaware corporation) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Racom Systems, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has generated significant operating losses and
operating cash flow deficits since inception which raise substantial doubt about
the ability of the Company to continue as a going concern. Management's plans
in regard to these matters are described in Note 2. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amounts and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
ARTHUR ANDERSEN LLP
Denver, Colorado,
September 25, 1996.
F-2
<PAGE>
Page 1 of 2
RACOM SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
December 31,
------------------------ September 30,
ASSETS 1994 1995 1996
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 228,675 $ 512,435 $ 27,652
Accounts receivable-
Trade 41,160 158,191 110,895
Related parties (Note 7) 40,351 28,090 23,054
Inventory (Note 3) 76,963 221,694 383,519
Deposit with related party (Notes 6 and 7) 400,000 - -
Notes and interest receivable-related party 237,116 - -
Prepaid expenses and other 4,375 - -
---------- ---------- ----------
Total current assets 1,028,640 920,410 545,120
---------- ---------- ----------
PROPERTY AND EQUIPMENT, at cost (Note 3):
Machinery and equipment 272,161 327,337 350,172
Furniture and fixtures 54,617 56,704 56,801
Leasehold improvements 3,328 3,328 3,328
---------- ---------- ----------
330,106 387,369 410,301
Less- Accumulated depreciation (69,260) (157,475) (235,395)
---------- ---------- ----------
260,846 229,894 174,906
---------- ---------- ----------
INVESTMENT IN JOINT VENTURE (Note 4) 159,403 - -
---------- ---------- ----------
OTHER ASSETS (Notes 2, 3, 6 and 12):
Technology license from related party, net of
accumulated amortization of $352,940, $517,646
and $645,487 (unaudited) in 1994, 1995 and 1996,
respectively 1,647,060 1,882,354 1,754,513
Organization costs, net of accumulated
amortization of $15,435, $19,727 and $23,586
(unaudited) in 1994, 1995 and 1996, respectively 10,295 6,003 2,144
---------- ---------- ----------
1,657,355 1,888,357 1,756,657
---------- ---------- ----------
$3,106,244 $3,038,661 $2,476,683
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
Page 2 of 2
RACOM SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
December 31,
LIABILITIES AND ------------------------------- September 30,
STOCKHOLDERS EQUITY (DEFICIT) 1994 1995 1996
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 183,024 $ 398,200 $ 664,515
Accounts payable - related parties (Note 7) 10,531 392,167 520,102
Current portion of deferred license revenue - related
party (Notes 3, 4 and 12) - - 93,397
Deferred import license revenue 28,850 - -
Notes and interest payable - related
parties (Note 7) 1,701,502 707,975 1,093,133
Deposit from related party (Note 7) 1,000,000 - -
Capital lease obligation - 2,218 1,576
----------- ----------- ------------
Total current liabilities 2,923,907 1,500,560 2,372,723
----------- ----------- ------------
DEFERRED LICENSE REVENUE--RELATED PARTY
(Notes 3, 4 and 12) - - 326,889
COMMITMENTS AND CONTINGENCIES
(Notes 7, 8, 10 and 11)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 5 and 6):
Common stock, $.01 par value, 20,000,000
shares authorized, 8,970,000, 11,532,532
and 11,532,532 (unaudited) shares issued
and outstanding, respectively 89,700 115,325 115,325
Additional paid-in capital 6,064,418 10,272,591 10,272,591
Accumulated deficit (5,971,781) (8,849,815) (10,610,845)
----------- ----------- ------------
Total stockholders' equity (deficit) 182,337 1,538,101 (222,929)
----------- ----------- ------------
$ 3,106,244 $ 3,038,661 $ 2,476,683
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-4
<PAGE>
RACOM SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
Years Ended Nine Months Ended
December 31, September 30,
------------------------------- -------------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 91,931 $ 425,327 $ 278,561 $ 222,145
Product sales - related parties 148,415 103,738 44,605 84,065
Import license revenues - related party 69,240 28,850 28,850 -
Custom product development projects 45,000 90,000 90,000 600,000
License revenues - related parties
(Notes 4, 6 and 12) - 500,000 250,000 513,682
----------- ----------- ----------- -----------
354,586 1,147,915 692,016 1,419,892
COST OF REVENUES 177,217 646,469 329,783 842,687
----------- ----------- ----------- -----------
GROSS MARGIN 177,369 501,446 362,233 577,205
----------- ----------- ----------- -----------
EXPENSES:
Research and development 867,237 1,049,162 723,659 405,341
General and administrative 1,244,016 1,253,252 1,061,527 654,075
Sales and marketing 492,053 708,566 518,944 649,438
Equity in loss of joint venture (Notes 3 and 4) 133,862 159,403 159,403 466,984
Amortization expense 122,790 168,998 138,762 131,700
----------- ----------- ----------- -----------
2,859,958 3,339,381 2,602,295 2,307,538
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (2,682,589) (2,837,935) (2,240,062) (1,730,333)
OTHER INCOME (EXPENSE):
Interest expense - related parties (108,864) (143,645) (130,438) (42,154)
Interest income 64,599 2,899 1,044 7,092
Write-off of notes receivable - related party (753,317) - - -
Gain on sale of subsidiary (Note 6) - 170,647 170,647 -
Other - (70,000) (24,300) 4,365
----------- ----------- ----------- -----------
NET LOSS $(3,480,171) $(2,878,034) $(2,223,109) $(1,761,030)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE $ (.42) $ (.27) $ (.21) $ (.15)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING (Note 3) 8,254,344 10,853,633 10,578,801 11,844,793
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-5
<PAGE>
RACOM SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
Common Stock
-----------------------------------------------------------------
Class A Class B Class C
-------------------- --------------------- --------------------
Shares Amount Shares Amount Shares Amount
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1993 2,000,000 $ 20,000 2,000,000 $ 20,000 2,000,000 $ 20,000
Issuance of common stock for amended Technology License
and Supply Agreements (Note 2) - - - - - -
Cancellation of Classes A, B and C common stock and
issuance of common stock (Note 5) (2,000,000) (20,000) (2,000,000) (20,000) (2,000,000) (20,000)
Issuance of common stock for cash, net of issuance costs of
$270,882 (Note 5) - - - - - -
Net loss - - - - - -
---------- -------- ---------- -------- ---------- --------
BALANCES, December 31, 1994 - - - - - -
Issuance of common stock for amended Technology License
and Supply Agreements (Note 6) - - - - - -
Shareholder contributions (Note 6) - - - - - -
Conversion of shareholder debt of $933,798, $700,000 and $400,000
to common stock at $1.50 per share, $2.50 per share and $2.50
per share, respectively (Notes 5 and 6) - - - - - -
Sale of common stock for cash (Note 6) - - - - - -
Net loss - - - - - -
---------- -------- ---------- -------- ---------- --------
BALANCES, December 31, 1995 - - - - - -
Net loss (unaudited) - - - - - -
---------- -------- ---------- -------- ---------- --------
BALANCES, September 30, 1996 (unaudited) - $ - - $ - - $ -
---------- -------- ---------- -------- ---------- --------
---------- -------- ---------- -------- ---------- --------
Common Stock
-------------------- Additional Accumulated
Shares Amount Paid-In Capital Deficit Total
---------- ------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1993 - $ - $ 3,940,000 $(2,491,610) $ 1,508,390
Issuance of common stock for amended Technology License
and Supply Agreements (Note 2) 2,000,000 20,000 (20,000) - -
Cancellation of Classes A, B and C common stock and
issuance of common stock (Note 5) 6,000,000 60,000 - - -
Issuance of common stock for cash, net of issuance costs of
$270,882 (Note 5) 970,000 9,700 2,144,418 - 2,154,118
Net loss - - - (3,480,171) (3,480,171)
---------- ------- ----------- ----------- -----------
BALANCES, December 31, 1994 8,970,000 89,700 6,064,418 (5,971,781) 182,337
Issuance of common stock for amended Technology License
and Supply Agreements (Note 6) 1,000,000 10,000 (10,000) - -
Shareholder contributions (Note 6) - - 700,000 - 700,000
Conversion of shareholder debt of $933,798, $700,000 and $400,000
to common stock at $1.50 per share, $2.50 per share and $2.50
per share, respectively (Notes 5 and 6) 1,062,532 10,625 2,023,173 - 2,033,798
Sale of common stock for cash (Note 6) 500,000 5,000 1,495,000 - 1,500,000
Net loss - - - (2,878,034) (2,878,034)
---------- ------- ----------- ----------- -----------
BALANCES, December 31, 1995 11,532,532 115,325 10,272,591 (8,849,815) 1,538,101
Net loss (unaudited) - - - (1,761,030) (1,761,030)
---------- ------- ----------- ----------- -----------
BALANCES, September 30, 1996 (unaudited) 11,532,532 $115,325 $10,272,591 $(10,610,845) $ (222,929)
---------- ------- ----------- ----------- -----------
---------- ------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
Page 1 of 2
RACOM SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended Nine Months Ended
December 31, September 30,
------------------------------- -------------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(3,480,171) $(2,878,034) $(2,223,109) $(1,761,030)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 176,706 266,234 207,689 209,789
Return of deposit to INTAG - (100,000) (100,000) -
Equity in loss of joint venture 133,862 159,403 159,403 466,984
Write-off of notes receivable -
related party 753,317 - - -
Loss (gain) on disposal of fixed assets 3,196 (700) (700) 926
Decrease (increase) in-
Accounts receivable - trade (8,066) (117,031) (84,850) 47,296
Accounts receivable - related parties (33,783) 12,261 31,114 5,036
Inventory (40,140) (144,731) (146,895) (161,825)
Prepaid expenses and other 65,448 4,375 (18,330) -
Increase (decrease) in-
Accounts payable and accrued
liabilities 92,336 215,176 145,751 266,315
Accounts payable - related parties (3,819) 381,636 172,838 127,935
Deferred license revenue - related
party - - - 420,286
Deferred import license revenue (69,240) (28,850) (28,850) -
Interest payable - related parties - 140,271 127,668 40,158
----------- ----------- ----------- -----------
Net cash used in
operating activities (2,410,354) (2,089,990) (1,758,271) (338,130)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (236,225) (63,440) (59,795) (24,624)
Proceeds on sale of fixed assets 525 914 914 597
Deposit with related party (400,000) - - -
Acquisition of technology license from
related party - (400,000) (400,000) -
Payments from INTAG offset against cost of
technology license (Note 6) - 200,000 200,000 -
Investment in joint venture (153,000) - - (466,984)
Loan to related party (2,850,000) - - -
Repayments of loan from related party 1,859,567 237,116 237,116 -
----------- ----------- ----------- -----------
Net cash used in
investing activities (1,779,133) (25,410) (21,765) (491,011)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements
F-7
<PAGE>
are an integral part of these statements.
F-8
<PAGE>
Page 2 of 2
RACOM SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended Nine Months Ended
December 31, September 30,
------------------------------ -------------------------------
1994 1995 1995 1996
---------- ---------- ----------- --------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock $2,425,000 $1,500,000 $ 900,000 $ -
Payment of stock issuance costs (270,882) - - -
Proceeds from notes payable - related
parties 1,503,971 1,113,000 1,113,000 345,000
Payments on notes payable - related parties (300,000) (213,000) (213,000) -
Deposit from related party 1,000,000 - - -
Payments on capital lease obligation - (840) (738) (642)
---------- ---------- ----------- --------
Net cash provided by
financing activities 4,358,089 2,399,160 1,799,262 344,358
---------- ---------- ----------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 168,602 283,760 19,226 (484,783)
CASH AND CASH EQUIVALENTS,
beginning of period 60,073 228,675 228,675 512,435
---------- ---------- ----------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 228,675 $ 512,435 $ 247,901 $ 27,652
---------- ---------- ----------- --------
---------- ---------- ----------- --------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
No cash was paid for interest or income taxes during 1994, 1995, or the
nine months ended September 30, 1996 (unaudited).
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1994, the Company combined all classes of outstanding stock into a
single voting class of common stock on a one-for-one basis (Note 5).
During 1995, the Company purchased equipment under a capital lease totaling
$3,058.
During 1995, notes payable to INTAG of $933,798 and $700,000 were converted
to common stock at $1.50 per share and $2.50 per share, respectively.
In addition, net liabilities of $400,000 were also exchanged for
common stock at $2.50 per share in satisfaction of a deposit from
INTAG of $1,000,000, less Company deposits held by INTAG of $500,000
and a receivable from INTAG of $100,000 relating to the sale of ISI.
A $600,000 payment (together with an unrelated $100,000 deposit)
relating to the Technology License and Supply Agreements was made by
INTAG to Ramtron on the Company's behalf and was treated as a capital
transaction (Note 6).
The accompanying notes to financial statements
F-9
<PAGE>
are an integral part of these statements.
F-10
<PAGE>
RACOM SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(including notes applicable to unaudited periods)
(1) ORGANIZATION AND BUSINESS
Racom Systems, Inc. (the "Company") is a developer and marketer of contactless
smart cards and radio frequency identification ("RFID") contactless smart card
systems. The Company was initially formed as a joint venture between INTAG
International Limited ("INTAG"), AWA Limited ("AWA") and Ramtron International
Corporation ("Ramtron"). In June 1993, INTAG acquired AWA's 2,000,000 shares of
common stock. The Company was incorporated in the State of Delaware on June 3,
1991 and commenced operations in February 1992. Sales of the Company's initial
two products utilizing ferroelectric random access memory ("FRAM") commenced in
1993. The Company's latest product, currently under development, is scheduled
for market introduction in 1997. Prior to 1995, the Company was in the
development stage.
(2) GOING CONCERN AND ASSET REALIZATION
As reflected in the accompanying financial statements, the Company has generated
substantial operating losses since inception and has yet to generate sufficient
revenues to fund its operations. To date, the Company has completed a series of
smaller-scale projects; however, the Company has not yet completed a significant
number of substantial sales transactions covering the application of its
products and, as a result, an uncertainty exists as to whether the Company will
be able to successfully market and sell its products to third parties at
sufficient prices and volumes to fund its operations. During 1995, the Company
experienced significant cash flow deficits and liquidity shortages and funded
its operations primarily through the sale of non-exclusive sublicenses to its
technology, through the proceeds from the sale of its common stock and through
related party borrowings.
During 1996, the Company anticipates that increased operating revenues will be
achieved through a combination of product sales, development contracts and the
sale of non-exclusive licenses. In addition, the Company also anticipates
increased operating expenses and research and development expenditures which are
required for the Company to further develop and market its third generation
products and achieve successful operations. However, there is no assurance the
Company will be successful in developing and marketing its products.
To date, the Company has funded its operations primarily through the issuance of
shares of its common stock and related party borrowings. The related party
borrowings are due on demand. The Company does not currently have the financial
resources to repay any of its debt, if demanded. Management of the Company
intends to fund its 1996 operations through a combination of product sales and
technology sublicensing, additional related and non-related party borrowings
F-11
<PAGE>
and offerings of its common stock. There is no assurance that sales of
common stock or additional borrowings will occur or that additional proceeds
will be received from such offerings. Further, there is no assurance that
the Company's two principal stockholders will continue to fund the cash needs
of the Company.
These factors, among others, raise substantial doubt about the ability of the
Company to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability of assets and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
ASSET REALIZATION
The Company's primary asset is a technology license related to the design and
manufacture of its products. The Company originally purchased the technology
from Ramtron pursuant to a technology license agreement (the "Technology
License"), for $2,000,000 in cash and 2,000,000 shares of the Company's class B
common stock (Note 5). The Company also entered into a supply agreement in
conjunction with the Technology License (collectively, the "Technology License
and Supply Agreements"), which requires the purchase of minimal annual
quantities of ferroelectric RFID semiconductor chips (Note 8). See Note 6 for
amendments to Technology License and Supply Agreements. The Technology License
is protected by patents owned by Ramtron and is further protected by the
Company's own patents. As part of the Technology License, the Company acquired
the rights to any and all improvements in the underlying technology through
2005.
The Technology License was recorded at the original cash acquisition cost of
$2,000,000. In connection with a Memorandum of Understanding ("MOU") signed in
May 1995, the Company acquired certain additional rights with respect to the
technology. The net $400,000 cost of obtaining the additional rights was
capitalized in 1995 (Note 6). The net book value of the Technology License
acquired was $1,647,060, $1,882,354 and $1,647,060 (unaudited), as of
December 31, 1994 and 1995, and September 30, 1996, respectively. Although the
Company is currently marketing products utilizing the technology covered by this
Technology License, the ultimate recovery of the carrying amount is uncertain.
No provision for any loss that may result should the carrying amount of the
license not be recovered has been made in the accompanying financial statements.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements of the Company as of September 30, 1995 and 1996, and
for the nine month periods then ended, presented herein, have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting of only normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the financial position, results
of operations and cash flows of the Company as of September 30, 1995 and 1996,
and for the nine months then ended.
F-12
<PAGE>
PRINCIPLES OF CONSOLIDATION
The December 31, 1994 financial statements are consolidated and include the
accounts of the Company and its wholly-owned subsidiary, Intag Systems, Inc.
("ISI"). All significant intercompany accounts and transactions were eliminated
in consolidation. During 1995, the Company sold its investment in the
subsidiary (Note 6).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid investments with
original maturities of three months or less.
INVENTORY
Inventory is stated at the lower of cost or market using the first-in, first-out
("FIFO") method of accounting. Inventories at December 31, 1994 and 1995 and
September 30, 1996 (unaudited) consisted of the following:
December 31, September 30,
1994 1995 1996
----------------------- -------------
(Unaudited)
Raw materials $37,271 $129,222 $ 77,456
Work in process 39,692 67,232 152,282
Finished goods - 25,240 153,781
--------- ---------- ----------
$76,963 $221,694 $383,519
--------- ---------- ----------
--------- ---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is provided using the
straight-line method over the estimated useful lives of three to five years for
the respective assets. Maintenance and repairs are expensed as incurred and
improvements are capitalized.
INVESTMENT IN FOREIGN JOINT VENTURE
The functional currency for the Company's investment in the joint venture (Note
4) is the applicable local currency of the joint venture. The investment in the
joint venture is translated at the exchange rate in effect at year end and any
equity in earnings of the joint venture is translated at the average exchange
rate during the year. Exchange rate fluctuations on translating foreign
currency into U.S. dollars result in unrealized gains or losses referred to as
translation adjustments. Exchange rate differences for the years ended
December 31, 1994 and 1995 and for the nine months ended September 30, 1996
(unaudited) were not material.
F-13
<PAGE>
INTANGIBLE ASSETS
Intangible assets are recorded at cost and are amortized using the straight-line
method over the following estimated useful lives:
Estimated
Useful Lives
(In Years)
------------
Technology license 10-17
Organization costs 5
DEFERRED IMPORT LICENSE REVENUE
In June 1993, the Company entered into an import agreement with Nittetsu Shoji
Co. Ltd. ("NS"). The terms of the import agreement stated that for a period of
two years, in exchange for cash consideration of approximately $138,000, NS had
exclusive import rights to the Company's products in Japan. Revenue relating to
the import agreement was recognized on a straight-line basis during the two-year
exclusivity right under the import agreement. The agreement was not renewed in
June 1995.
DEFERRED LICENSE REVENUE
Deferred license revenue represents the amount of profit deferred on the March
1996 sublicensing of the Company's Technology License to an equity investee
(Notes 4 and 12). The deferred license revenue will be recognized on a
straight-line basis over a term of five years, corresponding with the
amortization period assigned to the sublicense by the equity investee.
REVENUE RECOGNITION
Revenue from product sales to direct customers is recognized upon shipment.
Royalty revenue is recognized upon the Company's fulfillment of its contractual
obligations and determination of a fixed royalty amount, or, in the case of
ongoing unit royalties, upon sales by the licensee of royalty-bearing products,
as estimated by the Company.
Revenue from the sale of licenses of technology which are nonrefundable and for
which no significant future obligations exist, is recognized when the license is
signed. Revenue from the sale of licenses which are refundable or for which
future obligations exist, is recognized when the Company has completed its
obligations under the license. Certain research and development activities are
conducted for third parties and such revenue is recognized as the services are
performed.
Revenue from development contracts where costs are insignificant or cannot be
reasonably estimated are recognized as the contractual events are achieved.
F-14
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred and are
included in operating expenses. Research and development costs amounted to
approximately $867,237, $1,049,162 and $405,341 (unaudited) for the years ended
December 31, 1994 and 1995, and the nine months ended September 30, 1996,
respectively.
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Net loss per common and common equivalent share has been computed based upon the
weighted average number of common shares and common share equivalents
outstanding. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and common stock equivalent shares issued by the
Company at prices below the initial public offering price during the twelve
month period prior to the offering (using the treasury stock method for common
stock equivalents and an assumed offering price of $4.75 per share) have been
included in the calculation as if they were outstanding for all the periods
presented regardless of whether they were antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
short-term trade receivables and payables, notes receivable and notes payable to
related parties. The carrying values of cash and cash equivalents, short-term
trade receivables and payables, and notes receivable approximate fair value.
The fair value of notes payable to related parties is estimated based on current
rates available for similar debt with similar maturities and collateral, and at
December 31, 1994 and 1995, approximates the carrying value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates may affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable and that long-lived assets and certain identifiable intangibles
to be disposed of be reported at the lower of carrying amount or fair value less
cost to sell. SFAS 121 also establishes the procedures for review of
recoverability, and measurement of impairment if necessary, of long-lived assets
and certain identifiable intangibles to be held and used by an entity. The
Company will be required to adopt SFAS 121 for its year ended December 31, 1996.
Management believes
F-15
<PAGE>
that the adoption of SFAS 121 will not have a material effect on the Company's
reported financial position and results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." SFAS 123 establishes financial accounting and reporting
standards for stock-based compensation, including stock-based employee
compensation plans. SFAS 123 defines a fair value-based method of accounting
for an employee stock option or similar equity instrument. However, it also
allows an entity to continue to measure compensation cost for those plans using
the intrinsic value-based method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting in APB Opinion No.
25 must make pro forma disclosures of net income and earnings per share, as if
the fair value-based method of accounting defined in SFAS 123 had been applied.
The Company will be required to adopt SFAS 123 for its year ended December 31,
1996. The Company has elected to make the pro forma disclosure upon adoption as
allowed by SFAS 123.
CONCENTRATION OF CREDIT RISK
The Company has no significant off balance-sheet concentrations of credit risk
such as foreign exchange contracts, options contracts or other foreign hedging
arrangements. The Company maintains the majority of its cash with financial
institutions, in the form of demand deposits.
The Company performs ongoing evaluations of its customers' financial condition
and generally does not require collateral. Its accounts receivable balances are
primarily domestic and are concentrated among institutions within the high-
technology industry.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued its Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." SFAS 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences based on enacted tax
laws of temporary differences between the financial reporting and tax bases of
assets, liabilities and carryforwards. SFAS 109 also requires recognition of
deferred tax assets for the expected future effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards. Deferred tax
assets are then reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which, more likely than not based on current
circumstances, are not expected to be realized (see Note 10).
RECLASSIFICATIONS
Certain prior year balances in the accompanying financial statements have been
reclassified to conform with the current year presentation.
F-16
<PAGE>
(4) INVESTMENT IN JOINT VENTURE
In July 1993, the Company entered into a joint venture agreement with NS
pursuant to which NS and the Company each received a 50% ownership interest
in Racom Japan, Inc. ("RJ"), a Japanese Corporation. RJ was formed for the
purpose of marketing, distributing and supporting the Company's RFID products
to be sold in Japan. Upon formation, NS and the Company each purchased 300
shares of common stock at a purchase price of 50,000 Japanese Yen ($466.67)
per share, or $140,265. In August 1994, NS and the Company each purchased an
additional 300 shares of common stock at a purchase price of 50,000 Japanese
Yen ($510) per share, or $153,000. RJ has the exclusive right to distribute
the Company's products in Japan for two years commencing August 1995, with
the Company providing marketing and sales support to RJ. In March 1996, the
Company sold a non-exclusive sublicense to its technology to RJ (Note 12).
In connection with the sale of the sublicense, $466,984 (representing the
Company's intercompany profit due to its 50% equity ownership in RJ on the
date of the sublicense) of the profit was deferred. The deferred license
revenue is being recognized over the life of the related technology license
asset purchased by RJ, which is five years. As of September 30, 1996,
$46,698 (unaudited) of the original deferred license revenue (Notes 3 and 12)
of $466,984 (unaudited) has been recognized.
The investment in RJ is accounted for using the equity method and the Company
has recorded its share of RJ's losses in 1994 and 1995 and for the nine months
ended September 30, 1996 ($133,862, $159,403 and $466,984 (unaudited),
respectively) as equity in loss of joint venture in the accompanying financial
statements to the extent of capital invested in RJ by the Company. The losses
recorded for the nine months ended September 30, 1996, include previously
unrecognized losses which had not been recorded as the Company's investment had
been reduced to zero and it had no obligation to fund such losses. However,
upon the 1996 investment of $466,984 (see Note 12), previously unrecognized
losses of $141,953 (unaudited) were recorded. As of September 30, 1996, the
Company's unrecognized share of RJ losses in excess of its investment was
$48,314 (unaudited).
Summary unaudited financial information of RJ as of and for the years ended
December 31, 1994 and 1995, and the nine months ended September 30, 1996 is as
follows:
Years Ended Nine Months Ended
December 31, September 30,
1994 1995 1996
--------- --------- ----------
(Unaudited) (Unaudited)
Revenue $ 168,132 $ 233,179 $ 317,449
--------- --------- ----------
--------- --------- ----------
Gross margin $ 95,662 $ 155,978 $ 111,903
--------- --------- ----------
--------- --------- ----------
Net loss $(267,724) $(602,712) $ (841,851)
--------- --------- ----------
--------- --------- ----------
Total assets $ 353,535 $ 464,121 $1,468,631
--------- --------- ----------
--------- --------- ----------
Total liabilities $ 19,158 $ 741,511 $1,291,860
--------- --------- ----------
--------- --------- ----------
F-17
<PAGE>
(5) STOCKHOLDERS' EQUITY (DEFICIT)
During 1994, the Company amended and restated its Certificate of
Incorporation and Bylaws to combine all classes of outstanding common stock
into a single voting class of common stock. All existing stockholder
certificates were canceled and reissued on a one-for-one basis.
In June 1994, 970,000 shares of the Company's common stock were issued
pursuant to a Private Placement Memorandum ("PPM") at $2.50 per share. The
proceeds received by the Company were $2,154,118, net of issuance costs of
$270,882. The Company reimbursed Ramtron and INTAG $50,000 each for issuance
costs incurred relating to the PPM. Of the total shares issued, 20,000 were
purchased by directors of the Company.
On November 14, 1994, Ramtron sold 200,000 of its shares of Company common
stock to INTAG at $3.00 per share.
In connection with the MOU (Notes 2 and 6), INTAG converted debt due from the
Company of $933,798, $700,000 and $400,000 into common stock at $1.50 per
share, $2.50 per share and $2.50 per share, respectively, resulting in
1,062,532 shares of common stock being issued to INTAG (Note 6).
(6) AMENDMENTS TO THE TECHNOLOGY LICENSE
AND SUPPLY AGREEMENTS
In 1994, Ramtron was issued an additional 2,000,000 shares of common stock in
connection with an amendment to the Technology License and Supply Agreements.
In February 1995, the Company and Ramtron entered into a second amendment to
the Technology License and Supply Agreements. In May 1995, the Company
signed and executed the MOU (Note 2) with INTAG and Ramtron relating to
further amendments to the Technology License and Supply Agreements and the
conversion to equity of certain of INTAG's loans to the Company (Notes 5 and
7). As a result of these amendments, the Company received certain additional
rights and agreed to make certain payments as discussed below.
The Company has the worldwide, non-exclusive, non-transferable right to
design, manufacture, sell, lease and distribute smart card products which
monolithically incorporate FRAM and contactless technologies regardless of
memory size ("Contactless Products"). In addition, the Company has the
rights to any and all improvements in the FRAM technology. The Company,
through 2005, has certain exclusive rights to design, manufacture, sell,
lease and distribute certain Contactless Products which functionally
incorporate a microprocessor. The Company may sublicense its manufacturing
right up to five times with Ramtron's consent. The Company consented to
Ramtron granting to INTAG an exclusive right to use (but not manufacture) the
technology for use in conveyor fed or tunnel reader equipped airline, postal
and courier applications.
Further to the Technology License and Supply Agreements, Ramtron is obligated
to pay to the Company royalties, as defined in the agreement, on any
Contactless Products which Ramtron sells, leases or distributes to third
parties. Ramtron will also be obligated to pay to the Company 50% of any
license fees on Contactless Products. As of September 30, 1996 (unaudited),
the Company had not received any royalties or licensing fees as there were no
sales of Contactless Products by Ramtron through September 30, 1996. The
amendments extend the requirements that the
F-18
<PAGE>
Company purchase from Ramtron minimal quantities of ferroelectric RFID
semiconductor chips (Note 8). For the years ended December 31, 1994 and
1995, and the nine months ended September 30, 1996, the Company made
purchases from Ramtron of approximately $84,000, $281,000 and $250,000
(unaudited), respectively.
As further consideration for the additional rights obtained through the
amendments to the Technology License and Supply Agreements, the Company
issued to Ramtron 1,000,000 shares of Company common stock and caused Ramtron
to be paid cash of $1,000,000. The common shares issued to Ramtron were
assigned no value because the amendments were viewed as a modification of the
original transfer (Note 2) by a principal stockholder of intangible rights
for which Ramtron had no capitalized historical cost basis. INTAG paid
$600,000 of the cash consideration directly to Ramtron, which together with
an unrelated deposit of $100,000 received from INTAG has been reflected as an
addition to the Company's paid-in capital. The remaining $400,000 balance
paid to Ramtron was loaned to the Company by INTAG, carried a 10% interest
rate and was to be repaid only from future sublicense fees earned by INTAG,
totaling $400,000, which would be due the Company from INTAG should INTAG be
successful in further sublicensing the technology. INTAG and the Company
have agreed that the loan is no longer subject to accrued interest and may be
converted, at INTAG's option, into shares of the Company's common stock at a
rate of $2.50 per share, no later than June 1997. INTAG simultaneously paid
the Company $200,000 for a sublicense. The Company believes the loan amount
effectively represents an additional nonrefundable payment for the
sublicense. Consequently, the Company has netted both the loan amount of
$400,000 and the $200,000 sublicense payment against the $1,000,000 cash paid
to Ramtron, resulting in a net increase to the Technology License of $400,000
as of December 31, 1995. Should INTAG convert the loan to common stock of
the Company, the transaction will be assigned no value.
INTAG agreed to convert to equity the principal balances of the $933,798
related party notes payable and $700,000 working capital notes at $1.50 and
$2.50 per share, respectively (Note 7). INTAG purchased ISI from the Company
for $100,000 and assumed ISI's net liabilities of $70,467. The net balance
of all related party deposits between the Company and INTAG (Note 7) combined
with the ISI purchase price, totaled $400,000 and was converted to equity at
$2.50 per share.
The MOU is subject to formal consummation through execution of certain
definitive agreements. Management of the Company believes that the terms of
the definitive agreements will be substantially the same as those described
in the MOU.
In June 1995, the Company entered into a Cooperative Agreement for Licensed
Manufacturing of Ferroelectric RFID Products with Rohm Co., Ltd. ("ROHM") of
Japan. The license gives ROHM a non-exclusive, non-sublicenseable,
non-transferable right and license to use the RFID technology in connection
with the design, development, manufacture and sale of Custom Ferroelectric
RFID Products for use within a defined territory (Japan). In consideration
of this license, ROHM purchased 300,000 shares of the Company's common stock,
at $3.00 per share. ROHM also purchased 200,000 additional shares of the
Company's common stock, for a purchase price of $3.00 per share upon reaching
certain sales milestones. ROHM is also to pay a $1,000,000 license fee to the
Company in four equal installments upon reaching certain sales milestones.
As of December 31, 1995, the Company has received $500,000 in license fees as
it had achieved certain milestones. As of September 30, 1996 (unaudited), no
new milestones had been reached.
F-19
<PAGE>
(7) OTHER RELATED PARTY TRANSACTIONS
During 1994 and 1995, INTAG advanced approximately $445,000 and $1,113,000,
respectively, to the Company under various notes payable agreements, which
bear interest at 10% per annum and are due on demand. In 1995, $933,798 of
advances were converted to equity in connection with the MOU (Note 6) at a
rate of $1.50 per share. Unpaid accrued interest of $93,380 on the advances,
prior to conversion, was not converted to equity in connection with the MOU
(Note 6), and at the discretion of INTAG, is convertible into common stock at
$1.50 per share or is to be repaid to INTAG within 30 days of notification by
INTAG that repayment is required. As of December 31, 1994 and 1995 and
September 30, 1996, the related party notes payable to INTAG had total
principal and interest outstanding of $980,872, $652,523, and $946,848
(unaudited) respectively. In 1996, Ramtron advanced $90,000 to the Company
under a note payable agreement which bears interest at prime plus 2% (10.25%
at September 30, 1996) and is due on demand. As of September 30, 1996, the
related party note payable to Ramtron had total principal and interest
outstanding of $90,833 (unaudited).
During 1994, INTAG loaned the Company $1,000,000 under a $1,000,000 working
capital facility agreement. Of the $1,000,000 drawn during 1994, $300,000
had been repaid as of December 31, 1994. The facility carried interest at
10% per annum and in May 1995, the $700,000 balance outstanding was converted
to common stock in connection with the MOU (Note 6) at a rate of $2.50 per
share. Unpaid accrued interest of $55,452 on the advances, prior to
conversion, was not converted to equity in connection with the MOU (Note 6)
and, at the discretion of INTAG, is convertible into common stock at $2.50
per share or is to be repaid to INTAG within 30 days of notification by INTAG
that repayment is required. As of December 31, 1994 and 1995, and September
30, 1996, the related party line of credit had total principal and interest
outstanding of $720,630, $55,452 and $55,452 (unaudited), respectively. As
consideration for INTAG advancing the working capital facility in June 1994,
the Company granted INTAG 200,000 warrants for the Company's common stock at
an exercise price of $2.50 per share, which vest immediately and are
exercisable over a five-year term. The Company determined that these
warrants had a nominal value at the date of issuance.
On March 23, 1995, the Company and INTAG entered into an assignment and
security agreement whereby all current and future debt owed by the Company to
INTAG is secured by all of the Company's assets and agreements.
F-20
<PAGE>
For the years ended December 31, 1994 and 1995, and for the nine months ended
September 30, 1995 and 1996 (unaudited), the statements of operations include
amounts attributable to related party transactions as follows:
<TABLE>
Years Ended Nine Months Ended
December 31, September 30,
---------------------------- ---------------------------
1994 1995 1995 1996
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
PRODUCT SALES
Sales to INTAG $112,770 $ 33,747 $ 25,697 $ -
-------- -------- -------- --------
-------- -------- -------- --------
Sales to NS $ 21,888 $ 21,593 $ - $ -
-------- -------- -------- --------
-------- -------- -------- --------
Sales to RJ $ 11,957 $ 48,398 $ 18,908 83,365
-------- -------- -------- --------
-------- -------- -------- --------
Sales to Ramtron $ 1,800 $ - $ - $ 700
-------- -------- -------- --------
-------- -------- -------- --------
IMPORT LICENSE REVENUES
NS $ 69,240 $ 28,850 $ 28,850 $ -
-------- -------- -------- --------
-------- -------- -------- --------
LICENSE REVENUES
Rohm $ - $500,000 $250,000 $ -
RJ - - - 513,682
-------- -------- -------- --------
$ - $500,000 $250,000 $513,682
-------- -------- -------- --------
-------- -------- -------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Management fees paid to related
parties $ 12,000 $ 15,575 $ 15,575 $ -
-------- -------- -------- --------
-------- -------- -------- --------
Director travel expenses $ 52,205 $ 46,730 $ 36,332 $ 17,415
-------- -------- -------- --------
-------- -------- -------- --------
Directors fees $ 32,000 $ 12,000 $ 12,000 $ -
-------- -------- -------- --------
-------- -------- -------- --------
OTHER INCOME AND EXPENSE
Interest income on note receivable
from Concord Services, Inc. $ 62,668 $ - $ - $ -
-------- -------- -------- --------
-------- -------- -------- --------
Interest expense on notes
payable to INTAG $108,864 $143,645 $130,438 $ 41,320
-------- -------- -------- --------
-------- -------- -------- --------
Interest expense on notes
payable to Ramtron $ - $ - $ - $ 834
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-21
<PAGE>
DEPOSIT FROM RELATED PARTY
In April 1994, the Company and INTAG signed a letter of intent to enter into a
license agreement. As of December 31, 1994, $1,000,000 had been received as a
deposit on the license fee. Under the MOU (Note 6), the $1,000,000 deposit, net
of deposits with INTAG of $500,000 and an INTAG receivable of $100,000 related
to the ISI purchase, were converted into common stock of the Company at a rate
of $2.50 per share and negotiations in connection with the license agreement
ceased.
DEPOSIT WITH RELATED PARTY
In 1993 and 1994, the Company paid deposits of $100,000 and $400,000,
respectively, to INTAG to purchase BagTag and Intertrak technology licenses. In
connection with the execution of the MOU (Note 6), these deposits were offset
against amounts due INTAG as described above.
(8) COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancelable
operating lease agreements. Minimum future annual lease payments under these
leases as of December 31, 1995, are as follows:
1996 $104,509
1997 102,479
1998 79,095
1999 -
2000 -
Thereafter -
--------
$286,083
--------
--------
Total rent expense for noncancelable, cancelable and month-to-month operating
leases for the years ended December 31, 1994 and 1995 was approximately $83,430
and $115,561, respectively.
The Company leases equipment under a 36-month capital lease. The lease
commenced in February 1995 and bears interest at a rate of 15%.
The amended Technology License and Supply Agreements require the Company to
purchase from Ramtron minimal annual quantities of ferroelectric RFID
semiconductor chips. The minimum purchases increase in future years, in
accordance with the Technology License and Supply Agreements. The requirement
continues through 1998. In the event the Company does not purchase the minimum
annual quantities, Ramtron will be released from all sales restrictions under
the Supply Agreement. Ramtron is restricted from selling RFID products to any
other party until December 31, 1998.
F-22
<PAGE>
(9) MAJOR CUSTOMERS
The Company's product sales from non-related party customers in excess of 10% of
non-related party product sales for the years ended December 31, 1994 and 1995,
and the nine months ended September 30, 1996 (unaudited) are as follows:
Years Ended Nine Months
December 31, Ended
-------------- September 30,
1994 1995 1996
---- ---- -------------
(Unaudited)
Customer A 27% 1% 0%
Customer B 10% 15% 6%
Customer C 3% 26% 12%
Customer D 0% 14% 15%
Customer G 0% 0% 11%
Customer H 0% 4% 27%
All of the Company's custom product development project revenue for the years
ended December 31, 1994 and 1995 was from the same customer. Additionally,
custom product development project revenue for the nine months ended
September 30, 1996 (unaudited) was from a single customer and unrelated to the
1994 and 1995 revenue.
The Company's accounts receivable balances from non-related party customers in
excess of 10% of the accounts receivable balance from non-related parties for
the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996 (unaudited) are as follows:
Years Ended Nine Months
December 31, Ended
-------------- September 30,
1994 1995 1996
---- ---- -------------
(Unaudited)
Customer A 61% 0% 0%
Customer C 0% 42% 68%
Customer D 0% 19% 0%
Customer E 0% 14% 0%
Customer F 12% 0% 0%
Customer G 0% 0% 13%
F-23
<PAGE>
(10) INCOME TAXES
For income tax return reporting purposes, the Company has approximately
$8,400,000 of net operating loss carryforwards that expire at various dates
through the year 2010. The net operating loss for tax purposes differs from
that for financial reporting purposes due to differences in reporting certain
transactions for income tax and financial reporting purposes. These differences
primarily relate to the Technology License.
The Tax Reform Act of 1986 contains provisions which may limit the net operating
loss carryforwards available to be used in any given year if certain events
occur, including significant changes in ownership interests.
The Company has determined that approximately $3,741,000 and $4,742,000 of
unrecognized tax benefits as of December 31, 1994 and 1995, respectively, did
not satisfy the realization criteria set forth in SFAS No. 109. Accordingly, a
valuation allowance was recorded against the entire net deferred tax asset.
The components of the net deferred income tax asset at December 31, 1994 and
1995 were as follows:
1994 Change 1995
----------- ------------ -----------
Technology license $ 1,212,000 $ 139,000 $ 1,351,000
Net operating loss carryforwards 2,173,000 1,019,000 3,192,000
Research and development
tax credits 70,000 88,000 158,000
Allowance for bad debt 286,000 (286,000) -
Other - 41,000 41,000
Less- Valuation allowance (3,741,000) (1,001,000) (4,742,000)
----------- ------------ -----------
$ - $ - $ -
----------- ------------ -----------
----------- ------------ -----------
(11) EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
In May 1993, the Company adopted the 1993 Employee Stock Plan which authorized
the granting of incentive and nonqualified stock options and restricted stock
(collectively, the "stock options") to acquire up to 1,700,000 shares of the
Company's common stock. The exercise terms for the stock options granted are
determined by the Board of Directors at the time the stock options are granted.
Stock options may be granted at an exercise price not less than the fair market
value on the date of grant with a maximum term of 10 years. The 1993 Employee
Stock Plan also permits the granting of limited stock appreciation rights
("SAR's")which, upon a change in control, as defined, entitle the holders to
exercise SAR's in an amount equal to the number of stock options held and at
terms similar to the terms of the related stock options. As of December 31,
1995 and September 30, 1996, the Company has issued 900,000 and 1,100,000
(unaudited) SAR's, respectively, none of which are exercisable.
F-24
<PAGE>
A summary of stock option activity for the years ended December 31, 1994 and
1995, and for the nine months ended September 30, 1996 (unaudited), is as
follows:
Number of Per Share
Shares Exercise Price
---------- --------------
Balance, December 31, 1993 1,585,000 $1.00-1.50
Granted during 1994 110,000 $1.50-2.50
Exercised during 1994 - $ -
Canceled during 1994 (30,000) $1.00-1.50
---------- ----------
Balance, December 31, 1994 1,665,000 $1.00-2.50
Granted during 1995 550,000 $2.50
Exercised during 1995 - $ -
Canceled during 1995 (703,000) $1.00-2.50
---------- ----------
Balance, December 31, 1995 1,512,000 $1.00-2.50
Granted during 1996 (unaudited) 289,000 $2.50
Exercised during 1996 (unaudited) - $ -
Canceled during 1996 (unaudited) (242,000) $1.50-2.50
---------- ----------
Balance, September 30, 1996 (unaudited) 1,559,000 $1.00-2.50
---------- ----------
---------- ----------
Exercisable at September 30, 1996 (unaudited) 1,065,250 $1.00-2.50
---------- ----------
---------- ----------
DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan (the "Plan") intended to qualify
under Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"), in which substantially all full-time employees are participants.
Participants in the Plan may make pretax contributions subject to limitations
imposed by the Code. The Company may make, at the Board of Directors'
discretion, an annual contribution on behalf of each participant. No amounts
have been contributed by the Company under the Plan.
(12) SUBSEQUENT EVENTS
DEVELOPMENT AND SUPPLY AGREEMENT
On January 29, 1996, the Company signed an agreement with an unaffiliated third
party to develop a multi-application "smart card" based on the Company's
contactless smart card technology and the third party's bank and electronic
purse operating system. In combination, the two technologies form the basis for
a new product family which will combine contact and contactless operation on a
single, microprocessor smart card. Under the terms of the agreement, the
Company received an
F-25
<PAGE>
initial cash payment of $500,000 and will receive approximately an additional
$1,300,000 based upon the achievement of certain production milestones and
delivery of specified products. As of September 30, 1996 (unaudited), the
Company has recognized $600,000 of revenue as a result of the initial cash
payment of $500,000 and reaching the first milestone.
TECHNOLOGY LICENSE AND SUPPLY AGREEMENT
On March 22, 1996, the Company entered into a technology license and supply
agreement with its affiliate, RJ, for the common purpose of more fully
developing the Japanese market for ferroelectric RFID products. RJ paid
$933,968 to the Company for the non-exclusive right and license to use its
patented ferroelectric RFID technology and all improvements, for the limited
right to design, develop and manufacture ferroelectric RFID products for sale
and use in Japan only. This license specifically excludes the right to use the
ferroelectric RFID technology in conveyor fed, airline, postal and courier
applications (as the rights to this technology were already previously licensed
to INTAG). Under the agreement, RJ is obligated to pay 50% of all sublicense
revenues and royalties, as defined in the agreement, on net sales of
ferroelectric RFID products to the Company. In March 1996, the Company
purchased an additional 1,000 shares of common stock in RJ at a purchase price
of 50,000 Japanese Yen ($466.98) per share, or $466,984. Additionally, in March
1996, NS and third parties purchased additional shares of common stock
decreasing the Company's ownership of RJ to 40%.
RJ PRODUCT DEVELOPMENT CONTRACT (UNAUDITED)
In October 1996, the Company consented to allow RJ to enter into a custom
product development project with a Japanese company, pursuant to the technology
license and supply agreement granted to RJ on March 22, 1996, under which the
Company is entitled to 50% of all sublicense revenue earned by RJ. The
sublicense is for a specified amount, as defined in the contract, a portion of
which is to be paid upon execution of the agreement and the remainder to be paid
upon RJ meeting certain performance criteria. Additionally, certain discounts
will be granted to RJ for purchases of specified products related to the
sublicense. Under the agreement, RJ will be entitled to royalties, as defined
in the contract, over the next five years.
WARRANTS (UNAUDITED)
In October 1996, the Company issued 121,766 and 251,452 warrants to purchase the
Company's common stock at an exercise price of $2.50 per share to INTAG and
Ramtron, respectively. The warrants were approved in consideration of
approximately $933,000 of short-term loans from Ramtron and INTAG and deferred
payment terms on product purchases from Ramtron made to the Company. The
warrants, which vest immediately, are exercisable for a period of five years
after the date of issuance. The Company determined that these warrants had a
nominal value at the date of issuance.
BRIDGE FINANCING (UNAUDITED)
In December 1996, the Company completed a private offering agreement whereby
they issued $1,040,000 of promissory notes (the "Bridge Notes"). The Bridge
Notes bear interest at prime plus 2% per annum, computed as of the date of
issuance (the "Bridge Date"), and thereafter on a quarterly basis commencing
December 31, 1996.
F-26
<PAGE>
The Bridge Notes mature the earlier of one year from the Bridge Date or upon the
closing date of any initial public offering ("IPO") of the Company's securities.
On the Bridge Date, the Company also granted warrants (the "Bridge Warrants")
entitling the holder to purchase shares of the Company's common stock at 125% of
the IPO price per unit, beginning on the effective date of the IPO and
continuing for two years thereafter. The holders of the Bridge Notes received
one warrant for every $4 of Bridge Note principal purchased, resulting in
260,000 Bridge Warrants being issued in connection with the offering of the
Bridge Notes.
F-27
<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than contained in this
Prospectus in connection with the Offering described herein, and if given or
made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer
to sell, or the solicitation of an offer to buy, the securities offered
hereby to any person in any state or other jurisdiction in which such offer
or solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof.
--------------------
TABLE OF CONTENTS
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----
Prospectus Summary .............................. 4
Risk Factors .................................... 8
Dilution ........................................ 15
Capitalization .................................. 17
Use of Proceeds ................................. 18
Selected Financial Data ......................... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ..................... 20
Business ........................................ 30
Management ...................................... 39
Principal Stockholders .......................... 45
Selling Stockholders ............................ 47
Certain Transactions ............................ 51
Description of Securities ....................... 54
Underwriting .................................... 58
Legal Matters ................................... 60
Experts ......................................... 60
Available Information ........................... 60
Financial Statements ............................ F-1
Until __________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1,500,000 Units
RACOM SYSTEMS, INC.
--------------------
PROSPECTUS
--------------------
Spencer Edwards, Inc.
__________, 1997
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI of the Registrant's Restated Certificate of Incorporation
provides as follows:
"LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a Director except for liability, (i) for any breach of the Director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived any improper
personal benefit.
Notwithstanding any other provisions herein, personal liability of a
director shall be eliminated to the greatest extent possible as is now, or in
the future, provided for by law."
Article Eight of the Company's Restated Bylaws provides, INTER ALIA, as
follows:
"LIABILITY: INDEMNIFICATION
Section 8.01 EXCULPATION. No director or officer of the Corporation shall be
liable for the acts, defaults or omissions of any other director or officer, or
for any loss sustained by the Corporation, unless the same has resulted from his
own willful misconduct, willful neglect or gross negligence.
Section 8.02 INDEMNIFICATION FOR ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct which was taken was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with
<PAGE>
respect to any criminal action or proceeding, that such person had reasonable
cause to believe that the conduct which was taken was unlawful.
Section 8.03 INDEMNIFICATION FOR ACTIONS, ETC. BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that such person is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper."
Insofar as indemnification for liabilities arising under the 1933 Act, as
amended, may be permitted to officers, directors or persons controlling the
Company, the Company has been advised that, in the opinion of the Securities and
Exchange Commission, Washington, D.C. 20549, such indemnification is against
public policy as expressed in such Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
officer, director or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such officer, director or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)(2)
SEC Registration Fee................................. $ 7,434
NASD Filing Fee...................................... 2,953
Blue Sky Filing Fees................................. 12,000
Blue Sky Legal Fees.................................. 25,000
Printing Expenses.................................... 45,000
Legal Fees and Expenses.............................. 85,000
Accounting Fees...................................... 40,000
Transfer Agent....................................... 3,000
NASDAQ Application Fee............................... 10,000
Miscellaneous Expenses............................... 19,613
--------
TOTAL................................................ $250,000(1)
(1) Does not include the Representative's commission and expenses of
$__________ ($__________ if the Overallotment Option is exercised).
(2) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following shares of
its Common Stock which were not registered under the 1933 Act, as amended.
(i) In May and June 1994, the Registrant sold 970,000 shares of its Common
Stock at $2.50 per share to the following persons:
NAME NUMBER OF SHARES
---- ----------------
FAI Overseas Investment PTY, LTD. 200,000
Wahib S. Binzagr 100,000
John A. Duke Trust 100,000
Blairmore PTY, LTD. 80,000
Maxwell Investment Limited 20,000
W.S.P. Constructions PTY, LTD.
Superannuation Fund 20,000
TFK International Nominees (Asia) Limited 10,000
David Stanley Jones Haselton and Delma Jean
Haselton (Joint Tenants) 10,000
Raymond Henry Lennon and Pauline Maria
Lennon (Tenants in Common) 15,000
BUJO PTY, Limited as Trustee for the
Fisher Family Trust 10,000
The W. R. Taylor Family Discretionary Trust 10,000
II-3
<PAGE>
Rosalind-Margaret Reid (Read) nee Fung 12,400
Katunayake Garments Limited 20,000
John D. Adcock 40,000
Equitilink International Management Limited 200,000
Liza Ying 10,000
Capital Credit Company PTY, LTD. 20,000
George Stanley Shaw 20,000
AusAsean Investment PTY, LTD. 12,600
Asia Assets & Developments, Inc. 60,000
(ii) In June 1994, the Registrant issued 200,000 common stock purchase warrants
to Intag exercisable at $2.50 per share until June 13, 1999.
(iii) In February 1995, the Registrant issued 1,000,000 shares of its Common
Stock to Ramtron International Corporation ("Ramtron") in exchange for the
execution of an amendment to the Registrant's Technology License Agreement with
Ramtron.
(iv) In June 1995, the Registrant issued 1,062,532 shares of its Common Stock
to Intag International Limited ("Intag") in exchange for debt owed to Intag in
the aggregate amount of $2,033,798 or $1.91 per share.
(v) In August and December 1995, the Registrant sold 500,000 shares to Rohm
Co., Ltd. for $1,500,000 or $3.00 per share.
(vi) In October 1996, the Registrant issued 121,766 common stock purchase
warrants to Intag and 251,452 common stock purchase warrants to Ramtron
exercisable at $2.50 per share until October 4, 2001 in consideration of loans
and deferred payment terms granted to the Registrant by Intag and Ramtron in the
amounts of $304,414 and $628,630, respectively.
(vii) In December 1996, the Registrant issued 260,000 Bridge Warrants to the
following individuals in exchange for an aggregate of $1,040,000 of loans to the
Registrant at the rate of one Bridge Warrant for each $4.00 loaned. Each Bridge
Warrant is exercisable to purchase one share of Common Stock for $__________ per
share at any time for a period of two years from the effective date hereof. See
"Selling Stockholders."
NAME NUMBER OF BRIDGE WARRANTS
---- -------------------------
Michael M. Arnouse 25,000
Three Edward Lane
Syosset, NY 11791
William P. Bennett 12,500
P.O. Box 4240
Boulder, CO 80306
II-4
<PAGE>
NAME NUMBER OF BRIDGE WARRANTS
---- -------------------------
Steven Bloechl 6,250
4540 S. Decatur Street
Englewood, CO 80110
Roland J. Christensen 12,500
192 E. 100N
Fayette, UT 84630
Ellis V. Couch 6,250
2926 Rocky Oak Street
San Antonio, TX 78232
Thomas L. Dutcher 6,250
P.O. Box 897
Montrose, CO 81402-0897
John A. Duke Trust 25,000
9100 Boyd Road
P.O. Box 430
Rogue River, OR 97537
Frederick M. Galloway 6,250
375 Ammons Street
Lakewood, CO 80226
John R. Hannifan 12,500
1366 S.W. Tamarind Way
Boca Raton, FL 33486
Arthur Kassoff 6,250
7600 State Street
E. St. Louis, IL 62203
Kaufmann Survivors Trust 6,250
(c/o Carl J. Kaufmann)
2000 Royal Marco Way #906
Marco Island, FL 34145-1800
II-5
<PAGE>
NAME NUMBER OF BRIDGE WARRANTS
---- -------------------------
Gary A. Mosko 12,500
234 Garfield
Denver, CO 80206
Heribert Obser 12,500
P.O. Box 697
Quogue, NY 11959
Mitchell & Elizabeth Pearlman 6,250
27157 Highlands Lane
Valencia, CA 91354
Robert R. Peterson 6,250
P.O. Box 3460
Estes Park, CO 80517
Max Quimby & Armond Quimby 6,250
Revocable Living Trust
(c/o Max Quimby)
10409 Riverside Drive #302
Toluca Lake, CA 91602
S. G. Construction Company 12,500
(c/o Ronald W. Massner)
2850 Mt. Pleasant St., Suite 102
Burlington, IA 52601
David M. Schneider 12,500
721 Redwood Drive
Lincoln, NE 68510-5219
Shepler & Thomas, Inc. 6,250
Profit Sharing Plan FBO William R. Bell
(c/o William R. Bell)
28650 Cavan Lane
Evergreen, CO 80439
Deloris J. Sherwood 6,250
15111 Bushard Street #84
Westminster, CA 92683
II-6
<PAGE>
NAME NUMBER OF BRIDGE WARRANTS
---- -------------------------
Charles W. Wafer 37,500
P.O. Box 2174
Rancho Santa Fe, CA 92067
David Wank 10,000
5200 White Oak Ave. #35
Encino, CA 91316
Barbara L. Westrick 6,250
11786 Decatur Drive
Denver, CO 80234-2554
(viii) From time to time, the Registrant has issued stock options (currently
aggregating 1,559,000 such stock options) to employees, officers and directors
under its 1993 Employee Stock Option Plan.
With respect to the sales made, the Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended (the "1933 Act"), and/or Regulation D,
Rule 506. No advertising or general solicitation was employed in offering
the securities. The securities were offered to a limited number of
individuals all of whom were business associates of the Registrant or its
executive officers and directors and the transfer thereof was appropriately
restricted by the Registrant. All shareholders were foreign persons or were
accredited investors as that term is defined under Regulation D under the
1933 Act and were capable of analyzing the merits and risks of their
investment who acknowledged in writing that they were acquiring the
securities for investment and not with a view toward distribution or resale
and understood the speculative nature of their investment.
ITEM 27. EXHIBITS.
EXHIBIT NO. TITLE
----------- -----
1.01 Form of Underwriting Agreement
1.02 Form of Selling Agreement
1.03 Form of Representative's Warrant
1.04 Form of Warrant Agreement
3.01 Restated Certificate of Incorporation of the Registrant
II-7
<PAGE>
3.02 Restated Bylaws of the Registrant
5.01 Opinion of Gary A. Agron, regarding legality of the Common Stock
(includes Consent)
10.01 1993 Employee Stock Option Plan
10.02 Lease Agreement - Greenwood Village Office Facility
10.03 Joint Venture Agreement (Racom Japan)
10.04 Exclusive Distributor Agreement (Racom Japan)
10.05 Technology License Agreement (Racom Japan)
10.06 Exclusive Distributor Agreement (Racom Japan)
10.07 Development and Supply Agreement (Bull CP-8)
10.08 Agreement regarding ferroelectric RFID Products (Rohm)
10.09 Stock Purchase Agreement (Rohm)
10.10 Settlement Agreement (Intag)
10.11 Assignment and Security Agreement (Intag)
10.12 Technology License Agreement (Ramtron)
10.13 Amendment to Technology License Agreement (Ramtron)
10.14 Second Amendment to Technology License Agreement (Ramtron)
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Gary A. Agron (See 5.01, above)
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification
II-8
<PAGE>
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and
Exchange Commission such supplementary and periodic information, documents
and reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in that
section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at the
time such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
1933 Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(e) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(f) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(g) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Greenwood Village, Colorado, on December 16, 1996.
RACOM SYSTEMS, INC.
By: /s/ RICHARD HORTON
----------------------------
Richard Horton
Chief Executive Officer
Pursuant to the requirements of the 1933 Act, as amended, this Registration
Statement has been signed below by the following persons on the dates indicated.
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CHARLES A. FEAR Chairman of the Board of December 16, 1996
- --------------------------- Directors
Charles A. Fear
/s/ RICHARD HORTON President, Chief Executive December 16, 1996
- --------------------------- Officer, Chief Financial
Richard L. Horton Officer (Principal Accounting
Officer) and Director
/s/ MARK R. DAVISON Director December 16, 1996
- ---------------------------
Mark R. Davison
/s/ L. DAVID SIKES Director December 16, 1996
- ---------------------------
L. David Sikes
/s/ GEORGE J. STATHAKIS Director December 16, 1996
- ---------------------------
George J. Stathakis
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. TITLE
- ----------- -----
1.01 Form of Underwriting Agreement
1.02 Form of Selling Agreement
1.03 Form of Representative's Warrant
1.04 Form of Warrant Agreement
3.01 Restated Certificate of Incorporation of the Registrant
3.02 Restated Bylaws of the Registrant
5.01 Opinion of Gary A. Agron, regarding legality of the Common Stock
(includes Consent)
10.01 1993 Employee Stock Option Plan
10.02 Lease Agreement - Greenwood Village Office Facility
10.03 Joint Venture Agreement (Racom Japan)
10.04 Exclusive Distributor Agreement (Racom Japan)
10.05 Technology License Agreement (Racom Japan)
10.06 Exclusive Distributor Agreement (Racom Japan)
10.07 Development and Supply Agreement (Bull CP-8)
10.08 Agreement regarding ferroelectric RFID Products (Rohm)
10.09 Stock Purchase Agreement (Rohm)
10.10 Settlement Agreement (Intag)
10.11 Assignment and Security Agreement (Intag)
10.12 Technology License Agreement (Ramtron)
<PAGE>
EXHIBIT NO. TITLE
- ----------- -----
10.13 Amendment to Technology License Agreement (Ramtron)
10.14 Second Amendment to Technology License Agreement (Ramtron)
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Gary A. Agron (See 5.01, above)
<PAGE>
UNDERWRITING AGREEMENT
1,500,000 UNITS
January __, 1997
Spencer Edwards, Inc.
6120 Greenwood Plaza Blvd.
Englewood, CO 80111
Gentlemen:
Racom Systems, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "Underwriter") pursuant to this Underwriting
Agreement (the "Agreement") an aggregate of 1,500,000 units (the "Firm Units"),
each unit ("Unit") consisting of one (1) share of the Company's $.01 par value
Common Stock (the "Common Stock"), and one Redeemable Common Stock Warrant
entitling the holder thereof to purchase for $_____, (125% of the Unit Offering
Price) one share of Common Stock for a term of five (5) years from the effective
date of the Registration Statement described below in Section 1(a). The terms
of the Units and the components of the Units shall be as described in the
Registration Statement. In addition, for the sole purpose of covering over-
allotments in connection with the sale of the Firm Units, the Company proposes
to grant to the Underwriter an option to purchase up to an additional 225,000
Units (the "Option Units"). The Company further agrees to sell and issue to you
as Underwriter, five-year warrants (the "Underwriter's Warrants") to purchase
for $_____ per Unit an aggregate of 150,000 Units (the "Underwriter's Warrant
Units"). Each Underwriter's Warrant Unit consists of one (1) share of Common
Stock and one (1) Redeemable Warrant ("Underlying Warrant"). The terms and
conditions of the Underwriter's Warrants, Underwriter's Warrant Units and
Underlying Warrants, including the purchase price thereof, shall be as set forth
in the Underwriter's Warrant filed as an exhibit to the Registration Statement.
The Firm Units, any Option Units purchased pursuant to this Agreement and
the Underwriter's Warrant Units are collectively called herein the "Units" and
the Warrants included in the Units and the Underwriter's Warrants are
collectively called herein the "Warrants." The shares of Common Stock issuable
upon exercise of the Warrants are collectively called the "Warrant Shares" and
the Warrant Shares, together with the shares of Common Stock included in the
Units, are collectively called the "Shares."
You have advised the Company that you intend to purchase the Firm Units,
and that you have been authorized to execute this Agreement. The Company
confirms the agreements made by it with respect to the purchase of the Firm
Units by the Underwriter, as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, the Underwriter
that:
(a) A registration statement (File No. __________) on Form SB-2 relating
to the public offering of the Units, Warrants and Shares, including a
preliminary form of prospectus, copies of which have heretofore been delivered
to you, has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the Commission
under the Act. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 of the Rules and Regulations. The registration statement
(including all financial schedules and exhibits) as amended at the time it
becomes effective and the final prospectus included therein are respectively
referred to as the "Registration Statement" and the "Prospectus", except that
(i) if the prospectus first filed by the Company pursuant to Rule 424(b) or Rule
430A of the Rules and Regulations or otherwise utilized and not required to be
so filed shall differ from said prospectus as then amended, the term
"Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b) or
Rule 430A, or so utilized from and after the date on which it shall have been
filed or utilized and (ii) if such registration statement or prospectus is
amended or such prospectus is supplemented, after the effective date (the
"Effective Date") of such registration statement and prior to the Option Closing
Date (as defined in Section 2(b)), the term "Registration Statement" shall
include such registration statement as so amended, and the term "Prospectus"
shall include the prospectus as so amended or supplemented, or both, as the case
may be.
(b) At the time the Registration Statement becomes effective and at all
times subsequent thereto up to the Option Closing Date (defined above), (i) the
Registration Statement and Prospectus will in all respects conform to the
requirements of the Act and the Rules and Regulations, (ii) there will be no
stop order of the Commission, any court of competent jurisdiction or the
securities administrator of any state in which the Units, Warrants and Shares
have been, or are to be, registered or qualified, in effect, pending or
threatened with respect to the effectiveness of the Registration Statement or
the distribution of the Prospectus and (iii) neither the Registration Statement
nor the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
statements therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus with respect to
stabilization, the material set forth under the heading "Underwriting", and the
identity of counsel to the Underwriter under the heading "Legal Matters"
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement and Prospectus, as the
case may be.
2
<PAGE>
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and corporate authority to own its properties and
conduct its business as described in the Prospectus and is duly qualified to do
business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or location
of its properties requires such qualification, except where failure to so
qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized capital stock of the Company as of the date of the
Prospectus, as set forth under "Description of Securities" in the Prospectus,
was 20,000,000 shares of Common Stock, $.01 par value per share, of which not
more than 13,400,000 shares will be issued and outstanding or subject to
outstanding options or warrants as of the Effective Date and 5,000,000 shares of
Preferred Stock, no par value per share, of which no shares will be issued and
outstanding. The shares of issued and outstanding capital stock of the Company
set forth thereunder have been duly authorized, validly issued and are fully
paid and non-assessable; except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company.
The Preferred Stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and their components upon issuance and delivery and payment
therefor in the manner contemplated by this Agreement will be duly authorized,
validly issued, fully paid and nonassessable. The shares of Common Stock are
not subject to preemptive rights of any security holder of the Company. Neither
the filing of the Registration Statement nor the offering or sale of the Units,
Warrants or Shares, as contemplated in this Agreement and the Underwriter's
Warrant, gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock or
other securities of the Company, except as described in the Registration
Statement.
(f) All offers and sales of the Company's capital stock prior to the date
hereof, other than pursuant to effective registration statements under the Act,
were at all relevant times exempt from the registration requirements of the Act
and were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky laws,
or the relevant statutes of limitations have expired, or civil liability
therefor has been eliminated by an offer to rescind.
(g) This Agreement, including the Underwriter's Warrant, the agreement
between the Company and the warrant agent (the "Warrant Agreement") and the
other agreements of the Company provided for herein, has been duly authorized,
executed and delivered by the Company and constitute the valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except insofar as rights to indemnity and/or contribution may be limited
by federal or state securities laws or the public policy underlying such laws
and except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws
3
<PAGE>
affecting creditors' rights generally, and be subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The Units, Warrants and Shares have been
duly authorized for issuance and sale, and, when issued pursuant to this
Agreement and the Underwriter's Warrant against payment of the consideration
therefor, will be validly issued, fully paid and nonassessable and not
subject to preemptive rights. The Warrant Shares issuable upon exercise of
the Warrants have been duly authorized and reserved for issuance upon
exercise of the Warrants and when issued upon payment of the exercise price
therefor will be validly issued, fully paid and nonassessable shares of
Common Stock and not subject to preemptive rights.
(h) Except as described in the Prospectus, the Company is not in
violation, breach or default of or under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach of, any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance pursuant to the terms of, any indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company are subject, nor will such action result in
any violation of the provisions of the articles of incorporation or the
by-laws of the Company, as amended, or any statute or any order, rule or
regulation applicable to the Company of any court or of any regulatory authority
or other governmental body having jurisdiction over the Company.
(i) Subject to the qualifications stated in the Prospectus, the Company
has good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
owns or leases all such properties described in the prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(j) Arthur Andersen LLP, who have given their reports on certain financial
statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are
independent with respect to the Company as required by the Act and the Rules and
Regulations.
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(k) The financial statements and schedules, together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in cash flows of the
Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said statements and
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved.
(l) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as may otherwise be stated or
contemplated therein: (i) there has not been any material adverse change in the
condition of the Company and its subsidiaries, taken as a whole, financial and
otherwise, or in the earnings, business prospects or current operations of the
Company and its subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, (ii) there have not been any material transactions
entered into by the Company or any of its subsidiaries which are required to be
disclosed in the Registration Statement, (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock or any material change in the capital stock or material
increase in the long-term indebtedness of the Company; (iv) no action, suit or
proceeding at law or in equity and no governmental or regulatory proceeding has
occurred or is pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its subsidiaries wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
consummation of this Agreement or the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries, taken as a
whole and (v) neither the Company nor any of its subsidiaries has sustained a
loss of, or damage to, its properties (whether or not insured) which would have
a material adverse effect on the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries, taken as a
whole.
(m) Except as set forth in the Prospectus, there is not now pending nor,
to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters or discrimination on the basis
of age, sex, religion or race) to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth or
properties of the Company; and no labor disputes involving the employees of the
Company exist which might be expected to materially adversely affect the conduct
of the business, property or operations or the financial condition or earnings
of the Company.
(n) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company.
(o) The Company has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects complying therewith and, except
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as disclosed in the Prospectus, owns or possesses adequate rights to use all
material patents, patent applications, trademarks, mark registrations,
copyrights and licenses necessary for the conduct of such business and has
not received any notice of conflict with the asserted rights of others in
respect thereof. To the best knowledge of the Company, none of the
activities or business of the Company is in violation of, or cause the
Company to violate, any law, rule, regulation or order of the United States,
any state, county or locality, or of any agency or locality, the violation of
which would have a material adverse impact upon the condition (financial or
otherwise), business, property, prospective results of operations or net
worth of the Company.
(p) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law, or (ii) made any payment to any
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(q) On the Closing Dates (as defined in Section 2(c)), all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes imposed by any jurisdiction), if any, which are required to be paid in
connection with the sale and transfer of the Units, Warrants and Shares to the
Underwriter hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(r) All contracts and other documents of the Company which are, under the
Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(s) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the Units, Warrants and Shares to facilitate the sale or resale of
the Units, Warrants and Shares hereunder.
(t) Except as set forth in the Prospectus, the Company has no
subsidiaries.
(u) The Company has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
(v) As of the effective date of the Registration Statement, the Common
Stock has been duly registered under Section 12(g) of the 1934 Act; the Common
Stock and Warrants have been approved for quotation on the National Association
of Securities Dealers Automated Quotation Small Cap Market ("Nasdaq Small Cap")
upon official notification of issuance; the Units will not trade on any Exchange
or through the over-the-counter market.
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Any certificate signed by any officer of the Company and delivered to you
or to counsel for the Underwriter in connection with the Closing shall be deemed
a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
2. PURCHASE, DELIVERY AND SALE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties and agreements herein contained, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to buy from the Company at $_____ per Unit (between $4.25 and $5.25 per Unit) at
the place and time hereinafter specified, 1,500,000 Units.
Delivery of the Firm Units as well as the Underwriter's Warrant against
payment therefor shall take place at the offices of Spencer Edwards, Inc., 6120
Greenwood Plaza Blvd., Englewood, CO 80111 (or at such other place as may be
designated by agreement between you and the Company) at 9:00 a.m. local time on
January __, 1997 or at such later time and date as you may designate within ten
business days of the effective date of the Registration Statement or the date
which you receive the Prospectus in sufficient quantity to send confirmations of
sale, such time and date of delivery for the Firm Units being herein called the
"First Closing Date." Time shall be of the essence and delivery at the time and
place specified in this subsection (a) is a further condition to the obligations
of the Underwriter hereunder. Payment shall be made to the order of the Company
on the First Closing Date.
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to you to purchase all or any
part of an aggregate of an additional 225,000 Units at the same price per Unit
as you shall pay for the Firm Units being sold pursuant to the provision of
subsection (a) of this Section 2. This option may be exercised within thirty
(30) days after the First Closing Date upon notice by you to the Company
advising it as to the amount of Option Units as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Units are to be registered and the time and date when such certificates are to
be delivered. Such time and date shall be determined by you but shall not be
earlier than four and not later than ten full business days after the exercise
of said option, nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Units against payment therefor shall take place at the offices of the
Underwriter. Time shall be of the essence and delivery at the time and place
specified in this subsection (b) is a further condition to your obligations
hereunder. The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriter of Firm Units referred to in
subsection (a) above.
(c) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company shall sell to you individually, and/or your designated
officers, at the First Closing Date, as defined below, for $100, Underwriter's
Warrants to purchase an aggregate of up to 150,000 Underwriter's Warrant
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<PAGE>
Units. The price, terms and provisions of the Underwriter's Warrant Units and
the respective rights and obligations of the Company and the holders of the
Underwriter's Warrants and/or Underwriter's Warrant Units and the components
thereof are set forth in the Underwriter's Warrant between the Company and
the Underwriter.
(d) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriter hereunder available to you for
examination at least two full business days prior to the First Closing Date or
the Option Closing Date (which are collectively referred to herein as the
"Closing Dates" and individually as a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request, at
least two full business days prior to the relevant Closing Dates. Time shall be
of the essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriter.
Definitive engraved certificates in negotiable form for the Firm Units and
the Option Units to be purchased by the Underwriter hereunder will be delivered
by the Company to you for your account against payment of the purchase price by
you by certified or bank cashier's checks in certified funds, payable to the
order of the Company.
In addition, in the event you exercise the option to purchase from the
Company all or any portion of the Option Units pursuant to the provisions of
subsection (b) above, payment for such Option Units shall be made to or upon the
order of the Company not later than ten (10) business days after the Option
Closing Date by certified checks at the time and date of delivery of such Option
Units as required by the provisions of subsection (b) above, against receipt of
the certificates for such Option Units by you for your account, registered in
such names and in such denominations as you may request.
It is understood that the Underwriter proposes to offer the Units to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the effective date, file any amendment to
the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you or
your counsel shall have objected in writing or which is not in compliance with
the Act and the Rules and Regulations. At any time prior to the later of (i)
the completion by the Underwriter of the distribution of the Shares contemplated
hereby (but in no event more than nine months after the date on which the
Registration Statement shall have become or been
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<PAGE>
declared effective) and (ii) 25 days after the Effective Date, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which,
in your reasonable opinion, may be necessary or advisable in connection with
the distribution of the Shares.
(i) Promptly after you or the Company is advised thereof, you
will advise the Company or the Company will advise you, as the case
may be, and confirm the advice in writing, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request
made by the Commission for amendment of the Registration Statement or
for supplementing of the Prospectus or for additional information with
respect thereto, of the issuance by the Commission or any state or
regulatory body of any stop orders or other order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus, or of the suspension
of the qualification of the Shares for offering in any jurisdiction,
or the institution of any proceedings for any of such purposes, and
the Company will use its reasonable efforts to prevent the issuance of
any such order and, if issued, to obtain as soon as possible the
lifting thereof.
(ii) The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriter and selected dealers to
use the Prospectus in connection with the sale of the Units for such
period as in the opinion of counsel of the Underwriter (whether
general, special, patent or otherwise) the use thereof is required to
comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period
as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer, of any event of
which the Company has knowledge and which materially affects the
Company or the Securities, or which, in the opinion of counsel for the
Company or counsel for the Underwriter, should be set forth in an
amendment to the Registration Statement or a supplement to the
Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the
Prospectus is required to be delivered to a purchaser of the Units, or
in case it shall be necessary to amend or supplement the Prospectus to
comply with the Act or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you
copies of such amended Prospectus or of such supplement to be attached
to the Prospectus, in such quantities as you may reasonably request,
in order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which
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<PAGE>
they are made, not misleading. The preparation and furnishing of any
such amendment or supplement to the Registration Statement or amended
Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter, except that in case the Underwriter
is required, in connection with the sale of the Shares, to deliver a
Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon your request and at your
expense, amend or supplement the Registration Statement and Prospectus
or file a new registration statement on Form SB-2, S-1 or S-3, if
necessary, and furnish the Underwriter with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
(iii) The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations thereunder in connection with the
offering and issuance of the Shares.
(b) The Company will use its best efforts and shall pay all costs and
expenses to qualify or register ("Blue Sky") the Firm Units and Option Units for
sale under the securities or "blue sky" laws of such jurisdictions as you may
designate and will make such applications and furnish such information to
counsel for the Company as may be required for that purpose and to comply with
such laws, provided that the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Firm Units and Option Units. Blue Sky
applications shall be prepared by the Company's counsel, Gary A. Agron, at the
Company's expense. On the Effective Date of this Agreement as defined in
Section 9 below, counsel for the Company shall deliver to Underwriter's counsel
a Blue Sky Memorandum describing, among other things, all states wherein the
Offering has been qualified or registered for sale, the number of Units
registered in each such state and the period of effectiveness of such
qualification or registration. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as you may reasonably request.
(c) If the sale of the Units provided for herein is not consummated for
any reason caused by the Company, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the expenses itemized in Section 8, including your
accountable expenses, as provided in Section 8(b).
(d) The Company will use its best efforts to cause a Registration
Statement under the Exchange Act to be declared effective concurrently with the
completion of the offering of the Shares or promptly thereafter, but in no event
later than three days after the date of the Prospectus.
(e) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Exchange Act, the Company, at its expense, will furnish to
the holders of its
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Common Stock, Units and Warrants an annual report (including financial
statements audited by independent public accountants), in reasonable detail
and at its expense, will furnish to you during the period ending five years
from the date hereof, (i) within 90 days of the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such
fiscal year, together with statements of income, stockholders' equity and
cash flows of the Company and any subsidiaries as at the end of such fiscal
year, all in reasonable detail and accompanied by a copy of the certificate
or report thereon of independent auditors; (ii) as soon as they are
available, a copy of all reports (financial or other) mailed to security
holders; (iii) as soon as they are available, a copy of all non-confidential
reports and financial statements furnished to or filed with the Commission;
and (iv) such other information as you may from time to time reasonably
request.
(f) In addition to the information and reports set forth in Section 3(e)
above, for a period of two years from the Effective Date, the Company, at its
expense, shall furnish to you (i) unaudited quarterly financial statements on a
timely basis, and (ii) monthly shareholder lists prepared by the Company's
transfer agent.
(g) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(h) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon order of the Underwriter, from time to time
until the Effective Date, as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriter may
reasonably request. The Company will deliver to the Underwriter on the
Effective Date and thereafter for so long as a Prospectus is required to be
delivered under the Act, from time to time, as many copies of the Prospectus, in
final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(i) The Company will make generally available to its security holders and
deliver to you as soon as it is practicable to do so, but in no event later than
90 days after the end of 12 months after its current fiscal quarter, an earnings
statement (which need not be audited) covering a period of at least 12
consecutive months beginning after the Effective Date, which shall satisfy the
requirements of Section ll(a) of the Act.
(j) The Company will apply the net proceeds from the sale of the Firm
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
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<PAGE>
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of Michael J. Tauger, counsel to the Underwriter, may be
reasonably necessary or advisable in connection with the distribution of the
Shares and will use its reasonable efforts to cause the same to become effective
as promptly as possible.
(l) Each of the existing stockholders owning 5% or more of the Company's
outstanding securities and all officers and directors, including to the extent
such stockholders, officers and directors are holders of any Common Stock,
options, warrants or convertible securities, of the Company at the date hereof
(the "Existing Stockholders"), will execute agreements ("Lock Up Agreements"),
in the form previously delivered, to the effect that (i) for a period of 12
months from the date of the Prospectus, they will not sell, assign, hypothecate,
pledge or otherwise dispose of, directly or indirectly, any shares of Common
Stock of the Company owned prior to the date hereof without your prior written
consent, (ii) for a period commencing 12 months and ending 24 months from the
date of the Prospectus, they will not sell, assign, hypothecate, pledge or
otherwise dispose of, directly or indirectly, more than 50% of any shares of
Common Stock of the Company owned as of the date hereof without your prior
written consent, and (iii) will agree to permit all certificates evidencing
their shares to be endorsed with the appropriate restrictive legends, and
consent to the placement of appropriate stop transfer orders with the transfer
agent for the Company. The Company further agrees that for a period of 12
months from the date hereof, it will not register any shares of Common Stock
underlying any existing stock purchase warrants.
(m) The Company shall immediately make all filings required to seek
approval for the quotation of the Common Stock and Units on the NASDAQ National
Market and the Warrants for quotation on the Nasdaq Small Cap and will use its
reasonable efforts to effect and maintain the aforesaid approval for at least
five years from the date of this Agreement. Within 10 days after the Effective
Date, the Company shall cause the Company to be listed in Standard & Poor's
Financial Relations Program (including S&P Corporate Records, Stock Guide, OTC
Stock Reports and Market Guide) and cause such listing to be maintained for five
years from the date of this Agreement.
(n) The Company and the Existing Stockholders represent that it or they
have not taken, and agree that it or they will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result in the stabilization or manipulation of the price of
the Units to facilitate the sale or resale of the Units.
(o) For a period of twenty-four (24) months from the Closing, the Company
shall, at your option, appoint a non-voting advisor to the Company's Board of
Directors, designated by you and such advisor shall receive notice of and be
entitled to attend all meetings of the Board of Directors. For a period of no
less than five (5) years from the Closing, the Company shall hold at least four
(4) meetings of its Board of Directors each year, and such advisor shall be
entitled to attend all such meetings as well as all other meetings of the Board
of Directors.
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The Company agrees it shall fully indemnify, defend and hold harmless such
advisor to the fullest extent permitted by law with respect to all acts and
omissions as an advisor to the Company's Board of Directors.
(p) For a period of two (2) years from the date of the Prospectus, the
Company shall maintain in full force a $1,000,000 face amount policy of life
insurance on the life of the Company's President issued by a licensed insurer
not affiliated with the Company or Underwriter. The Company shall be the sole
beneficiary of the life insurance policy.
(q) The Company will reserve and keep available that maximum number of its
authorized but unissued Shares which are issuable upon exercise of the Warrants
and the Underwriter's Warrant (as defined in Section 11).
(r) For a period of thirty-six (36) months from the Effective Date, you
shall have the right to provide a competitive 401k program to management and all
employees of the Company.
(s) The Company shall select Common Stock and Warrant certificates and
utilize a stock transfer agent satisfactory to you.
(t) So long as any Warrants are outstanding, the Company shall use its
best efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the 1933 Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to the Underwriters and each dealer as many copies of
each such Prospectus as the Underwriters or dealer may reasonably request.
4. CONDITIONS OF UNDERWRITER'S OBLIGATION.
The obligations of the Underwriter to purchase and pay for the Units which
it has agreed to purchase hereunder are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 4:00 p.m., Eastern time, on the date
of this Agreement, or at such later time or on such later date as to which you
may agree in writing; on the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Michael J. Tauger, counsel to the Underwriter; and no stop order
shall be in effect denying or suspending effectiveness of the
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Registration Statement nor shall any stop order proceedings with respect
thereto be instituted or pending or threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Gary A. Agron, counsel for the Company, in form
and substance satisfactory to counsel for the Underwriter, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and is duly qualified or licensed to do business as a
foreign corporation in good standing in each other jurisdiction in
which the ownership or leasing of its properties or the conduct of its
business requires such qualification except where failure to so
qualify would not result in a material adverse effect on the Company;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained, or is in the process of obtaining, all licenses, permits and
other governmental authorizations necessary to the conduct of its
business as described in the Prospectus, (b) such obtained licenses,
permits and other governmental authorizations are in full force and
effect, and (c) the Company is in all material respects complying
therewith;
(iii) the authorized capitalization of the Company as of the
date of the Prospectus was as set forth under "Description of
Securities" in the Prospectus; all of the shares of the Company's
outstanding stock requiring authorization for issuance by the
Company's Board of Directors have been duly authorized and validly
issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding
shares of Common Stock of the Company have not been issued in
violation of the preemptive rights of any stockholder and the
stockholders of the Company do not have any preemptive rights or other
rights to subscribe for or to purchase, and there are no restrictions
upon the voting or transfer of, any of the Common Stock; the Units,
Common Stock, Warrants and the Underwriter's Warrants conform to the
respective descriptions thereof contained in the Prospectus; the Units
and each Unit component to be issued as contemplated in the
Registration Statement has been duly authorized and, when paid, will
be non-assessable and free of preemptive rights, and no personal
liability will attach to the ownership thereof; all prior sales of the
Company's securities have been made in compliance with, or under an
exemption from, the Act and applicable state securities laws; a
sufficient number of shares of Common Stock have been reserved for
issuance upon exercise of the Warrants and the Underwriter's Warrants;
and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any registration rights
or other rights, other than those which have been waived or satisfied,
for or relating to the registration of the Units;
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(iv) each of this Agreement, the Underwriter's Warrant, the
Warrant Agreement and the Warrants has been duly and validly
authorized, executed and delivered by the Company, and assuming due
authorization, execution and delivery of this Agreement by the
Underwriter and of such other agreements by the other parties thereto,
all of such agreements are, or when duly executed will be, the valid
and legally binding obligations of the Company (except as to
bankruptcy and related matters described in paragraph 1(f), above);
provided that no opinion need be expressed as to the enforceability of
the indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7 of this Agreement;
(v) the Warrant Shares (including those issuable upon exercise
of the Underwriter's Warrants) and Underwriter's Warrant Units have
been duly authorized and reserved for issuance and, when issued and
delivered in accordance with the terms of this Agreement and the
Underwriter's Warrant, respectively, will be duly and validly issued,
fully paid and nonassessable.
(vi) the certificate evidencing the Unit components and the
Underwriter's Warrants are in valid and proper legal form; the
Warrants and the Underwriter's Warrants will be exercisable for shares
of Common Stock of the Company in accordance with the terms of the
Warrant Agreement and the Underwriter's Warrant, respectively; and at
the respective prices therein provided for; the shares of Common Stock
of the Company issuable upon exercise of the Warrants and the
Underwriter's Warrants have been duly authorized and reserved for
issuance upon such exercise or conversion, and such shares, when
issued upon such exercise in accordance with the terms of the Warrants
and the Underwriter's Warrants and at the price paid, or upon such
conversion, shall be fully paid and non-assessable;
(vii) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could
materially and adversely affect the business, property, financial
condition or operations of the Company or which question the validity
of the Units or the components thereof, this Agreement, the Warrant
Agreement or the Underwriter's Warrant or of any action taken or to be
taken by the Company pursuant to this Agreement, the Warrant Agreement
or the Underwriter's Warrant; no such proceedings are known to such
counsel to be contemplated against the Company; and there are no
governmental proceedings or regulations known to such counsel required
to be described or referred to in the Registration Statement which are
not so described or referred to;
(viii) to the best knowledge of such counsel, the Company is
not in violation of or default under this Agreement, the Warrant
Agreement or the Underwriter's Warrant, and the execution and delivery
hereof and thereof and the
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incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated will
not result in a violation of, or constitute a default under, the
certificate or articles of incorporation or by-laws of the Company, or
in the performance or observation of any material obligation, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which
the Company is a party or in a violation of any material order, rule,
regulation, writ, injunction or decree or any government, governmental
instrumentality or court, domestic or foreign;
(ix) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission and the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
(x) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause such counsel to have reason to
believe that the Registration Statement or any amendment thereto at
the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto contains
any untrue statement of a material fact or omits to state a material
fact necessary in order to make statements therein in light of the
circumstances under which they were made not misleading (except, in
the case of both the Registration Statement and any amendment thereto
and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need
express no opinion);
(xi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents filed as exhibits to the Registration Statement are
accurate and fairly present the information required to be shown, and
such counsel is familiar with all contracts and other documents filed
as exhibits to the Registration Statement and the Prospectus and any
such amendment or supplement, or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
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(xii) no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Units or Unit components by the Company, in connection
with the execution, delivery and performance of this Agreement by the
Company or in connection with the taking of any action contemplated
herein, or the issuance of the Warrants, Underwriter's Warrants or the
securities underlying the Warrants and the Underwriter's Warrants,
other than registration or qualification of the Units and
Underwriter's Warrants under applicable state or foreign securities or
blue sky laws and registration under the Act;
(xiii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds,"Management" and "Description of
Securities" have been reviewed by such counsel and, insofar as they
refer to descriptions of agreements, statements of law, descriptions
of statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects; and
Such opinion shall also cover such matters including to the
transactions contemplated hereby as you or counsel for the Underwriter
shall reasonably request. In rendering such opinion, such counsel may
rely upon certificates of any officer of the Company or public
officials as to matters of fact; and may rely as to all matters of law
other than the law of the United States or the corporate law of the
State of Utah upon opinions of counsel satisfactory to you, which may
also be addressed to you, in which case the opinion shall state that
they have no reason to believe that you and they are not entitled to
so rely.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related matters
shall be reasonably satisfactory to or approved by Michael J. Tauger, counsel to
the Underwriter, and you shall have received from such counsel a signed opinion,
dated as of the First Closing Date, with respect to the validity of the issuance
of the Units, the form of the Registration Statement and Prospectus (other than
the financial statements and other financial data contained therein), the
execution of this Agreement and other related matters as you may reasonably
require. The Company shall have furnished to counsel for the Underwriter such
documents as they may reasonably request for the purpose of enabling them to
render such opinion.
(d) At both the time of the execution of this Agreement by the Company and
at the Closing Date, you shall have received letters in form and substance
satisfactory to you, from Arthur Andersen LLP (collectively the "Auditors"),
dated respectively as of the date of this Agreement and as of the Closing Date,
to the effect that they are independent public accountants with respect to the
Company within the meaning of the Act and published Rules and Regulations, and
that the Registration Statement is correct insofar as it relates to them and
stating in effect that:
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(i) In their opinion, the audited financial statements and notes
of the Company in the Registration Statement and the Prospectus
audited by them comply as to form in all material respects with the
applicable accounting requirements of the Act and the published Rules
and Regulation with respect to registration statements on Form SB-2.
(ii) On the basis of inquiries and procedures conducted by them
(not constituting an audit in accordance with generally accepted
auditing standards), including a reading of the financial information
and other data included in the Registration Statement and the
Prospectus in response to Item 310 of Regulation S-B; that on the
basis of inquiries of officials of the Company who have responsibility
for financial accounting matters, especially as to whether there was
any adverse change in revenues, net income (loss), or any change in
the capital stock of the Company or any change in the long-term debt
or any increase in bank borrowings or any decreases in total assets,
net current assets or shareholders' equity of the Company; reviewing
minutes of all meetings of shareholders and boards of directors (and
various committees thereof) of the Company since inception and other
specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
caused them to believe that:
(A) the audited financial statements for the years ended
December 31, 1994 and December 31, 1995, and the unaudited interim
financial statements for the nine months ended September 30, 1995 and
September 30, 1996, as to the Company, included in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the published Rules and
Regulations with respect to registration statements on Form SB-2; or
said financial statements are fairly presented in conformity with
generally accepted accounting principles; or the amounts included in
the Registration Statement and the Prospectus in response to Item 310
of Regulation S-B are not consistent with the corresponding amounts in
the audited or unaudited financial statements from which such amounts
were derived; or
(B) during the period from September 30, 1996 to a specified
date not more than five (5) days prior to the date of such letter,
there has been any change in the Common Stock or long-term debt of the
Company or any increase in bank borrowings of the Company or any
decrease in the shareholders' equity or working capital of the Company
or change in any other item appearing on the Company's financial
statements as to which the Underwriter may request advice, in each
case as compared with amounts shown in the financial statements
included in the Prospectus, except in each case for increases or
decreases which the Prospectus discloses have occurred or may occur,
or as specified in such letter, in which case the letter shall be
accompanied by an explanation by the Company of the significance
thereof.
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(iii) On the basis of certain procedure agreed to by the Underwriter
and the Auditors and described in their letter or letters, certain
numerical data and information included in the Registration Statement and
Prospectus and referred to in their letter were in agreement with
specifically designated records of the Company which were not included in
the Registration Statement and Prospectus but from which information in
the Registration Statement or the Prospectus was derived.
(e) At each of the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct with the
same effect as if made on and as of such Closing Date, and the Company shall
have performed all of its obligations hereunder and satisfied all the conditions
on its part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statements of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change in the business,
properties, condition (financial or otherwise), results of operations, capital
stock, long-term or short-term debt or general affairs of the Company from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company shall not have
incurred any material liabilities nor entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding would materially
and adversely affect the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company. In addition, you shall
have received, at the First Closing Date, a certificate signed by the Chairman
of the Board and the principal financial or accounting officer of the Company,
dated as of the First Closing Date, evidencing compliance with the provisions of
this subsection (e).
(f) Upon exercise of the option provided for in Section 2(b) hereof, your
obligations to purchase and pay for the Option Units referred to therein will be
subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness
thereof shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be
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contemplated by the Commission, and any reasonable request on the part
of the Commission for additional information shall have been complied with
to the satisfaction of Michael J. Tauger, counsel to the Underwriter.
(ii) At the Option Closing Date there shall have been delivered
to you the signed opinion of Gary A. Agron, counsel for the Company,
dated as of the Option Closing Date, in form and substance satisfactory
to Michael J. Tauger, counsel to the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinion furnished
to you at the First Closing Date pursuant to Section 4(b) hereof, except
that such opinion, where appropriate, shall cover the Option Shares
rather than the Firm Shares. If the First Closing Date is the same as
the Option Closing Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chairman of the Board and the
principal financial or accounting officer of the Company dated the
Option Closing Date, in form and substance satisfactory to Michael J.
Tauger, counsel to the Underwriter, substantially the same in scope
and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you letters in form and substance satisfactory to you from the
Auditors, dated the Option Closing Date and addressed to you,
confirming the information in their letter referred to in Section 4(d)
hereof as of the date thereof and stating that, without any additional
investigation required, nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five (5) business days prior to the Option
Closing Date which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units shall be
satisfactory in form and substance to you, and you and Michael J.
Tauger, counsel to the Underwriter, shall have been furnished with all
such documents, certificates and opinions as you may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements
of the Company or its compliance with any of the covenants or
conditions contained therein.
(g) If any of the conditions herein provided for in this Section shall not
have been completely fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be cancelled at, or at
any time prior to, each Closing Date by your notifying the Company of such
cancellation in writing or by telegram at or prior
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to the applicable Closing Date. Any such cancellation shall be without
liability of the Underwriter to the Company, except as otherwise provided
herein.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to sell and deliver the Units is subject to
the following conditions:
(a) The Registration Statement shall have become effective not later than
4:00 P.M. Eastern time, on the date of this Agreement, or on such later date or
time as the Company and you may agree in writing.
(b) On the Closing Dates, no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Units on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter, within the meaning of the
Act, from and against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), joint or
several, to which such Underwriter or such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment thereof or supplement thereto, or (ii) any blue sky application or
other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Units or other securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such
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amendment or supplement thereof or any such Blue Sky Application or any such
Preliminary Prospectus or the Prospectus or any such amendment or supplement
thereto. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company and
each person, if any, who controls the Company, within the meaning of the Act,
from and against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all attorneys' fees) to which the Company
or any such director, nominee, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Underwriter, specifically for use in preparation thereof. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is the Underwriter
or a person who controls the Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
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controlling person and the indemnifying party, and in the reasonable judgment of
the Underwriter, it is advisable for the Underwriter or controlling persons to
be represented by separate counsel (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act in
any case in which (i) the Underwriter makes claims for indemnification pursuant
to Section 6 hereof but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that such Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price per Unit appearing thereon, and the Company shall be responsible for the
remaining portion, provided, however, that (a) if such allocation is not
permitted by applicable law, then the relative fault of the Company and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company or the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriter agree (a) that it would not be just and equitable if
the respective obligations of the Company and the Underwriter to contribute
pursuant to this Section 7 were to be determined by PRO RATA or PER CAPITA
allocation of the aggregate damages or by any other method of allocation that
does not take account of the equitable considerations referred to in the first
sentence of this Section 7 and (b) that the contribution of the Underwriter
shall not be in excess of its proportionate share of the portion of such losses,
claims, damages or liabilities for which the Underwriter is responsible. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
ll(f) of the Act) shall be entitled to contribution from any person who
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is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the
full amount of the contribution specified in this paragraph is not permitted
by law, then the Underwriter and each person who controls the Underwriter
shall be entitled to contribution from the Company to the full extent
permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter
from any party who did not consent to the settlement; provided, however, that
such consent shall not be unreasonably withheld in light of all factors of
importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of the
Firm Units or Option Units to the Underwriter is consummated, the Company will
pay all costs and expenses incident to the performance of this Agreement by the
Company, including but not limited to the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), each Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Units contemplated hereby; all expenses,
including reasonable fees (but not in excess of the amount set forth in Section
3(b)) and disbursements of counsel to the Underwriter, in connection with the
qualification of the Units and Unit components under the State Securities or
Blue Sky Laws which we shall mutually designate; the cost of printing and
furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Selling Agreement
and the Blue Sky Memorandum; the cost of printing the certificates representing
the components comprising the Units, expenses of Company due diligence meetings
and presentations. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriter hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the First
Closing Date pay to you the balance of a non-accountable expense allowance of
$__________, of which $35,000 has been paid. In the event the over-allotment
option is exercised in full, the Company shall pay to you at the Option Closing
Date an additional amount equal to 3% of the gross proceeds received upon
exercise of the over-allotment option. In the event the transactions
contemplated hereby are not consummated for any reason, the Underwriter will
retain that portion of the $35,000 non-accountable expense allowance deposit
received from the Company as is equal to its actual accountable expenses and
will reimburse the Company for the remainder, if any.
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(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Underwriter or from any other person for services as
a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter, and the Underwriter agrees to
indemnify and hold harmless the Company from and against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all attorneys' fees), to which the indemnified party may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that you
may, at your option, delay its effectiveness until 10:00 A.M., Eastern time, on
the first full business day following the Effective Date, or at such earlier
time after the Effective Date as you in your discretion shall first commence the
initial public offering of any of the Shares. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Shares, or the time when the Shares are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14 and
15 shall remain in effect notwithstanding such termination.
10. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15,
may be terminated at any time prior to the First Closing Date, and the option
referred to in Section 2(b), if exercised, may be cancelled, at any time prior
to the Option Closing Date, by you if in your judgment it is impracticable to
offer for sale or to enforce contracts made by the Underwriter for the resale of
the Units agreed to be purchased hereunder, by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof,
(iv) a banking moratorium having been declared by federal or New York State
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company, (vii) any adverse change having occurred in
the sole opinion of the Underwriter in the financial or securities markets
25
<PAGE>
since the date of this Agreement, or (viii) any adverse change having occurred
in the sole opinion of the Underwriter with respect to the earnings, business
prospects or general condition of the Company, financial or otherwise, other
than normal fluctuations in sales, whether or not arising in the ordinary course
of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. UNDERWRITER'S WARRANT.
On the First Closing Date, the Company will issue to you, for a
consideration of $100 and upon the terms and conditions set forth in the form of
Underwriter's Warrant annexed as an exhibit to the Registration Statement, an
Underwriter's Warrant to purchase up to 150,000 Units at an exercise price of
$_____ per Unit. In the event of conflict in the terms of this Agreement and
the Underwriter's Warrant, the language of the Underwriter's Warrant shall
control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, and the Underwriter, set forth in or made
pursuant to this Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of the Underwriter, the Company or any of
its officers or directors or any controlling persons and will survive delivery
of and payment for the Units and the termination of this Agreement.
13. NOTICE.
All communications hereunder will be in writing and, except as otherwise
expressly provided herein, if sent to you, will be mailed, certified mail,
return receipt requested, delivered or telegraphed and confirmed at 6120
Greenwood Plaza Boulevard, Englewood, Colorado 80111, or if sent to the Company,
will be mailed, certified mail, return receipt requested, delivered, or
telegraphed and confirmed to it at 6080 Greenwood Plaza Boulevard, Greenwood
Village, Colorado 80111.
14. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
Underwriter and the Company and any person controlling the Company, or the
Underwriter, and directors of the Company, nominees for directors of the Company
(if any) named in the Prospectus, the officers of the Company who have signed
the Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from the Underwriter of the Units.
26
<PAGE>
15. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of Colorado applicable to agreements made and to be entirely
performed within Colorado.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
Yours very truly,
RACOM SYSTEMS, INC.
By
------------------------------------------
Richard L. Horton, Chief Executive Officer
Dated: _______________, 1997
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
SPENCER EDWARDS, INC.
By
------------------------------------------
Edward Price, President
Dated: _______________, 1997
27
<PAGE>
SPENCER EDWARDS, INC.
1,500,000 Units
Racom Systems, Inc.
SELLING AGREEMENT
Dear Sirs:
1. We, as Underwriter, are offering for sale an aggregate of 1,500,000
Units (the "Firm Units") of Racom Systems, Inc. (the "Company") which we have
agreed to purchase from the Company. In addition, we have been granted an
option to purchase from the Company up to an additional 225,000 Units (the
"Option Units") to cover over-allotments in connection with the sale of the Firm
Units. The Firm Units and the Option Units purchased are herein collectively
called the "Units." The Units and the terms under which they are to be offered
for sale by the Underwriter are more particularly described in the Prospectus.
2. The Units are to be offered to the public by the Underwriter at the
price per Unit set forth on the cover page of the Prospectus (the "Public
Offering Price"), in accordance with the terms of the offering thereof set forth
in the Prospectus.
3. The Underwriter is offering, subject to the terms and conditions
hereof, a portion of the Units for sale to certain dealers who are engaged in
the investment banking or securities business and who are either (i) members in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) dealers with their principal places of business located outside
the United States, its territories and its possessions and not registered as
brokers or dealers under the Securities Exchange Act of 1934, as amended (the
"1934 Act") who have agreed not to make any sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein (such dealers who shall agree to purchase Units hereunder
being herein called "Selected Dealers"), at the Public Offering Price, less a
selling concession (which may be changed) of not in excess of $. per Unit
payable as hereinafter provided, out of which concession an amount not exceeding
$. per Unit may be reallowable by Selected Dealers to members of the NASD or
foreign dealers qualified as aforesaid. The Selected Dealers have agreed to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and if any such dealer is a foreign dealer and not a
member of the NASD, such Selected Dealer also has agreed to comply with the
NASD's interpretation with respect to free-riding and withholding, to comply, as
though it were a member of the NASD, with the provisions of Section 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to non-member foreign dealers. The
Underwriter may be included among the Selected Dealers.
<PAGE>
4. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the public offering of the
Units.
5. If you desire to purchase any of the Units, your application should
reach us promptly by telephone, telegraph or facsimile at our office at 6120
Greenwood Plaza Blvd., Englewood, Colorado 80111, Attention: Syndicate
Department, Telephone No. (303) 740-8448 or (800) 288-8448, Fax No. (303) 740-
7317. We reserve the right to reject subscriptions in whole or in part, to make
allotments and to close the subscription books at any time without notice. The
Units allotted to you will be confirmed subject to the terms and conditions of
this Agreement.
6. Any Units purchased by you under the terms of this Agreement may be
immediately reoffered to the public in accordance with the terms of offering
thereof set forth herein and in the Prospectus, subject to the securities or
blue sky laws of the various states or other jurisdictions.
You agree to pay us on demand an amount equal to the Selected Dealer
concession as to any Units purchased by you hereunder which, prior to the
termination of this Agreement, we may purchase or contract to purchase and, in
addition, we may charge you with any broker's commission and transfer tax paid
in connection with such purchase or contract to purchase. Certificates for Units
delivered on such repurchases need not be the identical certificates originally
purchased.
No expenses shall be charged to Selected Dealers. A single transfer tax, if
payable, upon the sale of the Units by the Underwriter to you will be paid when
such Units are delivered to you. However, you shall pay any transfer tax on
sales of Units by you and you shall pay your proportionate share of any
transfer tax (other than the single transfer tax described above) in the event
that any such tax shall from time to time be assessed against you and other
Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Units other than as contained in the Prospectus.
7. The first three paragraphs of Section 6 hereof will terminate when we
shall have determined that the public offering of the Units has been completed
and upon telegraphic notice to you of such termination, but, if not theretofore
terminated, they will terminate at the close of business on the 30th full
business day after the date hereof; provided however, that we shall have the
right to extend such provisions for a further period or periods, not exceeding
an additional 30 full business days in the aggregate upon telegraphic notice to
you.
8. For the purpose of stabilizing the market in the Units, we have been
authorized to make purchases and sales of the Units of the Company, in the open
market or otherwise, for long or short account, and, in arranging for sales, to
over-allot.
2
<PAGE>
9. On becoming a Selected Dealer, and in offering and selling the Units,
you agree to comply with all the applicable requirements of the Securities Act
of 1933, as amended (the "1933 Act"), and the 1934 Act. You confirm that you are
familiar with Rule 15c2-8 under the 1934 Act relating to the distribution of
preliminary and final prospectuses for securities of an issuer (whether or not
the issuer is subject to the reporting requirements of Section 13 or 15(d) of
the 1934 Act) and confirm that you have complied and will comply therewith.
We hereby confirm that we will make available to you such number of copies
of the Prospectus (as amended or supplemented) as you may reasonably request for
the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and
regulations thereunder.
10. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Units are qualified for
sale under the respective securities or blue sky laws of such states and other
jurisdictions, but we assume no obligation or responsibility as to the right of
any Selected Dealer to sell the Units in any state or other jurisdiction or as
to the eligibility of the Units for sale therein.
11. No Selected Dealer is authorized to act as our agent or otherwise to
act on our behalf, in offering or selling the Units to the public or otherwise
or to furnish any information or make any representation except as contained in
the Prospectus.
12. Nothing will constitute the Selected Dealers an association or other
separate entity or partners with the Underwriter or with each other, but you
will be responsible or your share of any liability or expense based on any claim
to the contrary. We shall not be under any liability for or in respect of value,
validity or form of the Units or the delivery of the certificates for the Units,
or the performance by anyone of any agreement on its part, or the qualification
of the Units for sale under the laws of any jurisdiction, or for or in respect
of any other matter relating to this Agreement, except for lack of good faith
and for obligations expressly assumed by us or by the Underwriter in this
Agreement and no obligation on our part shall be implied herefrom. The foregoing
provisions shall not be deemed a waiver of any liability imposed under the 1933
Act.
Payment for the Units sold to you hereunder is to be made at the Public
Offering Price less the above-mentioned selling concession at such time and date
as we may advise, at the office of Kensington Securities, Inc., at the address
indicated above, by a certified or official bank check in Clearing House funds,
payable to the order of Kensington Securities, Inc., against delivery of
certificates for the Units. If such payment is not made at such time, you agree
to pay us interest on such funds at the prevailing brokers' loan rate.
13. Notices should be addressed to us at our office address indicated
above. Notices to you shall be deemed to have been duly given if telegraphed or
mailed to you at the address to which this letter is addressed.
3
<PAGE>
14. This Agreement shall be governed by and construed exclusively in
accordance with the laws of the State of Colorado without giving effect to the
choice of law or conflicts of law principles thereof.
15. If you desire to purchase any Units, please confirm your application
by signing and returning to us your confirmation on the duplicate copy of this
letter enclosed herewith, even though you may have previously advised us thereof
by telephone, telegraph or fax. Our signature hereon may be by facsimile.
Very truly yours,
SPENCER EDWARDS, INC.
By:______________________________
Edward Price, President
4
<PAGE>
Spencer Edwards, Inc.
6120 Greenwood Plaza Blvd.
Englewood, CO 80111
Gentlemen:
We hereby irrevocably subscribe for Units of Racom Systems, Inc.
in accordance with the terms and conditions stated in the foregoing letter. We
hereby acknowledge receipt of the Prospectus referred to in the first paragraph
thereof relating to said Units and we confirm that we have no right to return
any Units to you. We further confirm that our commitment hereunder will not
result in any violation by us of Section 8(b) or 15(c) of the Securities
Exchange Act of 1934 or the rules and regulations thereunder, including
Rule 15c3-1, or any provision of any applicable rules of any securities exchange
to which we are subject or of any restriction imposed upon us by such exchange.
We further state that in purchasing said Units we have relied upon said
Prospectus and upon no other statement whatsoever, whether written or oral. We
confirm that we are a dealer actually engaged in the investment banking or
securities business and that we are either (i) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or (ii) a dealer
with its principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer under
the Securities Exchange Act of 1934, as amended, who hereby agrees not to make
any sales within the United States, its territories or its possessions or to
persons who are nationals there or of residents therein. We hereby agree to
comply with the provisions of Section 24 of Article III of the rules of Fair
Practice of the NASD, and if we are a foreign dealer and not a member of the
NASD, we also agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member of the NASD,
with provisions of Sections 8 and 36 of Article III of such Rules of Fair
Practice, and to comply with Section 25 of Article III thereof as that Section
applies to non-member foreign dealers.
Name of Firm ________________________________
Authorized Signature ________________________
Title _______________________________________
Date ________________________________________
<PAGE>
WARRANT TO PURCHASE
150,000 Units
RACOM SYSTEMS, INC.
UNDERWRITER'S WARRANT
Dated: January __, 1997
THIS CERTIFIES that Spencer Edwards, Inc. (herein sometimes called the
"Holder" and/or the "Underwriter") is entitled to purchase from Racom Systems,
Inc., a Delaware corporation (the "Company"), at the price and during the period
as hereinafter specified, up to 150,000 Units of the Company's securities with
each Unit (the "Underwriter's Warrant Unit") consisting of one (1) share of the
Company's $.01 par value per share Common Stock (the "Warrant Unit Shares") and
one Redeemable Warrant (the "Underlying Warrant") entitling the holder thereof
to purchase for $_____ (the "Underlying Warrant Exercise Price"), one share of
Common Stock (the "Underlying Warrant Shares") for a term of five (5) years from
the effective date of the Registration Statement described below. The Warrant
Unit Shares and the Underlying Warrant Shares are sometimes referred to herein
collectively as the "Warrant Shares."
This Underwriter's Warrant (the "Underwriter's Warrant") is issued pursuant
to an Underwriting Agreement between the Company and the Underwriter in
connection with a public offering, through the Underwriter, of 1,500,000 Units
(the "Units") as more fully described in the Underwriting Agreement, (and up to
225,000 additional Units covered by an over-allotment option granted by the
Company to the Underwriter) pursuant to a Registration Statement on Form SB-2
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), and in consideration of $100 received by the Company for the
Underwriter's Warrant.
1. The rights represented by the Underwriter's Warrant shall be exercised
at the price, subject to adjustment in accordance with Sections 9 and 10 hereof
(the "Exercise Price") and during the periods as follows:
(a) The Underwriter's Warrant shall be numbered and shall be registered in
a warrant register. The Company shall be entitled to treat the registered owner
of any Underwriter's Warrant (the "Warrantholder") as the owner in fact thereof
for all purposes and shall not be bound to recognize any equitable or other
claim to or interest in such Underwriter's Warrant on the part of any other
person, and shall not be liable for any registration or transfer of
Underwriter's Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with such knowledge of such facts that its
participation therein amounts to gross negligence or bad faith.
(b) During the 12 month period from the Effective Date of the Registration
Statement (the "First Anniversary Date"), the Warrantholder shall have no right
to purchase any
<PAGE>
Underwriter's Warrant Units hereunder, except that in the event of any
merger, consolidation or sale of substantially all the assets of the Company
as an entirety prior to the First Anniversary Date, the Warrantholder shall
have the right to exercise the Underwriter's Warrant at such time and into
the kind and amount of Underwriter's Warrant Units and other securities and
property (including cash) receivable by a holder of the number of
Underwriter's Warrant Units into which the Underwriter's Warrant would have
been convertible or exercisable immediately prior thereto.
(c) Between January __, 1998 and 2002 (five years from the Effective Date,
i.e. the "Expiration Date") inclusive, the Warrantholder shall have the option
to purchase Underwriter's Warrant Units hereunder at a price ("Exercise Price")
of $_____ per Underwriter's Warrant Unit.
(d) Between January __, 1998 and 2002 (five years from the Effective Date)
inclusive, the holders of the Underlying Warrants shall have the option to
purchase the number of fully paid and nonassessable Underlying Warrant Shares
which the holder of the Underlying Warrant may at that time be entitled to
purchase on the same terms and conditions as the Redeemable Warrants offered and
sold to the public. The Underlying Warrants are redeemable by the Company on
the same terms and conditions as the Redeemable Warrants offered and sold to the
public. Holders of the Underwriter's Warrants and the Underlying Warrants are
sometimes herein referred to collectively as "Warrantholders."
(e) After the Expiration Date, the Warrantholder shall have no right to
purchase any Underwriter's Warrant Units hereunder.
2. The rights represented by the Underwriter's Warrant or Underlying
Warrant may be exercised at any time within the periods above specified, in
whole or in part, by (i) the surrender of the Underwriter's Warrant or
Underlying Warrant (with the purchase form at the end hereof properly executed)
at the principal executive office of the Company (or such other office or agency
of the Company as it may designate by notice in writing to the Warrantholder at
the address of the Warrantholder appearing on the books of the Company); (ii)
payment to the Company of the Exercise Price then in effect for the number of
Underwriter's Warrant Units or Underlying Warrant Shares, as the case may be,
specified in the above-mentioned purchase form together with applicable transfer
taxes, if any; and (iii) delivery to the Company of a duly executed agreement
signed by the person(s) designated in the purchase form to the effect that such
person(s) agree(s) to be bound by the provisions of paragraph 7 and
subparagraphs (b), (c) and (d) of paragraph 8 hereof. The Underwriter's Warrant
or Underlying Warrant shall be deemed to have been exercised, in whole or in
part to the extent specified, immediately prior to the close of business on the
date the Underwriter's Warrant or Underlying Warrant is surrendered and payment
is made in accordance with the foregoing provisions of this paragraph 2.
3. Upon such surrender of an Underwriter's Warrant or Underlying Warrant
and payment of the Exercise Price or Underlying Warrant Exercise Price, as
applicable, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the
2
<PAGE>
written order of the Warrantholder exercising such Warrant or Underlying
Warrant and in such name or names as such Warrantholder may designate, a
certificate or certificates for the number of Warrant Units Shares or
Underlying Warrant Shares or Underlying Warrants, as the case may be, so
purchased upon the exercise of such Underwriter's Warrant or Underlying
Warrant; and in the case of a fractional Warrant Share and/or Underlying
Warrant, such fraction shall be rounded to the nearest whole Warrant Share
and/or Underlying Warrant otherwise issuable upon such surrender. Such
certificate, certificates or Underlying Warrants shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Unit Shares, Underlying
Warrants and/or Underlying Warrant Shares, as the case may be, as of the date
of receipt by the Company or the warrant agent, if any, of such Warrant or
Underlying Warrant and payment of the applicable Exercise Price or Underlying
Warrant Exercise Price; provided, however, that if, at the date of surrender
of such Warrant or Underlying Warrant and payment of the applicable Exercise
Price or Underlying Warrant Exercise Price therefor, the transfer books for
the Common Stock or other class of stock purchasable upon the exercise of
such Underwriter's Warrants or Underlying Warrants shall be closed, the
certificates for the components of the Underwriter's Warrant Units or
Underlying Warrant Shares, as the case may be, in respect of which such
Underwriter's Warrant or Underlying Warrant is then exercised shall be
issuable as of the date on which such books shall next be opened (whether
before or after the date the Underwriter's Warrant or Underlying Warrants
would otherwise terminate (the "Termination Date")) and until such date the
Company shall be under no duty to deliver any Warrant Shares or Underlying
Warrants. The rights of purchase represented by the Underwriter's Warrants
and Underlying Warrants shall be exercisable, at the election of the
Warrantholders thereof, either in full or from time to time in part and, in
the event that an Underwriter's Warrant or Underlying Warrant is exercised in
respect of less than all of the Underwriter's Warrant Units or Underlying
Warrant Shares purchasable on such exercise at any time prior to the
Termination Date, a new Warrant and/or Underlying Warrant evidencing the
remaining Underwriter's Warrants and/or Underlying Warrants will be issued;
and the Company shall deliver, or the warrant agent, if any, is hereby
irrevocably authorized to countersign and to deliver the required new Warrant
and/or Underlying Warrant pursuant to the provisions of this Section; and the
Company whenever required by the warrant agent, if any, and will supply the
warrant agent with Underwriter's Warrant or Underlying Warrant duly executed
on behalf of the Company for such purpose.
4. The Underwriter's Warrant shall not be transferred, sold, assigned, or
hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Warrantholder, and may be
assigned in whole or in part to any person who is an officer of the
Warrantholder or to any member of the selling group and/or the officers or
partners thereof during such period. Any such assignment shall be effected by
the Warrantholder by (i) executing the form of assignment at the end hereof and
(ii) surrendering the Underwriter's Warrant for cancellation at the office or
agency of the Company referred to in paragraph 2 hereof, accompanied by a
certificate (signed by an officer of the Warrantholder if the Warrantholder is a
corporation), stating that each transferee is a permitted transferee under this
paragraph 4; whereupon the Company shall issue, in the name or names specified
by the Warrantholder (including the Warrantholder) a new Underwriter's Warrant
or Warrants of like
3
<PAGE>
tenor and representing in the aggregate rights to purchase the same number of
Underwriter's Warrant Units as are purchasable hereunder. Such transfers
shall be made in compliance with the rules and regulations of the National
Association of Securities Dealers ("NASD") as well as the Act, the Exchange
Act of 1934, as amended and the respective rules and regulations promulgated
thereunder.
5. The Company covenants and agrees that all Warrant Unit Shares and
Underlying Warrant Shares issued hereunder will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which the Underwriter's Warrant and the Underlying
Warrant may be exercised, the Company will at all times have authorized and
reserved a sufficient number of Shares.
6. The Underwriter's Warrant and the Underlying Warrants shall not
entitle the Warrantholder to any voting rights or other rights as a shareholder
of the Company.
7. (a) If at any time for a period of four (4) years commencing one (1)
year from the Effective Date, the Company files a registration statement under
the 1933 Act which relates to a current offering of securities of the Company
(except a Registration Statement on Form S-4, S-8 or any other inappropriate
form), such registration statement and the prospectus included therein shall
also, at the written request of the Company by any of the then owners of the
Underwriter's Warrants, Warrant Units, Underlying Warrants or Warrant Shares
(the "Owners"), include and relate to the Underlying Warrants and/or Warrant
Shares issuable upon exercise of such Underwriter's Warrants and/or Underlying
Warrants so as to permit the public sale thereof in compliance with the 1933
Act. The Company shall give written notice to the Owners of its intention to
file a registration statement under the 1933 Act relating to a current offering
of the securities of the Company, at least 30 days prior to the filing of such
registration statement, and the written request provided for in the first
sentence of this subsection shall be made by the Owners at least 10 days prior
to the date specified in the notice as the date on which the Company intends to
file such registration statement. Neither the delivery of such notice by the
Company nor of such request by the Owners shall in any way obligate the Company
to file such registration statement and, notwithstanding the filing of such
registration statement, the Company may, at any time prior to the effective date
thereof, determine not to offer those securities to which such registration
statement relates, without liability to the Owners, except that the Company
shall pay such expenses incurred in connection with the preparation and filing
of such registration statement and as otherwise set forth in subsection (d)
hereof.
(b) In addition, for a period of four (4) years commencing one (1) year
from the Effective Date, upon written notice at any time from a Majority Holder
(as such term is defined in subsection (f) of this Section 7) that he, she or it
contemplates the transfer of all or any part of his, her or its Underlying
Warrants or Warrant Shares under such circumstances that a public offering
thereof would be involved within the meaning of the 1933 Act, the Company, as
promptly as possible after the receipt of such notice, shall file, at its
expense, a post-effective amendment or a new registration statement with respect
to the offering, sale or other disposition
4
<PAGE>
of the Underlying Warrants and/or Warrant Shares as to which the Company
shall have received such notice. Within 10 days after receiving any such
notice, the Company shall give notice to the other Owners advising them that
the Company is proceeding with such post-effective amendment or new
registration statement and offering to include therein the Underlying
Warrants and/or Warrant Shares of such Owners. The Company shall not be
obligated to any such other Owner unless such other Owner shall accept such
offer by written notice to the Company within 30 days of the Company's
notice. The Owners will bear the expense of fees of counsel for the Owners
and any sales commissions for the Underlying Warrants and/or Warrant Shares
sold by the Owners. In no event shall the Company be required to file a
post-effective amendment or a new registration statement pursuant to the
requirements of this subsection (b) more than once.
(c) In any exercise of the registration rights afforded pursuant to
subsection (a) and (b) of this Section 7, the Company shall:
(i) Supply to the Owner or its designee, as representative of the
Owners intending to make a public distribution of their Underlying
Warrants and/or Warrant Shares (the holder of the Underwriter's
Warrant by his, her or its receipt of the Underwriter's Warrant and/or
Underlying Warrant thereby acknowledging his, her or its appointment
of the Owners' representative or its designee as his, her or its
representative for purposes of this Agreement), four executed copies
of each post-effective amendment or registration statement and as many
copies of the preliminary and final prospectus which shall have been
prepared in conformity with the requirements of the 1933 Act and the
rules and regulations promulgated thereunder and such other documents
as the representative of the Owners shall reasonably request;
(ii) Cooperate in taking such action as may be necessary to register
or qualify the Underlying Warrants and/or Warrant Shares under the
securities acts or blue sky laws of such jurisdictions as the
representative of the Owners shall reasonably request and the Company
shall do any and all other acts and things which may be necessary or
advisable to enable the Owners to consummate such proposed sale or
other disposition of the Underlying Warrants and/or Warrant Shares in
any such jurisdiction; provided, however, that in no event shall the
Company be obligated, in connection therewith, to qualify to do
business or to file a general consent to service of process in any
jurisdiction where it shall not then be so qualified; and
(iii) Use its best efforts to cause any such post-effective
amendment or new registration statement to become effective and remain
effective for a period of not less than 12 months after the initial
effectiveness thereof. The Company shall cooperate in taking such
other action as may be necessary to permit the public sale or other
disposition of the Underlying Warrants and/or Warrant Shares by the
Owners.
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<PAGE>
(d) The Company shall comply with the requirements of subsections (a) and
(b) of this Section (including the related requirements of subsection (c) of
this Section), at its own expense, including the costs to register/qualify the
securities under the securities laws of those states as the Owners shall
reasonably request; but excluding underwriting commissions, transfer taxes and
underwriter's expense allowance attributable to the securities being offered by
the Owners.
(e) The term "Majority Holder" as used in this Section shall include any
owner or combination of owners of Underwriter's Warrants, Underlying Warrants
and/or Warrant Shares, in any combination, if the aggregate amount of:
A. the Warrant Unit Shares and/or Underlying Warrant Shares then
held by him, her, it or among them, plus
B. the Warrant Unit Shares and/or Underlying Warrant Shares then
issuable upon exercise of the Underwriter's Warrants and/or Underlying Warrants
then held by him, her, it or among them would constitute more than fifty percent
of the Underwriter's Warrant Unit Shares and/or Underlying Warrant Shares
originally issuable upon exercise of all of the Underwriter's Warrants and
Underlying Warrants.
(f) The provisions contained herein shall continue in effect regardless of
the exercise or surrender of any of the Warrants. Notwithstanding anything in
this Section 7 to the contrary, the Company shall not be obligated to register
any Underlying Warrants or Underlying Warrant Shares if the Underlying Warrants
shall have expired unexercised or if the Underlying Warrants shall have been
redeemed by the Company; and the Underlying Warrant Shares shall not be used to
calculate a Majority Holder if the Underlying Warrants shall have expired
unexercised or shall have been redeemed by the Company.
8. (a) Whenever pursuant to paragraph 7 a registration statement
relating to the Underlying Warrants and/or Warrant Shares is filed under the
Act, amended or supplemented, the Company will indemnify and hold harmless each
holder of the securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities, or actions in respect thereof,
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and will
reimburse the Distributing Holder or such controlling person or underwriter in
connection with
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<PAGE>
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such
Distributing Holder or any other Distributing Holder for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act)
against any losses, claims, damages or liabilities, joint or several, to
which the Company or any such director, officer or controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder for use in the
preparation thereof; and will reimburse the Company or any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph 8 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No settlement
shall be made without the consent of the indemnifying party.
7
<PAGE>
9. In case of any reclassification, capital reorganization or other
change of outstanding Shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital, reorganization or other
change of outstanding Shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of this Warrant shall have the right thereafter, by
exercising such Warrant, to purchase the kind and number of Shares of stock or
other securities or property (including cash) receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance by a holder of the number of Shares of Common Stock that
might have been purchased upon exercise of such Warrant, immediately prior to
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. The foregoing provision shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding Shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
10. If, prior to the expiration of this Warrant by exercise or by its
terms the Company shall issue any of its shares of Common Stock as a share
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then, in either such case, the Exercise Price per
Underwriter's Warrant Unit shall be proportionately reduced, and the number of
Underwriter's Warrant Units at the time purchasable pursuant to this Warrant
shall be proportionately increased; and conversely, if the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the Exercise Price
per Underwriter's Warrant Unit in effect at the time of such action shall be
proportionately increased and the number of Underwriter's Warrant Units at that
time purchasable pursuant to this Warrant shall be proportionately decreased.
If the Company shall, at any time during the life of this Warrant declare a
dividend payable in cash on its shares of Common Stock and shall at
substantially the same time offer to its shareholders a right to purchase new
shares of Common Stock from the proceeds of such dividend or for an amount
substantially equal to the dividend, all shares of Common Stock so issued shall,
for the purpose of this Warrant, be deemed to have been issued as a share
dividend. Any dividend paid or distributed upon the shares of Common Stock in
shares of any other class of securities convertible into shares of Common Stock
shall be treated as a dividend paid in shares of Common Stock to the extent that
shares of Common Stock are issuable upon the conversion thereof.
11. This Agreement shall be governed by and construed in accordance with
the internal substantive laws of the State of Colorado, without regard for the
conflict of laws.
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<PAGE>
IN WITNESS WHEREOF, Racom Systems, Inc. has caused this Underwriter's
Warrant to be signed by its duly authorized officers under its corporate seal
and this Underwriter's Warrant to be dated ____________________, 1997.
RACOM SYSTEMS, INC.
By__________________________________________
Richard L. Horton, President
Attest:_____________________________________
Secretary
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Underwriter's Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such
Underwriter's Warrant for, and to purchase thereunder, __________ Units ("Unit")
of Racom Systems, Inc. with each Unit comprised of one (1) shares of Racom
Systems, Inc. $.01 par value common stock and one (1) warrant to purchase an
additional share of such common stock at $_____ per share and herewith makes
payment of $__________ therefor and requests that the certificates for Units be
issued in the name(s) of, and delivered to ______________________________, whose
address(es) is (are): ____________
____________________.
Dated:__________________, 19__
By:_____________________________________________
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto __________________________ the right to purchase Shares represented by the
foregoing Underwriter's Warrant to the extent of ____________ Units and appoints
______________________________________ attorney to transfer such rights on the
books of Racom Systems, Inc., with full power of substitution in the premises.
Dated:_________________, 19__
By:_____________________________________________
10
<PAGE>
WARRANT AGREEMENT
-------------------------
RACOM SYSTEMS, INC.
AND
AMERICAN SECURITIES TRANSFER, INC.
Warrant Agent
-------------------------
<PAGE>
THIS WARRANT AGREEMENT (the "Agreement") is dated as ________________,
1997, between RACOM SYSTEMS, INC., a Delaware corporation (the "Company"), and
American Securities Transfer, Inc., Denver, Colorado (the "Warrant Agent").
WHEREAS, the Company proposes to distribute to the public in a public
offering (the "Public Offering") up to 1,500,000 Common Stock Purchase Warrants
("Warrants"), each Warrant entitling the holder to purchase one share of the
Company's $.01 par value common stock at $_____ per share until twenty-four
months from the effective date of the Public Offering; and
WHEREAS, in connection with the proposed public distribution, the Company
anticipates the issuance of up to 1,500,000 shares of Common Stock underlying
the Warrants (the "Warrant Shares"); and
WHEREAS, the Company desires to provide for issuance of warrant
certificates (the "Warrant Certificates") representing up to 1,500,000 Warrants
and the procedure for exercise of the Warrants, and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer and exchange of Warrant Certificates and
exercise of the Warrants.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth, it is agreed that:
1. WARRANTS/WARRANT CERTIFICATES. Each Warrant shall entitle the holder
(the "Registered Holder" or, in the aggregate, the "Registered Holders") in
whose name the Warrant Certificate shall be registered on the books maintained
by the Warrant Agent to purchase one share of Common Stock of the Company on
exercise thereof, subject to modification and adjustment as provided in Section
8. Warrant Certificates representing the right to purchase Warrant Shares shall
be executed by the Company's President and attested to by the Company's
Secretary or Assistant Secretary and delivered to the Warrant Agent upon
execution of this Agreement. Such Warrant Certificates shall be distributed to
the Warrant purchasers in the Company's public distribution.
Subject to the provisions of Sections 3, 6, and 7, the Warrant Agent shall
deliver Warrant Certificates in required whole number denominations to
Registered Holders in connection with any transfer or exchange permitted under
this Agreement. Except as provided in Section 6 hereof, no Warrant Certificates
shall be issued except (i) Warrant Certificates initially issued hereunder, (ii)
Warrant Certificates issued on or after the initial issuance date, upon the
exercise of any warrants, to evidence the unexercised warrants held by the
exercising Registered holder, and (iii) Warrant Certificates issued after the
initial issuance date upon any transfer or exchange of Warrant Certificates or
replacement of lost or mutilated Warrant Certificates.
<PAGE>
2. FORM AND EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be substantially in the form attached as Exhibit A. The Warrant
Certificates shall be dated as of the date of their issuance, whether on initial
issuance, transfer or exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates.
Each such Warrant Certificate shall be numbered serially in accordance with
the Common Stock initially attached thereto with the designation "W - ____"
appearing on each Warrant Certificate.
The Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. In any
event, if any officer of the Company who executed the Warrant Certificates shall
cease to be an officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature and delivery by the Warrant Agent, such
Warrant Certificates may be countersigned, issued and delivered by the Warrant
Agent with the same force and effect as though the person who signed such
Warrant Certificates had not ceased to be an officer of the Company.
3. EXERCISE. Subject to the provisions of Sections 5 and 8, the
Warrants, when evidenced by a Warrant Certificate, may be exercised at a price
(the "Exercise Price") of $_____ per share of Common Stock in whole or in part
at any time during the period (the "Exercise Period") commencing the date (the
"Initial Exercise Date") of the Company's Prospectus and terminating twenty-four
(24) months from the effective date of the Public Offering (the "Expiration
Date"). A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date (the "Exercise Date") of the surrender for
exercise of the Warrant Certificate. The exercise form shall be executed by the
Registered Holder or his attorney duly authorized in writing and will be
delivered together with payment to the Warrant Agent at its corporate offices
(the "Corporate Office"), in cash or by official bank or certified check, of an
amount equal to the aggregate Exercise Price, in lawful money of the United
States of America.
Unless Warrant Shares may not be issued as provided herein, the person
entitled to receive the number of Warrant Shares deliverable on such exercise
shall be treated for all purposes as the holder of such Warrant Shares as of the
close of business on the Exercise Date. In addition, the Warrant Agent shall
also, at such time, verify that all of the conditions precedent to the issuance
of Warrant Shares, set forth in Section 4, have been satisfied as of the
Exercise Date. If any one of the conditions precedent set forth in Section 5
are not satisfied as of the Exercise Date, the Warrant Agent shall request
written instructions from the Company as to whether to return the Warrant and
pertinent Exercise Price payment to the exercising Registered Holder or to hold
the same until all such conditions have been satisfied. The Company shall not
be obligated to issue any fractional share interests in Warrant Shares issuable
or deliverable on the exercise of any Warrant or scrip or cash therefore and
such fractional shares shall be of no value whatsoever. If more than one
Warrant shall be exercised at one time by the same Registered Holder, the number
of full Shares which shall be issuable on exercise thereof shall be computed on
the basis of the aggregate number of full shares issuable on such exercise.
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<PAGE>
Within thirty days after the Exercise Date and, in any event, prior to the
pertinent Expiration Date, pursuant to a Stock Transfer Agreement between the
Company and Warrant Agent, the Warrant Agent shall cause to be issued and
delivered to the person or persons entitled to receive the same, a certificate
or certificates for the number of Warrant Shares deliverable on such exercise.
No adjustment shall be made in respect of cash dividends on Warrant Shares
delivered on exercise of any Warrant.
Upon the exercise of any Warrant, the Warrant Agent shall promptly deposit
the payment into an escrow account established by mutual agreement of the
Company and the Warrant Agent at a federally insured commercial bank. All funds
deposited in the escrow account will be disbursed on a weekly basis to the
Company once they have been determined by the Warrant Agent to be collected
funds. Once the funds are determined to be collected, the Warrant Agent shall
cause the share certificate(s) representing the exercised Warrants to be issued.
Expenses incurred by the Warrant Agent will be paid by the Company. These
expenses, including delivery of exercised share certificates to the shareholder,
will be deducted from the exercise fee submitted prior to distribution of funds
to the Company.
A detailed accounting statement relating to the number of shares exercised
and the net amount of exercised funds remitted will be given to the Company with
the payment of each exercise amount.
The Company may deem and treat the Registered Holder of the Warrants at any
time as the absolute owner thereof for all purposes, and the Company shall not
be affected by any notice to the contrary. The Warrants shall not entitle the
holder thereof to any of the rights of shareholders or to any dividend declared
on the Common Stock unless the holder shall have exercised the Warrants and
purchased the shares of Common Stock prior to the record date fixed by the Board
of Directors of the Company for the determinations of holders of Common Stock
entitled to such dividend or other right.
4. REDEMPTION. If the Company's Common Stock has traded at a minimum
price of $_____ per share on NASDAQ for twenty (20) consecutive trading days
commencing six (6) months from the effective date of the Public Offering, the
Warrants may be redeemed by the Company at any time upon 30 days' written notice
to the Registered Holders of the Warrants for $.01 per Warrant.
5. RESERVATION OF SHARES AND PAYMENT OF TAXES. The Company covenants
that it will at all times reserve and have available from its authorized Common
Stock such number of shares as shall then be issuable on the exercise of all
outstanding Warrants. The Company covenants that all Warrant Shares which shall
be so issuable shall be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof.
3
<PAGE>
The Company and the Warrant Agent acknowledge that the Company will be
required, pursuant to the Securities Act of 1933, as amended (the "Act"), to
deliver to each Registered Holder, upon the exercise of Warrants and delivery of
Warrant Shares, a prospectus covering the issuance of the Warrant Shares which
meets the requirements of the Act, which prospectus must be a part of an
effective registration statement under the Act at the time that the Warrant is
exercised. No Warrants may be exercised nor may Warrant shares be issued by the
Company's transfer agent or delivered by the Warrant Agent unless, on the
Exercise Date: (i) the Company has an effective registration statement
covering the issuance of the Warrant Shares under the Act; (ii) the Warrant
Agent has copies of the prospectus which is a part of such effective
registration statement and which the Warrant Agent hereby agrees to deliver with
the Warrant Shares; and (iii) the Warrant Shares may legally be issued and
delivered to the exercising Registered Holder under the securities laws of the
state in which such Registered Holder resides.
The Company agrees to use its best efforts to maintain, to the extent
required by the Act, an effective registration statement covering the issuance
of the Warrant Shares during the period the Warrants are exercisable. The
Company further agrees, from time to time, to furnish the Warrant Agent with
copies of the Company's prospectus to be delivered to exercising Registered
Holders, as set forth above.
If any shares of Common Stock to be reserved for the purpose of exercise of
Warrants hereunder require any other registration with or approval of any
government authority under any federal or state law before such shares may be
validly issued or delivered, then the Company covenants that it will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval. No Warrant Shares shall be issued unless and until any such
registration requirements have been satisfied or such approval has been
obtained.
The Registered Holder shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
the Warrants, or the issuance, transfer or delivery of any Warrant Shares on
exercise of the Warrants. In the event the Warrant Shares are to be delivered
in a name other than the name of the Registered Holder of the Warrant
Certificate, no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of any such taxes or charges
incident thereto.
In the event the Warrant Agent ceases to also serve as the stock transfer
agent for the Company, the Warrant Agent is irrevocably authorized to
requisition the Company's new transfer agent from time to time for certificates
of Warrant Shares required upon exercise of the Warrants, and the Company will
authorize such transfer agent to comply with all such requisitions. The Company
will file with the Warrant Agent a statement setting forth the name and address
of its new transfer agent, for shares of Common Stock or other capital stock
issuable upon exercise of the Warrants and of each successor transfer agent.
6. REGISTRATION AND TRANSFER. The Warrant Certificates may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant
4
<PAGE>
Agent at its Corporate Office. The Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the holder making the transfer shall be
entitled to receive.
The Warrant Agent shall keep transfer books at its Corporate Office which
shall register Warrant Certificates and the transfer thereof. On due
presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and deliver
to the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants. All Warrant Certificates
presented for registration of transfer or exercise shall be duly endorsed or be
accompanied by a written instrument or instruments or transferred in a form
satisfactory to the Company and the Warrant Agent. At the time of exercise, the
transfer fee shall be paid by the Company. The Company may require payment of a
sum sufficient to cover any tax or other government charge that may be imposed
in connection therewith.
All Warrant Certificates so surrendered, or surrendered for exercise or for
exchange in case of mutilated Warrant Certificates, shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of the agency created by this Agreement. Prior to due presentment
for registration of transfer thereof, the Company and the Warrant Agent may
treat the Registered Holder of any Warrant Certificate as the absolute owner
thereof (notwithstanding any notations of ownership or writing thereon made by
anyone other than the Company or the Warrant Agent), and the parties hereto
shall not be affected by any notice to the contrary.
7. LOSS OR MUTILATION. On receipt by the Company and the Warrant Agent
of evidence satisfactory as to the ownership of and the loss, theft, destruction
or mutilation of any Warrant Certificate, the Company shall execute, and the
Warrant Agent shall countersign and deliver in lieu thereof, a new Warrant
Certificate representing an equal aggregate number of Warrants. In the case of
loss, theft or destruction of any Warrant Certificates, the individual
requesting issuance of a new Warrant Certificate shall be required to indemnify
the Company and Warrant Agent in an amount satisfactory to each of them. In the
event a Warrant Certificate is mutilated, such Certificate shall be surrendered
and cancelled by the Warrant Agent prior to delivery of a new Warrant
Certificate. Applicants for a new Warrant Certificate shall also comply with
such other regulations and pay such other reasonable charges as the Company may
prescribe.
8. ADJUSTMENT OF EXERCISE PRICE AND SHARES. After each adjustment of the
Exercise Price(s) pursuant to this Section 8, the number of shares of Common
Stock purchasable on the exercise of such Warrants shall be the number derived
by dividing such adjusted pertinent Exercise Price(s) into the original
pertinent Exercise Price(s). The pertinent Exercise Price(s) shall be subject
to adjustment as follows:
(a) In the event, prior to the expiration of the Warrants by
exercise or by their terms, the Company shall issue any shares of its Common
Stock as a share dividend or shall
5
<PAGE>
subdivide the number of outstanding shares of Common Stock into a greater
number of shares, then, in either of such events, the Exercise Price(s) per
share of Common Stock purchasable pursuant to the Warrants in effect at the
time of such action shall be reduced proportionately and the number of shares
purchasable pursuant to the Warrants shall be increased proportionately.
Conversely, in the event the Company shall reduce the number of shares of its
outstanding Common Stock by combining such shares into a smaller number of
shares, then, in such event, the Exercise Price(s) per share purchasable
pursuant to the Warrants in effect at the time of such action shall be
increased proportionately and the number of shares of Common Stock at that
time purchasable pursuant to the Warrants shall be decreased proportionately.
Any dividend paid or distributed on the Common Stock in shares of any other
class of the Company or securities convertible into shares of Common Stock
shall be treated as a dividend paid in Common Stock to the extent that shares
of Common Stock are issuable on the conversion thereof.
(b) In the event the Company, at any time while the Warrants shall
remain unexpired and unexercised, shall sell all or substantially all of its
property, and thereafter dissolves, liquidates or winds up its affairs, then
prompt, proportionate, equitable, lawful and adequate provision shall be made as
part of the terms of any such sale, dissolution, liquidation or winding up such
that Warrantholders may elect to exercise all or any Warrants held, in order to
receive the same kind and amount of any share, securities or assets as may be
issuable, distributable or payable on any such sale, dissolution, liquidation or
winding up with respect to each share of Common Stock of the Company; provided,
however, that in the event of any such sale, dissolution, liquidation or winding
up, the right to exercise Warrants shall terminate on a date fixed by the
Company, such date to be not earlier than 5:00 p.m., Mountain Time, on the 30th
day next succeeding the date on which notice of such termination of the right to
exercise Warrants has been given by mail to the holders thereof at such
addresses as may appear on the books of the Company.
(c) Notwithstanding the provisions of this Section 8, no adjustment
on the Exercise Price(s) shall be made whereby such price is adjusted in an
amount less than $1.00 or until the aggregate of such adjustments shall equal or
exceed $1.00.
(d) In the event, prior to the expiration of the Warrants by exercise
or by their terms, the Company shall determine to take a record of the holders
of its Common Stock for the purpose of determining shareholders entitled to
receive any share dividend or other right which will cause any change or
adjustment in the number, amount, price or nature of the shares of Common Stock
or other securities or assets deliverable on exercise of the Warrants pursuant
to the foregoing provisions, the Company shall give to the Registered Holders of
the Warrants at the addresses as may appear on the books of the Company at least
15 days' prior written notice to the effect that it intends to take such a
record. Such notice shall specify the date as of which such record is to be
taken; the purpose for which such record is to be taken and the number, amount,
price and nature of the shares of Common Stock or other shares, securities or
assets which will be deliverable on exercise of the Warrants after the action
for which such record will be taken has been completed. Without limiting the
obligation of the Company to provide notice
6
<PAGE>
to the Registered Holders of the Warrant Certificates of any corporate action
hereunder, the failure of the Company to give notice shall not invalidate
such corporate action.
(e) No adjustment of the Exercise Price(s) shall be made as a result
of or in connection with (i) the issuance of Common Stock of the Company
pursuant to options, warrants and share purchase agreements outstanding or in
effect on the date hereof, (ii) the establishment of additional option plans of
the Company, the modification, renewal or extension of any plan now in effect or
hereafter created, or the issuance of Common Stock on exercise of any options
pursuant to such plans, or (iii) the issuance of Common Stock in connection with
an acquisition or merger of any type (therefore, the antidilution provisions of
this Section 8 will not apply in the event any merger or acquisition is
undertaken by the Company).
(f) This Warrant Agreement shall be incorporated by reference on the
Warrant Certificates.
Before taking any action which would cause an adjustment reducing the
Exercise Price(s) below the then par value of the shares of Common Stock
issuable upon exercise of the Warrants, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Common Stock at such adjusted Exercise Price.
Upon any adjustment of the Exercise Price(s) required to be made pursuant
to this Section 8, the Company within 30 days thereafter shall (i) cause to be
filed with the Warrant Agent a certificate setting forth the pertinent Exercise
Price after such adjustment and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, and (ii) cause
to be mailed to each of the Registered Holders of the Warrant Certificates
written notice of such adjustment.
9. REDUCTION IN EXERCISE PRICE AT COMPANY'S OPTION. In addition to any
adjustments made to the Exercise Price pursuant to Section 8, the Company's
Board of Directors may, at its sole discretion, reduce the Exercise Price of the
Warrants in effect at any time either for the life of the Warrants or any
shorter period of time determined by the Company's Board of Directors. The
Company shall promptly notify the Warrant Agent and the Registered Holders of
any such reductions in the Exercise Price.
10. DUTIES, COMPENSATION AND TERMINATION OF WARRANT AGENT. The Warrant
Agent shall act hereunder as agent and in a ministerial capacity for the
Company, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not, by issuing and delivering Warrant Certificates or
by any other act hereunder, be deemed to make any representations as to the
validity, value or authorization of the Warrant Certificates or the Warrants
represented thereby or of the Common Stock or other property delivered on
exercise of any Warrant. The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of the Warrant Certificates to make or
cause to be made any adjustment of the
7
<PAGE>
Exercise Price(s) or to determine whether any fact exists which may require
any such adjustments.
The Warrant Agent shall not (i) be liable for any recital or statement of
fact contained herein or for any action taken or omitted by it in reliance on
any Warrant Certificate or other document or instrument believed by it in good
faith to be genuine and to have signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement,
except for its own negligence or willful misconduct, or (iii) be liable for any
act or omission in connection with this Agreement except for its own negligence
or willful misconduct.
The Company agrees to indemnify the Warrant Agent against any and all
losses, expenses and liabilities which the Warrant Agent may incur in connection
with the delivery of copies of the Company's prospectus to exercising Registered
Holders upon the exercise of any Warrants as set forth in Section 5.
The Warrant Agent may at any time consult with counsel satisfactory to it
(which may be counsel for the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in accordance
with the opinion or advice of such counsel. Any notice, statement, instruction,
request, direction, order or demand of the Company shall be sufficiently
evidenced by an instrument signed by its President and attested by its Secretary
or Assistant Secretary. The Warrant Agent shall not be liable for any action
taken or omitted by it in accordance with such notice, statement, instruction,
request, order or demand.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse the Warrant Agent for its reasonable
expenses. The Company further agrees to indemnify the Warrant Agent against any
and all losses, expenses and liabilities, including judgments, costs and counsel
fees, for any action taken or omitted by the Warrant Agent in the execution of
its duties and powers hereunder, excepting losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties or the Company may terminate the
Warrant Agent and the Warrant Agent shall be discharged from all further duties
and liabilities hereunder (except liabilities arising as a result of the Warrant
Agent's own negligence or willful misconduct), on 30 days' prior written notice
to the other party. At least 15 days prior to the date such resignation is to
become effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Holder of each Warrant Certificate.
On such resignation or termination the Company shall appoint a new warrant
agent. If the Company shall fail to make such appointment within a period of 30
days after it has been notified in writing of the resignation by the Warrant
Agent, then the registered holder of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new warrant agent. Any
new warrant agent, whether appointed by the Company or by such court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published
8
<PAGE>
report to its shareholders, of not less than $1,000,000, and having its
principal offices in the State of Colorado.
After acceptance in writing of an appointment of a new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; provided, however, if it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed. The
Company shall file a notice of appointment of a new warrant agent with the
resigning Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged, or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement, provided that such
corporation is eligible for appointment as a successor to the Warrant Agent
under the provisions of the preceding paragraph. Any such successor warrant
agent shall promptly cause notice of its succession as Warrant Agent to be
mailed to the Company and to the Registered Holder of each Warrant Certificate.
No further action shall be required for establishment and authorization of such
successor warrant agent.
The Warrant Agent, its officers or directors and its subsidiaries or
affiliates may buy, hold or sell warrants or other securities of the Company and
otherwise deal with the Company in the same manner and to the same extent and
with like effect as though it were not Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
11. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or mistake or error herein contained; or
(ii) that they may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Warrant Certificates; provided, however,
this Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders of Warrant
Certificates representing not less than 51% of the Warrants outstanding.
Additionally, except as provided in Sections 9 and 10, no change in the number
or nature of the Warrant Shares purchasable on exercise of a Warrant, increase
of the purchase price therefor, or the acceleration of the Expiration Date of a
Warrant shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed or allowed by this Agreement.
9
<PAGE>
12. NOTICES. All notices, demands, elections, opinions or requests
(however characterized or described) required or authorized hereunder shall be
deemed sufficient if made in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by tested telex, telegram or
cable to the principal office of the addressee, and if to the Registered Holder
of a Warrant Certificate, at the address of such holder as set forth on the
books maintained by the Warrant Agent.
13. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the Company, the Warrant Agent and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim or to impose on any other person any duty,
liability or obligation.
14. FURTHER INSTRUMENTS. The parties hereto shall execute and deliver any
and all such other instruments and shall take any and all other actions as may
be reasonably necessary to carry out the intention of this Agreement.
15. SEVERABILITY. If any provision of this Agreement shall be held,
declared or pronounced void, voidable, invalid, unenforceable, or inoperative
for any reason by any court of competent jurisdiction, government authority or
otherwise, such holding, declaration or pronouncement shall not affect adversely
any other provision of this Agreement, which shall otherwise remain in full
force and effect and be enforced in accordance with its terms, and the effect of
such holding, declaration or pronouncement shall be limited to the territory or
jurisdiction in which made.
16. WAIVER. All the rights and remedies of either party to this Agreement
are cumulative and not exclusive of any other rights and remedies as provided by
law. No delay or failure on the part of either party in the exercise of any
right or remedy arising from a breach of this Agreement will constitute a waiver
of any other right or remedy. The consent of any party where required hereunder
to act or occurrence shall not be deemed to be a consent to any other action or
occurrence.
17. GENERAL PROVISIONS. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of Colorado. Except as
otherwise expressly stated herein, time is of the essence in performing
hereunder. This Agreement embodies the entire agreement and understanding
between the parties and supersedes all prior agreements and understandings
relating to the subject matter hereof, and this Agreement may not be modified or
amended or any term or provisions hereof waived or discharged except in writing,
signed by the party against whom such amendment, modification, waiver or
discharge is sought to be enforced. The headings of this Agreement are for
convenience and reference only and shall not limit or otherwise affect the
meaning hereof. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
RACOM SYSTEMS, INC.
By:
-------------------------------
Richard Ratcliff
Chief Executive Officer
AMERICAN SECURITIES TRANSFER, INC.
By:
-------------------------------
Authorized Officer
11
<PAGE>
SECOND
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
RACOM SYSTEMS, INC.
Racom Systems, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Racom Systems, Inc. which is the name under
which it was initially incorporated. The date of filing of its original
Certificate of Incorporation with the Secretary of State was June 3, 1991.
2. This Second Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation and Amended
and Restated Certificate of Incorporation of this corporation.
3. The text of the Amended and Restated Certificate of Incorporation is
amended in its entirety to read as herein set forth:
ARTICLE I
NAME
The name of the Corporation is Racom Systems, Inc.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the Corporation is
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware.
The name of the registered agent of the Corporation at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE III
PURPOSE AND POWERS
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
ARTICLE IV
CAPITAL STOCK
4.1 AUTHORIZED STOCK AND CLASSES OF STOCK. The Corporation shall have
authority to issue 20,000,000 shares of Common Stock, $0.01 par value.
4.2 VOTING RIGHTS AND CUMULATIVE VOTING. Each share of issued and outstanding
Common Stock shall have one vote on all matters submitted to a shareholder
vote; provided, however, that directors shall be elected in the manner
provided in Section 3.02 of the Second Amended and Restated Bylaws of the
Corporation.
4.3 DISSOLUTION AND LIQUIDATION RIGHTS AND PREFERENCES. In the event of
voluntary or involuntary dissolution or liquidation of the Corporation, any
assets of the Corporation shall be distributed to the Common Stock
shareholders by equal apportionment of such assets among the issued and
outstanding shares of Common Stock without regard to class.
4.4 ISSUANCE AND DISPOSITION. The Corporation, in the discretion and upon
resolution of the Board of Directors, may at any time, and from time to
time, issue and dispose of any of the unissued Common Stock or treasury
stock of the Corporation and may create optional rights to purchase or
subscribe for shares of Common Stock of the Corporation. Such stock may be
issued and disposed of for such kind and amount of consideration and to
such persons, firms and corporations, and such optional rights may be
created, and warrants or other evidence of such rights issued, on such
terms, at such prices and in such manner, as may be determined by
resolution adopted by the Board of Directors, subject to any provision of
law then applicable and subject to any other provisions of this Second
Amended and Restated Certificate of Incorporation and any provisions of the
Second Amended and Restated Bylaws of the Corporation.
4.5 PRE-EMPTIVE RIGHTS, RESTRICTIONS AND SHAREHOLDER OBLIGATIONS. No
shareholder of the Corporation shall have any pre-emptive or other
preferential right to subscribe for any of the unissued stock or treasury
stock to be issued or sold, or for any additional shares of stock or other
securities of any class, or for
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<PAGE>
rights, warrants or options to purchase stock or subscribe for securities
of any kind convertible into stock or carrying stock purchase warrants or
privileges. All lawful restrictions on the sale or other disposition of
shares may be placed upon all or a portion or portions of the certificate
or certificates evidencing the Corporation's shares. No shareholder or
subscriber to the stock of the Corporation shall be under any obligation to
the creditors of the Corporation with respect to such stock other than the
obligation to pay the Corporation the full consideration for which the
stock was issued or is to be issued.
4.6 AMENDMENTS TO CERTIFICATE OF INCORPORATION. The Corporation's Certificate
of Incorporation may be amended or repealed only by the affirmative vote
of the holders of a majority of the issued and outstanding shares of
Common Stock.
ARTICLE V
BOARD OF DIRECTORS
Upon the filing of this Second Amended and Restated Certificate of
Incorporation, the business of the Corporation shall be managed by the Board of
Directors. The number of directors shall be fixed in the manner provided in the
Bylaws. The current Board of Directors of the Corporation shall consist of up
to six individuals, whose names and addresses appear below:
Name Address
Ross M. Lyndon-James Intag International Ltd.
Ninth Floor, Kyle House
27-31 Macquarie PI.
Sydney 2000 Australia
Brian L. Harcourt Concord Resources Pty. Ltd.
Level 23, Gateway
1 Macquarie PI.
Sydney 2001 Australia
G. Stanley Shaw 20 Cole Street
Brighton Victoria Australia
Richard L. Horton Racom System, Inc.
6080 Greenwood Plaza Boulevard
Englewood, Colorado 80111
George J. Stathakis Ramtron International Corporation
1850 Ramtron Drive
Colorado Springs, CO 80921
-3-
<PAGE>
ARTICLE VI
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a Director except for liability, (i) for any breach of the Director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived any improper
personal benefit.
Notwithstanding any other provisions herein, personal liability of a
director shall be eliminated to the greatest extent possible as is now, or in
the future, provided for by law.
ARTICLE VII
TRANSACTION WITH AND BY DIRECTORS, OFFICERS AND SHAREHOLDERS
The Corporation may enter into contracts or transact business with one or
more of its directors, officers, or shareholders, or with any corporation,
partnership, association, business, trust company, organization or other concern
in which any one or more of its directors, officers or shareholders is in any
way interested and, in the absence of fraud, no such contract or transaction
shall be invalidated or in any way affected by the fact that such director,
officer or shareholder of the Corporation has or may have interests which are or
might be adverse to the interests of the Corporation even though the vote or
action of such director, officer, or shareholder having such adverse interests
may have been necessary to obligate the Corporation upon such contract or
transaction if:
(1) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the unanimous affirmative
vote of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or
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<PAGE>
(3) the contract or transaction is fair to the Corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a
committee or the shareholders.
At any meeting of the Board of Directors or of the shareholders of the
Corporation which shall authorize or ratify any such contract or transaction,
any such director or shareholder may vote or act with like force and effect as
if he had no such interest, provided that the provisions of either (1), (2), or
(3) have been complied with.
No director or officer shall be disqualified from holding office as
director or officer of the Corporation by reason of any such adverse interests.
In the absence of fraud, no director, officer or shareholder having such adverse
interest shall be liable to the Corporation or to any director, officer,
shareholder or to any creditor thereof, or to any other person for any loss
incurred under or by reason of such contract or transaction, nor shall any such
director, officer or shareholder be accountable for any gains or profits
realized thereon.
ARTICLE VIII
BYLAWS
The Bylaws of the Corporation may be adopted, amended or repealed only by
the affirmative vote of a majority of the directors at a meeting of the Board of
Directors of the Corporation or by the affirmative vote of the majority of the
issued and outstanding shares of Common Stock at a meeting of the shareholders
of the Corporation.
This Second Amended and Restated Certificate of Incorporation was duly
adopted by vote of the shareholders in accordance with Sections 242 and 245 of
the General Corporation law of the State of Delaware.
The capital of Racom Systems, Inc. will not be reduced under or by reason
of this Second Amended and Restated Certificate of Incorporation.
IN WITNESS WHEREOF, said Racom Systems, Inc. has caused this certificate to
be signed by its President and Secretary, pursuant to Section 103(a)(2)(i) of
the General Corporation law of the State of Delaware this 21 day of December,
1994.
By: /s/ ILLEGIBLE
-----------------------
President
By: /s/ ILLEGIBLE
------------------------
Secretary
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<PAGE>
THIRD AMENDED AND RESTATED
BYLAWS
of
RACOM SYSTEMS, INC.
(A Delaware Corporation)
Section 1.01 REGISTERED OFFICE AND AGENT. The registered office and agent
of the Corporation in Delaware shall be as designated by the Board of Directors
from time to time.
Section 1.02 OTHER OFFICES. The Corporation may establish and maintain
such other offices at such other places of business both within and without the
State of Delaware as the Board of Directors may from time to time determine.
ARTICLE TWO
SHAREHOLDERS
Section 2.01 ANNUAL MEETING. The annual shareholders' meeting for
electing directors and transacting other business shall be held at such time and
place within or without the State of Delaware as may be designated by the Board
of Directors in a resolution and set forth in the notice of the meeting.
Failure to hold any annual shareholders' meeting at the designated time shall
not work a forfeiture or dissolution of the Corporation.
Section 2.02 SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the Board of Directors, and shall be called by the President or
Secretary at the request in writing of shareholders owning not less than one-
tenth of all the shares entitled to vote at the proposed meeting. Such
request shall state the purpose or purposes of the proposed meetings. Business
transacted at any special meeting of shareholders shall be limited to the
purposes stated in the notice thereof.
Section 2.03 PLACE OF MEETING. All shareholders' meetings shall be held
at such place, within or without the State of Delaware as shall be fixed from
time to time by resolution of the Board of Directors.
Section 2.04 NOTICE OF MEETINGS. Written notice stating the place, day
and hour of the meeting, and in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
days or more than sixty days before the date of the meeting either personally or
by mail, by or at the direction of the President, the Secretary or the officer
or person calling the meeting, to each shareholder of record entitled to vote at
such meeting, except that if the authorized shares are to be increased, at least
thirty days notice shall be given. A notice shall be deemed delivered:
(i) if mailed to a United States address three days after being
deposited in the United States mail, with postage prepaid,
addressed to the
<PAGE>
shareholder at the address as it appears on the
Corporation's record of shareholders.
(ii) if mailed to an address outside the United States, seven
days after being deposited in the United States mail with
airmail postage prepaid, addressed to the shareholder at the
address as it appears on the Corporation's record of
shareholders.
Section 2.05 WAIVER OF NOTICE. Whenever any notice is required to be
given to any shareholder of the Corporation under the provisions of any statute
or under the provisions of the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice or the holder of a proxy from such person or persons, whether before, at
or after the time stated therein, shall be equivalent to the giving of such
notice. Attendance of a shareholder at a meeting of shareholders shall
constitute a waiver of notice of such meeting, except when such shareholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
Section 2.06 ORGANIZATION. Meetings of the shareholders shall be presided
over by the Chairman of the Board of Directors, or if he is not present or
one has not been elected, by a Chairman PRO TEMPORE to be chosen by a
majority of the shareholders entitled to vote who are present in person or by
proxy at the meeting. The Secretary of the Corporation, or in his absence,
an Assistant Secretary, shall act as secretary of the meeting, or if neither
the Secretary nor any Assistant Secretary is present, a secretary PRO TEMPORE
shall be chosen by a majority of the shareholders entitled to vote who are
present in person or by proxy at the meeting.
Section 2.07 VOTING. Except as otherwise specifically provided by the
Certificate of Incorporation or by these Bylaws or by statute, all matters
coming before any meeting of shareholders shall be decided by the affirmative
vote of a majority of the issued and outstanding shares of Common Stock.
The vote upon any question shall be by ballot whenever requested by any person
entitled to vote, but, unless such a request is made, voting may be conducted in
anyway approved at the meeting.
Section 2.08 SHAREHOLDERS ENTITLED TO VOTE. Each shareholder of the
Corporation entitled to vote on a matter has the right to vote, in person or by
proxy, each share of Common Stock standing in his name on the books of the
Corporation on the record date fixed or determined pursuant to Section 6.08
hereof.
Section 2.09 PROXIES. The right to vote by proxy shall exist only if the
instrument authorizing such proxy to act shall have been executed in writing by
the shareholder himself or by his attorney-in-fact duly authorized in writing.
No proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy.
Section 2.10 QUORUM. The presence at any shareholders' meeting, in
person or by proxy, of the record holders of a majority of the issued and
outstanding shares of Common Stock entitled to vote (and not required to abstain
from voting) at the meeting shall be necessary and sufficient to constitute a
quorum for the transaction of business.
- 2 -
<PAGE>
Section 2.11 ABSENCE OF QUORUM. In the absence of a quorum at any
shareholders' meeting, a majority of the total number of shares entitled to vote
at the meeting and present thereat, in person or by proxy, may adjourn the
meeting for a period not to exceed sixty days at any one adjournment. Any
business that might have been transacted at the meeting originally called may be
transacted at any such adjourned meetings at which a quorum is present.
Section 2.12 VOTING RECORD. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten days
before each meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which record, for a period of ten days before such meeting, shall be kept on
file at the principal office of the Corporation, whether within or without the
State of Delaware, and shall be subject to inspection by any shareholder for any
purpose germane to the meeting at any time during usual business hours. Such
record shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder for any purpose
germane to the meeting during the time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such record or transfer books or to vote at any meeting of
shareholders. Failure to comply with the requirements of this Section 2.12
shall not affect the validity of any action taken at such meeting of
shareholders.
Section 2.13 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action
required to be taken at a meeting of the shareholders of the Corporation or
any action which may be taken at such a meeting, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed and dated by the shareholders having not less than the minimum number
of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted
and delivered to the Corporation within sixty days from the date the first
such consent is delivered.
Section 2.14 MEETING BY CONFERENCE TELEPHONE. Any shareholder may
participate in a meeting of the shareholders of the Corporation by means of a
conference telephone or similar communications equipment by means of which
all persons participating in such meeting can hear each other and such
participation shall constitute the presence of such person at such meeting.
ARTICLE THREE
BOARD OF DIRECTORS
Section 3.01 NUMBER AND TERM OF OFFICE. Subject to Section 3.02 and
3.03, the Board of Directors of the Corporation shall consist of up to six
directors. Each director (whenever elected) shall hold office until his
successor shall have been elected and qualified unless he shall resign or his
office shall become vacant by his death or removal. Directors shall be natural
persons of the age of eighteen years or older, but need not be residents of the
State of Delaware or shareholders of the Corporation.
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<PAGE>
Section 3.02 ELECTION OF DIRECTORS. Except as otherwise provided in
Section 3.03 and 3.04 hereof and except as otherwise provided in the Second
Amended and Restated Certificate of Incorporation, the directors shall be
elected annually at the annual shareholders' meeting for the election of
directors by such shareholders as have the right to vote on such election. The
Chairman of the Board of Directors must be approved by vote of the Board of
Directors before his appointment. If the Chairman of the Board of Directors is
absent from a meeting of directors or is unwilling to act, the Chairman at that
meeting must be one of the directors elected by a majority of those directors
present at the meeting. The President of the Corporation must be approved by
vote of the Board of Directors before his appointment.
Section 3.03 REMOVAL OF DIRECTORS. At a meeting called expressly for
that purpose, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
Section 3.04 RESIGNATIONS. Any director may resign at any time by
mailing or delivering or by transmitting by telecopy machine written notice of
his resignation to the Board of Directors of the Corporation at the
Corporation's principal office or to the President, the Secretary or any
Assistant Secretary of the Corporation. Any such resignation shall take effect
at the time specified therein or if no time be specified, then at the time of
receipt thereof.
Section 3.05 VACANCIES. Any vacancy occurring in the Board of Directors
may be filled by affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office
and until his successor shall have been elected and qualified. Any directorship
to be filled by reason of an increase in the number of directors shall be filled
by the affirmative vote of a majority of the directors then in office or by an
election at an annual meeting or at a special meeting of shareholders called for
that purpose. A director chosen to fill a position resulting from an increase
in the number of directors shall hold such position until the next annual
meeting of shareholders and until his successor shall have been elected and
qualified.
Section 3.06 GENERAL POWERS. The business of the Corporation shall be
managed by the Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Second Amended and Restated Certificate of Incorporation directed or
required to be exercised or done by the shareholders.
Section 3.07 ANNUAL MEETINGS. The annual meeting of the Board of
Directors for electing officers and transacting other business shall be held
immediately after the annual shareholders' meeting at the place of such meeting.
Failure to hold any annual meeting of the Board of Directors of the Corporation
at the designated time shall not work a forfeiture or dissolution of the
Corporation.
Section 3.08 REGULAR MEETINGS. The Board of Directors from time to time
may provide by resolution for the holding of regular meetings and fix the time
and place of such meetings. Regular meetings may be held within or without the
State of Delaware.
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<PAGE>
Section 3.09 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors, if one be
elected, on seven days notice to each Director specifying the time and place
(within or without the State of Delaware) of the meeting, and shall be called by
the President or Secretary in like manner and on like notice on the written
request of a majority of the directors.
Section 3.10 NOTICE. Notices in respect of meetings referred to under
Sections 3.07, 3.08, and 3.09 must stipulate the agenda of business to be
transacted at the meeting. Where the failure to include an item of business in
the agenda does not preclude such item being dealt with at the meeting as
general business provided the consent of at least one-half of the number of
directors is obtained. All notices to a director required by Sections 3.07,
3.08 or 3.09 hereof shall be given to him at least seven (7) days prior to the
date of such meeting and shall be addressed to him at his residence or usual
place of business and may be given by mail, telegram, telecopy, facsimile, or by
personal delivery. No notice need be given of any adjourned meeting. A notice
shall be deemed delivered:
(i) if mailed to a United States address, three days after being
deposited in the United States mail, with postage prepaid,
addressed to the director as stated above;
(ii) if mailed to an address outside the United States, seven
days after being deposited in the United States mail, with
airmail postage prepaid addressed to the director as stated
above.
Section 3.11 WAIVER OF NOTICE. Whenever any notice is required to be
given to any director of the Corporation under the provisions of any statute or
under the provisions of the Second Amended and Restated Certificate of
Incorporation or these Third Amended and Restated Bylaws, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before,
at or after the time stated therein, shall be equivalent to the giving of such
notice. Attendance of a director at a meeting of the Board of Directors shall
constitute a waiver of notice of such meeting, except where a director attends
such a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
Section 3.12 QUORUM. At all meetings of the Board of Directors, four
members of the Board of Directors shall constitute a quorum for the transaction
of business. The act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. In the
absence of a quorum, the directors present thereat may adjourn the meeting from
time to time until a quorum be present and written notice of such adjournment
must be given to all directors.
Section 3.13 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required
to be taken at a meeting of the directors of the Corporation or any action which
may be taken at such a meeting, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors. Such consent shall have the same force and effect as an unanimous
vote of the Board of Directors of the Corporation. A consent shall be
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sufficient for this Section 3.13 if it is executed in counterparts, in which
event all of such counterparts, when taken together, shall constitute one and
the same consent.
Section 3.14 MEETING BY CONFERENCE TELEPHONE. Any director may
participate in a meeting of the Board of Directors by means of a conference
telephone or similar communications equipment by means of which all persons
participating in such meeting can hear each other, and such participation shall
constitute the presence of such person at such meeting.
Section 3.15 COMPENSATION. By resolution of the Board of Directors, any
director may be paid any one or more of the following: his expenses, if any,
of attendance at meetings; a fixed sum for attendance at meetings; or stated
salary as a director. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any capacity as an officer,
employee, agent or otherwise, and receiving compensation therefor.
Section 3.16 RELIANCE ON ACCOUNTS AND REPORTS, ETC.. A director in the
performance of his duties shall be fully protected in relying in good faith upon
the books of account or reports made to the Corporation by any of its officers,
or by an independent certified public accountant, or by an appraiser selected
with reasonable care by the Board of Directors or in relying in good faith upon
other records of the Corporation.
Section 3.17 PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the Secretary
of the meeting before the adjournment thereof, or shall forward such dissent by
registered or certified mail to the Secretary of the Corporation within a
reasonable time after the adjournment of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action.
ARTICLE FOUR
COMMITTEES
Section 4.01 HOW CONSTITUTED. By unanimous vote of the Board of
Directors, the Board may designate one or more committees. The Board of
Directors may designate one or more directors as alternate members of any such
committee, who may replace any absent or disqualified member at any meeting of
such committee. Any such committee, to the extent provided in the resolution
and except as may otherwise be provided by statute, shall have and may exercise
the powers of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers which may require it, provided, however, that no such
committee shall have the authority of the Board of Directors in reference to
amending the Second Amended and Restated Certificate of Incorporation, adopting
a plan of merger or consolidation, recommending to the shareholders the sale,
lease, exchange or other disposition of all or substantially all of the property
and assets of the Corporation otherwise than in the usual
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course of its business, recommending to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof, or amending the Third
Amended and Restated Bylaws of the Corporation. The designation of such
committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed upon it or him by law. In the absence or disqualification of any
member of any such committee, the Board of Directors may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
Section 4.02 PROCEEDINGS, QUORUM AND MANNER OF ACTING. Except as
otherwise prescribed by the Board of Directors, each committee may adopt such
rules and regulations governing its proceedings, quorum and manner of acting as
it shall deem proper and desirable, provided that the quorum shall not be less
than a majority of the committee members.
ARTICLE FIVE
OFFICERS AND AGENTS
Section 5.01 OFFICERS. The officers shall consist of a Chairman
of the Board, a President, and a Secretary, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect and appoint such other
officers, assistant officers and agents as may be deemed necessary and may
delegate to one or more officers or agents the power to appoint such other
officers, assistant officers and agents and to prescribe their respective
rights, terms of office, authorities and duties. Any two or more offices of the
Corporation may be held by the same person, except the offices of President and
Secretary. An officer of the Corporation need not be a director of the
Corporation nor resident of the State of Delaware. The officers of the
Corporation shall be natural persons of the age of eighteen years or older.
Section 5.02 TERM OF OFFICE. Except as provided in Sections 5.03, 5.04,
and 5.05 hereof, each officer appointed by the Board of Directors shall hold
office until his successor shall have been appointed and qualified.
Section 5.03 RESIGNATION. Any officer or agent of the Corporation may
resign at any time by mailing or delivering or transmitting by telecopy
written notice of his resignation to the Board of Directors of the Corporation
at the Corporation's principal office or to the President, the Secretary or any
Assistant Secretary of the Corporation. Any such resignation shall take effect
at the time specified therein or if no time be specified, then at the time of
receipt thereof.
Section 5.04 REMOVAL. Any officer or agent may be removed by the Board
of Directors, either with or without cause, whenever in its judgment, the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights. In addition, any other officer, assistant officer or agent
appointed in accordance with the delegation provisions of Section 5.01 hereof
may
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be removed, either with or without cause, by any such officer or agent upon who
such power of delegation shall have been conferred by the Board of Directors.
Section 5.05 VACANCIES AND NEWLY CREATED OFFICES. If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any regular or
special meeting or may be filled by an officer or agent to whom the power is
delegated in accordance with the delegation provisions of Section 5.01 hereof.
Section 5.06 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall, when present, preside at all meetings of shareholders
and of the Board of Directors. In general, he shall perform all duties incident
to the office of Chairman of the Board of Directors and such other duties as
from time to time may be assigned to him by the Board of Directors, or as
prescribed herein.
Section 5.07 PRESIDENT. The President shall be the chief executive
officer and chief operating officer of the Corporation unless the Board of
Directors designates one or more other officers to fill such offices. As chief
executive officer of the Corporation, he shall have general charge, supervision
and authority over the property, affairs and business of the Corporation, and
over its several offices, subject, however, to the control of the Board of
Directors. As chief operating officer, he shall have general and active
management of the day-to-day business of the Corporation. He shall have
authority to cause the employment or appointment of such employees and agents of
the Corporation (other than officers or agents elected or appointed by the Board
of Directors) as the conduct of the business of the Corporation may require, and
to fix their compensation and to remove or suspend any employee or agent who
shall not have been appointed by the Board of Directors. He shall see that all
orders and resolutions of the Board of Directors are carried into effect and in
general shall perform all duties as may from time to time be assigned to him by
the Board of Directors.
Section 5.08 VICE PRESIDENTS. The Vice Presidents, if any, shall perform
such duties and possess such powers as from time to time may be assigned to them
by the Board of Directors or the President. In the absence of the President or
in the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election or appointment) shall perform the duties of the
President and when so performing shall have all the powers of and be subject to
all the restrictions upon the President.
Section 5.09 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all the proceedings of all meetings of the shareholders and of the Board
of Directors in a book to be kept for that purpose. He shall keep in safe
custody the seal of the Corporation, and shall have charge of the records of the
Corporation, including the stock books and such other books and papers as the
Board of Directors may direct and such books, reports, certificates and other
documents required by law to be kept, all of which shall at all reasonable times
be open to inspection by
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any director. He shall sign (unless an Assistant Secretary shall have signed)
certificates representing stock of the Corporation authorized for issuance by
the Board of Directors. He shall perform such other duties as appertain to this
office or as may be required by the Board of Directors. Any Assistant Secretary
may perform such duties of the Secretary as the Secretary or the Board of
Directors may properly assign, and, in the absence of the Secretary, any
Assistant Secretary may perform all the duties of the Secretary.
Section 5.10 REMUNERATION. The salaries or other compensation of the
officers of the Corporation shall be determined by the Board of Directors,
except that the Board of Directors may by resolution delegate to any officer or
agent the power to fix salaries or other compensation of any other officer,
assistant officer or agent appointed in accordance with the delegation
provisions of Section 5.01 hereof.
Section 5.11 SURETY BONDS. The Board of Directors may require any
officer or agent of the Corporation to execute a bond to the Corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties to the
Corporation, including responsibility for negligence and for the accounting of
any of the Corporation's property, funds or securities that may come into his
hands.
ARTICLE SIX
CAPITAL STOCK
Section 6.01 SIGNATURES. The shares of the Corporation's capital
stock shall be represented by certificates signed by the President or a Vice-
President and the Secretary or an Assistant Secretary of the Corporation and
shall be sealed with the seal of the Corporation, or a facsimile thereof. The
signatures of the President or a Vice-President and of the Secretary or an
Assistant Secretary upon certificates may be facsimiles if the certificate is
countersigned by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificates
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of its issue.
Section 6.02 CERTIFICATES. Each certificate representing shares of the
Corporation shall state upon the face thereof: (a) that the Corporation is
organized under the laws of the State of Delaware; b) the name of the person to
whom such certificate is issued; (c) the number and class of shares which such
certificate represents; and (d) the par value of each share represented by such
certificate, or a statement that the shares are without par value. Each
certificate shall also set forth conspicuously on the face or back thereof such
restrictions upon transfer, or a reference thereto, as shall be adopted by the
Board of Directors and shareholders, or as otherwise required by law. No
certificate shall be issued for any shares until such shares are fully paid.
Section 6.03 CLASSES OF STOCK. If the Corporation is, or shall become,
authorized to issue shares of more than one class, then in addition to the
provisions of Section 6.02 hereof, every certificate representing shares issued
by the Corporation shall also set forth upon the
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face or back of the certificate, or shall state that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
the designations, preferences, limitations and relative rights of the shares of
each class authorized to be issued and, if the Corporation is, or shall become,
authorized to issue any preferred or special class in series, the variations in
the relative rights and preferences between the shares of each such series so
far as the same have been fixed and determined and the authority of the Board of
Directors to fix and determine the relative rights and preferences of subsequent
series.
Section 6.04 CONSIDERATION FOR SHARES. Shares having a par value may be
issued for such consideration expressed in dollars, not less than the par value
thereof, as shall be fixed from time to time by the Board of Directors. Shares
without par value may be issued for such consideration expressed in dollars as
may be fixed from time to time by the Board of Directors. Treasury shares may
be disposed of by the Corporation for such consideration expressed in dollars as
may be fixed from time to time by the Board of Directors. The consideration for
the issuance of shares may be paid, in whole or in part, in money, in other
property or rights, tangible or intangible, or in labor or services actually
performed for the Corporation. Neither promissory notes nor future services
shall constitute payment or part payment for shares of the Corporation.
Section 6.05 TRANSFER OF CAPITAL STOCK. Transfers of shares of stock of
the Corporation shall be made on the books of the Corporation upon surrender of
the certificate or certificates, properly endorsed or accompanied by proper
instruments of transfer, representing such shares, subject to the terms of any
agreements among the Corporation and shareholders or other restrictions imposed
by law.
Section 6.06 REGISTERED SHAREHOLDERS. Prior to due presentment for
registration or transfer of shares of stock, the Corporation may treat the
person registered on its books as the absolute owner of such shares of stock for
all purposes and, accordingly, shall not be bound to recognize any legal,
equitable or other claim or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by statute; provided, however, that whenever any
transfer of shares shall be made for collateral security and not absolute, it
shall be so expressed in the entry of the transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and transferee
requisition the Corporation to do so.
Section 6.07 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may,
from time to time, appoint or remove one or more transfer agents or one or more
registrars of transfers of shares of stock of the Corporation, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made, all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or one
of such registrars of transfers and shall not be valid unless so countersigned.
If the same person shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
Section 6.08 FIXING OR DETERMINATION OF RECORD DATE. The Board of
Directors may fix, in advance, a date as a record date for the determination of
the shareholders entitled to notice of, and to vote at, any meeting of
shareholders and any adjournment thereof, or
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entitled to receive payment of any dividend or any other distribution or
allotment of right, or entitled to exercise rights in respect of any change,
conversion, or exchange of capital stock, or entitled to give any consent for
any purpose, or in order to make a determination of shareholders for any other
proper purpose; provided, however, that such record date shall be a date not
more than 50 days nor less than 10 days before the date of such meeting of
shareholders or the date of such other action, except for an action by written
consent pursuant to Section 2.13. If the Board of Directors does not fix a
record date as above provided, then the record date shall be established by
statute. In the case of a shareholder action by written consent pursuant to
Section 2.13, the record date shall be the date set by the Board of Directors,
which shall not be more than ten days after the date the resolution is adopted,
or if no such date is set and prior director action is not required, the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is properly delivered to the Corporation. A determination
of shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of such meeting, provided, however,
that the Board of Directors may fix the new record date for the adjourned
meeting. If such a record date is fixed, only such shareholders as shall be
shareholders of record on the record date so fixed shall be entitled to such
notice of, and to vote at, such meetings and any adjournments thereof, or to
receive payment of such dividend or other distribution, or to receive such
allotment of rights or to exercise such rights, or to give such consent, as the
case may be notwithstanding any transfer of any shares on the books of the
Corporation after any such record date.
Section 6.09 LOST OR DESTROYED CERTIFICATES. The Board of Directors may
direct that a new certificate or certificates of stock be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of the fact
by the person claiming the certificate or certificates to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, at its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate or certificates alleged to have been
lost, stolen or destroyed.
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ARTICLE SEVEN
EXECUTION OF INSTRUMENTS: FINANCE
Section 7.01 EXECUTION OF INSTRUMENTS. The Chairman of the Board of
Directors, the President or any Vice President shall have the power to execute
and deliver on behalf of and in the name of the Corporation any instrument
requiring the signature of an officer of the Corporation, except as otherwise
provided in these Bylaws or where the execution and delivery thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. Unless authorized to do so by these Bylaws or by the Board of
Directors, no officer, agent or employee shall have any power or authority to
bind the Corporation in any way, to pledge its credit or to render it liable
pecuniarily for any purpose or in any amount.
Section 7.02 BORROWING. No loan shall be contracted on behalf of the
Corporation, and no evidence of indebtedness shall be issued, endorsed or
accepted in its name, unless authorized by the Board of Directors or a committee
designated by the Board of Directors so to act. Such authority may be general
or confined to specific instances. When so authorized, the officer or officers
thereunto authorized may effect loans at any time for the Corporation from any
bank or other entity and for such loans may execute and deliver promissory notes
or other evidences of indebtedness of the Corporation, and when authorized as
aforesaid, as security for the payment of any and all loans (and any obligations
incident thereto) of the Corporation, may mortgage, pledge or otherwise encumber
any real or personal property, or any interest therein, at any time owned or
held by the Corporation, and to that end may execute and deliver such instrument
as may be necessary or proper in the premises.
Section 7.03 LOANS TO DIRECTORS, OFFICERS AND EMPLOYEES. The Corporation
may lend money to, guarantee the obligations of and otherwise assist directors,
officers and employees of the Corporation, or directors of another corporation
of which the Corporation owns a majority of the voting stock whenever, in the
judgment of the directors, such loan, guaranty or assistance may reasonably be
expected to benefit the Corporation. The loan, guaranty or other assistance may
be with or without interest, and may be unsecured, or secured in such manner as
the Board of Directors shall approve.
Section 7.04 CHECKS AND ENDORSEMENTS. All checks, drafts or other orders
for the payment of money, obligations, notes or other evidences of indebtedness,
bills of lading, warehouse receipts, trade acceptances and other such
instruments shall be signed or endorsed by the Chairman of the Board of
Directors, the President or any Vice President or such other officers or agents
of the Corporation as shall from time to time be determined by resolution of the
Board of Directors, which resolution may provide for the use of facsimile
signatures.
Section 7.05 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the Corporation's credit in
such banks or other depositories as shall from time to time be determined by
resolution of the Board of Directors, which resolution may specify the officers
or agents of the Corporation who shall have the power,
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and the manner in which such power shall be exercised, to make such deposits and
to endorse, assign and deliver for collection and deposit checks, drafts and
other orders for the payment of money payable to the Corporation or its order.
Section 7.06 PROXIES. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board of Directors, the President or
any Vice President may from time to time appoint one or more agents or attorneys
in fact of the Corporation, in the name and on behalf of the Corporation, to
cast the votes which the Corporation may be entitled to cast as the holder of
stock or other securities in any other corporation, association or other entity
any of whose stock or other securities may be held by the Corporation, at
meetings of the holders of the stock or other securities of such other
corporation, association or other entity, or to consent in writing, in the name
of the Corporation as such holder, to any action by such other corporation,
association or other entity, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal, or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.
Section 7.07 FISCAL YEAR. The fiscal year of the Corporation shall be
such as may from time to time be established by the Board of Directors.
ARTICLE EIGHT
LIABILITY: INDEMNIFICATION
Section 8.01 EXCULPATION. No director or officer of the Corporation
shall be liable for the acts, defaults or omissions of any other director or
officer, or for any loss sustained by the Corporation, unless the same has
resulted from his own willful misconduct, willful neglect or gross negligence.
Section 8.02 INDEMNIFICATION FOR ACTION, ETC, OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct which was taken was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or
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proceeding, that such person had reasonable cause to believe that the conduct
which was taken was unlawful.
Section 8.03 INDEMNIFICATION FOR ACTIONS, ETC, BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that such person is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 8.04 DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Section 8.02 or 8.03 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Sections 8.02 or 8.03. Such determination shall
be made (i) by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or (ii) if there are
no such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (iii) by the stockholders.
Section 8.05 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article Eight, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 8.02 or 8.03, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
Section 8.06 ADVANCE EXPENSES. Expenses incurred in defending a civil,
criminal, administrative, or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Article Eight and a written affirmation of such person's
good faith belief that such person has satisfied the standard of conduct
required for indemnification. The undertaking required by this Section shall be
an unlimited general obligation of the director, officer, employee or agent, but
need not be secured and may be accepted without reference to financial ability
to make repayment.
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Section 8.07 OTHER RIGHTS AND REMEDIES. The indemnification provided by
this Article Eight shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 8.08 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article Eight.
Section 8.09 CONSTITUENT CORPORATIONS. For the purposes of this Article
Eight, references to the "Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article Eight with
respect to the resulting or surviving corporation as such person would if such
person had served the resulting or surviving corporation in the same capacity.
Section 8.10 EXPENSES AS A WITNESS. Nothing in this Article Eight shall
limit the Corporation's power to pay or reimburse expenses incurred by a
director, officer, employee or agent of the Corporation in connection with his
appearance as a witness in a proceeding at a time when he has not been made a
named defendant or respondent in the proceeding.
ARTICLE NINE
MISCELLANEOUS
Section 9.01 SEAL. The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation. The form of the
seal shall be subject to alteration by the Board of Directors and the seal may
be used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have the
authority to affix the corporate seal of the Corporation to any document
requiring the same.
Section 9.02 BOOKS AND RECORDS. The Board of Directors shall have power
from time to time to determine whether and to what extent, and at what times and
places and under what conditions and regulations, the accounts and books of the
Corporation (other than the
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stock ledger), or any of them, shall be open to the inspection of shareholders
or, if applicable, holders of voting trust certificates. No shareholders or
holder of voting trust certificates shall have any right to inspect any account,
book or document of the Corporation except at a time conferred by statue, unless
authorized by a resolution of the shareholders or the Board of Directors.
Section 9.03 WAIVERS OF NOTICE. Whenever any notice is required to be
given by law, or under the provisions of the Second Amended an Restated
Certificate of Incorporation or of these Third Amended and Restated Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before, or after the time stated therein, shall be deemed
equivalent of notice.
Section 9.04 AMENDMENTS. Subject to repeal or change by action of the
shareholders, the Board of Directors shall have the power to make, alter or
repeal these Third Amended and Restated Bylaws, in whole or in part, at any time
and from time to time only upon the affirmative vote of a majority of the
directors at a meeting of the Board of Directors.
APPROVED AND ADOPTED as of this 26th day of October, 1995.
by acknowledgement
/s/ Charles Fear /s/ Mark Davison May 15, 1996.
- ------------------------------ -----------------------------
Charles Fear Mark Davison
/s/ Richard L. Horton /s/ George J. Stathakis
- -------------------------------- ------------------------------
Richard L. Horton George J. Stathakis
/s/ L. David Sikes
- --------------------------------
L. David Sikes
- 16-
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[LETTERHEAD]
December 10, 1996
Racom Systems, Inc.
6080 Greenwood Plaza Blvd.
Greenwood Village, CO 80111
Re: SEC Registration Statement on Form SB-2
Ladies and Gentlemen:
We are counsel for Racom Systems, Inc., a Delaware corporation (the
"Company") in connection with its proposed public offering under the
Securities Act of 1933, as amended, of 1,500,000 Units of the Company's
securities, each Unit consisting of one share of Common Stock and one Common
Stock Purchase Warrant (the "Units"), (1,725,000 Units if the overallotment
option is exercised in full) through a Registration Statement on Form SB-2
("Registration Statement") as to which this option is a part, to be filed
with the Securities and Exchange Commission (the "Commission").
In connection with rendering our opinion as set forth below, we have
reviewed and examined originals or copies identified to our satisfaction of
the following:
(1) Articles of Incorporation, and amendments thereto, of the Company
as filed with the Secretary of State of the State of Delaware.
(2) Corporate minutes containing the written deliberations and
resolutions of the Board of Directors and shareholders of the Company.
(3) The Registration Statement and the Preliminary Prospectus
contained within the Registration Statement.
(4) The other exhibits to the Registration Statement.
We have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the
Company, and have made such other investigations as we have deemed necessary
or appropriate under the circumstances.
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Racom Systems, Inc.
December 10, 1996
Page 2
Based upon the foregoing and in reliance thereon, it is our opinion that
the 1,725,000 Units offered under the Registration Statement together with the
Common Stock, Common Stock Purchase Warrants and Common Stock issuable upon
exercise of the Common Stock Purchase Warrants will, upon the purchase,
receipt of full payment, issuance and delivery in accordance with the terms
of the offering described in the Registration Statement, be duly and validly
authorized, legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus constituting a part thereof.
Very truly yours,
By /s/ GARY A. AGRON
-------------------
Gary A. Agron
GAA/mdi
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RACOM SYSTEMS, INC.
1993 EMPLOYEE STOCK PLAN
SECTION 1: PURPOSE
The general purpose of the Racom Systems, Inc. 1993 Employee Stock
Plan (the "Plan") is to further the growth and development of Racom Systems,
Inc. (the "Company") by affording an opportunity for stock ownership through
the grant of stock options and restricted stock to selected employees, directors
and consultants of the Company and its subsidiaries who are responsible for the
conduct and management of its business or who are involved in endeavors
significant to its success.
SECTION 2: DEFINITIONS
Unless otherwise indicated, the following words when used herein shall
have the following meanings:
(a) "Affiliate" shall mean, with respect to any person or entity, a
person or entity that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such person or entity.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Change in Control" shall be deemed to have occurred (1) at such
time as a third person, including a "group" as defined in Section 13 (d)
(3) of the Securities Exchange Act of 1934, becomes the beneficial owner of
shares of the Company having 50% or more of the total number of votes that
may be cast for the election of Directors of the Company, or (2) on the
date on which the stockholders of the Company approve (i) any agreement for
a merger or consolidation in which the Company will not survive as an
independent corporation or (ii) any sale, exchange or other disposition of
all or substantially all of the Company's assets, or (3) on the effective
date of any sale, exchange or other disposition of greater than 50% in fair
market value of the Company's assets. In determining whether clause (1) of
the preceding sentence has been satisfied, the third person owning shares
must be someone other than a person or an Affiliate of a person that, as of
May 25, 1993, was the beneficial owner of shares of the Company having 20%
or more of the total number of votes that may be cast for the election of
Directors of the Company. The Committee's reasonable determination as to
whether such an event has occurred shall be final and conclusive.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
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(e) "Common Stock" shall mean the Company's common stock (par value
$.01 per share) and any share or shares of the Company's capital stock
hereafter issued or issuable in substitution for such shares.
(f) "Director" shall mean a member of the Board of Directors.
(g) "Disinterested Director" shall mean a Director who is not,
during the one year prior to service as an administrator of the Plan,
granted or awarded equity securities pursuant to the Plan or any other plan
of the Company or any Affiliate of the Company, except as provided in
Section 7.8 of the Plan or except for such grants or awards as may
otherwise be permitted without disqualifying such Director as a
disinterested director within the meaning of Rule 16b-3 as promulgated by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
(h) "External Director" shall mean a Director who is not an employee
of the Company.
(i) "Grantee" shall mean any employee (including an employee who is
also a Director) who is awarded shares of Common Stock pursuant to a
Restricted Stock Award.
(j) "Incentive Stock Option" shall mean any option granted to an
eligible employee (including an employee who is also a Director) under the
Plan, which the Company intends at the time the option is granted to be an
Incentive Stock Option within the meaning of Section 422 of the Code.
(k) "Limited SARI" shall mean a stock appreciation right subject to
the terms of Section 12.2.
(l) "Nonqualified Stock Option" shall mean any option granted to an
eligible employee, Director or consultant under the Plan which is not an
Incentive Stock Option.
(m) "Option" shall mean and refer collectively to Incentive Stock
Options and Nonqualified Stock Options.
(n) "Option Agreement" means the agreement specified in Section 7.2.
(o) "Optionee" shall mean any employee, Director or consultant who
is granted an Option under the Plan. "Optionee" shall also mean the
personal representative of an Optionee and any other person who acquires
the right to exercise an Option by bequest or inheritance.
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(p) "Parent" shall mean a parent corporation of the Company as
defined in Section 424(e) of the Code.
(q) "Qualifying External Director" shall mean an External Director
who (i) owns less than 5% of all classes of the Company's equity
securities, and (ii) is not an employee or an Affiliate or a designee to
the Board of Directors of a person or entity which owns 5% or more of any
class of the Company's equity securities.
(r) "Related Option" shall mean an Incentive Stock Option or a
Nonqualified Stock Option which has been granted in conjunction with a
Limited SAR.
(s) "Restricted Stock" shall mean shares of Common Stock awarded to
an eligible employee (including an employee who is also a Director) which
are subject to the restrictions set forth in Section 10 of the Plan and the
Restricted Stock Agreement. "Restricted Stock" shall also include any
shares of the Company's capital stock issued as the result of a dividend on
or split of Restricted Stock. Upon termination of the restrictions, such
Common Stock or other capital stock shall no longer be Restricted Stock.
(t) "Restricted Stock Agreement" means the agreement specified in
Section 10.2.
(u) "Restricted Stock Award" means the grant of Restricted Stock
under this Plan.
(v) "Restriction Period" shall be the period set forth in the
Restricted Stock Agreement which is the period beginning on the date of
grant of the Restricted Stock Award and ending on the vesting of the
Restricted Stock.
(w) "Subsidiary" shall mean a subsidiary corporation of the Company
as defined in Section 424(f) of the Code.
SECTION 3: EFFECTIVE DATE
The effective date of the Plan is May 25, 1993; provided, however,
that the adoption of the Plan by the Board of Directors is subject to approval
and ratification by the shareholders of the Company within 12 months of the
effective date. Options and Restricted Stock Awards granted under the Plan
prior to approval of the Plan by the shareholders of the Company shall be
subject to approval of the Plan by the shareholders of the Company.
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SECTION 4: ADMINISTRATION
4.1 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by a
Committee appointed by and serving at the pleasure of the Board of Directors,
consisting of not less than two Disinterested Directors (the "Committee") . The
Board of Directors may from time to time remove members from or add members to
the Committee, and vacancies on the Committee, howsoever caused, shall be filled
by the Board of Directors.
4.2 COMMITTEE MEETINGS AND ACTIONS. The Committee shall hold
meetings at such times and places as it may determine. A majority of the
members of the Committee shall constitute a quorum, and the acts of the majority
of the members present at a meeting or a consent in writing signed by all
members of the Committee shall be the acts of the Committee and shall be final,
binding and conclusive upon all persons, including the Company, its
Subsidiaries, its shareholders, and all persons having any interest in Options
or Restricted Stock Awards which may be or have been granted pursuant to the
Plan.
4.3 POWERS OF COMMITTEE. Subject to the restrictions of Section 7.8,
the Committee shall have the full and exclusive right to grant and determine
terms and conditions of all Options and Restricted Stock Awards granted under
the Plan and to prescribe, amend and rescind rules and regulations for
administration of the Plan. In granting Options and Restricted Stock Awards,
the Committee shall take into consideration the contribution the Optionee or
Grantee has made or may make to the success of the Company or its Subsidiaries
and such other factors as the Committee shall determine.
4.4 INTERPRETATION OF PLAN. The determination of the Committee as to
any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon all
persons, including the Company, its Subsidiaries, its shareholders, and all
persons having any interest in Options or Restricted Stock Awards which may be
or have been granted pursuant to the Plan.
4.5 INDEMNIFICATION. Each person who is or shall have been a member
of the Committee or of the Board of Directors shall be indemnified and held
harmless by the Company against and from any loss, cost, liability or expense
that may be imposed upon or reasonably incurred in connection with or resulting
from any claim, action, suit or proceeding to which such person may be a party
or in which such person may be involved by reason of any action taken or failure
to act under the Plan and against and from any and all amounts paid in
settlement thereof, with the Company's approval, or paid in satisfaction of a
judgment in any such action, suit or proceeding against him, provided such
person shall give the Company an opportunity, at its own expense, to
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handle and defend the same before undertaking to handle and defend it on such
person's own behalf. The foregoing right of indemnification shall not be
exclusive of, and is in addition to, any other rights of indemnification to
which any person may be entitled under the Company's Articles of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
SECTION 5: STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The aggregate number of shares of Common Stock which may
be issued under Options and Restricted Stock Awards granted pursuant to the Plan
shall not exceed 1,700,000 shares. Shares which may be issued under Options and
Restricted Stock Awards may consist, in whole or in part, of authorized but
unissued stock or treasury stock of the Company not reserved for any other
purpose.
5.2 UNUSED STOCK. If any outstanding Option under the Plan expires
or for any other reason ceases to be exercisable, in whole or in part, other
than upon exercise of the Option or a Limited SAR, the shares which were subject
to such Option and as to which the Option had not been exercised shall continue
to be available under the Plan. Any Restricted Stock which is forfeited to the
Company pursuant to restrictions contained in this Plan shall not be counted in
determining the number of shares of Common Stock available to be awarded under
the Plan.
5.3 ADJUSTMENT FOR CHANGE IN OUTSTANDING SHARES. If there is any
change, increase or decrease, in the outstanding shares of Common Stock which is
effected without receipt of additional consideration by the Company, by reason
of a stock dividend, recapitalization, merger, consolidation, stock split,
combination or exchange of stock, or other similar circumstances, then in each
such event, the Committee shall make an appropriate adjustment in (i) the
aggregate number of shares of stock available under the Plan and (ii) the number
of shares of stock subject to each outstanding Option and Restricted Stock Award
and the option price of each outstanding Option in order to prevent the dilution
or enlargement of any Optionee or Grantee's rights. In making such adjustments,
fractional shares shall be rounded to the nearest whole share. The Committee's
determinations in making adjustments shall be final and conclusive.
5.4 REORGANIZATION OR SALE OF ASSETS. If the Company is merged
or consolidated with another corporation and the Company is not the surviving
corporation, or if all or substantially all of the assets of the Company are
acquired by another entity, or if the Company is liquidated or reorganized (each
of such events being referred to hereinafter as a "Reorganization Event") , the
Committee shall, as to outstanding Options, either (1) make appropriate
provision for the protection
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of any such outstanding Options by the substitution on an equitable basis of
appropriate stock of the Company, or of the merged, consolidated or other wise
reorganized corporation, which will be issuable in respect of the Common Stock,
provided that no additional benefits shall be conferred upon Optionees as a
result of such substitution, and provided further that the excess of the
aggregate fair market value of the shares subject to the Options immediately
after such substitution over the purchase price thereof is not more than the
excess of the aggregate fair market value of the shares subject to such Options
immediately before such substitution over the purchase price thereof, or (2)
upon written notice to all Optionees, which notice shall be given not less than
20 days prior to the effective date of the Reorganization Event, provide that
all unexercised Options and Limited SARs must be exercised within a specified
number of days (which shall not be less than ten) of the date of such notice or
such Options will terminate. In response to a notice provided pursuant to
clause (2) of the preceding sentence, an Optionee may make an irrevocable
election to exercise the Optionee's Option contingent upon and effective as of
the effective date of the Reorganization Event. In the alternative, if the
Reorganization Event would also result in a Change in Control, the Optionee may
make an irrevocable election to exercise the Optionee's Limited Stock
Appreciation Right contingent. upon and effective as of the effective date of
the Reorganization Event. The Committee may, in its sole discretion, accelerate
the exercise dates of outstanding Options in connection with any Reorganization
Event which does not also result in a change in Control.
SECTION 6: ELIGIBILITY
All full- or part-time salaried employees of the Company and its
Subsidiaries who are responsible for the conduct and management of its business
or who are involved in endeavors significant to its success shall be eligible to
receive Incentive Stock Options, Nonqualified Stock Options and Restricted Stock
Awards under the Plan. Subject to the restrictions in Section 7.8, Qualifying
External Directors shall be eligible to receive Nonqualified Stock Options, but
not Incentive Stock Options, under the Plan. No External Director who is not a
Qualifying External Director shall be eligible to receive Options under the
Plan. No External Director shall be eligible to receive Restricted Stock Awards
under the Plan. Consultants shall be eligible to receive Nonqualified Stock
Options, but not Incentive Stock Options or Restricted Stock Awards, under the
Plan. Any Director who is otherwise eligible to participate, who makes an
election in writing not to receive any grants under the Plan, shall not be
eligible to receive any such grants during the period set forth in such
election.
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SECTION 7: GRANT OF OPTIONS
7.1 GRANT OF OPTIONS. Subject to the restrictions of Section 7.8,
the Committee may from time to time in its discretion, after consultation with
the President of the Company, determine which of the eligible employees,
Directors and consultants of the Company or its Subsidiaries should receive
Options, the type of Options to be granted (whether Incentive Stock Options or
Nonqualified Stock Options) , the number of shares subject to such Options,
whether the Optionee shall also receive Limited SARs, and the dates on which
such Options are to be granted. No employee may be granted Incentive Stock
Options to the extent that the aggregate fair market value (determined as of the
time each Option is granted) of the Common Stock with respect to which any such
Options are exercisable for the first time during a calendar year (under all
incentive stock option plans of the Company and its Parent and Subsidiaries)
would exceed $100,000.
7.2 OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by a written Option Agreement setting forth the terms upon which the
Option is granted. Each Option Agreement shall designate the type of Options
being granted (whether Incentive Stock Options or Nonqualified Stock Options),
whether the Optionee shall also receive Limited SARs, and shall state the number
of shares of Common Stock, as designated by the Committee, to which that Option
pertains. More than one Option, and both Options and Restricted Stock Awards,
may be granted to an eligible person.
7.3 OPTION PRICE. The option price per share of Common Stock under
each Option shall be determined by the Committee and stated in the Option
Agreement. The option price for Incentive Stock Options granted under the Plan
shall not be less than 100% of the fair market value (determined as of the day
the Option is granted) of the shares subject to the Option. The option price
for Nonqualified Stock Options granted under the Plan shall not be less than 85%
of the fair market value (determined as of the day the Option is granted) of the
shares subject to the Option.
7.4 DETERMINATION OF FAIR MARKET VALUE. If the Common Stock is
listed upon an established stock exchange or exchanges, then the fair market
value per share shall be deemed to be the average of the quoted closing prices
of the Common Stock on such stock exchange or exchanges on the day for which the
determination is made, or if no sale of the Common Stock shall have been made on
any stock exchange on that day, on the next preceding day on which there was
such a sale. If the Common Stock is not listed upon an established stock
exchange but is traded in the NASDAQ National Market System, the fair market
value per share shall be deemed to be the closing price of the
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Common Stock in the National Market System on the day for which the
determination is made, or if there shall have been no trading of the Common
Stock on that day, on the next preceding day on which there was such trading.
If the Common Stock is not listed upon an established stock exchange and is not
traded in the National Market System, the fair market value per share shall be
deemed to be the mean between the dealer "bid" and "ask" closing prices of the
Common Stock on the NASDAQ System on the day the option is granted or, if there
shall have been no trading of the Common Stock on that day, on the next
preceding day on which there was such trading. If none of these conditions
apply, the fair market value per share shall be deemed to be an amount as
determined in good faith by the Committee by applying any reasonable valuation
method.
7.5 DURATION OF OPTIONS. Each Option shall be of a duration as
specified in the Option Agreement; provided, however, that the term of each
Option shall be no more than ten years from the date on which the Option is
granted and shall be subject to early termination as provided herein.
7.6 ADDITIONAL LIMITATIONS ON GRANT. No Incentive Stock Option shall
be granted to an employee who, at the time the Incentive Stock Option is
granted, owns stock (as determined in accordance with Section 424(d) of the
Code) representing more than 10% of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary, unless the
option price of such Incentive Stock Option is at least 110% of the fair market
value (determined as of the day the Incentive Stock Option is granted) of the
stock subject to the Incentive Stock Option and the Incentive Stock Option by
its terms is not exercisable more than five years from the date it is granted.
7.7 OTHER TERMS AND CONDITIONS. The Option Agreement may contain
such other provisions, which shall not be inconsistent with the Plan, as the
Committee shall deem appropriate, including, without limitation, provisions that
relate the Optionee's ability to exercise an Option to the passage of time or
the achievement of specific goals established by the Committee or the occurrence
of certain events specified by the Committee. The Option Agreement may also
provide that any shares of Common Stock acquired upon exercise of a Nonqualified
Stock Option shall become, upon such acquisition, Restricted Stock subject to
the terms of a Restricted Stock Agreement which shall be set forth as an
attachment to the Stock Option Agreement.
7.8 GRANTS TO QUALIFYING EXTERNAL DIRECTORS. Notwithstanding
anything in the Plan to the contrary, Qualifying External Directors shall not be
eligible to receive Option grants except pursuant to this Section 7.8. Each
person who first becomes a Director of the Company on or after May 25, 1993 and
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who is a Qualifying External Director shall be granted a Nonqualified Stock
Option to purchase 5,000 shares of Common Stock effective on the date on which
such person becomes a Director of the Company. So long as such Director
continues to serve on the Board and continues to be a Qualifying External
Director, such Director shall be granted a Nonqualified Stock Option to purchase
an additional 2,000 shares of Common Stock effective on each anniversary of the
date on which such person became a Director of the Company. The exercise price
of all Options granted pursuant to this Section 7.8 shall be 100% of the fair
market value (determined as of the day the Option is granted) of the shares
subject to the Option. All Options granted pursuant to this Section 7.8 shall
be fully vested as of the date of grant. Provisions of this Plan which relate
to the amount, price and timing of Option grants to Directors, including
without limitation the provisions of this Section 7.8, shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
SECTION 8: EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. Subject to the limitations and conditions
of the Plan or the Option Agreement, an Option shall be exercisable, in whole or
in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, which notice shall specify the number of shares of
Common Stock to be purchased and shall be accompanied by (1) payment in full to
the Company of the purchase price of the shares to be purchased, plus (2)
payment in cash or by certified or bank cashier's check of such amount as the
Company shall determine to be sufficient to satisfy any liability it may have
for any withholding of federal, state or local income or other taxes incurred by
reason of the exercise of the Option, and (3) a representation meeting the
requirements of Section 14.1 if requested by the Company, and (4) a Stock
Restriction Agreement meeting the requirements of Section 14.2 if requested by
the Company.
8.2 PAYMENT OF PURCHASE PRICE. Payment for shares shall be in the
form of either (1) cash, (2) a certified or bank cashier's check to the order of
the Company, or (3) shares of the Common Stock, properly endorsed to the
Company, in an amount the fair market value of which on the date of receipt by
the Company (as determined in accordance with Section 7.4) equals or exceeds the
aggregate option price of the shares with respect to which the Option is being
exercised, or (4) in any combination thereof; provided, however, that no payment
may be made in shares of Common Stock unless payment in such form has been
approved in advance by the Committee. Upon the exercise of any Option, the
Company, in its sole discretion, may make financing available to
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the Optionee for the payment of the purchase price on such terms and conditions
as the Committee shall specify.
SECTION 9: RESTRICTIONS ON TRANSFER OF OPTIONS
Options and Limited SARs granted pursuant to the Plan are not
transferable by the Optionee other than by Will or the laws of descent and
distribution and shall be exercisable during the Optionee's lifetime only by the
Optionee. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of the Option or Limited SAR contrary to the provisions
hereof, or upon the levy of any attachment or similar process upon the Option or
Limited SAR, the Option and Limited SAR shall immediately become null and void.
SECTION 10: GRANT OF RESTRICTED STOCK AWARDS
10.1 GRANT OF RESTRICTED STOCK AWARDS. The Committee may from time to
time in its discretion, after consultation with the President of the Company,
determine which of the eligible employees of the Company or its Subsidiaries
(including employees who are also Directors) should receive Restricted Stock
Awards, the number of shares subject to such Restricted Stock Awards, and the
dates on which such Restricted Stock Awards are to be granted.
10.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock Award granted
under the Plan shall be evidenced by a written Restricted Stock Agreement
setting forth the terms upon which the Restricted Stock Award is granted. Each
Restricted Stock Agreement shall state the number of shares of Common Stock, as
designated by the Committee, to which that Restricted Stock Award pertains and
the price, if any, to be paid by the Grantee for the Restricted Stock. More
than one Restricted Stock Award, and both options and Restricted Stock Awards,
may be granted to an eligible person.
10.3 ISSUANCE OF RESTRICTED STOCK. The right to receive Restricted
Stock shall be conditioned upon the delivery by the Grantee of (1) payment in
full, in cash or by certified or bank cashier's check, to the Company of the
purchase price, if any, of the Restricted Stock, (2) a representation meeting
the requirements of Section 14.2 if requested by the Company, and (3) a Stock
Restriction Agreement meeting the requirements of section 14.3 if requested by
the Company. The stock certificate or certificates representing the Restricted
Stock shall be registered in the name of the Grantee to whom such Restricted
Stock shall have been awarded. Such certificates shall remain in the custody of
the company and the Grantee shall deposit with the Company stock powers or other
instruments of assignment, each endorsed in blank, so as to permit retransfer to
the Company of all or a portion of the Restricted Stock that shall be forfeited
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or otherwise not become vested in accordance with the Plan and the applicable
Restricted Stock Agreement.
10.4 COMPLETION OF RESTRICTION PERIOD. With respect to each
Restricted Stock Award, upon the satisfaction of any applicable restrictions,
terms and conditions set forth in this Plan or in the Restricted Stock
Agreement, all or part of the Restricted Stock shall become vested as set forth
in the Restricted Stock Agreement. The Company shall issue a certificate for
shares of Common Stock of the Company as such Restricted Stock becomes vested;
provided, however, that prior to such issuance Grantee shall pay, in cash or by
certified or bank cashier's check, such amount as the Company shall determine to
be sufficient to satisfy any liability it may have for any withholding of
federal, state or local income or other taxes incurred by reason of the vesting
of the Restricted Stock. If the Grantee fails to satisfy any applicable
restrictions, terms and conditions set forth in this Plan or in the Restricted
Stock Agreement for any reason, any Restricted Stock held by such Grantee and
affected by such conditions shall be forfeited to the Company in return for such
consideration as shall be specified in the Restricted Stock Agreement. The
Company and its officers are authorized to reflect such forfeiture of Restricted
Stock on the Company's stock ledger.
SECTION 11: RESTRICTIONS ON TRANSFER OF RESTRICTED STOCK
11.1 RESTRICTIONS. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The Grantee
shall have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and such other distributions, as the Board of Directors
may, in its discretion, designate, pay or distribute on such Restricted Stock,
and to exercise all other rights, powers and privileges of a holder of Common
Stock with respect to such Restricted Stock, except as set forth in this Section
11. The Grantee shall not be entitled to delivery of the stock certificate or
certificates representing such Restricted Stock until the Restriction Period
shall have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled or waived. The Company shall retain custody
of the stock certificate or certificates representing the Restricted Stock
during the Restriction Period.
11.2 PROHIBITION ON TRANSFER. Restricted Stock granted pursuant to
the Plan is not transferable by the Grantee until all restrictions on such
Restricted Stock shall have lapsed. Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of the Restricted Stock, contrary to the
provisions hereof, and levy of any attachment or similar process upon the
Restricted Stock, shall be null and void. Furthermore, the Company shall not
recognize or give effect to such transfer
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on its books and records or recognize the person or persons to whom such
purported transfer has been made as the legal or beneficial owner of the
Restricted Stock.
11.3 LEGEND. Certificates representing shares of Restricted Stock
shall bear the following legend, in addition to such other legends as counsel to
the Company may deem appropriate:
NOTICE OF RESTRICTIONS ON TRANSFER
THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE
SUBJECT TO THE PROVISIONS OF THE COMPANY'S 1993 EMPLOYEE STOCK PLAN
AND A RESTRICTED STOCK AGREEMENT, WHEREBY THE TRANSFER IN ANY MANNER
OF SUCH SHARES OF STOCK OR ANY INTEREST THEREIN IS RESTRICTED AND THE
SHARES OF STOCK ARE SUBJECT TO FORFEITURE. A COPY OF SAID PLAN AND
SAID AGREEMENT IS ON FILE AT THE REGISTERED OFFICE OF THE COMPANY
WHERE IT MAY BE INSPECTED.
To the extent that restrictions on the Restricted Stock have lapsed,
certificates bearing the legend provided for herein may be submitted to the
Company, and the Company shall reissue such certificates free of such legend.
Section 12: CHANGE IN CONTROL
12.1 ACCELERATION OF VESTING. Notwithstanding any vesting
requirements contained in any Option Agreement, all outstanding options shall
become immediately exercisable in full upon the occurrence of a Change in
Control. Notwithstanding any vesting requirements contained in any Stock
Restriction Agreement, all outstanding Restricted Stock shall become immediately
fully vested upon the occurrence of a Change in Control.
12.2 LIMITED STOCK APPRECIATION RIGHTS. The Committee may, but shall
not be obligated to, grant Limited SARs pursuant to the provisions of this
Section 12.2 to an Optionee with respect to all or any portion of the shares of
Common Stock subject to the Related Option. The SAR may be granted either
concurrently with the grant of the Related Option or at any time thereafter
prior to the complete exercise, termination, expiration or cancellation of the
Related Option. Each SAR shall be exercisable to the extent the Related Option
is then exercisable and may be subject to such additional limitations on
exercisability as the Option Agreement may provide. In no event shall an SAR be
exercisable after the termination or exercise of
12
<PAGE>
the Related Option. Upon the exercise of SARs, the Related option shall be
considered to have been exercised to the extent of the number of shares of
Common Stock with respect to which SARs are exercised, both for purposes of
acquiring shares of Common Stock upon exercise of an Option and for purposes of
determining the number of shares of Common Stock which may be issued pursuant to
the Plan. Limited SARs may be exercised only during the period beginning on the
effective date of a Change of Control and ending on the 90th day after such
date. Limited SARs shall be exercised in the same manner as set forth in
Section 8.1; provided, however, that no payment shall be made with respect to
the purchase price of the shares to be purchased. Except as set forth in
Section 5.4, the effective date of exercise of a Limited SAR shall be the date
on which the Company shall have received notice from the Optionee of the
exercise thereof. Upon the exercise of Limited SARs, the Optionee shall receive
in cash an amount equal to the fair market value (as determined in accordance
with Section 7.4) on the date of exercise of such Limited SAR of the shares of
Common Stock with respect to which such Limited SAR shall have been exercised
over the aggregate exercise price of the Related Option.
Section 13: EFFECT OF TERMINATION OF EMPLOYMENT
13.1 EFFECT UNION OPTIONS. An Optionee's ability to exercise an
Option following the termination of the Optionee's employment shall be
determined in accordance with the following provisions.
13.1.1 TERMINATION OF EMPLOYMENT OTHER THAN UPON DEATH OR
DISABILITY. Upon termination of an Optionee's employment with the Company
or a Subsidiary other than upon death or disability (within the meaning of
Section 22 (e) (3) of the Code), an Optionee may, at any time within 30
days after the date of termination but not later than the date of
expiration of the Option, exercise the Option to the extent the Optionee
was entitled to do so on the date of termination. Any Options not
exercisable as of the date of termination and any Options or portions of
Options of terminated Optionees not exercised as provided herein shall
terminate.
13.1.2 TERMINATION BY DEATH OF OPTIONEE. If an optionee shall
die while in the employ of the Company or a Subsidiary or within a period
of 30 days after the termination of employment with the Company or a
Subsidiary, the personal representatives of the Optionee's estate or the
person or persons who shall have acquired the Option from the Optionee by
bequest or inheritance may exercise the Option at any time within the year
after the date of death but not later than the expiration date of the
Option, to the extent the Optionee was entitled to do so on the date of
13
<PAGE>
death. Any Options not exercisable as of the date of death and any Options
or portions of Options of deceased Optionees not exercised as provided
herein shall terminate.
13.1.3 TERMINATION BY DISABILITY OF OPTIONEE. Upon
termination of an Optionee's employment with the Company or a Subsidiary by
reason of the Optionee's disability (within the meaning of Section 22 (e)
(3) of the Code), the Optionee may exercise the Option at any time within
one year after the date of termination but not later than the expiration
date of the Option, to the extent the Optionee was entitled to do so on the
date of termination. Any Options not exercisable as of the date of
termination and any Options or portions of Options of disabled Optionees
not exercised as provided herein shall terminate.
13.1.4 EXTENSION OF OPTION TERMINATION DATE. The Committee,
in its sole discretion, may extend the termination date of an Option
granted under the Plan without regard to the preceding provisions of this
Section 13.1. In such event, the termination date shall be a date selected
by the Committee in its sole discretion, but not later than the latest
expiration date of the Option permitted pursuant to Section 7.5. Such
extension may be made in the Option Agreement as originally executed or by
amendment to the Option Agreement, either prior to or following termination
of an Optionee's employment. The Committee shall have no power to extend
the termination date of an Incentive Stock Option beyond the periods
provided in Sections 13.1.1, 13.1.2 and 13.1.3 prior to the termination
of the Optionee's employment or without the approval of the Optionee, which
may be granted or withheld in the Optionee's sole discretion.
13.2 EFFECT UPON RESTRICTED STOCK. In the event that a Grantee
terminates employment with the Company for any reason, including the death or
disability of the Grantee, any Restricted Stock held by such Grantee as of the
date of such termination of employment shall be forfeited to the Company as set
forth in Section 10.4.
13.3 TERMINATION OF DIRECTORS AND CONSULTANTS. For purposes of this
Section 13, a termination of employment shall be deemed to include the
termination of a Director's service as a member of the Board of Directors
(unless the Director is also an employee) and the termination of a consulting
arrangement in the case of consultants.
SECTION 14: ISSUANCE OF SHARES
14.1 TRANSFER OF SHARES TO OPTIONEE. As soon as practicable after
(i) an Optionee has given the Company written
14
<PAGE>
notice of exercise of an Option and has otherwise met the requirements of
Section 8.1, or (ii) a Grantee has satisfied any applicable restrictions, terms
and conditions set forth in this Plan or in the Restricted Stock Agreement with
respect to a Restricted Stock Award as set forth in Section 10.4, the Company
shall issue or transfer to such Optionee or Grantee the number of shares of
Common Stock as to which the Option has been exercised or the Restricted Stock
Award has been satisfied and shall deliver to the Optionee or Grantee a
certificate or certificates therefor, registered in the Optionee's or Grantee's
name. In no event shall the Company be required to transfer fractional shares,
and in lieu thereof, the Company may pay an amount in cash equal to the fair
market value (as determined in accordance with Section 7.4) of such fractional
shares on the date of exercise. If the issuance or transfer of shares by the
Company would for any reason, in the opinion of counsel for the Company, violate
any applicable federal or state laws or regulations, the Company may delay
issuance or transfer of such shares until compliance with such laws can
reasonably be obtained. In no event shall the Company be obligated to effect or
obtain any listing, registration, qualification, consent or approval under any
applicable federal or state laws or regulations or any contract or agreement to
which the Company is a party with respect to the issuance of any such shares.
14.2 INVESTMENT REPRESENTATION. Upon demand by the Company, the
Optionee or Grantee shall deliver to the Company a representation in writing
that the acquisition of shares under this Plan is being made for investment only
and not for resale or with a view to distribution, and containing such other
representations and provisions with respect thereto as the Company may require.
Upon such demand, delivery of such representation promptly and prior to the
transfer or delivery of any such shares and, in the case of an Option, prior to
the expiration of the option period, shall be a condition precedent to the right
to acquire such shares.
14.3 STOCK RESTRICTION AGREEMENT. Upon demand by the Company, the
optionee or Grantee shall execute and deliver to the Company a Stock Restriction
Agreement in such form as the Company may provide at the time of exercise of the
Option or grant of the Restricted Stock Award. Such Agreement may include,
without limitation, restrictions upon the Optionee's or Grantee's right to
transfer shares, including the creation of an irrevocable right of first refusal
in the Company and its designees, and provisions requiring the Optionee or
Grantee to transfer the shares to the Company or the Company's designees upon a
termination of employment. Upon such demand, execution of the Stock Restriction
Agreement prior to the transfer or delivery of any shares and, in the case of an
Option, prior to the expiration of the option period, shall be a condition
precedent to the right
15
<PAGE>
to purchase such shares, unless such condition is expressly waived in writing by
the Company.
SECTION 15: AMENDMENTS
The Board of Directors may at any time and from time to time alter,
amend, suspend or terminate the Plan or any part thereof as it may deem proper,
except that no such action shall diminish or impair the rights under" an Option
or Restricted Stock Award previously granted. Unless the shareholders of the
Company shall have given their approval, the total number of shares which may be
issued under the Plan shall not be increased, except as provided in Section 5.3,
and no amendment shall be made which reduces the price at which the Common Stock
may be offered upon the exercise of Options under the Plan below the minimum
required by Section 7.3, except as provided in Section 5.3, or which materially
modifies the requirements as to eligibility for participation in the Plan.
Subject to the terms and conditions of the Plan, the Board of Directors may
modify, extend or renew outstanding options or Restricted Stock Awards granted
under the Plan, or accept the surrender of outstanding Options or Restricted
Stock Awards to the extent not theretofore exercised and authorize the granting
of new Options or Restricted Stock Awards in substitution therefor, except that
no such action shall diminish or impair the rights under an Option or Restricted
Stock Awards previously granted without the consent of the Optionee or the
Grantee.
SECTION 16: TERM OF PLAN
This Plan shall terminate on May 24, 2003; provided, however, that the
Board of Directors may at any time prior thereto suspend or terminate the Plan.
SECTION 17: OPTIONEE'S RIGHTS AS STOCKHOLDER
An optionee shall have no rights as a stockholder of the Company with
respect to any shares of Common Stock covered by an Option until the date of the
issuance of the stock certificate for such shares.
SECTION 18: NO SPECIAL EMPLOYMENT RIGHTS
Nothing contained in this Plan or in any Option or Restricted Stock
Award granted under the Plan shall confer upon any Optionee or Grantee any right
with respect to the continuation of such person's employment by the Company or
any Subsidiary or interfere in any way with the right of the Company or any
Subsidiary, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of
16
<PAGE>
such person from the rate in existence at the time of the grant of the Option or
the Restricted Stock Award.
SECTION 19: GOVERNING LAW
This Plan, and all Options and Restricted Stock Awards granted under
this Plan, shall be construed and shall take effect in accordance with the laws
of the State of Colorado, without regard to the conflicts of laws rules of such
State.
17
<PAGE>
LEASE SYNOPSIS
RACOM SYSTEMS, INC.
Englewood, Colorado
Date: November 21, 1994
CLAUSE ARTICLE PROVISIONS
BUILDING - The Commons
6080 Greenwood Plaza Blvd.
Englewood, CO 80111
TENANT - Racom Systems, Inc.
LANDLORD - Allstate Insurance Company
Allstate Plaza South, 65B
Real Estate Investment Division
Northbrook, IL 60062
MANAGING AGENT - LPAML Colorado Limited Partnership
6050 Greenwood Plaza Blvd, Suite
100
Englewood, CO 80111
DATED - Lease: June 28, 1993
- lst modification: May 31, 1994
PREMISES 1.1A - Suite 100
lst Mod - 8771 rentable square feet
TERM lst Mod - 5 years
November 18, 1993 - November 17, 1998
EXPIRATION lst Mod - November 17,1998
RENT 3.1 - Rent is due on the first calendar day
of each month. Late fee is 2% of
monthly rent. A late charge of
$50.00 shall be paid with each
late payment of rent.
<TABLE>
<CAPTION>
1.1 G - Sq. Feet Annual Rent Rental Rate
-------- ----------- -----------
<S> <C> <C>
lst Mod 6,681 $74,441 $10.85
1,910 $24,830 $13.00
---------------------------------------
8,771 $99,271 $11.32
</TABLE>
#7 - Tenant prepaid its first 12
Sched. 8 months of rent.
<PAGE>
CLAUSE ARTICLE PROVISIONS
RENTAL ABATEMENT #7 - Early occupancy of one (1) month
Sched. 8
RELOCATION ALLOWANCE - None
STORAGE - Not Addressed
OPERATING EXPENSES/ 26/lst Mod. - Shared expenses: 5.4010%
ADDITIONAL RENT
3.3 - Expenses include: Real estate
taxes, utilities, insurance,
maintenance, janitorial, building
supplies, property management,
security, landscaping.
1.lF - Base year 1993
SECURITY DEPOSIT - None
PARKING 1.1 K - 27 parking spaces - free of charge.
Sched. 5
2H - 8 additional parking spaces -
1st Mod. free of charge (expansion)
USE 1.1 J - General office use
RESTORATION AT END 12.1 - Good condition and repair except
OF TERM for reasonable wear and tear.
NORMAL BUILDING HOURS Sched. 2 - Monday - Friday 6:30 a.m. - 6:30 p.m.
- Saturday 8:00 a.m. - 2:00 p.m.
SIGNAGE 6.1 G - Obtain prior approval from
Landlord before placing any sign
or symbol in or about leased
premises or exterior of
building.
RIGHTS TO ASSIGN 6.4 - Tenant shall not assign or
AND SUBLEASE sublet without landlord's and
landlord's mortgage company written
consent not to be unreasonably
withheld.
- Tenant shall remain responsible.
- Landlord may terminate lease.
- One half of any proceeds in excess
of base rent and operating costs
shall be remitted to landlord.
<PAGE>
CLAUSE ARTICLE PROVISIONS
EVENTS OF TENANT 11.1 - Failure to pay rent.
DEFAULT - Violate or fail to perform any
term or covenant.
- Bankruptcy
- Abandon or vacate premises.
HOLDING OVER 12.2 - One point seven five (1.75) times
payable for the last months rent,
month-to-month.
LANDLORD'S DEFAULT - Not Addressed
TERMINATION OPTION #5 - Last day of 36th month
Sched. 8 - Written notice no less than 4
months notice
- $90,955 termination fee to be
paid in the 34th month.
- Landlord must not be able to
accommodate expansion within project.
RENEWAL OPTIONS #9 - One three year option at market rent
Sched. 8 with 180 days notice.
EXPANSION OPTIONS #4 - Exercised May 31, 1994
Sched. 8
RIGHT OF FIRST OFFER - Not Addressed
TERMINATION OF - Not Addressed
EXISTING LEASE
CONTRACTION OPTIONS - None
MAINTENANCE AND 6.1D - Tenant must have Landlord's
ALTERATIONS AND prior written consent before
IMPROVEMENTS making any alterations.
- Contractor must be licensed and
approved by Landlord.
- Tenant will post bond to protect
Landlord against liens, if
requested by Landlord.
<PAGE>
CLAUSE ARTICLE PROVISIONS
AFTER HOURS HVAC - Not Addressed
ADA COMPLIANCE 3.3A - Operating costs include capital
improvements to the project
required by any governmental or
other authority having or
asserting jurisdiction over the
project.
INSURANCE 6.2 - Tenant responsible for comprehensive
general liability insurance.
- $1,000,000 for injury or death to
any one person.
- $2,000,000 for injury or death per
occurrence.
- $1,000,000 for property damage
per occurrence.
LANDLORD'S RIGHTS 7.2 - Make changes the legal status of
land underlying project.
- Enter premises for repair and
maintenance.
- Change building square footage
and Tenant's pro rata share of
Tenant's excess operating
costs.
- Install and maintain signs in
the project.
- Change name or street
address of building.
ATHLETIC CLUB
REMAINING CLAUSES 5.2 - Interruption of services
6.5 - Estoppel Certificate
7.1 - Substitute premises
8.1 - Casualty and Untenantability
9.1 - Condemnation
13.4 - Subordination and attornment
Sched. 2 - Rules and Regulations
Sched. 6 - Work letter agreement
<PAGE>
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO THE COMMONS OFFICE LEASE is entered into on this
1st day of May, 1995, by and between ALLSTATE INSURANCE COMPANY, an Illinois
insurance corporation, as Landlord, and RACOM SYSTEMS, INC., a Colorado
corporation, as Tenant, (the "Lease") of the following described property:
SEE EXHIBIT A ATTACHED HERETO AND
INCORPORATED HEREIN BY REFERENCE
WITNESSETH:
WHEREAS, Tenant leased from Landlord pursuant to the Lease dated the 28th
day of June, 1993, certain premises containing approximately 6,861 rentable
square feet (the "Original Premises"), and Tenant leased pursuant to the First
Amendment to Lease certain premises (the "Additional Premises") containing
approximately 1,910 rentable square feet (the "Additional Square Footage"), for
a total of 8,771 rentable square feet (the "Total Square Footage") within The
Commons located at 6080 Greenwood Plaza Boulevard, Greenwood Village, Colorado
80111 (the "Original Premises"); and
WHEREAS, Tenant desires to amortize into the Base Rent additional Tenant
Improvements incurred by Tenant to build out the Additional Premises pursuant to
the First Amendment to Lease; and
WHEREAS, Landlord is agreeable to amortize the additional Tenant
Improvements into the Base Rent, upon and subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, Landlord and Tenant do hereby amend the Lease as follows:
1. TERMS AND CONDITIONS. This Second Amendment to Lease is
subject to the following terms and conditions:
A. BASE RENT AND PAYMENT. Effective May 1, 1995, through November
17, 1998, the Base Rent for the Additional Premises only shall be increased to
$26,587.20 per year ($13.92 per square foot of the Additional Square Footage),
payable in monthly installments of $2,215.60 plus applicable sales tax, if any.
B. TERMINATION. The Termination Fee of Ten and 37/100 Dollars
($10.37) per rentable square foot of Tenant's Original Premises is hereby
replaced with a Termination Fee of Eleven and 15/100 Dollars ($11.15) per
rentable square foot of the Tenant's Total Square Footage.
2. UNMODIFIED PROVISION/RATIFICATION. Except as otherwise specifically
set forth herein, each and every term, condition and covenant set forth in the
Lease and this Second Amendment to Lease shall remain in full force and effect
with respect to the Original Premises and Additional Premises, and Tenant hereby
ratifies and confirms the Lease, as modified by the Second Amendment to Lease,
and each and every term, provision, and condition set forth therein.
Page 1 of 2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Lease this lST day of MAY, 1995.
WITNESSES: AS TO TENANT:
RACOM SYSTEMS, INC., a Colorado corporation
/s/ illegible BY: /s/ illegible
- ------------------------ -----------------------------
ITS: /s/ illegible
- ------------------------ ----------------------------
BY: /s/ illegible
----------------------------
ITS: PRESIDENT
----------------------------
AS TO LANDLORD:
ALLSTATE INSURANCE COMPANY, an Illinois
insurance corporation
/s/ illegible BY: /s/ illegible
- ------------------------ -----------------------------
- ----------------------- By:
-----------------------------
Authorized Signatories
Page 2 of 2
<PAGE>
FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO THE COMMONS OFFICE LEASE dated the 6th day of June,
1993, by and between ALLSTATE INSURANCE COMPANY, an Illinois insurance
corporation as Landlord, and RACOM SYSTEMS, INC., a Colorado corporation, as
Tenant, (the "Lease") of the following described property:
SEE EXHIBIT A ATTACHED HERETO AND
INCORPORATED HEREIN BY REFERENCE
W I T N E S S E T H:
WHEREAS, Tenant has leased from the Landlord pursuant to the Lease, certain
premises (the "Original Premises") containing approximately 6,861 rentable
square feet, within The Commons with address at 6080 Greenwood Plaza Boulevard,
Greenwood Village, Colorado 80111; and
WHEREAS, Tenant desires to take and lease from Landlord certain additional
premises (the "Additional Premises"), in 6080 Greenwood Plaza Boulevard,
Greenwood Village, Colorado 80111, which Additional Premises contain
approximately 1,910 rentable square feet (the "Additional Square Footage"); and
WHEREAS, Landlord and Tenant hereby acknowledge that the Lease Commencement
Date of the Lease is November 18, 1993 and the Lease Expiration Date of the
Lease is November 17, 1998.
WHEREAS, Landlord is agreeable to the Lease of the Additional Premises,
upon and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, Landlord and Tenant do hereby amend the Lease as follows:
1. DEMISE OF ADDITIONAL PREMISES. Landlord hereby rents, demises and
leases the Additional Premises to Tenant and Tenant hereby takes and leases the
Additional Premises from Landlord. A graphic depiction of the Additional
Premises is set forth as the shaded area on Exhibit B attached hereto and hereby
incorporated herein by reference.
2. TERMS AND CONDITIONS. This lease of the Additional Premises is
subject to the following terms and conditions:
A. LEASE COMMENCEMENT DATE AND LEASE TERM - ADDITIONAL PREMISES.
The lease of the Additional Premises shall commence as of the earlier of the
date that Tenant takes occupancy of the Additional Premises or the date that a
Certificate of Completion or Occupancy (or its equivalent) is issued from The
City of Greenwood Village for the Additional Premises and the Leasehold
Improvements are Substantially Completed as is defined in Paragraph 1.03 of
Exhibit C of this First Amendment To Lease (the "Additional Premises Lease
Commencement Date"). The Lease Term of the Additional Premises shall be
coterminous with the Lease Term of the Original Premises and shall expire on
November 17, 1998.
Page 1 of 3
<PAGE>
B. BASE RENT AND PAYMENT. The Base Rent for the Additional
Premises shall mean $ 24,830.04 ($13.00 per square foot of the Additional
Square Footage) per year, payable in monthly installments of $2,069.17, plus
applicable sales tax, if any.
C. LEASEHOLD IMPROVEMENTS. Leasehold Improvements shall mean that
work defined in Exhibit C: Work Letter Agreement and Exhibit D: Preliminary
Plan.
D. EXCESS LEASEHOLD IMPROVEMENT ALLOWANCE. To the extent the
Leasehold Improvements as defined in Exhibit C of this Amendment amount to less
than the Allowance, Tenant shall be entitled to a downward adjustment in its
Base Rent for the Additional Premises equal to the total shortfall against the
Allowance divided by 4.33 and subtracted from the annual Base Rent per square
foot of the Additional Square Footage. For example, if the Leasehold
Improvements total $14.50 per Tenant's Additional Square Footage, then the
$1.50 shortfall is divided by 4.33 equaling $0.35 and this amount is subtracted
from the annual rental rate, producing an adjusted Base Rent for the Additional
Premises of $12.65 per rentable square foot of Additional Square Footage. The
final cost of the construction shall be determined in accordance with Exhibit C,
and Landlord's sole discretion, reasonably exercised, will determine the
ultimate cost of the Leasehold Improvements.
E. EXCESS LEASEHOLD IMPROVEMENT COSTS. Tenant agrees to promptly
pay the cost of any Leasehold Improvements above $16.00 per Tenant's Additional
Tenant Square Footage (exclusive of Building Standard light fixture installation
costs, ceiling grid and tile costs, and HVAC branch ductwork costs).
F. OBLIGATIONS CUMULATIVE. The obligations of Tenant to pay to
Landlord the Base Rent and Tenant's Pro Rata Share of Excess Operating Costs
attributable to the Additional Premises shall be cumulative of and paid in
addition to all sums due from Tenant to Landlord in connection with Tenant's
Lease of the Original Premises. Any default or Event of Default of Tenant under
the Lease with respect to either the Original Premises or the Additional
Premises (without limitation any failure to pay any base rent, operating
expense, or other sum payable to Landlord in connection with either the Original
Premises or the Additional Premises) shall be deemed to be a default or Event of
Default with respect to both. All references to the term "Leased Premises" as
set forth in the Lease shall henceforth be deemed to include both the Original
Premises and the Additional Premises unless the context otherwise requires.
G. TENANT'S PRO RATA SHARE. Effective with the Additional
Premises Lease Commencement Date, Tenant's Pro Rata Share shall be adjusted to
reflect Tenant's Additional Premises and shall mean five point four zero one
zero percent (5.4010%).
H. PARKING. Tenant shall be entitled to an additional 8 parking
spaces free of charge for the Additional Premises.
I. TERMINATION OF ORIGINAL LEASE OPTIONS. Tenant's Option to
expand as contained in Schedule 8 of the original Lease is hereby terminated and
null and void.
Page 2 of 3
<PAGE>
J. ACKNOWLEDGMENT OF ADDITIONAL PREMISES LEASE COMMENCEMENT DATE.
Prior to occupying the Additional Premises, Tenant shall execute and deliver to
Landlord a letter in the form attached as Exhibit E, acknowledging the
Additional Premises Lease Commencement Date and certifying that the Leasehold
Improvements have been Substantially Completed and that Tenant has examined and
accepted the Additional Premises. If Tenant fails to deliver such letter,
Tenant shall conclusively be deemed to have made such acknowledgement and
certification by occupying the Additional Premises.
3. UNMODIFIED PROVISIONS/RATIFICATION. Except as otherwise
specifically set forth herein, each and every term, condition and covenant set
forth in the Lease shall remain in full force and effect with respect both to
the Original Premises and the Additional Premises and Tenant hereby ratifies and
confirms the Lease, as modified hereby, and each and every term, provision and
conditions set forth therein.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Lease
this 31 day of May, 1994.
WITNESSES: AS TO TENANT:
RACOM SYSTEMS, INC., a Colorado corporation
/s/ illegible BY: /s/ Richard Horton
- ----------------------------- --------------------------
Richard Horton
ITS: President
- ------------------------------ ------------------------
BY: /s/ John J. McFarland
-------------------------
John McFarland
ITS: Vice President
------------------------
AS TO LANDLORD:
ALLSTATE INSURANCE COMPANY, an Illinois
insurance corporation
/s/ illegible BY: /s/ illegible
- ---------------------------- ------------------------------
BY: /s/ illegible
- --------------------------- ------------------------------
Authorized Signatories
Page 3 of 3
<PAGE>
LEASE
This Lease made _______________, 19__ between Allstate Insurance Company, an
Illinois Insurance Corporation ("Landlord") and RACOM SYSTEMS, INC., a
Delaware Corporation ("Tenant").
ARTICLE ONE
Definitions, Schedules and Addenda
1.1 DEFINITIONS:
a. Leased Premises shall mean Suite 100 as described in Schedule 1.
b. Building shall mean Commons 6080 located at 6080 Greenwood Plaza
Blvd., Englewood, Colorado 80111.
c. Project shall mean The Commons located at 6020-6140 Greenwood Plaza
Blvd., Englewood, Colorado 80111 whose total rentable square footage
is 162,395.
d. Tenant's Square Footage shall mean 6,861 rentable square feet;
Total Square Footage of the Building shall mean 8,771 rentable square
feet, which may be adjusted pursuant to paragraph 7.2(iii) below.
e. Lease Commencement Date shall mean October 1, 1993, which may be
adjusted pursuant to the provisions of this Lease; Lease Expiration Date
shall mean September 30, 1998; Lease Term shall mean the period between
Lease Commencement Date and Lease Expiration Date.
f. Base Year shall mean the calendar year during which the Lease
Commencement Date occurs.
g. Base Rent shall mean $74,441.88 ($ 10.85 per square foot of
Tenant's Square Footage) per year, payable in monthly installments of
$ 6,203.49, plus applicable sales tax, if any; the total Base Rent payable
over the entire Lease Term is $ 372,209.40
h. Tenant's Pro Rata Share shall mean four point two two four nine percent
(4.2249%), which may be adjusted pursuant to paragraph 7.2(iii) below.
For purposes of Article 3.3b, Tenant's Pro Rata Share of Excess Operating
Costs for the first year of the Lease Term is estimated to be $ N/A
($ N/A per square foot of Tenant's Square Footage) payable in monthly
installment of $ N/A subject to adjustment pursuant to Article 3.3b and c
below.
j. Permitted Purpose shall mean general office use.
1
<PAGE>
k. Authorized Number of Parking Spaces shall mean 27 spaces at a rate
of $ -0-.
k. Managing Agent shall mean LPAML-Colorado Limited Partnership
whose address is, 6050 Greenwood Plaza Blvd., Suite 100, Englewood,
Colorado 80111
l. Broker of Record shall mean LPAML Colorado Limited Partnership and
Fuller & Company
m. Landlord's Mailing Address: Allstate Plaza South G5B, Real Estate
Investment Division, Northbrook, Illinois 60062.
n. Tenant's Mailing Address: 6080 Greenwood Plaza Blvd., Suite 100
Englewood, Colorado 80111
1.2 SCHEDULES AND ADDENDA: The schedules and addenda listed below
are incorporated into this lease by reference unless lined out. The terms of
schedules, exhibits and typewritten addenda, if any, attached or added hereto
shall control over any inconsistent provisions in the paragraphs of this Lease.
a. Schedule 1: Description of Premises and Floor Plan
b. Schedule 2: Rules and Regulations
c. Schedule 3: Utility Services
d. Schedule 4: Maintenance Services
e. Schedule 5: Parking
f. Schedule 6: Work Letter
g. Schedule 7: Certificate of Acceptance
h. Schedule 8: Addendum
ARTICLE TWO
Premises
2.1 LEASE OF PREMISES: In consideration of the Rent and the provisions of
this Lease, Landlord leases to Tenant and Tenant accepts from Landlord the
Leased Premises. Tenant's Square Footage is a stipulated amount based on
Landlord's method of determining Total Square Footage for rental purposes and
may not reflect the actual amount of floor space available for Tenant's use.
2.2 PRIOR OCCUPANCY: See Schedule 8 (Addendum) A prorated monthly
installment shall be paid for the fraction of the month if Tenant's
occupancy of the Leased Premises commences on any day other than the first day
of the month. If Tenant shall occupy the Leased Premises prior to Lease
Commencement Date, all covenants and conditions of this Lease shall be binding
on the parties commencing at such prior occupancy.
2
<PAGE>
ARTICLE THREE
Payment of Rent
3.1 RENT: Commencing on the Lease Commencement Date, Tenant shall pay
each monthly installment of Base Rent in advance on the first calendar day of
each month. For the Base Year, Tenant shall not pay Tenant's Pro Rata Share
of Excess Operating Costs. On the first calendar day of each month of each
calendar year following the Base Year, Tenant shall pay shall pay each
monthly installment of Base Rent in advance together with each monthly
installment of Tenant's Pro Rata Share of Excess Operating Costs. Monthly
installments for any fractional calendar month, at the beginning or end of
the Lease Term, shall be prorated based on the number of days in such month.
Base Rent and Tenant's Pro Rata Share of Excess Operating Costs, together
with all other amounts payable by Tenant to Landlord under this Lease,
including, without limitation, any late charges and interest due Landlord for
Rent not paid when due, shall be sometimes referred to collectively as
"Rent". Tenant shall pay all Rent, without deduction or set-off, to Landlord
or Managing Agent at a place specified by Landlord. Rent not paid when due
shall bear interest until paid, at the rate of 2% per month from the date
when due. Tenant shall also pay a late charge of $50 with each late payment
of rent.
3.3 OPERATING COSTS: Tenant shall pay Tenant's Pro Rata Share of any
Excess Operating Costs as follows:
a. "Operating Costs" shall mean all expenses relating to the
Leased Premises, the Building or the Project, including but not limited to:
real estate taxes and assessments; gross rents, sales, use, business,
corporation, franchise or other taxes (except income taxes); utilities not
separately paid by tenants; insurance premiums and (to the extent used)
deductibles; maintenance, repairs and replacements; refurbishing and
repainting; cleaning, janitorial and other services; equipment, tools,
materials and supplies; air conditioning, heating and elevator service;
property management including management fees; security; employees and
contractors; resurfacing and restripping of walks, drives and parking
areas; signs, directories and markers; landscaping; and snow and rubbish
removal. Operating Costs shall not include expenses for legal services,
real estate brokerage and leasing commissions, Landlord's income taxes,
income tax accounting, interest, depreciation, general corporate overhead,
or capital improvements to the Building or Project except for capital
improvements installed for the purpose of reducing or controlling expenses,
or required by any governmental or other authority having or asserting
jurisdiction over the Project. If any expense, though paid in one year,
relates to more than one calendar
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year at option of Landlord such expenses may be proportionately allocated
among such related calendar years. "Excess Operating Costs" shall mean (a)
for the purposes of paragraph (b) below, any excess of (i) Landlord's
estimate of Operating Costs for any calendar year following the Base
Year, over (ii) actual Operating Costs of the Base Year, and (b) for the
purposes of paragraph (c) below, any excess of (i) actual Operating Costs
for any calendar year following the Base Year, over (ii) actual Operating
Costs of the Base Year.
b. Commencing the calendar year following the Base Year, Tenant shall
pay, in equal monthly installments, Tenant's Pro Rata Share of any Excess
Operating Costs for each calendar year which falls (in whole or in part)
during the Lease Term (prorated for any partial calendar year). Annually,
or from time to time, based on actual and projected Operating Costs data,
Landlord may adjust its estimate of Operating Costs upward or downward.
All monthly installments are due 15 days after notice to Tenant of a
revised estimate of Operating Costs and shall be in equal monthly amounts
sufficient to result in the unpaid balance of Tenant's Pro Rata Share of
any Excess Operating Costs being paid in full by the end of the calendar
year in which such adjustment is made, and thereafter shall be in equal
amounts sufficient to result in Tenant's Pro Rata Share of any Excess
Operating Costs being paid in full by the end of each succeeding calendar
year. In the event that the Building is not fully leased during any
calendar year, including the Base Year, Landlord shall make appropriate
adjustments to the Operating Costs to adjust such expenses to a 95% leased
basis, and such adjusted expenses shall be used for purposes of this
paragraph 3.3.
c. As soon as possible, each year Landlord shall compute the actual
Operating Costs for the prior calendar year, and shall give notice thereof
to Tenant. Within 30 days after receipt of such notice, Tenant shall pay
any deficiency in Tenant's Pro Rata Share of any Excess Operating Costs for
the prior calendar year (prorated for any partial calendar year). In
the event of overpayment by Tenant, Landlord shall apply the excess to the
next payment of Rent when due, until such excess is exhausted or until no
further payments of Rent are due, in which case, Landlord shall pay to
Tenant the balance of such excess within 30 days thereafter.
3.4 TAXES: In addition to the Base Rent and other sums to be paid by
Tenant hereunder, Tenant shall reimburse Landlord, as additional Rent, upon
demand, any and all taxes payable by Landlord, (a) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, fixtures and
other personal property located in the Leased Premises or by the cost or value
of any leasehold improvements made in or to the Leased Premises by Tenant,
regardless of whether title to such improvements are in Tenant or Landlord; (b)
upon or measured by the monthly rental payable hereunder, including, without
limitation, any gross receipts tax or excise tax; (c) upon or with respect to
the possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Leased Premises or any portion thereof; (d)
upon this transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Leased Premises.
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ARTICLE FOUR
Improvements by Landlord
4.1 CONSTRUCTION CONDITIONS: Landlord shall construct the improvements
described in the work letter attached hereto as Schedule 6 (the "Improvements").
The expenses to be incurred as between Landlord and Tenant for construction of
the Improvements are specified in Schedule 6. If any act, omission or change
requested or caused by Tenant increases the cost of work or materials or the
time required for completion of construction, Tenant shall reimburse Landlord
for such increase in cost at the time the increased cost is incurred and shall
reimburse Landlord for any loss in Rent at the time the Rent would have become
due.
4.2 COMMENCEMENT OF POSSESSION: If the Leased Premises are not
substantially complete by the scheduled Lease Commencement Date, subject only
to items which do not materially affect the use thereof, then the Lease
Commencement Date shall be extended to the date 5 days after Landlord shall
notify Tenant that the Leased Premises are ready for occupancy. In such an
event the Lease Expiration Date shall remain the same. If Landlord fails to
cause the Leased premises to be ready for occupancy by November 1, 1993,
then, except if such failure is due to delays caused by Tenant or Force
Majeure, Tenant shall be entitled to one (1) day's rental abatement for each
day beyond November 1, 1993, that the Leased Premises are not ready for
occupancy. By way of example, if the Leased Premises are ready for on
November 3, 1993, through causes solely within the control of Landlord, then
Tenant shall receive two (2) days of free rent. Additionally, if Landlord
fails to cause the Leased Premises to be ready for occupancy at the time of
the scheduled Lease Commencement Date, (i) neither Landlord nor Landlord's
agents, officers, employees, or contractors shall be liable for any damage,
loss, liability or expense caused thereby, (ii) nor shall this Lease become
void or voidable unless such failure continues for more than 90 days (except
for Tenant caused delays or Force Majeure), in which case Tenant may
terminate this Lease upon 20 days written notice to Landlord. Prior to
occupying the Leased Premises, Tenant shall execute and deliver to Landlord a
letter in the form attached as Schedule 7, acknowledging the Lease
Commencement Date and certifying that the Improvements have been
substantially completed and that Tenant has examined and accepted the Leased
Premises. Tenant hereby authorizes any agent or employee who receives the
keys to the Leased Premises on behalf of Tenant to execute and deliver such
letter in Tenant's name. If Tenant fails to deliver such letter, Tenant
shall conclusively be deemed to have made such acknowledgment and
certification by occupying the Leased Premises.
ARTICLE FIVE
Project Services
5.1 PROJECT SERVICES: Landlord shall furnish:
a. Utility Services: The utility services listed on Schedule 3
("Utility Services"). Should Tenant, in Landlord's sole judgment, use
additional, unusual or excessive Utility Services, Landlord reserves the
right to charge for such services as determined either by a separate
submeter, installed at Tenant's expense, or by methods specified by an
engineer selected by Landlord.
b. Maintenance Services: Maintenance of all exterior areas including
lighting, landscaping, cleaning, painting, maintenance and repair of the
exterior of the Building and its structural portions and roof, including
all of the services listed on Schedule 4 ("Maintenance Services").
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C. Parking: Parking under the terms and conditions described in
Schedule 5 ("Parking").
Utility Services, Maintenance Services and Parking described above shall be
collectively referred to as "Project Services". The costs of Project Services
shall be a part of Operating Costs.
5.2 INTERRUPTION OF SERVICES: Landlord shall use reasonable efforts to
provide Project Services to Tenant in accordance with this Article 5, however,
Landlord does not warrant that any of the Project Services will be free from
interruption. Any Project Service may be suspended by reason of accident or of
necessary repairs, alterations or improvements, or by strikes or lockouts, or
by reason of operation of law, or causes beyond the reasonable control of
Landlord. Any such interruption or discontinuance of such Project Services shall
never be deemed a disturbance of Tenant's use and possession of the Leased
Premises, or render Landlord liable to Tenant for damages by abatement of rent
or otherwise, or relieve Tenant from performance of Tenant's obligations under
this Lease. However, Landlord shall use its best efforts to cause the Project
Services to be restored promptly. If any such interruption continues for
twenty (20) continuous days and renders all or a portion of the Leased Premises
untenantable, then, on the twenty-first (21st) day of such continuous
interruption, Tenant's rent shall abate on the portion of the Leased Premises
which is untenantable until the resumption of said Project Services.
ARTICLE SIX
Tenant's Covenants
6.1 USE OF LEASED PREMISES: Tenant agrees to:
a. Permitted Usage: Continuously use the Leased Premises for the
Permitted Purpose only and for no other purpose.
b. Compliance with Laws: Comply with the provisions of all recorded
covenants, conditions and restrictions and all building, zoning, fire and
other governmental laws, ordinances, regulations or rules applicable to the
Leased Premises and all requirements of the carriers of insurance covering
the Project.
c. Nuisances or Waste: Not do or permit anything to be done in or about
the Leased Premises, or bring or keep anything in the Leased Premises that
may increase Landlord's fire and extended coverage insurance premium,
damage the Building or the Project, constitute waste, constitute an immoral
purpose, or be a nuisance, public or private, or menace or other
disturbance to tenants of adjoining premises or anyone else, or use or
store any toxic chemicals, wastes, elements or substances in the Leased
Premises.
d. Alterations and Improvements: Make no alterations or improvements to
the Leased Premises without the prior written approval of Landlord and
Landlord's mortgagee, if any. Any such alterations or improvements by
Tenant shall be done in a good and workmanlike manner, at Tenant's expense,
by a licensed contractor approved by Landlord in conformity with plans and
specifications approved by Landlord. If requested by Landlord, Tenant will
post a bond or other security reasonably satisfactory to Landlord to
protect Landlord against liens arising from work performed for Tenant.
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e. Liens: Keep the Leased Premises, the Building and the Project free
from liens arising out of any work performed, materials furnished or
obligations incurred by or for Tenant. If, at any time, a lien or
encumbrance is filed against the Leased Premises, the Building or the
Project as a result of Tenant's work, materials or obligations, Tenant
shall promptly discharge such lien or encumbrance. If such lien or
encumbrance has not been removed within 30 days from the date it is filed,
Tenant agrees to deposit with Landlord cash in an amount equal to 150% of
the amount of the lien, to be held by Landlord as security for the lien
being discharged.
f. Rules and Regulations: Observe, perform and abide by all the
rules and regulations promulgated by Landlord from time to time. Schedule 2
sets forth Landlord's rules and regulations in effect on the date hereof.
g. Signage: Obtain the prior approval of the Landlord and Landlord's
mortgagee, if any, before placing any sign or symbol in doors or windows or
elsewhere in or about the Leased Premises, or upon any other part of the
Building, or Project including building directories. Any signs or symbols
which have been placed without Landlord's approval may be removed by
Landlord. Upon expiration or termination of this Lease, all signs
installed by Tenant shall be removed and any damage resulting therefrom
shall be promptly repaired, or such removal and repair may be done by
Landlord and the cost charged to Tenant as Rent.
6.2 INSURANCE: Tenant shall, at its own expense, procure and maintain
during the Lease Term comprehensive general liability insurance with respect to
the Leased Premises and Tenant's activities in the Leased Premises and in the
Building and the Project, providing bodily injury, broad form property damage
with a maximum $1,000 deductible, as follows:
a. $1,000,000 with respect to bodily injury or death to any one person;
b. $2,000,000 with respect to bodily injury or death arising out of any
one occurrence;
c. $1,000,000 with respect to property damage or other loss arising out
of any one occurrence;
d. fire and extended casualty insurance covering Tenant's trade
fixtures, merchandise and other personal property in an amount not less
than 100% of their actual replacement cost; and
e. worker's compensation insurance in at least the statutory amounts.
Nothing in this paragraph 6.2 shall prevent Tenant from obtaining insurance
of the kind and in the amounts provided for under this paragraph under a blanket
insurance policy covering other properties as well as the Leased Premises,
provided, however, that any such policy of blanket insurance (i) shall specify
the amounts of the total insurance allocated to the Leased Premises, which
amounts shall not be less than the amounts required by sections a. through c.
hereof, and (ii) such amounts so specified shall be sufficient to prevent any
one of the assureds from becoming a coinsurer within
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the terms of the applicable policy, and (iii) shall, as to the Leased Premises,
otherwise comply as to endorsements and coverage with the provisions of this
paragraph.
Tenant's insurance shall be with a Best's Insurance Reports A+ rated
company (or A rated, if Class XIII or larger). Landlord and Landlord's
mortgagee, if any, shall be named as "additional insureds" under Tenant's
insurance, and such Tenant's insurance shall be primary and non-contributing
with Landlord's insurance. Tenant's insurance policies shall contain
endorsements requiring 30 days notice to Landlord and Landlord's mortgagee, if
any, prior to any cancellation, lapse or nonrenewal or any reduction in amount
of coverage.
Tenant shall deliver to Landlord as a condition precedent to its taking
occupancy of the Leased Premises a certificate or certificates evidencing such
insurance.
6.3 REPAIRS: Tenant, at its sole expense, agrees to maintain the
interior of the Leased Premises in a neat, clean and sanitary condition. If
Tenant fails to maintain or keep the Leased Premises in good repair and such
failure continues for 5 days after written notice from Landlord or if
such failure results in a nuisance or health or safety risk, Landlord may
perform any such required maintenance and repairs and the cost thereof shall
be payable by Tenant as Rent within 10 days of receipt of an invoice from
Landlord. Tenant shall also pay to Landlord the costs of any repair to the
Building or Project necessitated by any act or neglect of Tenant.
6.4 ASSIGNMENT AND SUBLETTING: Tenant shall not assign, mortgage, pledge,
or encumber this Lease, or permit all or any part of the Leased Premises to be
subleased to another, without the prior written consent of Landlord and
Landlord's mortgagee, if any. Any transfer of this Lease by merger,
consolidation, reorganization or liquidation of Tenant, or by operation of law,
or change in ownership of or power to vote the majority of the outstanding
voting stock of a corporate Tenant, or by change in ownership of a controlling
partnership interest in a partnership Tenant, shall constitute an assignment for
the purposes of this paragraph.
Landlord agrees that it will not unreasonably withhold its consent to
Tenant's assigning this Lease or subletting the Leased Premises. In addition to
other reasonable bases, Tenant hereby agrees that Landlord shall be deemed to be
reasonable in withholding its consent, if (c) to any party who is then a tenant
of the Building or the Project if Landlord has comparable area; or (d) Tenant is
in default under any of the terms, covenants, conditions, provisions and
agreements of this Lease past any period of cure provided for herein at the time
of request for consent or on the effective date of such subletting or assigning;
or (f) the proposed subtenant or assignee is, in Landlord's good faith judgment,
incompatible with other tenants in the Building, or seeks to use any portion of
the Leased Premises
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for a use not consistent with other uses in the Building, or is financially
incapable of assuming the obligations of this Lease. Tenant shall submit to
Landlord the name of a proposed assignee or subtenant, the terms of the proposed
assignment or subletting, the nature of the proposed subtenant's business and
such information as to the assignee's or subtenant's financial responsibility
and general reputation as Landlord may reasonably require.
No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its primary obligation to pay the Rent and to perform all of
the other obligations to be performed by Tenant hereunder. The acceptance of
rent by Landlord from any other person shall not be deemed to be waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
In lieu of giving any consent to a sublet or an assignment, Landlord may,
at Landlord's option, elect to terminate this Lease, or in the case of a
proposed subletting of all or a portion of the Leased Premises, elect to
terminate the Lease with respect to that portion of the Leased Premises being
proposed for subletting, and the effective date of any such termination shall be
30 days after the proposed effective date of any proposed assignment or
subletting.
One-half of any proceeds in excess of Base Rent and Tenant's Pro Rata Share
of Excess Operating Costs which is received by Tenant pursuant to an assignment
or subletting consented to by Landlord shall be remitted to Landlord as extra
Rent within 10 days of receipt by Tenant. For purposes of this paragraph, all
money or value in whatever form received by Tenant from or on account of any
party as consideration for an assignment or subletting shall be deemed to be
proceeds received by Tenant pursuant to an assignment or subletting.
6.5 ESTOPPEL CERTIFICATE: From time to time and within 10 days after
request by Landlord, Tenant shall execute and deliver a certificate to any
proposed lender or purchaser, or to Landlord, together with a true and correct
copy of this Lease, certifying with any appropriate exceptions, (i) that this
Lease is in full force and effect without modification, (ii) the amount, if any,
of Prepaid Rent and Deposit paid by Tenant to Landlord, (iii) the nature and
kind of concessions, rental or otherwise, if any, which Tenant has received or
is entitled to receive, (iv) that Landlord has performed all of its obligations
due to be performed under this Lease and that there are no defenses,
counterclaims, deductions or offsets outstanding or other excuses for Tenant's
performance under this Lease, and (v) any other fact reasonably requested by
Landlord or such proposed lender or purchaser.
6.6 BROKERAGE COMMISSIONS: Tenant represents to the Landlord that no
broker or agent was instrumental in procuring or negotiating or consummating
this Lease other than Broker of Record, and Tenant agrees to defend and
indemnify Landlord against any loss, expense or liability incurred by Landlord
as a result of a claim by any other broker or finder purporting to represent
the Tenant or the transaction, in connection with this Lease or its negotiation.
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ARTICLE SEVEN
Landlords Reserved Rights
7.1 SUBSTITUTE PREMISES: Landlord shall have the right at any time,
upon giving Tenant 60 days written notice, to relocate at Landlord's expense
the Leased Premises elsewhere in the Project, provided that Tenant's Square
Footage shall be approximately the same and that Tenant has similar or better
views and identity. Should Landlord give Tenant written notice of the
relocation of the Leased Premises after Tenant has commenced or completed the
approved installation of partitions or other improvements, Landlord shall
furnish Tenant with similar partitions or other improvements of equal
quality. Landlord will also pay all reasonable costs associated with
Tenant's relocation. The relocation of the Leased Premises shall not affect
any of the clauses or conditions of this Lease, including the Rent.
7.2 ADDITIONAL RIGHTS RESERVED TO LANDLORD: Without notice and without
liability to Tenant or without effecting an eviction or disturbance of Tenant's
use or possession, Landlord shall have the right to (i) grant utility easements
or other easements in, or replat, subdivide or make other changes in the legal
status of the land underlying the Building or the Project as Landlord shall deem
appropriate in its sole discretion, provided such changes do not substantially
interfere with Tenant's use of the Leased Premises for the Permitted Purpose;
(ii) enter the Leased Premises at reasonable times and at any time in the event
of an emergency to inspect, alter or repair the Leased Premises or the Building
and to perform any acts related to the safety, protection, reletting, sale or
improvement of the Leased Premises or the Building; (iii) add to or take away
from the Project any building or portion thereof, in which event Total Square
Footage and Tenant's Pro Rata Share of Excess Operating Costs shall be adjusted
accordingly; (iv) change the name or street address of the Building or the
Project; (v) install and maintain signs on and in the Building and the Project;
and (vi) make such rules and regulations as, in the sole judgment of Landlord,
may be needed from time to time for the safety of the tenants, the care and
cleanliness of the Leased Premises, the Building and the Project and the
preservation of good order therein.
ARTICLE EIGHT
Casualty and Untenantability
8.1 CASUALTY AND UNTENANTABILITY: If the Building is made substantially
untenantable or if Tenant's use and occupancy of the Leased Premises are
substantially interfered with due to damage to the common areas of the Building
or the Leased Premises are made wholly or partially untenantable by fire or
other casualty, Landlord may, by notice to Tenant within 60 days after the
damage, terminate this Lease. Such termination shall become effective as of the
date of such casualty.
If the Leased Premises are made partially or wholly untenantable by fire or
other casualty and this Lease is not terminated as provided above, Landlord
shall restore the Leased Premises to the condition specified in the work letter
described in Schedule 6.
If the Landlord does not terminate this Lease as provided above, and
Landlord fails within 180 days from the date of such casualty to restore the
damaged common areas thereby eliminating substantial interference with Tenant's
use and occupancy of the Leased Premises, or fails to restore the
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Leased Premises to the condition specified in the work letter described in
Schedule 6, Tenant may terminate this Lease as of the end of such 180 day
period.
In the event of termination of this Lease pursuant to this article 8, Rent
shall be prorated on a per them basis and paid to the date of the casualty,
unless the Leased Premises shall be tenantable, in which case Rent shall be
payable to the date of the lease termination. If the Leased Premises are
untenantable and this Lease is not terminated, Rent shall abate on a per diem
basis from the date of the casualty until the Leased Premises are ready for
occupancy by Tenant. If part of the Leased Premises are untenantable, Rent shall
be prorated on a per diem basis and apportioned in accordance with the part of
the Leased Premises which is usable by Tenant until the damaged part is ready
for Tenant's occupancy. Notwithstanding the foregoing, if any damage was
proximately caused by an act or omission of Tenant, its employees, agents,
contractors, licensees or invitees, then, in such event, Tenant agrees that Rent
shall not abate or be diminished during the term of this Lease.
ARTICLE NINE
Condemnation
9.1 CONDEMNATION: If all or any part of the Leased Premises shall be
taken under power of eminent domain or sold under imminent threat to any public
authority or private entity having such power, this Lease shall terminate as to
the part of the Leased Premises so taken or sold, effective as of the date
possession is required to be delivered to such authority. In such event, Base
Rent shall abate in the ratio that the portion of Tenant's Square Footage taken
or sold bears to Tenant's Square Footage. If a partial taking or sale of the
Leased Premises, the Building or the Project (i) substantially reduces Tenant's
Square Footage resulting in a substantial inability of Tenant to use the Leased
Premises for the Permitted Purpose, or (ii) renders the Building or the Project
commercially enviable to Landlord in Landlord's sole opinion, either Tenant in
the case of (i), or Landlord in the case of (ii), may terminate this Lease by
notice to the other party within 30 days after the terminating party receives
written notice of the portion to be taken or sold. Such termination shall be
effective 180 days after notice thereof, or when the portion is taken or sold,
whichever is sooner. All condemnation awards and similar payments shall be
paid and belong to Landlord, except any amounts awarded or paid specifically to
Tenant for removal and reinstallation of Tenant's trade fixtures, personal
property or Tenant's moving costs.
ARTICLE TEN
Waiver of Certain Claims
10.1 WAIVER OF CERTAIN CLAIMS: Except as provided for in Paragraph 11 of
the Addendum, Tenant, to the extent permitted by law, waives all claims it may
have against Landlord, and against Landlord's agents and employees for any
damages sustained by Tenant or by any occupant of the Leased Premises, or by
any other person, resulting from any cause arising at any time. Tenant agrees
to hold Landlord harmless and indemnified against claims and liability for
injuries to all persons and for damage to or loss of property occurring in or
about the Leased Premises, due to any act of negligence or default under this
Lease by Tenant, its contractors, agents, employees, licensees and invitees
except in the event of Landlord's gross negligence or willful misconduct.
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10.2 WAIVER OF SUBROGATION: Tenant and Landlord release each other and
waive any right of recovery against each other for loss or damage to the waiving
party or its respective property, which occurs in or about the Leased Premises,
whether due to the negligence of either party, their agents, employees,
officers, contractors, licensees, invitees or otherwise, to the extent that such
loss or damage is insurable against under the terms of standard fire and
extended coverage insurance policies. Tenant and Landlord agree that all
policies of insurance obtained by either of them in connection with the Leased
Premises shall contain appropriate waiver of subrogation clauses.
10.3 LIMITATION OF LANDLORD'S LIABILITY: The obligations of Landlord
under this Lease do not constitute personal obligations of the individual
partners, shareholders, directors, officers, employees or agents of Landlord,
and Tenant shall look solely to Landlord's interest in the Leased Premises and
to no other assets of Landlord for satisfaction of any liability in respect of
this Lease. Tenant will not seek recourse against the individual partners,
shareholders, directors, officers, employees or agents of Landlord or any of
their personal assets for such satisfaction. Notwithstanding any other
provisions contained herein, Landlord shall not be liable to Tenant, its
contractors, agents or employees for any consequential damages or damages for
loss of profits.
ARTICLE ELEVEN
Tenants Default and Landlord's Remedies
11.1 TENANT'S DEFAULT: It shall be an "Event of Default" if Tenant shall
(i) fail to pay any monthly installment of Base Rent or of Tenant's Pro Rata
Share of Excess Operating Costs, or any other sum payable hereunder within 5
days after such payment is due and payable; (ii) violate or fail to perform any
of the other conditions, covenants or agreements herein made by Tenant, and such
violation or failure shall continue for 15 days after written notice thereof to
Tenant by Landlord; (iii) make a general assignment for the benefit of its
creditors or file a petition for bankruptcy or other reorganization,
liquidation, dissolution or similar relief; (iv) have a proceeding filed against
Tenant seeking any relief mentioned in (iii) above which is not dismissed within
45 days; (v) have a trustee, receiver or liquidator appointed for Tenant or a
substantial part of its property; (vi) abandon or vacate the Leased Premises;
(vii) default under any other lease, if any, within the Building or the
Project; or (viii) if Tenant is a partnership, if any partner of the partnership
is involved in any of the acts or events described in subparagraphs (i) through
(vii) above.
11.2 REMEDIES OF LANDLORD: If an Event of Default occurs, Landlord,
may, at its option, within 5 days after written notice from Landlord, reenter
the Leased Premises, remove all persons therefrom, take possession of the
Leased Premises, and remove all of Tenant's personal property at Tenant's
risk and expense and, either (i) terminate this Lease and Tenant's right of
possession of the Leased Premises or (ii) maintain this Lease in full force
and effect and endeavor to relet all or part of the Leased Premises. In the
event Landlord elects to maintain this Lease, Landlord shall have the right
to relet the Leased Premises for such rent and upon such terms as Landlord
deems reasonable and necessary, and Tenant shall be liable for all damages
sustained by Landlord, including but not limited to, any deficiency in Rent
for the period of time which would have remained in the Lease Term in the
absence of
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any termination, leasing fees, attorneys' fees, other marketing and collection
costs and all expenses of placing the Leased Premises in first class rentable
condition. Landlord retains the right to terminate this Lease, at any time,
notwithstanding that Landlord fails to terminate this Lease initially. If
Landlord is unable after diligent efforts to relet the Leased Premises within 60
days after termination of this Lease, then Landlord shall be entitled to the
greatest amount recoverable under Colorado law.
The remedies granted to Landlord here in shall be cumulative and shall not
exclude any other remedy allowed by law, and shall not prevent the enforcement
of any claim Landlord may have against Tenant for anticipatory breach of the
unexpired term of this Lease, including without limitation, a claim for
attorney's fees incurred by Landlord.
ARTICLE TWELVE
Termination
12.1 SURRENDER OF LEASED PREMISES: On expiration of this Lease, if no
Event of Default exists, Tenant shall surrender the Leased Premises in the same
condition as when the Lease Term commenced, ordinary wear and tear excepted.
Except for furnishings, trade fixtures and other personal property installed at
Tenant's expense, all alterations, additions or improvements, whether temporary
or permanent in character, made in or upon the Leased Premises, either by
Landlord or Tenant, shall be Landlord's property and at the expiration or
earlier termination of the term shall remain on the Leased Premises without
compensation to Tenant, except if requested by Landlord, Tenant, at its expense
and without delay, shall remove any alterations, additions or improvements made
to the Leased Premises by Tenant designated by Landlord to be removed, and
repair any damage to the Leased Premises or the Building caused by such removal.
If Tenant fails to repair the Leased Premises, Landlord may complete such
repairs and Tenant shall reimburse Landlord for such repair and restoration.
Landlord shall have the option to require Tenant to remove all its property. If
Tenant fails to remove such property as required under this Lease, Landlord may
dispose of such property in its sole discretion without any liability to Tenant,
and further may charge the cost of any such disposition to Tenant.
12.2 HOLD OVER TENANCY: If Tenant shall hold over after the Lease
Expiration Date, Tenant may be deemed, at Landlord's option, to occupy the
Leased Premises as a tenant from month to month, which tenancy may be terminated
by one month's written notice. During such tenancy, Tenant agrees to pay to
Landlord, monthly in advance, an amount equal to one point seven five (1.75)
times all Rent which would become due (based on Base Rent and Tenant's Pro Rata
Share of Excess Operating Costs payable for the last month of the Lease Term,
together with all other amounts payable by Tenant to Landlord under this Lease),
and to be bound by all of the terms, covenants and conditions herein specified.
If Landlord relets the Leased Premises or any portion thereof to a new tenant
and the term of such new lease commences during the period for which Tenant
holds over, Landlord shall be entitled to recover from Tenant all costs an
expenses, attorneys fees, damages or loss of profits incurred by Landlord as a
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result of Tenant's failure' to deliver possession of the Leased Premises to
Landlord when required under this Lease.
ARTICLE THIRTEEN
Miscellaneous
13.1 QUIET ENJOYMENT: If and so long as Tenant pays all Rent and keeps and
performs each and every term, covenant and condition herein contained on the
part of Tenant to be kept and performed, Tenant shall quietly enjoy the Leased
Premises without hindrance by Landlord.
13.2 ACCORD AND SATISFACTION: No receipt and retention by Landlord
of any payment tendered by Tenant in connection with this Lease shall constitute
an accord and satisfaction, or a compromise or other settlement, notwithstanding
any accompanying statement, instruction or other assertion to the contrary
unless Landlord expressly agrees to an accord and satisfaction, or a compromise
or other settlement, in a separate writing duly executed by Landlord.
Landlord will be entitled to treat any such payments as being received on
account of any item or items of Rent, interest, expense or damage due in
connection herewith, in such amounts and in such order as Landlord may determine
at its sole option.
13.3 SEVERABILITY: The parties intend this Lease to be legally valid
and enforceable in accordance with all of its terms to the fullest extent
permitted by law. If any term hereof shall be invalid or unenforceable, the
parties agree that such term shall be stricken from this Lease to the extent
unenforceable, the same as if it never had been contained herein. Such
invalidity or unenforceability shall not extend to any other term of this Lease,
and the remaining terms hereof shall continue in effect to the fullest extent
permitted by law, the same as if such stricken term never had been contained
herein.
13.4 SUBORDINATION AND ATTORNMENT: The rights of Tenant under this
Lease are and shall be subordinate to all leases in which Landlord is lessee and
to the lien of any first mortgage or first deed of trust, now or hereafter in
force against the Building or the Project, and to all advances made or hereafter
to be made thereunder ("Superior Instruments"). If requested in writing by
Landlord or any first mortgagee or ground lessor of Landlord, Tenant agrees to
execute a subordination agreement required to further effect the provisions of
this paragraph. Provided Tenant has no uncured defaults under this Lease,
Landlord will use reasonable efforts to obtain non-disturbance agreements from
subsequent transferees.
In the event of any transfer in lieu of foreclosure or termination of a
lease in which Landlord is lessee or the foreclosure of any Superior Instrument,
or sale of the Property pursuant to any Superior Instrument, Tenant shall attorn
to such purchaser, transferee or lessor and recognize such party as landlord
under this Lease, provided such party acquires and accepts the Leased Premises
subject to this Lease. The agreement of Tenant to attorn contained in the
immediately preceding sentence shall survive any such foreclosure sale or
transfer.
13.5 APPLICABLE LAW: This Lease shall be construed according to the
laws of the state in which the Leased Premises are located.
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13.6 BINDING EFFECT; GENDER: This Lease shall be binding upon and
inure to the benefit of the parties and their successors and assigns. It is
understood and agreed that the terms "Landlord" and "Tenant" and verbs and
pronouns in the singular number are uniformly used throughout this Lease
regardless of gender, number or fact of incorporation of the parties hereto.
13.7 TIME: Time is of the essence of this Lease.
13.8 ENTIRE AGREEMENT: This Lease and the schedules and addenda attached
set forth all the covenants, promises, agreements, representations, conditions,
statements and understandings between Landlord and Tenant concerning the Leased
Premises and the Building and the Project, and there are no representations,
either oral or written between them other than those in this Lease. This Lease
shall not be amended or modified except in writing signed by both parties.
Failure to exercise any right in one or more instances shall not be construed as
a waiver of the right to strict performance or as an amendment to this Lease.
13.9 NOTICES: All notices pursuant to this Lease shall be in writing
and shall be effective when mailed by certified mail or delivered (i) to
Landlord or Tenant at the addresses designated in Article 1.1 with a copy to the
Managing Agent, or (ii) to such other addresses as may hereafter be designated
by either party by written notice.
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SUBMISSION OF THIS INSTRUMENT FOR EXAMINATION OR SIGNATURE BY TENANT DOES
NOT CONSTITUTE A RESERVATION OF OR OPTION FOR LEASE, AND IT IS NOT EFFECTIVE AS
A LEASE OR OTHERWISE UNTIL EXECUTION AND DELIVERY BY BOTH LANDLORD AND TENANT.
This Lease is executed as of the date first written above.
WITNESS: LANDLORD:
ALLSTATE INSURANCE COMPANY
- ---------------------------
By /s/ illegible
-----------------------
By
-----------------------
Authorized Signatories
WITNESS: TENANT: RACOM SYSTEMS, INC.
/s/ illegible /s/ illegible
- --------------------------- --------------------------
By Richard L. Horton
-----------------------
Its President
----------------------
By
-----------------------
Its
----------------------
Where Tenant is a corporation, this Lease shall be signed by a
President or Vice President and Secretary or Assistant Secretary of Tenant.
Any other signatories shall require a certified corporate resolution.
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EXHIBIT 10.3
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made effective as of 20 OCTOBER, 1993, by and between
RACOM SYSTEMS, INC. ("RACOM"), a Delaware corporation located at 6080 Greenwood
Plaza Boulevard, Englewood, Colorado 80111 and NITTETSU SHOJI CO., LTD. ("NS"),
a Japanese company located at___________________________________________________
________________________________________________________________________________
(collectively, the "Shareholders")
RECITALS
WHEREAS, the Shareholders desire to form a joint venture corporation
dedicated primarily to serve as a Japanese distributor of RACOM's radio
frequency identification products and systems.
WHEREAS, the Shareholders desire to acquire the stock of such corporation,
and the Shareholders desire to provide for certain other matters regarding the
management of such corporation.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
hereinafter set forth, the Shareholders agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall, unless the
context otherwise requires, have the meanings set forth below:
1.1 "APPROVAL BY THE BOARD OF DIRECTORS" shall mean approval in the manner set
forth in Section 23 of the Articles of Incorporation of the Joint Venture.
1.2 "BOARD OF DIRECTORS" means the board of directors of the Joint Venture,
constituted as described in Article V below.
1.3 "CLOSING" AND "CLOSING DATE" shall have the meanings set forth in Article
VI of this Agreement.
1.4 "CONTROL" means the power to direct or cause the direction of the
management and policies of an individual, corporation, partnership, firm,
or other entity, whether through ownership of its voting securities or by
contract or otherwise. Without limiting the foregoing, the ownership of
shares comprising
<PAGE>
more than fifty percent (50%) of the voting power of a corporation shall
be deemed to constitute control.
1.5 "EXCLUSIVE DISTRIBUTOR AGREEMENT" means the Exclusive Distributor
Agreement to be entered into by and among the Joint Venture, RACOM and NS
concurrent with the execution of this Agreement.
1.6 "EXCLUSIVE IMPORT AGREEMENT" means the Exclusive Import Agreement to be
entered into by and between RACOM and NS concurrent with the execution of
this Agreement.
1.7 "JOINT VENTURE" means the corporation to be organized pursuant to Section
2.1.
1.8 "SHARES" means the shares of capital stock issued or issuable by the Joint
Venture
ARTICLE II
ESTABLISHMENT OF THE JOINT VENTURE
2.1 FORMATION OF THE JOINT VENTURE. As soon as practical after the execution
of this Agreement, NS and Racom shall cause the Joint Venture to be
organized as a corporation pursuant to the laws of Japan and the
provisions of this Agreement. The name of the Joint Venture shall be
"Racom Japan, Inc." The organizational documents of the Joint Venture
shall be in the form attached hereto as Exhibit A.
2.2 FURTHER ACTION. The Shareholders shall cause the Joint Venture to file
any and all reports and notices and shall take any and all other further
action necessary or appropriate to establish and maintain its existence in
good standing under the laws of the Japan.
ARTICLE III
PURPOSES OF THE JOINT VENTURE
3.1 GENERAL PURPOSE. The Joint Venture is formed for the purpose of
developing and increasing the market for RACOM's radio frequency
identification products ("Products"), and selling and distributing the
Products in Japan. Without limiting the generality of the foregoing, the
Joint Venture will provide technical support, engineering data and
information regarding the Products, as well as providing software
development and manufacturing support for the Products with a view toward
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promoting, coordinating and supporting sales of the Products to Japanese
customers. The Joint Venture will also provide customer service such as
claim processing and verification of quality and reliability of the
Products. The Joint Venture may also undertake such other business
opportunities as the Shareholders shall deem appropriate.
3.2 COOPERATION. The Shareholders agree to cooperate with each other in good
faith in the fulfillment of the above purposes and activities and
otherwise in the implementation of the provisions of this Agreement.
ARTICLE IV
CAPITALIZATION, SALE OF SHARES AND RESTRICTIONS ON TRANSFER
4.1 CAPITALIZATION AND CAPITAL STOCK. The Joint Venture shall have one class
of shares, designated Common Stock, having the rights, preferences and
privileges set forth in the Articles of Incorporation. The authorized
capital stock of the Joint Venture shall consist of Two Thousand Four
Hundred (2,400) shares of Common Stock.
4.2 PURCHASE AND SALE OF SHARES.
At the Closing, the Joint Venture shall issue and sell and the
Shareholders shall purchase the number of Shares of Common Stock set forth
below opposite the name of each such Shareholder at a purchase price of
50,000 Japanese Yen per share, payable in cash:
NAME NUMBER OF SHARES
NS 300
RACOM 300
Any additional capital required by the Joint Venture shall be provided, if
at all, only upon terms mutually agreeable to the Shareholders.
4.3 RESTRICTIONS ON TRANSFER. No shareholder may sell, pledge, assign or
otherwise transfer, in whole or in part, any Shares during the two (2)
year period following the Closing without the express, prior written
consent of the other Shareholder. Each stock certificate representing the
Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
THE TERMS OF THE JOINT VENTURE AGREEMENT PURSUANT TO WHICH THE COMPANY
WAS FORMED. COPIES OF THE JOINT VENTURE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY."
Each Shareholder consents to the Joint Venture making a notation on its
records and giving instructions to any transfer agent of the Shares in
order to implement the restrictions on transfer described in this Section.
Each Shareholder shall cause any approved transferee of the Shares held by
such Shareholder to agree in writing to take and hold such Shares subject
to the provisions and upon the conditions specified in this Agreement.
4.4 RIGHT OF FIRST REFUSAL. At anytime after the two (2) year period
following the Closing, no Shareholder may sell, assign, pledge or
otherwise transfer, in whole or in part, any of the Shares except in
accordance with the following restrictions:
(a) If any Shareholder shall receive an offer to purchase any or all of
the Shares held by such Shareholder, such Shareholder (the "Offering
Shareholder") shall first give written notice to the other
Shareholder stating its intention to transfer, the name of the
proposed transferee, the number of offered Shares and the price,
terms and conditions of the proposed sale or transfer.
(b) The other, non-offering Shareholder shall have the right to purchase
all (but not less than all) of the Shares offered, which right shall
be exercisable by written notice specifying the number of Shares
which the non-offering Shareholder wishes to purchase, delivered or
mailed to the offering Shareholder not later than the expiration of
thirty (30) days after delivery of the written notice of intention to
sell. The price and terms of purchase by the non-offering
Shareholder shall be the price and terms stated in the notice.
(c) If the non-offering Shareholder does not exercise its right to
purchase all of the offered Shares within such thirty (30) day
period, the offering Shareholder may within sixty (60) days after
expiration of such right,
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sell or transfer the Shares specified in the notice to the transferee
named in the notice; provided that (i) such sale or transfer is not
at a lower price or on terms more favorable to the transferee than
those specified in the written notice; (ii) prior to such transfer,
such transferee agrees in writing to become bound by this Article IV;
(iii) any such transfer shall not serve to excuse or terminate any of
the obligations of the transferring Shareholder as a party to this
Agreement and such transferring Shareholder shall continue to be
bound by this Agreement as if it continued to hold the Shares so
transferred unless the transferee (who shall be reasonably acceptable
to the non-offering Shareholder) agrees in writing to assume all of
the obligations of the transferring Shareholder and to be so bound.
ARTICLE V
MANAGEMENT.
5.1 BOARD OF DIRECTORS. The number of members of the Board of Directors shall
be fixed at four (4). Each Shareholder shall have the right to select two
(2) persons to serve on the Board of Directors. Each Shareholder shall
vote its Shares to cause the election to the Board of Directors of the
persons selected by the other Shareholder. All actions of the Board of
Directors shall require approval by the Board of Directors as defined in
Section 1.2 hereof. The Board of Directors shall meet on a regular basis
as it determines from time to time, but not less than four (4) times per
year unless the Shareholders agree otherwise. The Board of Directors
shall select its Chairman by mutual agreement. The Board of Directors
will manage the affairs of the Joint Venture in accordance with the
Articles of Incorporation, those pertinent provisions of this Joint
Venture Agreement and the laws of Japan. The matters to be considered and
resolved by the Board of Directors include the following:
1) Amendment to or alteration of the Articles of Incorporation;
2) Increase or decrease of the issued capital;
3) Liquidation, winding-up or dissolution of the Joint Venture;
4) Merger or amalgamation with or into any third party;
5
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5) Change in the business of the Joint Venture in any material respect;
6) Commencement of a new business, or investment in a third party or new
business;
7) Acquisition or disposition of assets or property having a value
exceeding one million yen;
8) Obtaining a loan;
9) Making a guarantee or becoming otherwise liable in respect of any
loan to third parties;
10) Adopting an annual operating plan;
11) Entering into any important contract;
12) Declaration of dividends;
13) Appointment of auditors and approval of their remuneration;
14) Any other matters which are stipulated to be resolved by a meeting of
the Board of Directors under the Japanese Commercial Code; and
15) Any other important matters which are deemed necessary by the Board
of Directors.
5.2 OFFICERS. ________________________is hereby appointed President of the
Joint Venture until such time as the Board of Directors selects his
successor. The President of the Joint Venture shall be responsible for
day-to-day management of the business operations of the Joint Venture,
subject, however, to the directions of the Board of Directors, the terms
of this Agreement and the terms of the Articles of Incorporation of the
Joint Venture.
5.3 OPERATING PLAN. Within ____________ (___) days after the date hereof, the
Board of Directors shall propose an operating plan for the conduct of the
Joint Venture's business for the succeeding twelve months, ending on the
first anniversary date of this Agreement. Such operating plan shall be
subject to the approval of the Board of Directors. The Board of Directors
annually hereafter shall propose an operating plan for the conduct of the
Joint Venture's business for the succeeding twelve months, or such other
budget period as may be agreed upon by the Board of Directors. Each
subsequent operating plan shall also be subject to the approval of the
Board of Directors.
6
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5.4 LIMITATION OF LIABILITY; INDEMNITY. The individual liability of members
of the Board of Directors with respect to action or inaction in such
capacity shall be limited to the maximum extent permitted under applicable
law. Further, the Joint Venture shall indemnify and hold harmless the
individual members of the Board of Directors to the maximum extent
permitted under applicable law.
5.5 FAILURE TO AGREE.
(a) If the Board of Directors fails to approve a proposed operating plan
at three consecutive meetings of the Board of Directors or if any
unresolved matter prevents the Joint Venture's continued operation in
accordance with the then approved operating plan unless mutually
resolved, then, unless such proposal or matter is resolved by the
affirmative vote of all of the Board of Directors, a "failure to
agree" will be deemed to have occurred. If a failure to agree
occurs, then the Shareholders shall negotiate in good faith to
resolve the matter for sixty (60) days. If such negotiations do not
resolve the matter, then a "buy/sell right" will be deemed to have
occurred and the provisions of paragraph 5.5(b) will apply.
(b) Within thirty (30) days after a buy/sell right occurs, the
Shareholders shall submit to a major international public accounting
firm approved by them (such approval not to be unreasonably withheld)
a sealed written unconditional offer denominated in United States
Dollars to purchase all of the other party's Shares in the Joint
Venture. The offer shall be stated in an amount per Share of Common
Stock. The Shareholder's offer with the highest price per Share of
Common Stock shall be deemed to be the "Purchasing Shareholder."
The other Shareholder shall be deemed to be the "Selling
Shareholder." The Selling Shareholder shall promptly thereafter sell
all of its Shares of Common Stock to the Purchasing Shareholder for
an amount equal to the product of the Purchasing Shareholder's offer
per Share times the number of Shares of Common Stock owned by the
Selling Shareholder. The purchase price will be paid by delivery of
cash to the Selling Shareholder within sixty (60) days after
determination of the highest offer. If the offers submitted by
the Shareholders are exactly equal, the accounting firm will notify
each Shareholder and each Shareholder will submit, within fifteen
(15) days, a new sealed written unconditional offer denominated in
United States Dollars to purchase the other party's Shares of Common
Stock and the foregoing procedures shall apply.
7
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5.6 ACTIONS BY SHAREHOLDERS. With respect to all matters which require or are
subjected to a vote or action by written consent of the Shareholders of
the Joint Venture, NS and RACOM agree that: (a) they shall consult with
each other and (b) each party shall vote its Shares of Common Stock the
same as the other party. In the event that NS and RACOM are unable or
unwilling to vote their Shares the same, then both NS and RACOM shall be
obligated to vote their Shares against the adoption of the matter or
matters that are the subject of the shareholder vote or action by written
consent.
ARTICLE VI
CONDITIONS TO CLOSING; CLOSING AND EFFECTIVENESS OF THE AGREEMENT
6.1 CONDITIONS TO CLOSING. The obligations of each party to consummate the
transactions contemplated hereby are subject to the satisfaction of each
of the following conditions or the waiver thereof by such party
(a) JOINT VENTURE. All actions necessary for the due incorporation and
organization of the Joint Venture in accordance with the Articles of
Incorporation and this Agreement shall have been taken.
(b) GOVERNMENTAL CONSENTS. All required governmental consents to the
transactions contemplated hereby shall have been obtained, all
required notifications to governmental authorities shall have been
made and all waiting periods with respect thereto shall have expired.
(c) CONSENTS AND WAIVERS. All waivers, consents and permissions required
for the execution and performance of this Agreement and the
transactions contemplated thereby by the Shareholders shall have been
obtained.
6.2 CLOSING. Subject to the satisfaction or waiver of all conditions to
Closing, the Closing shall occur as soon thereafter as all such conditions
have been satisfied or waived (the "Closing Date"). At the Closing:
(a) INVESTMENT. NS and RACOM shall each purchase the Shares of Common
Stock identified for purchase at the Closing pursuant to Section 4.2
hereof and the Joint Venture shall deliver certificates to the
Shareholders representing such shares against payment therefor in
accordance with this Agreement.
(b) EXCLUSIVE DISTRIBUTOR AGREEMENT. NS, RACOM and the Joint Venture
shall concurrently enter into the Exclusive Distributor Agreement.
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(c) EXCLUSIVE IMPORT AGREEMENT. NS and RACOM shall concurrently enter
into the Exclusive Import Agreement.
6.3 EFFECTIVENESS OF AGREEMENT. On the Closing Date this Agreement shall be
deemed effective as of____________, 1993.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 REPRESENTATIONS AND WARRANTIES BY THE SHAREHOLDERS. Each Shareholder
hereby represents and warrants to the other Shareholder that:
(a) It is a corporation duly organized and existing under, and by virtue
of, the laws of its jurisdiction of incorporation and is in good
standing under such laws.
(b) It has now, and will have at any time, all requisite legal and
corporate power to enter into this Agreement and to carry out and
perform it obligations under the terms of this Agreement.
(c) All corporate action on the part of such Shareholder, its officers,
directors, and shareholders necessary for the performance of its
obligations under this Agreement and the transactions contemplated
hereby have been taken as of the date hereof. This Agreement is a
valid and binding obligation of such Shareholder.
(d) Such Shareholder understands that no public market now exists for any
of the securities issued by the Joint Venture and that there is no
assurance that a public market will ever exist for the Shares.
ARTICLE VIII
CONFIDENTIALITY
8.1 OBLIGATION OF CONFIDENTIALITY. Contemporaneously with the execution
hereof, the parties to this Agreement have entered into a Confidentiality
Agreement, in the form attached hereto as Exhibit "_", relative to the
preservation of the strict confidentiality of any information given to
them by any other party and identified as being confidential, including
only disclosing it to those employees to whom it is necessary or
appropriate in order to perform its obligations consistent with the terms
of this Agreement.
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8.2 EMPLOYEES OF JOINT VENTURE. The Joint Venture shall require all of its
employees to enter into a nondisclosure and assignment of invention
agreement upon commencement of their employment pursuant to which such
employee shall agree not to disclose or use confidential information
acquired from the Joint Venture or the Shareholders and shall agree to
assign inventions to the Joint Venture.
ARTICLE IX
TERM AND TERMINATION
9.1 TERM AND TERMINATION AFTER CLOSING. After the Closing, this Agreement
shall continue in full force and effect for a period of two (2) years or
until earlier terminated as set forth herein.
9.2 TERMINATION FOR DEFAULT. If a party defaults in the performance of any
obligation under this Agreement, the other party may give written notice
to the defaulting party specifying the nature of the default and demanding
that it be cured. If, within thirty (30) days after notice of default,
the defaulting party shall not have remedied the default, then this
Agreement may, at the election (in writing) of the non-defaulting party,
be terminated.
9.3 TERMINATION FOR INSOLVENCY. This Agreement may be terminated by either
party by written notice (i) upon the institution by the other party of
insolvency, receivership, bankruptcy or similar proceedings for the relief
of indebtedness; (ii) upon the institution of such proceedings against the
other party, which are not dismissed or otherwise resolved in such party's
favor within sixty (60) days thereafter; (iii) upon the other parties
making a general assignment for the benefit of creditors; or (iv) upon the
other party's dissolution or ceasing to do business in the normal course.
9.4 ADDITIONAL RIGHTS UPON DEFAULT. In addition to the rights set forth in
Section 9.2 and 9.3 above, upon the occurrence of any of the events
described therein, the non-defaulting party (in the case of Section 9.2)
or the non-affected party (in the case of Section 9.3) shall have the
right to either (i) purchase all (but not less than all) of the other
party's Shares or (ii) require the defaulting party to purchase all (but
not less than all) of the non-defaulting party's Shares. Such right shall
be exercisable by written notice delivered or mailed to the other party
not later than the expiration of thirty (30) days after the non-defaulting
party has received notice of the occurrence of one of the above events.
The purchase price shall be the fair market value of the selling party's
Shares, based upon the fair market value of the Joint
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Venture as a going concern. The parties shall negotiate such value in
good faith. In the event the parties are unable to agree upon such value
within sixty (60) days from the date of the non-defaulting party's notice
of the exercise of its right to purchase such Shares, then such value
shall be determined by binding arbitration pursuant to the provisions of
Section 10.8. The purchase and sale transaction contemplated herein shall
then be consummated within twenty (20) days after determination of the
applicable purchase price.
9.5 DISSOLUTION OF JOINT VENTURE. This Agreement shall terminate upon the
dissolution of the Joint Venture.
9.6 EFFECT OF TERMINATION. The provisions of Article VIII shall survive the
termination of this Agreement for any reason. In the event of termination
for any reason, the parties shall take all actions necessary to dissolve
and liquidate the corporation in accordance with applicable law.
9.7 REVISION OF OPERATING PLAN. In the event that accumulated losses of the
Joint Venture are anticipated to exceed thirty million (30 million) yen,
the Shareholders shall meet to discuss in good faith whether the
operations of the Joint Venture shall be revised or, possibly,
discontinued.
ARTICLE X
GENERAL PROVISIONS
10.1 DISCLAIMER OF AGENCY. This Agreement shall not constitute any Shareholder
as the legal representative, partner or agent of any other Shareholder,
nor shall any Shareholder have the right or authority to assume, create,
or incur any liability or any obligation of any kind, express or implied,
against or in the name of or on behalf of any other Shareholder.
10.2 FORCE MAJEURE. No Shareholder shall be responsible to the other for
failure or delay in fulfillment of all or part of this Agreement, directly
or indirectly, owing to any causes or circumstances beyond the reasonable
control of such Shareholder, including but not limited to, Acts of God,
governmental order or restrictions, war, warlike conditions, hostilities,
sanctions, mobilization, blockage, embargo, detention, revolution riot,
looting, strike, stoppage of labor, lock-out or other labor trouble, fire
or accident, provided that the Shareholder whose performance is delayed
promptly resumes performance once it is reasonably possible
to do so.
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10.3 ASSIGNMENT OF AGREEMENT. No Shareholder shall have the right or power to
assign, transfer, or otherwise dispose of this Agreement in whole or in
part to any individual, firm or corporation, without the prior written
consent of the other Shareholder; provided, however, that a Shareholder
may assign its rights and obligations under this Agreement to a successor
to all or substantially all of its assets, whether by sale, merger, or
otherwise, if the successor (who shall be reasonably acceptable to the
other Shareholder) agrees in writing to be bound by this Agreement. For
purposes of this Section, any change in the Control of a party shall be
deemed to be an attempted transfer of this Agreement by that party, and
shall be subject to the terms and conditions of this Section 10.3.
10.4 AMENDMENTS. No amendments, modifications or waivers to this Agreement
shall be effective for any purpose unless in writing and signed by an
authorized officer of each Shareholder.
10.5 NOTICES. All notices required or contemplated by this Agreement from
either Shareholder shall be in writing and shall be delivered either (a)
by personal delivery; (b) by registered or certified airmail, postage
prepaid; or (c) by telecopy, confirmed by registered or certified airmail,
postage prepaid. All notices delivered by airmail or telecopy shall be
addressed as follows:
If to RACOM: Racom Systems, Inc.
6080 Greenwood Plaza Blvd.
Englewood, Colorado 80111
If to NS: Nittetsu Shoji Co., Ltd.
________________________
________________________
________________________
Such addresses may be changed from time to time by notice delivered in
accordance with this Section. The effective date of any notice delivered
in accordance with this Section, as the case may be, shall be (a) the date
of personal delivery; (b) the fifth day after the date of airmail; or (c)
the first business day after transmission of telex or telecopy.
10.6 WAIVERS. No waiver, forbearance or failure by either Shareholder of its
right to enforce any provision of this Agreement shall constitute a waiver
or estoppel of such Shareholder's right to enforce such provision
thereafter or to enforce any other provision of this Agreement.
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<PAGE>
10.7 GOVERNING LAW. This Agreement shall be governed by the laws of Japan.
10.8 ARBITRATION. Any dispute or claim arising out of or in connection with
this Agreement will be finally settled by binding arbitration in Japan, if
Racom initiates the arbitration, or in Denver, Colorado, if NS initiates
the arbitration, under the Rules of Arbitration of the International
Chamber of Commerce by one arbitrator appointed in accordance with those
rules. The arbitrator will apply Japanese law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The
arbitration and all pleadings and written evidence shall be in the English
language. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Notwithstanding the foregoing,
the parties may apply to any court of competent jurisdiction for temporary
or preliminary injunctive relief without breach of this arbitration
provision.
10.9 COMPLIANCE. Each Shareholder agrees to cause the Joint Venture to perform
all acts which may be required of the Joint Venture under the provisions
of this Agreement. A copy of this Agreement shall be filed in the records
of the Joint Venture and the Shareholders shall cause the Joint Venture to
be bound by all provisions applicable to it.
10.10 COSTS AND EXPENSES. Each party shall bear its own costs and expenses
incurred in connection with this Agreement.
10.11 SEVERABILITY. In the event that any provisions or any part of any
provisions of this Agreement shall be held invalid, illegal or
unenforceable under applicable law, such provision shall be severed from
this Agreement, the remainder of this Agreement shall remain valid and
enforceable, and the parties shall negotiate in good faith a substitute
provision to effectuate, to the extent practicable, the intent of the
severed provisions.
10.12 BINDING ON SUCCESSORS. Except as otherwise specifically provided herein,
this Agreement shall be binding upon and inure to the benefit of the
Shareholders and their respective legal representatives, heirs,
administrators, executors, successors and assigns.
10.13 CONFLICT WITH ORGANIZATIONAL DOCUMENTS. In the event of any conflict
between the terms of this Agreement and the Articles of Incorporation, the
terms of this Agreement shall prevail and the Shareholders shall forthwith
cause such necessary amendments to the Articles of Incorporation as are
required to remove such conflict.
13
<PAGE>
10.14 EXPORT CONTROLS. Each party agrees to comply with all applicable
governmental export controls with respect to products, items, technology
and information pertaining to this Agreement.
10.15 COUNTERPARTS. This Agreement may be signed in multiple counterparts, each
of which shall be deemed an original and all of which shall constitute
one and the same instrument.
10.16 LETTER OF INTENT. The parties agree that the terms and provisions of this
Agreement hereby supersede all of the terms and provisions of the Letter
of Intent dated April 23, 1993 and all other discussions, negotiations and
agreements, whether written or oral, with respect to the subject matter
of the Letter of Intent.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives effective as of the day and year first
above written.
RACOM SYSTEMS, INC. NITTETSU SHOJI CO., LTD.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------------ ------------------------------------
Title: PRESIDENT Title: MANAGING DIRECTOR
--------------------------- --------------------------------
Date: 20 Oct. 1993 Date: 20 Oct. 1993
--------------------------- ----------------------------------
14
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Attachment A
9.4 Additional Rights Upon Default. In addition to the rights set forth in
Section 9.2 and 9.3 above, upon the occurrence of any of the events
described therein, the non-defaulting party (in the case of Section 9.2)
or the non-affected party (in the case of Section 9.3) shall have the
right to either (i) purchase all (but not less than all) of the other
party's Shares or (ii) require the defaulting party to purchase all (but
not less than all) of the non-defaulting party's Shares. Such rights
shall be exercisable by written notice delivered or mailed to the other
party not later than the expiration of thirty (30) days after
(i) the date of the written notice from the non-defaulting party to the
defaulting party under the terms of Section 9.2; or
(ii) the date on which the non-affected party learns of the occurrence of
the events described in Section 9.3.
The purchase price shall be the fair market value of the selling party's Shares,
based upon the fair market value of the Joint Venture as a going concern. The
parties shall negotiate such value in good faith. In the event the parties are
unable to agree upon such value within sixty (60) days from (i) the date of the
non-defaulting party's notice of the exercise of its right to purchase such
Shares, (ii) the date of the non-defaulting party's notice of the exercise of
its right to have the defaulting party purchase
<PAGE>
such Shares, or (iii) the date of the non-affected party's notice of the
exercise of its right to purchase such Shares, then such value shall be
determined by the portion constituted by said Shares of the total amount of the
net asset value of the Joint Venture based on its assets and liabilities
according to the company account books. The purchase and sale transaction
contemplated herein shall then be consummated within twenty (20) days after
determination of the applicable purchase price.
<PAGE>
Addendum to the Joint Venture Agreement
This Addendum, made and entered into this 19th day of October, 1993 by and
between RACOM SYSTEMS, INC. (hereinafter referred to as "RACOM") and Nittetsu
Shoji Co., Ltd. (hereinafter referred to as "NS")
WITNESSETH:
WHEREAS, RACOM and NS entered into a Joint Venture Agreement (hereinafter
referred to as the "Agreement") on October 19th, 1993 and RACOM and NS desire to
amend said Agreement.
NOW, THEREFORE, it is agreed as follows:
1. Article 1.
(1) Section 1.5 shall be amended as follows:
"Exclusive Distributor Agreement" shall refer to the Exclusive
Distributor Agreement to be entered into between the Joint Venture
and RACOM.
(2) Section 1.6 shall be amended as follows:
"Exclusive Import Agreement" shall refer to the Exclusive Import
Agreement to be entered into between RACOM and NS.
2. Article 2.
Both parties hereby confirm the establishment of Racom Japan Inc., on July
12th, 1993.
3. Article 4.
Both parties hereby confirm that, as stipulated in Section 4.2, shares
were issued by the Joint Venture and were purchased by the Shareholders.
<PAGE>
4. Article 5.
The eighth line in Section 5.1 shall be amended from "Section 1.2" to
"Section 1.1."
5. Article 6.
(1) Section 6.2 (b) shall be amended as follows:
RACOM and the Joint Venture shall enter into the Exclusive
Distributor Agreement.
6. Article 9.
(1) Section 9.1 shall be amended as follows:
After the closing, this Agreement shall continue in full force and
effect for a period of two(2) years and at the end of this period,
NS and RACOM shall review the Joint Venture's results and make any
changes as NS and RACOM shall mutually decide.
(2) Section 9.4 shall be amended to read as indicated in attachment A.
RACOM SYSTEMS, INC. NITTETSU SHOJI CO., LTD.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
---------------------------- ------------------------------
Title: PRESIDENT Title: MANAGING DIRECTOR
------------------------- --------------------------
Date: 20 Oct. 1993 Date: 20 Oct. 1993
------------------------- ---------------------------
<PAGE>
EXCLUSIVE DISTRIBUTOR AGREEMENT
This Agreement is entered into as of the 20th day of October, 1993, by
and among RACOM SYSTEMS, INC., a corporation organized and existing under
the laws of the State of Delaware, U.S.A., having offices at 6080 Greenwood
Plaza Blvd., Englewood, Colorado 80111, (hereinafter referred to as "RACOM")
and RACOM JAPAN, INC., a company incorporated under the laws of Japan, with
its principal office at c/o I.B.C., Otsuka Building, Kamitsurma,
Sagamihara-shi, Kanagawa-Ken, 228 Japan, (hereinafter referred to as "RJ").
WHEREAS, RACOM is involved in designing and developing radio frequency
identification systems and products composed of transponders and communicators;
WHEREAS, RACOM and RJ have appointed NS as the exclusive importer of such
products for Japan;
WHEREAS, RJ desires to enter into an exclusive arrangement to market in
Japan certain products manufactured by RACOM and imported by NS; and
WHEREAS, RACOM desires to enter into such an exclusive arrangement with RJ
to authorize RJ to market certain of RACOM's products in Japan;
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto hereby agree as follows:
ARTICLE 1 - APPOINTMENT
1.1 RACOM hereby appoints RJ as its exclusive distributor in Japan
(hereinafter referred to as the "Territory") for all products (hereinafter
referred to as "Products") manufactured or sold by RACOM to NS and listed
in the attached Appendix A and RJ hereby accepts such appointment.
ARTICLE 2 - TERM OF AGREEMENT
2.1 This Agreement shall become effective as of the date set forth above when
it has been duly executed BY authorized representatives of RACOM and RJ.
It shall continue in full force and effect for a term of two (2) years
after such date (subject to Article 17 and 18), and at the end of such
two-year period, RACOM and RJ will consider renewal of this Agreement on
mutually acceptable terms.
2.2 This Agreement includes the following appendices:
<PAGE>
APPENDIX A: Description of Products
APPENDIX B: Not Applicable
APPENDIX C: Standard Terms and Conditions of Sale
ARTICLE 3 - PURCHASE AND RESALE OF PRODUCTS
3.1 The parties acknowledge that NS, as the exclusive importer of the Products
in Japan, will acquire the Products from RACOM and sell them exclusively to
RJ. RJ agrees to purchase from NS, Products for resale within the
Territory subject to the provisions of this Agreement.
3.2 Recognizing that certain users in the Territory may prefer to place orders
through RJ for direct importation from RACOM, the contribution of RJ toward
the development of such sales will be acknowledged by paying RJ a
commission (a percentage of the net invoiced amount [s]). The commission
percentage is to be determined prior to order placement.
2
<PAGE>
ARTICLE 4 - DUTIES OF DISTRIBUTOR
In addition to all other duties herein set forth, RJ shall have the
following material obligations.
4.1 SOLICITATION OF ORDERS
RJ shall extend its reasonable efforts in soliciting orders for and selling
Products for delivery to customers within the Territory.
4.2 ADVERTISING
RJ shall advertise Products to such an extent and in such media as is
reasonably necessary to encourage the sale of Products in the Territory.
The entire cost of said advertising shall be paid by RJ, unless otherwise
agreed to in writing by RACOM. If so agreed, RACOM may, at its sole
discretion, contribute an amount up to one-half (1/2) of the cost of said
advertising.
4.3 MAILING LIST
RJ shall develop and maintain a mailing list of existing and prospective
customers within the Territory, and shall periodically mail advertising
literature to said customers.
4.4 TRAINING OF SALES FORCE AND SERVICE PERSONNEL
RJ shall at all times maintain an adequate staff of sales personnel
reasonably necessary to carry out the obligations of RJ under this
Agreement, and shall fully train said sales personnel with respect to all
pertinent aspects of the Products.
4.5 MONTHLY REPORTS
RJ shall submit monthly reports to RACOM showing total sales of Products by
complete part number and type, quantity sold, unit price, price extension,
and customer identification and location. Each monthly report shall be
submitted to the person designated by RACOM, as appropriate, by the end of
the month immediately following the month covered by the report, and shall
further include an itemization of the RJ's inventory of each covered
Product as of the end of the month covered by the report.
4.6 MAINTENANCE OF SALES FACILITIES
RJ shall maintain sales offices in the Territory to encourage the sale of
Products and maintain adequate facilities to assure prompt handing of
inquiries, orders and shipments.
3
<PAGE>
4.7 SALES AND TECHNICAL LITERATURE
RJ shall at all times maintain sales data on the Products, including price
lists, catalogs and technical bulletin files. RJ shall keep confidential
all know-how and technical information, and any other proprietary
information furnished to it by RACOM.
4.8 BUSINESS INTEGRITY
RJ shall pursue a high degree of business integrity in its dealings with
customers.
ARTICLE 5 - PRICES
5.1 NS shall sell the Products to RJ at the prices designated as distributor
cost in RACOM's current price list or as distributor cost negotiated
between Racom and RJ, whichever is lower. Such prices are F.O.B.
Englewood, Colorado, United States of America, and do not include local
sales, use excise, customs, export, import or similar taxes. RJ shall
assume and pay, or cause to be paid, any and all such taxes, license fees
or other charges incident of the sale of Products, or in lieu thereof,
shall provide NS with a tax exempt certificate acceptable to the
appropriate taxing authorities. RJ shall reimburse NS for taxes and
expenses incurred by NS in importing the Products into the Territory, and
import fees which amount shall in no event exceed 2%, of the distributor
cost of such Products. RJ shall pay all fees, assessments and taxes
levied against Products in RJ's possession.
5.2 RACOM may from time to time, notwithstanding the above, upon written notice
to RJ, change the distributor cost set forth in RACOM's current price list,
such change to be effective thirty (30) days after the date of mailing of
said notice to RJ. RACOM's price list shall then be automatically amended
accordingly.
5.3 Any order from RJ received and accepted by RACOM prior to a price increase
on Products which are the subject of such order shall be shipped at the
price in effect at the time of acceptance of such order. Any order from RJ
received and accepted prior to a price decrease on Products which are the
subject of such order will be shipped at the price in effect at the time of
shipment of such order.
5.4 In the event that the price of precious metals (including, but not limited
to, gold and silver) that are incorporated into the Products rises prior to
the delivery of such Products by RACOM, RACOM may adjust the prices set
forth in
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<PAGE>
the current price list immediately by written notice to RJ, and such prices
shall apply to all Products not delivered at the time of such notice. Such
adjustments shall be made in accordance with a formula, determined solely
by RACOM, reasonably designed to pass on the increased cost of such
precious metals.
5.5 In the event of a decrease made under this Agreement in distributor cost on
any Product, RJ may apply for a credit with respect to all items of such
Product then in RJ's inventory equal to the difference between RJ's
original purchase price from NS for such item (adjusted for any credits
previously given with respect to such item pursuant to this paragraph 5.5
or otherwise) and the new lower price. Application for such credit must be
submitted to RACOM within thirty (30) days following the effective date of
the price decrease, and must include a tabulated list setting forth the
following with respect to each applicable Product: RACOM's part number,
quantity, unit price paid, quantity on hand and new unit price. If
necessary, the price paid for such Products by RJ shall be determined on a
first-in, first-out basis. Any such application for credit will be subject
to verification by RACOM, for which purpose RACOM shall be permitted access
to RJ's books and records. No credit will be issued except upon approval
of the application by RACOM. To receive a credit, RJ must be in full
compliance with Paragraph 4.5 (Monthly Reports). Credits shall be applied
against pending or future purchase orders. No cash refunds will be made.
All rights of RJ under this Section 5.5 shall expire upon termination of
this Agreement for any reason.
ARTICLE 6 - PAYMENT
6.1 All payments for covered Products hereunder shall be made by RJ through NS
in accordance with the terms and conditions set forth in Appendix C.
6.2 All payments which are not paid when due shall bear interest at the lesser
of 1.5% per month or the maximum lawful rate from the date of invoice
until payment is received.
ARTICLE 7 - CHANGES IN PRODUCTS
7.1 Upon the mutual agreement of RACOM and RJ, RACOM may, at any time, either
add to, delete or change any of the Products. Any such change shall be
immediately effective upon the giving of written notice of such change to
RJ and upon receipt of such notice Appendix A hereto shall be automatically
amended to conform to such notice.
5
<PAGE>
7.2 Upon the mutual agreement of RACOM and RJ, RACOM may discontinue the
manufacture or sale of any Product and improve or change the design of any
Product, and RACOM shall not incur any liability thereby, or any obligation
to provide such improvements on Products previously purchased and/or sold
by RJ.
ARTICLE 8 - WARRANTY AND TERMS OF SALE TO END USERS
8.1 RACOM agrees to provide warranty terms to RJ's customers identical to the
standard warranty terms and procedures set forth in Appendix C, except that
the warranty period shall begin at the time of shipment to RJ's customer
from RJ. Subject to the preceding sentence and except as otherwise
expressly provided herein, NEITHER NS NOR RACOM MAKES ANY REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY,
FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE
PRODUCTS. RJ shall not make any additional representations or warranties
regarding the Products.
8.2 RJ shall not, on behalf of RACOM, extend or pass on to purchaser of RACOM's
Products any warranty, other than RACOM's standard warranty, without
written authorization from RACOM.
ARTICLE 9 - RELATIONSHIP OF PARTIES
9.1 The relationship of RJ to RACOM and NS, respectively, hereunder is solely
that of vendee and vendor. Nothing contained herein shall be deemed to
create an agency, joint venture or partnership relationship between the
parties hereto. Nothing contained herein shall be deemed or construed as
granting to RJ any right or authority to assume or to create any obligation
or responsibility, express or implied, for, on behalf of or in the name of
RACOM or NS, respectively, or to bind either RACOM or NS, or any parent,
subsidiary or affiliate of either such party, in any way or manner
whatsoever.
ARTICLE 10 - ASSIGNMENT OF AGREEMENT
10.1 Neither this Agreement nor any interest herein is assignable by any party
hereto, whether by way of assignment, operation of law or otherwise,
without the prior written consent of all other parties hereto. Any
attempted assignment or transfer by any party hereto without the prior
written consent of all other parties hereto shall be null and void.
Transfer of a controlling interest in any party hereto to a party not in
6
<PAGE>
control at the time of the execution of this Agreement shall be deemed an
assignment of this Agreement for purposes of the restrictions set forth in
this Article 10.
Notwithstanding the foregoing, any party hereto may assign or delegate the
performance of part or all of its obligations under this Agreement to one
or more of its parent, subsidiary or sister companies or affiliates,
provided that:
(i) Such assignment or delegation shall not relieve the assignor of
primary responsibility for performance of its obligations under
this Agreement; and
(ii) Any such assignment or delegation or any acts pursuant thereto
will not be deemed to create any relationship between any party
hereto and any such assignee other than that of vendee and
vendor.
ARTICLE 11 - PATENTS, TRADEMARKS AND TRADE NAMES
11.1 No rights are granted hereunder to RJ under any of RACOM's patents or
trademarks except as are incidental only to the sale of Products by RJ
and the right to use such Products by RJ's customers. RJ shall sell
and promote the Products only under the trade names and trademarks
regularly applied to the Products by RACOM. The forgoing rights
incidental to the sale of the Products shall not survive termination
of this Agreement.
11.2 Whenever RJ shall make reference to its relationship with RACOM, whether
in advertising or otherwise, such relationship shall be expressed only
as follows:
"the exclusive distributor of RACOM products in Japan."
The foregoing right shall not survive termination of this Agreement. RJ
shall be entitled to use the "Racom" name and trademarks only to promote
the sale of Racom products within the Territory and shall not use the
"RACOM" name and trademarks, or any variations thereof, alone or in
combination with other words, or in connection with any product or service
which has not been supplied by RACOM.
ARTICLE 12 - WAIVERS AND AMENDMENTS
12.1 No failure or delay by either party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial waiver thereof
7
<PAGE>
preclude any other or further exercise thereof or the exercise of any
other rights, powers or privileges.
12.2 Unless otherwise provided herein, this Agreement may not be changed,
waived, discharged or terminated orally, but only by a written
document signed by a duly authorized officer or designee of each party
hereto.
ARTICLE 13 - EXPORT CONTROL LAWS AND REGULATIONS
13.1 Nothing contained in this Agreement shall be construed to require any
party to do, and RJ shall not directly or indirectly do, any act or
thing that will or could constitute a violation of the export control
laws, or other laws and regulations similar in purpose or effect,
applicable in the United States of America, the Territory or any other
country having proper jurisdiction.
ARTICLE 14 - COMMERCIAL POLICY
14.1 Each party hereto agrees that it will not, in connection with this
Agreement or its performance hereunder, directly or indirectly offer,
pay, promise to pay or authorize the payment of any money or thing of
value to any government official or to any person, while knowing or
having reason to know that all or a portion of such money or thing of
value will be offered, given or promised, directly or indirectly, to a
government official for the purpose of (i) influencing any act or
decision of such government official, including a decision to fail to
perform his official functions; or (ii) inducing such government
official to use his or her influence with any government of
instrumentality thereof to affect or influence any act or decision of
such government or instrumentality, in order to assist in obtaining or
retaining business or directing business, to any other party.
14.2 As used in this Article 14, the term "government official" means any
officer or employee of any government or any department, agency,
instrumentality or wholly-owned corporation thereof, or any person
acting in an official capacity for or on behalf of any such government
or department, agency, instrumentality or wholly-owned corporation
thereof, or any candidate for political office.
14.3 Each party hereto shall notify the others immediately of any extortive
solicitation, demand or other request for anything of value, by or on
behalf of any government official or employee of any government and
related to the sale and/or service of the Products in the Territory.
8
<PAGE>
ARTICLE 15 - COMPETITION
15.1 RJ shall give RACOM sixty (60) days prior written notice before
stocking, handling, selling or offering for sale products competitive
with the Products and shall notify RACOM immediately of any
competitive products which RJ has agreed formally or informally to
stock, handle, sell or offer for sale.
ARTICLE 16 - FORCE MAJEURE
16.1 In the event that any party hereto shall be rendered wholly or partly
unable to carry out its obligations under this Agreement by reason of
causes beyond its control, including but not limited to fire, flood,
explosion, action of the elements, acts of God, accidents, epidemics,
strikes, lockouts, or other labor trouble or shortage, inability to
obtain, or shortage of, material, equipment or transportation,
insurrection, riots or other civil commotion, war, enemy action, acts,
demands or requirements of the governments in any state, or by any
other cause which it could not reasonably be expected to avoid, then
the performance of the obligations of any party as they are affected
by such causes shall be excused during the continuance of any
inability so caused, but such inability shall as far as possible be
remedied within a reasonable period of time; provided, however, that
notwithstanding the above, the provisions of this Article 16 shall not
apply to payment of monies due and owing from one party to another.
ARTICLE 17 - TERMINATION FOR CAUSE
17.1 This Agreement shall immediately terminate upon written notice to such
effect by any party to each other party, without the necessity of
prior advance notice: (i) in the event of any such other party's
voluntary or involuntary bankruptcy or insolvency; (ii) in the event
that any such other party shall make an assignment for the benefit of
creditors; or (iii) in the event that a petition shall have been filed
against such other party under a bankruptcy law, or other law for
relief of debtors, or other law similar in purpose of effect, the
effect of which is to cause such other party to have its business
effectively discontinued and such petition is not dismissed within
thirty (30) days after such filing.
17.2 If any party to this Agreement should breach any material obligation
hereunder, the injured party(s) may give written notice to the
defaulting party specifying the respect in which the said party has
breached the Agreement. In the
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<PAGE>
event that such breach is not remedied within thirty (30) days after
such notice, the injured party may, by written notice to the
defaulting party, terminate this Agreement with respect to the
defaulting party, effective upon receipt of such notice.
17.3 The failure of any party to terminate this Agreement due to a breach
on the part of any other party shall not constitute a waiver of its
right to terminate on the basis of such breach or any subsequent
breach.
17.4 Upon termination for cause pursuant to this Article 17, NS may refuse
to fill RJ's orders regardless of receipt and any acceptance prior to
the effective date of such termination, provided, however, that should
NS fill such orders, RJ agrees to accept and make payment therefor in
accordance with the provisions of this Agreement.
ARTICLE 18 - RIGHTS
18.1 Upon expiration or termination of this Agreement, RJ shall return to
RACOM or, at RACOM's direction, dispose of the price lists,
advertising matter and other materials furnished by NS or RACOM, and
all customer records showing sales of Products, as RACOM may direct,
and RACOM's name, trademarks, part numbers and similar identifying
symbols shall not be displayed or used by RJ thereafter.
18.2 In the event of termination of this Agreement for any reason by any
party hereto, within 30 days after the effective date of such
termination, RACOM agrees to purchase and RJ agrees to sell RJ's
entire inventory of standard Products which are not non-moving
inventory or obsolete Products and which are in the original packages
and undamaged and unaltered in any manner from the original form. All
such inventory shall be subject to test inspection and acceptance by
RACOM. The price to be paid by RACOM for such inventory shall
be the lower of (1) RACOM's standard distributor price for the
quantity of each Product in RJ's inventory, in effect at the time of
termination, or (2) the price received from RJ by NS for such
Products, adjusted for prior credits.
18.3 In the event this Agreement is terminated by RJ under Article 17, RJ
agrees to sell and RACOM agrees to purchase RJ's entire inventory of
Products at a price computed as set forth in subparagraph 18.2 through NS.
RJ shall ship such inventory to the location designated by NS or RACOM,
freight and insurance prepaid.
18.4 In the event this Agreement is terminated with respect to RJ by NS or
RACOM under Article 17, RJ agrees to sell and
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<PAGE>
RACOM agrees to purchase RJ's entire inventory of Products at a price
computed as set forth in subparagraph 18.2, less a handling charge
equal to fifteen percent (15%) of such price through NS. RJ shall
ship such inventory to the location designated by NS or RACOM,
freight and insurance prepaid.
18.5 In the event of the termination of this Agreement by any party hereto,
RJ shall not be required to furnish, after notice of such termination
but before the effective date thereof, quantities of the Products in
greater number or volume than the monthly average furnished to RJ
during the four (4) months last preceding the service of notice of
such termination.
ARTICLE 19 - NOTICES
19.1 Any notice required or permitted to be given by any party to any other
pursuant to this Agreement shall be in writing and shall be deemed to
have been effectively given only if written in the English language
and either delivered to an officer of each other party hereto at such
party's address set forth above or at such other address as shall
hereafter be designated in writing by such party, or when sent to such
address by registered mail, postage prepaid. When a notice is given
by any other means, it shall be effective only upon the actual receipt
by an officer of the party for which it is intended.
ARTICLE 20 - WAIVER
20.1 No failure by any party to enforce or take advantage of any provision
hereof shall constitute a waiver of the right subsequently to enforce
or take advantage of such provision.
ARTICLE 21 - GOVERNING LAW
21.1 Except as altered or expanded by this Agreement, the laws of Japan shall
govern in all respects as to the validity, interpretation, construction
and enforcement of this Agreement.
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ARTICLE 22 - GOVERNING LANGUAGE
22.1 The official text of this Agreement shall be in the English language,
and any interpretation or construction of this Agreement shall be based
thereon.
ARTICLE 23 - ENTIRE AGREEMENT
23.1 This Agreement, including the Appendices hereto, is the entire
understanding between the parties with regard to the distribution of
Products, and supersedes and shall be substituted for each and every
agreement or understanding with respect to distribution of the Products,
whether written, oral or otherwise, except for that certain Exclusive
Import Agreement dated the date hereof between NS and RACOM, which shall
survive and co-exist with this Agreement.
23.2 In the event of any conflict between any of the terms of this Agreement
and anything in any of the Appendices hereto, the terms of this Agreement
shall govern.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement which
has been executed in two (2) English language original counterparts which
shall be regarded as one and the same instrument.
RACOM SYSTEMS, INC. RACOM JAPAN, INC.
By: /s/ illegible By: /s/ Y. Nakazaki
-------------------------------- --------------------------------
Title: President Title: President
----------------------------- -----------------------------
Date: 20 October 1993 Date: 20 October 1993
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TECHNOLOGY LICENSE AGREEMENT
THIS TECHNOLOGY LICENSE AND SUPPLY AGREEMENT, (the "Agreement") is dated
this 22 day of March, 1996, by and between RACOM SYSTEMS, INC. ("RS" AND/OR
"LICENSOR"), a Delaware corporation having its principal offices at 6080
Greenwood Plaza Boulevard, Greenwood Village, Colorado 80111, and RACOM JAPAN
("RJ" AND/OR "LICENSEE"), a Japanese corporation having its principal officers
at 6F Otsuka - Shinyurigaoka Building 1-5-3 Karniasao Asao - Ku, Kawasaki - Shi,
Kanagawa - Ken 215 Japan.
RECITALS
A. RS has developed and owns certain confidential and patented contactless
technology for RFID and smart card applications.
B. RS has licensed, with the right to sub-license, proprietary ferroelectric
semiconductor technology from Ramtron International Corporation for
application in RS's RFID and smart card products.
C. RS and RJ wish to expand their cooperation as described herein for the
common purpose of more fully developing the Japanese market for
ferroelectric RFID products.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the sufficiency and receipt of which is acknowledged, the Parties agree as
follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms have the following meanings:
1.1 "AFFILIATE" means any enterprise, whether a corporation, unincorporated
association, joint venture, partnership or otherwise in which a person or
corporation, any holding company or subsidiary of such corporation, or any
holding company or subsidiary of such holding company, participates
directly or indirectly and relation to such enterprise, such person,
corporation or any such holding company or subsidiary has the power to
appoint the management thereof, or control the majority of votes at a
general meeting.
1.2 "FERROELECTRIC RF/ID PRODUCTS" means a device that Monolithically
Incorporates the patented Ferroelectric Technology and is remotely powered
by electromagnetic waves or sound waves in which data can be retained in
such device and/or altered using electromagnetic waves or sound waves
without electrical or physical contact; this may include a device
containing a Microprocessor (as specifically provided herein), commonly
known as a "smart card."
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1.3 "CHANGE IN CONTROL" shall mean if "person" or "group" (within the
meaning of Sections 13(d) and 14(d) (2) of the Securities Exchange Act
of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of voting shares of Licensee and
is entitled to exercise more than 50% of the total voting power of all
outstanding voting shares of Licensee or any consolidation of Licensee
with, or merger of Licensee into, any other entity, any merger of
another entity into Licensee, or any sale or transfer of all or
substantially all of the assets of Licensee to another entity (other
than a merger which does not result in any reclassification conversion,
exchange or cancellation of outstanding shares of Licensee or a merger
which is effected solely to change the jurisdiction of incorporation of
Licensee).
1.4 "DOLLARS" or "dollars" or "$" means United States currency unless otherwise
specified.
1.5 "EFFECTIVE DATE" means the date of this Agreement as set forth in the
introductory paragraph of this Agreement.
1.6 "FERROELECTRIC TECHNOLOGY" means the patented technology licensed from
Ramtron International Corporation for the design and manufacture of RF/ID
Products.
1.7 "IMPROVEMENTS" means all patented improvements, enhancements and
developments to the Ferroelectric Technology that relate to the design,
development and/or manufacturing of RF/ID Products. "Improvements" shall
not include any such improvements, enhancements, and developments if RS or
any of its Affiliates, as the case may be, are prohibited from making the
same available to Licensee pursuant to any judicial order or proceeding.
1.8 "MONOLITHICALLY INCORPORATE" means all active electronic functions are
contained in a single integrated circuit.
1.9 "NET SALES" means the total of all gross amounts either RJ or its
Permitted Sublicensees, charges purchasers or sublicensees or otherwise
receives, whether from purchasers or sublicensees for or with regard to
the sale license or other transfer for value of Ferroelectric RF/ID
Products that are manufactured and sold, disposed of, or otherwise
transferred by (or manufactured on behalf of RJ by any Permitted
Sublicensee or subcontractor) less costs of insurance incident to
transportation and shipping charges excise taxes and customs duties and
allowances for actual returns and uncollectible accounts. Should
Licensee or any Permitted Sublicensee sell such Ferroelectric RF/ID
Products in combination with other components or equipment, then the
calculation of Net Sales shall be based on the price normally charged by
Licensee or Permitted Sublicensee, for such Ferroelectric RF/ID Products
when separately invoiced or priced, or if no such separately invoiced or
priced sales of such Ferroelectric RF/ID Products have been made, then
the calculation of Net Sales shall be based on the price which Licensee
or Permitted Sublicensee would charge for such Ferroelectric RF/ID
Products in an arm's-length commercial sale transaction for cash.
1.10 "PERMITTED SUBLICENSEES" shall have the meaning set forth in Section 2.1.
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1.11 "ROYALTY PERIOD" means a period of three (3) months ending on the last day
of March, June, September and December of each year this Agreement is in
effect referred to in Section 218, following the expiration of the
immediately preceding Royalty Period.
1.12 "ROYALTY YEAR" means each period comprised of each consecutive set of four
(4) Royalty Periods.
1.13 "TECHNOLOGY LICENSE" has the meaning set forth in Section 2.1.
ARTICLE II
TECHNOLOGY LICENSE AND FEES
2.1 GRANT OF LICENSE TO RJ. Upon the terms and subject to the conditions of
this Agreement, RS hereby grants to Licensee a non-exclusive right and
license to use its patented Ferroelectric RF/ID Technology, and all
Improvements, for the limited right to design, development and/or
manufacture of Ferroelectric RF/ID Products for sale and use in Japan only.
RJ may sublicense Ferroelectric Technology for the limited right to design,
development, manufacture and sell Ferroelectric RF/ID Products to Japanese
based parties each of whom shall be appointed by RJ and approved in writing
by RS, with such approval not to be unreasonably withheld (collectively,
the "Permitted Sublicensees"). This license specifically excludes the
right to use the Ferroelectric RF/ID Technology in conveyor fed, airline,
postal and courier applications. RJ shall pay RS fifty percent (50%) of
all license payments, royalties or other value RJ receives from Permitted
sublicensee. Plus a 4% royalty on RJ's net sales of Ferroelectric RF/ID
Products. RS shall not directly grant any new rights or licenses to any
Japanese based corporation to design, develop and manufacture Ferroelectric
RF/ID Products for sale and use in Japan during the term of this Agreement.
2.2 GRANT OF LICENSE to RS. RJ and/or its Permitted Sublicensees shall grant
to RS a royalty-free, worldwide and perpetual license or sublicense, as the
case may be, to RS to design, develop, manufacture, use, sell or otherwise
transfer any Improvements related to the design, development and/or
manufacturing of Ferroelectric RF/ID Products. Any sublicense agreement
entered into between Licensee and a Permitted Sublicensee shall provide
that any Permitted Sublicensee making an Improvement in the design,
development and/or manufacturing of any Ferroelectric RF/ID Technology or
Products shall be required to provide for a royalty fee sublicense in favor
of RS for all Improvements:
(a) made solely by the Permitted Sublicensee; and/or
(b) made jointly by RJ and the Permitted Sublicensee.
2.3 CERTIFICATION OF ROYALTIES BY RACOM. Licensee shall, on or before April
30, July 31, October 31 and January 31 in each year during which royalties
are payable under this Agreement (respectively each such three month period
is referred to herein as "Royalty Period") furnish to RS a statement,
certified by a financial officer of Licensee, concerning the Net Sales by
or on behalf of Licensee of Ferroelectric RF/ID Products manufactured and
sold, disposed or otherwise transferred by
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Licensee during the preceding Royalty Period in sufficient detail to permit
the computation of the royalties due for such Royalty Period, and shall
accompany such statement by payment, in immediately available dollar funds,
of the royalties due according to that statement. On or before the last
day of the first three month period following the end of each Royalty Year,
Licensee shall furnish to RS a comparable statement, certified by an
internationally recognized firm of independent certified public
accountants, certifying the Net Sales by or on behalf of Licensee of
Ferroelectric RF/ID Products manufactured and sold, disposed, or otherwise
transferred by Licensee during the preceding Royalty Year. Licensee shall
accompany such statement by payment in immediately available United States
dollar funds of any amounts due to RS for such preceding Royalty Year.
2.4 DISPUTE REGARDING ROYALTIES. In the event of any dispute regarding the
amount of any royalty payment allegedly due under or pursuant to this
Agreement, the parties shall agree in commercial good faith on and appoint
an internationally recognized firm of independent certified public
accountants, who shall audit the books and records of Licensee and
determine the amount, if any, of the disputed royalty payment or payments,
which determination shall be final and legally binding on the parties for
all purposes of this Agreement. If the parties are unable to agree on such
a firm of independent certified public accountants, such a firm shall be
appointed by the Chairman, President or the highest officer at such time of
the American Institute of Certified Public Accountants. RS and Licensee
shall each pay fifty percent (50%) of the cost of any audit conducted
pursuant to this Section.
ARTICLE III
TECHNICAL MATERIALS AND ASSISTANCE
3.1 RJ REIMBURSEMENT OF RS EXPENSES. As Partial reimbursement of RS expenses
in design, development and documentation of its patented Ferroelectric
RF/ID Technology, concurrently with the signing of this agreement RJ will
pay RS Y one hundred million (Y100,000,000).
3.2 TECHNICAL ASSISTANCE. Subject to RS's reasonable availability and payment
to RS of costs associated herein, RS shall provide certain technical
assistance to RJ, and Permitted Sublicensees, during the transfer process.
All costs and expenses, including but no limited to salary, employee
benefits, travel and lodging of such personnel, and support staff shall be
paid in advance by the party receiving such benefit or reimbursed
immediately upon presentation to the recipient of appropriate documentation
evidencing the other party's having paid or incurred such costs or expenses
as a result of such assistance. Notwithstanding anything in this Agreement
to the contrary, in the event there is a Change in Control of RJ, RS shall
not be required to provide any further technical transfer assistance to RJ
or any Permitted Sublicensee if RS believes, in its sole discretion, that
providing such assistance would be commercially disadvantageous to RS's
position in the Ferroelectric RF/ID market.
3.3 HOLD HARMLESS/INDEMNIFICATION. In the event that any employee of Licensee,
or an employee of any Permitted Sublicensee, visits RS's premises, or any
employee of RS shall visit Licensee's, or
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Permitted Sublicensee's, premises as contemplated pursuant to this
Section, then Licensee, and/or Permitted Sublicensee, shall be
responsible for any and all liability of any type whatever to any other
person, firm or entity arising from any direct or indirect action or
inaction relating to the carrying out of its employee's duties under the
terms of this Section. Licensee, and/or Permitted Sublicensee, shall
also cause their employees to be covered by their respective liability
insurance policy or policies. Whether or not any action or inaction of
any such employee is covered by insurance, Licensee and/or Permitted
Sublicensee, shall hold harmless and indemnify RS against and from all
losses, claims, damages, liabilities, obligations or expenses (including
attorneys fees, court costs, and costs of investigation) incurred or to
which it may become subject as a result of any action or inaction
relating to the carrying out of said employee's duties as contemplated
herein.
ARTICLE IV
NONTRANSFERABILITY OF TECHNOLOGY LICENSE
4.1 NONTRANSFERABILITY. Except as provided in Section 2.1, the Technology
License may not be assigned, sublicensed, subdivided or transferred in any
way whatsoever by Licensee without RS's prior written consent, such consent
to be within RS's sole discretion. Pursuant to the authority set forth in
Section 2.1, RJ shall notify RS in writing of any proposed sublicense of
rights to design, develop or manufacture Ferroelectric RF/ID Products, and
such sublicense shall be deemed to have been rejected by RS unless RS
notifies RJ of its approval in writing within thirty (30) calendar days of
receipt of RJ's notice.
4.2 CHANGE IN CONTROL. For purposes of this Agreement, any of the following
events shall be deemed to be an attempted transfer of the Technology
License and shall be subject to the provisions of this Agreement:
(a) A "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting shares of Licensee and is entitled to
exercise more than 50% of the total voting power of all outstanding
voting shares of Licensee.
(b) Any consolidation of Licensee with, or merger of Licensee into, any
other entity, any merger of another entity into Licensee, or any sale
or transfer of all or substantially all of the assets of Licensee to
another entity (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Licensee or a merger which is effected solely to change the
jurisdiction of incorporation of Licensee).
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ARTICLE V
DISCLAIMERS OF WARRANTY AND LIMITATIONS OF LIABLILITY
5.1 RELIANCE ON DISCLAIMERS AND LIMITATIONS. The license fees for the
Technology License, and the substance of the other rights and duties of
Licensee and RS in this Agreement, have been negotiated in reliance on, and
are based upon the applicability and enforceability of, the disclaimers,
warranties and limitations of liability contained in this Article 5.
5.2 DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED IN THIS ARTICLE V,
RS MAKES NO WARRANTIES TO LICENSEE OR TO ANY OTHER PARTY BY VIRTUE OF THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREUNDER, AND RAMTRON EXPRESSLY
DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR ARISING BY USAGE OF
TRADE, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE, AND LICENSEE UNCONDITIONALLY ACCEPTS SUCH DISCLAIMER.
LICENSEE SHALL NOT MAKE OR PASS ON TO ITS CUSTOMERS (WHOLESALE OR RETAIL)
OR SUBLICENSEES ANY WARRANTY OR REPRESENTATION ON BEHALF OF RS.
5.3 LIMITATION OF LIABILITY FOR TERMINATION. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS AGREEMENT OR UNDER APPLICABLE LAW TO THE CONTRARY, IN NO
EVENT SHALL RS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF BUSINESS,
INCOME OR PROFITS, RESULTING FROM RS'S TERMINATION OF THIS AGREEMENT,
WHETHER OR NOT RS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
ARISING IN ANY WAY OUT OF THE TERMINATION OF THIS AGREEMENT. Without
limiting the generality of the foregoing, Licensee assumes all risks
arising out of or relating to its inability to meet any commitments made to
and/or perform any agreements entered into with any customer (wholesale or
retail) of Licensee in the event of any termination by RS of this
Agreement. Provided, however, that nothing contained in this Section is
intended to disclaim or waive any rights that Licensee may have against RS
with respect to actual and direct damages suffered by Licensee as a result
of the breach of this Agreement or the wrongful termination of this
Agreement by RS and provided further that nothing contained in this Section
shall prejudice or restrict Licensee's right and entitlement to also
terminate this Agreement in the event of any material breach of this
Agreement by RS.
ARTICLE VI
PROTECTION OF FERROELECTRIC TECHNOLOGY
6.1 PATENTS, COPYRIGHTS, AND INTELLECTUAL PROPERTY. RS shall at its own cost
obtain such patent, copyright or similar registration or intellectual
property protection of the Ferroelectric RF/ID Technology used in the
design, development or manufacture of Ferroelectric RF/ID Products
throughout the world as is reasonable having regard to: the relative cost
thereof; the benefit of the
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protection obtained; and, all other relevant circumstances. Upon request by
Licensee, RS shall provide Licensee a list of all issued patents pertaining
to the Ferroelectric Technology used in the design, development, or
manufacture of Ferroelectric RF/ID Products.
RJ and/or any Permitted Sublicensee, shall at their own cost obtain such
patent, copyright or similar registration or intellectual property
protection for Improvements made solely by RJ or Improvements made jointly
by RJ and a Permitted Sublicensee(s), which are used in the design,
development or manufacture of Ferroelectric RF/ID Products in Japan as is
reasonable having regard to: the relative cost thereof; the benefit of the
protection obtained; and, all other relevant circumstances. Upon request
by RS, Licensee, and/or any Permitted Sublicensee, shall provide RS a list
of all issued patents pertaining to Improvements made to the Technology
used in the design, development or manufacture of Ferroelectric RF/ID
Products.
6.2 MUTUAL COOPERATION. The parties herein shall constitute a patent committee
which shall consist of a senior technical person from RS and a senior
technical person from RJ. The patent committee shall meet quarterly after
execution of this Agreement to share information concerning Improvements
and to determine whether or not an Improvement shall constitute a sole
patent right of either RS or RJ, or a joint patent right between RS and RJ.
Should the patent committee fail to determine whether or not an Improvement
shall constitute a sole patent right of either RS or RJ, or a joint patent
right between RS and RJ, then senior management of RS and RJ shall make
such determination.
The inventing party, RS or RJ, as the case may be, shall retain the sole
ownership of the respective sole patent right. The inventing party shall
grant to the other party and/or its Permitted Sublicensees a
nonexclusive, nonsublicenseable, nontransferable, nonassignable, worldwide
license to use the sole patent rights pursuant to the terms of this
Agreement.
Joint patent rights shall be jointly owned by the parties with each
party owning an equal undivided ownership interest. Each party may, for
the life of each joint patent right, use the joint patent rights for any
purpose without any payment to the other party, provided that a grant of
license of such joint patent rights to a third party other than each
party's Affiliate and/or Permitted Sublicensees shall be subject to the
prior written approval of the other party. Such approval shall not be
unreasonably withheld.
RS and RJ shall share equally in the legal, filing, and maintenance fees
associated with filing joint applications.
6.3 NOTICE OF INFRINGEMENT. Each of RS and Licensee (and any Permitted
Sublicensee which Licensee shall cause to act hereunder) shall promptly
advise the other in writing of any claim, action, lawsuit, or proceeding
threatened, made or brought against them or either of them for infringement
of a patent issued to a third party, or for violation of a third party's
patent, trade secret, or other intellectual property right based in any
instance upon Licensee's use of the Technology License, or Licensee's sale,
lease, or distribution of Ferroelectric RF/ID Products or
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based in any instance upon RS or any of RS's licensees or Affiliates of
which RS knows, use of the Ferroelectric RF/ID Technology as the case may
be.
6.4 INFRINGEMENT BY FERROELECTRIC TECHNOLOGY. In the event that the
Ferroelectric RF/ID Technology is, or in the reasonable judgment of RS,
is likely to become the subject of any legal action based in whole or in
part on a claim that the Ferroelectric RF/ID Technology infringes the
proprietary rights of any person, RS may reasonably demand that
Licensee, or any Permitted Sublicensee, cease to use the Technology
License and that Licensee, or any Permitted Sublicensee, cease to sell,
lease and distribute Authorized Ferroelectric RF/ID Products utilizing
the allegedly infringing Ferroelectric RF/ID Technology until and
unless there is a final judgment or other final resolution establishing
RS's right to continue licensing the Ferroelectric RF/ID Technology. In
the event that Licensee, or any Permitted Sublicensee, fails to cease to
use the Technology License or fails to cease selling, leasing and
distributing Ferroelectric RF/ID Products utilizing the allegedly
infringing Ferroelectric RF/ID Technology promptly upon such demand by
RS, Licensee, or any Permitted Sublicensee, shall indemnify and hold RS
harmless against any and all costs and expenses (including reasonable
attorneys fees) paid or payable by RS as a result of Licensee's, or any
Permitted Sublicensee's, failure to promptly cease such activities.
Notwithstanding anything else contained herein to the contrary, the
failure by Licensee, or any Permitted Sublicensee, to cease use of the
Technology License and the selling, leasing and distributing of
Ferroelectric RF/ID Products shall not constitute a breach of or default
under this Agreement. However, in the event of any such failure by
Licensee, or any Permitted Sublicensee, RS shall be entitled to require
Licensee, or any Permitted Sublicensee, to provide, and Licensee, and/or
any Permitted Sublicensee, shall provide to RS, reasonable security for
Licensee's, or any Permitted Sublicensee's, indemnification obligation
to RS as a result of Licensee's, or any Permitted Sublicensee's
continued use of the Technology License and/or manufacture, lease or
sale of the Ferroelectric RF/ID Products. RS shall have control of the
defense of such claim, action, lawsuit or proceeding, and shall pay the
costs thereof (except any cost of the Licensee's associated attorneys,
if any); and Licensee, and/or any Permitted Sublicensee, shall assist
RS, at RS's cost and expense in the defense of any such claim, action,
lawsuit, or proceeding. Licensee, or any Permitted Sublicensee, shall
have the right to be represented by an attorney at its own expense in
any such controversy.
6.5 INDEMNIFICATION BY RS. RS shall at its own expense indemnify, defend, and
hold harmless Licensee from and against any cost, liability, loss, or
expense arising from any actual or alleged infringement by Licensee of any
patent, trademark, copyright, or other intellectual property right of any
third party provided that: (i) such alleged infringement is attributable
solely to the Ferroelectric RF/ID Technology and does not arise from the
use of such Ferroelectric RF/ID Technology as a part of or in combination
with any other devices or parts; (ii) such alleged infringement does not
arise from any portion or aspect of Ferroelectric RF/ID Products that were
designed or specified by Licensee or any consultant to or representative of
Licensee (other than RS); (ii) Licensee gives RS immediate notice in
writing of any such suit and permits RS, through counsel of its choice, to
answer the charge of infringement and defend such suit; (iv) such cost,
liability, loss, or expense does not result from Licensee's failure to
promptly cease use of the Ferroelectric RF/ID Technology and sale, lease,
and distribution of Ferroelectric
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RF/ID Products after notification by RS in accordance with this
Agreement; and, (v) Licensee gives RS all the needed information,
assistance, and authority at RS's expense, to enable RS to defend such
suit. Notwithstanding anything else contained in this Section 6.5 or
elsewhere in this Agreement to the contrary, in no event shall RS's
total payments in respect of liability to Licensee hereunder, whether
or not the result of more than one actual or alleged infringement,
exceed the aggregate amounts paid by Licensee and actually received by
RS pursuant to this Agreement; provided, however that if the aggregate
amount of such cost, liability, loss, or expense incurred by Licensee
exceeds the aggregate amounts paid by Licensee to RS pursuant to this
Agreement, then Licensee shall be entitled to offset any such excess
against subsequent amounts owed or owing by Licensee to RS pursuant to
this Agreement. THIS SECTION 6.5 STATES RS'S TOTAL Liability AND
RESPONSIBILITY, AND LICENSEE'S SOLE REMEDY FOR ANY ACTUAL OR ALLEGED
INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT, OR OTHER INTELLECTUAL
PROPERTY RIGHT BY THE FERROELECTRIC RF/ID TECHNOLOGY LICENSED HEREUNDER,
OR ANY PART THEREOF. THIS SECTION 6.5 IS IN LIEU OF AND REPLACES ANY
OTHER EXPRESSED, IMPLIED OR STATUTORY WARRANTY AGAINST INFRINGEMENT. IN
NO EVENT SHALL RS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES RESULTING FROM ANY SUCH INFRINGEMENT.
6.6 INDEMNIFICATION BY LICENSEE. Licensee shall at its own expense indemnify,
defend, and hold harmless RS from and against any cost, liability, loss or
expense arising from any actual or alleged infringement by Licensee,
Affiliate or any Permitted Sublicensee, of any patent, trademark,
Roepyright, or other intellectual property right of any third party,
provided that (i) RS gives Licensee immediate notice in writing of any
such suit and permits Licensee, through counsel of its choice, to answer
the charge of infringement and defend such suit; and (ii) RS gives Licensee
all the needed information, assistance, and authority, at Licensee's
expense to enable Licensee to defend such suit. In the case of a final
award of damages in any such suit, Licensee shall pay such award but shall
not be responsible for any settlement made without its prior written
consent. THIS SECTION 6.6 STATES LICENSEE'S TOTAL LIABILITY AND
RESPONSIBILITY, AND RS'S SOLE REMEDY (EXCEPT TO THE EXTENT SET FORTH IN
SECTION 6.4 HEREOF), FOR ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY PATENT,
TRADEMARK, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE
FERROELECTRIC RF/ID PRODUCTS, OR ANY PART THEREOF. THIS SECTION 6.6 IS IN
LIEU OF AND REPLACES ANY OTHER EXPRESSED, IMPLIED, OR STATUTORY WARRANTY
AGAINST INFRINGEMENT, EXCEPT AS SET FORTH IN SECTION 6.4 HEREOF. IN NO
EVENT SHALL LICENSEE BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES RESULTING FROM ANY SUCH INFRINGEMENT.
6.7 INFRINGEMENT BY THIRD PARTY. Upon becoming aware of any material
infringement by a third party of any of the rights covered by this
Agreement, each party shall promptly notify the other party of such
infringement. After receipt of notice of such infringement, RS shall have
the right in its sole discretion, either to (i) assert a claim, action,
lawsuit or legal proceeding on its own behalf and/or on behalf of Licensee
herein, in which case RS shall be entitled to all awards and
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recoveries resulting directly from, and shall be responsible for any and
all costs and expenses arising out of, such claim, action, lawsuit or
proceeding or (ii) determine not to assert any claim, lawsuit, legal
proceeding or action of any kind against the alleged infringer. In
the event that RS elects not to assert any claim, lawsuit, legal
proceeding or action of any kind against the alleged infringer, then
RS shall, if requested by Licensee in writing, permit and authorize
Licensee to assert a claim, action, lawsuit or legal proceeding against
the alleged infringer, in which case Licensee shall be entitled to
any and all awards and recoveries resulting directly from, and shall be
responsible for any and all costs and expenses arising out of, such
claim, action, lawsuit or legal proceeding; provided, however, that in
such event, if at any time after Licensee has commenced any claim,
action, lawsuit or legal proceeding against the alleged infringer, RS
elects to join in such proceeding, then Licensee shall take all actions
necessary to allow RS to formally join in such proceeding and thereafter
RS shall have the right to participate in and direct and control any
such action or proceeding and RS shall be responsible for any and all
further costs and expenses arising after the commencement of RS's
participation in any such claim, action, lawsuit or legal proceeding;
provided further that notwithstanding any intervention by RS in any such
proceeding, Licensee shall be entitled to any and all awards and
recoveries resulting directly from such proceeding after reimbursing RS
for all actual out-of-pocket costs and expenses incurred by RS in
connection with such proceeding. Notwithstanding the foregoing,
Licensee shall be entitled to commence and join in any proceedings to
recover any losses or damage suffered by Licensee on its own account
provided Licensee shall bear all the costs and expenses of so doing.
Notwithstanding anything in this Agreement to the contrary, any
Improvement caused by RJ and/or a Permitted Sublicensee to a
Ferroelectric RF/ID Product which results in a claim, action, lawsuit or
legal proceeding initiated by a third party relating to such
Improvement, shall be the sole responsibility of RJ and/or its Permitted
Sublicense.
ARTICLE VII
CONFIDENTIALITY
7.1 CONFIDENTIALITY. The parties agree with each other to keep strictly
confidential and not without the prior written consent of the other parties
to disclose to any person or entity any information whatever which is part
of or which relates to the Ferroelectric RF/ID Technology and/or the
Products. Each party further agrees to bind in a manner so as to be
legally enforceable to its employees, agents, consultants, advisors and
representatives to such confidentiality including without limitation as to
such disclosures as may be necessary for the parties' performance of their
obligations and enjoyment of their rights under this Agreement, and
otherwise as the relevant other party may consent to in writing.
7.2 MARKING OF DOCUMENTS AND MATERIAL. In furtherance, but not in limitation
of the provisions of Section 7.1, each party shall use its reasonable
endeavors to cause all written materials and other physical documents and
materials of all types relating to or containing information of or about
the Ferroelectric Technology, RF/ID Products to be plainly marked to
indicate the secret,
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proprietary and confidential nature thereof, and to prevent the
unauthorized use or reproduction thereof, directly or indirectly.
7.3 INDEMNIFICATION. Without limitations of any other right, remedy or benefit
accruing to either party under this Agreement or by law, each party shall
indemnify the other party fully for all damages caused by any unauthorized
disclosure or use of any information intended to be kept secret,
confidential and proprietary in accordance with this Article VIII by such
party or its representatives, employees, agents consultants, sublicensees,
etc.
7.4 SURVIVAL. This Article VII shall survive the expiration or earlier
termination of this Agreement and of the Technology License and shall
remain in effect for so long as Licensee is manufacturing, selling or
distributing Ferroelectric RF/ID Products anywhere in the world.
7.5 PUBLIC DOMAIN. The provisions of this Article VII shall not apply to any
information that the party can demonstrate by written evidence was in the
public domain through no unlawful action or omission by such party or
obtained from third parties not bound by law or confidentiality agreements
to maintain the confidentiality thereof.
7.6 OBLIGATIONS TO DISCLOSE. This Article VII shall not prohibit the parties
from disclosing under legally enforceable obligations any information
required to be disclosed to any governmental authorities and shall not
prohibit the parties from disclosing general financial and technical
information in order to obtain funding or other financial advantages from
any authority or institution or corporation, or for the relevant party to
exercise its rights and perform its obligations in respect of the
Technology License or to other wise carry on its business in the ordinary
course. Other than set forth in Section 2.1, nothing contained in this
Section shall entitle Licensee to transfer or assign the Ferroelectric
RF/ID Technology or the License.
ARTICLE VIII
TERMS AND TERMINATION
8.1 EXPIRATION. This Agreement and the Technology License shall remain in full
force and effect from the Effective Date until termination under this
Article. Unless terminated earlier, this Agreement and the Technology
License shall terminate on the date of the expiration of the last to expire
of any effective rights protecting the material part of the Ferroelectric
RF/ID Technology as is relates to the design, development and/or
manufacturing of Products anywhere in Japan, whether by applicable law of
patents, trade secrets, or other equivalent applicable legal protection of
proprietary business know-how and technology.
8.2 TERMINATION FOR BREACH. In the event of a material breach or default by a
party in the performance of its respective duties, obligations or
undertakings set forth in this Agreement, the other party shall have the
right to give written notice to the defaulting party, notifying such party
of the specific breach or default involved and, if within ninety (90) days
after such notice the
- 11 -
<PAGE>
default and thereafter prosecute such remedy to completion within a
commercially reasonable time, the aggrieved party shall have the right in
addition to any other right, remedy or benefit it may have under this
Agreement or applicable law, to terminate this Agreement and the Technology
License upon five (5) days written notice to the defaulting party and
effective upon the fifth (5th) day after the giving of such termination
notice, this Agreement and the Technology License shall be terminated with
out any further act or writing whatever.
8.3 TERMINATION BY RS. Notwithstanding any other provision of this Agreement
and in addition to any other right, remedy or benefit RS may have under
this Agreement or applicable law, RS shall have the unconditional right to
terminate this Agreement and the Technology License effective, if:
(a) Licensee fails or refuses to: (i) pay to RS on the date due any
payment provided to be made to RS in accordance with this Agreement;
or (ii) pay to RS within thirty (30) days of written demand after the
due date thereof any royalties due hereunder provided, however,
nothing in this subparagraph shall be construed to relieve Licensee of
its liability to pay to RS royalties on all Ferroelectric RF/ID
Products manufactured by Licensee and sold, leased or otherwise
transferred by Licensee prior to or after the date of such
termination in accordance with this agreement.
(b) At any time Licensee is adjusted by a court of law to be bankrupt or
insolvent, or files petition in bankruptcy or an answer admitting the
material facts recited in such petition if filed by another, or is put
or decides to go into dissolution or liquidation, or otherwise
discontinues its business, makes an assignment for the benefit of its
creditors or enters into any other general arrangement with its
creditors, becomes insolvent, or has a trustee, receiver or custodian
of any kind appointed to administer any substantial amount of its
property, or is placed or enters into any comparable situation under
the laws of any other nation, or any state or province in which its
operations may be conducted, or otherwise seeks to take advantage of
any bankruptcy or insolvency statute now or hereafter in effect in any
such location.
(c) Licensee purports to assign, sublicense or transfer in any way
whatsoever the Technology License in contravention of the provisions
of this Agreement.
(d) Licensee uses or attempts to use the Ferroelectric Technology in the
manufacture, sale, lease, distribution or transfer of any type
whatsoever of a product or application which does not involve or
relate to the Ferroelectric RF/ID Products.
8.4 TERMINATION BY LICENSEE. Notwithstanding any other provision of this
Agreement and in addition to any other right, remedy or benefit Licensee
may have under this Agreement or applicable law, Licensee shall have the
right and option in its sole discretion to terminate this Agreement and
Technology License without payment of any penalty and without incurring any
obligation to pay royalties after the effective date of such termination
if, with respect of Ferroelectric RF/ID Products, any order is made or
given in any proceedings which are
- 12 -
<PAGE>
commenced against Licensee or RS having the effect of restraining or
impairing the exercise of the Technology License or any of the Licensee's
material rights under this Agreement.
8.5 EFFECTS OF TERMINATION. Upon termination of this Agreement and the
Technology License for whatever reason:
(a) The rights under the Technology License and all intellectual property
and other rights granted to Licensee under this Agreement shall
immediately revert to, and vest in, RS and absolutely no interest
whatever in any of such rights, in whole or in part shall thereafter
remain in Licensee or any of its subcontractors, agents, employees or
shareholders, Permitted Sublicensee, and/or any person or entity in
any way affiliated with, or related to, Licensee. Accordingly, from
the date of said termination such rights, and any of them, may not,
and they shall not, be exercised in any way, in whole or in part, by
Licensee or any person or entity with whom Licensee shall have entered
into any agreement or understanding relating in any way to the
Technology License or any of the rights granted to Licensee under this
Agreement whether or not such agreement or understanding shall have
been approved by RS unless Licensee has lawfully acquired or is
lawfully able to use such rights.
(b) Except and to the extent that Licensee has lawfully acquired or is
lawfully able to exercise such rights, Licensee, and/or any Permitted
Sublicensee, shall cease forthwith the manufacture, sale and
distribution of the Ferroelectric RF/ID Products under the Technology
License and not use further, except as herein provided, and return to
RS specifications, data sheets, drawings, designs, photographs,
photostats, negatives, undeveloped film, tape recordings and other
electronic records, writing in any language and any other documents or
materials furnished to Licensee or otherwise obtained by Licensee from
RS, including without limitation any and all notes and written or
electronic transcriptions on any part of the Ferroelectric RF/ID
Technology and any and all similar materials in any way, in whole or
in part, based thereof, as well as any and all similar materials which
in any way contain, reflect or relate to any of the Ferroelectric
RF/ID Technology.
(c) Licensee, and any Permitted Sublicensees shall offer in writing to RS
the right to purchase any or all Ferroelectric RF/ID Products which
are unsold at the time of such termination. The price for such goods
to RS shall not be less favorable than the price offered to third
parties. If RS does not accept any such offer within seven (7) days
following receipt then it shall be deemed to have declined same.
8.6 SALE OF INVENTORY. Notwithstanding the provisions of Section 8.5, after
the termination of this Agreement and the Technology License, Licensee
shall be entitled to sell existing inventory of Ferroelectric RF/ID
Products which are in Licensee's possession on the date of such
termination, if any, but only to existing customers of Licensee as of the
date of termination. Royalties shall be payable on any such sales in
accordance with Article II of this Agreement.
- 13 -
<PAGE>
8.7 SURVIVAL. Articles V, VI, VII, X and sections 8.5, 8.6, 12.3, 12.5 and
12.10 of this Agreement shall permanently survive any termination or
expiration of this Agreement.
ARTICLE IX-GOVERNMENTAL REQUIREMENTS
9.1 COMPLIANCE WITH LAWS. In performing their respective duties hereunder and
in carrying out their activities under the Technology License, the parties
shall comply with all applicable laws, regulations, procedures, ordinances
and rulings of any government authority having jurisdiction over Licensee,
Permitted Sublicensees, RS, Licensee's or any Permitted Sublicensee's use
of the Technology License, or Licensee's, or any Permitted Sublicensee's,
design manufacture, use, sale, lease or distribution of Ferroelectric RF/ID
Products.
9.2 EXPORTS. Without limitation of any other provision of this Agreement,
neither Licensee nor any Permitted Sublicensee shall, without receiving the
prior authorization of RS and the United States Office of Export
Administration or other appropriate governing body exercising controls over
exports and re-exports of United States goods and technical data, export or
re-export directly or indirectly any technical data included in
Ferroelectric RF/ID Products to any country outside Japan or area forbidden
to such exports under United States law or regulation.
9.3 GOVERNMENTAL APPROVALS. Licensee, and/or any Permitted Sublicensee, shall
be solely responsible for obtaining any necessary approval of this
Agreement by any governmental authorities having jurisdiction over
Licensee's, and/or any Permitted Sublicensee's, activities pursuant to this
Agreement, and to obtain the consent of any governmental authorities to the
remittance of payments under this Agreement in accordance with its terms,
in the event that any such consent should become necessary.
ARTICLE XV
PAYMENTS AND TAXES
10.1 PAYMENTS. Any and all payments of every kind which may be payable by
Licensee as the case may be, under the terms of this Agreement shall be
paid in immediately available funds in United States dollars to RS, or at
such bank as RS may from time to time designate in writing.
- 14 -
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 SUCCESSORS AND ASSIGNS AND BINDING EFFECT. The rights and benefits of
the parties under this Agreement shad accrue to, and run in favor of, each
party's successors and assigns. The rights and obligations of the parties
under this Agreement shad be binding upon their respective successors and
assigns.
11.2 ASSIGNMENTS. Except as provided in Article IV and notwithstanding the
provisions of Section 12.1, no party shall make or purport to make any
assignment, transfer or conveyance, in whole or in part, of its rights and
obligations under this Agreement without the prior written consent of the
other party such consent not to be unreasonably withheld.
11.3 GOVERNING LAW. This Agreement shall take effect under, be construed and
enforced according to, and be governed by the laws in force in the State of
Colorado, USA, without reference to conflict of laws principles, and
subject to section 12.10, the parties irrevocably submit to the personal
and exclusive jurisdiction and venue of the Colorado state courts.
11.4 SEVERABILITY. The provisions of this Agreement are severable. If any
provision or part of this Agreement shall be held by any court or other
official body of competent jurisdiction to be invalid of unenforceable for
any reason, the remaining provision or parts hereto shall continue to be
given effect and shall bind the parties hereto unless the unenforceability
or illegality has the consequence of substantially altering the respective
rights and obligations of the parties hereto.
11.5 NO PARTNERSHIP OR OTHER RELATIONSHIP CREATED. The parties are not, nor
shall any party hold itself out to be, the partner, agent, joint venture,
employee or independent contractor of the other for any purpose whatever,
nor shall any legal or fiduciary relationship between them, other than as
may be explicitly provided in this Agreement, exist by virtue of this
Agreement. No party shall be or become liable for any representation, act
or omission of the other as a consequence of this Agreement and no party is
authorized to create any such liability on behalf of the other. This
Agreement is not for the benefit of any third party and shall not of itself
be deemed to give any right or remedy to any third party for any purpose
whatever.
11.6 WAIVERS. Any waiver exercised under any provision of this Agreement shall
not be deemed a general waiver with respect to any other provision of this
Agreement, and no failure to exercise and no delay in exercising, any
right, power or privilege hereunder shall operate as a waiver thereof,
except where specified to the contrary herein, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or of any other right, power or
privilege. The rights and remedies provided herein are, and shall be
interpreted to be, cumulative and not exclusive of any other rights
provided by law or otherwise.
11.7 NOTICES. All notices permitted or required to be given to the parties of
this Agreement shall be in writing and delivered personally or sent by
certified or registered airmail (return receipt required, postage prepaid),
by air freight (return receipt requested), or by telefax or telex (with
- 15 -
<PAGE>
receipt acknowledgment requested) addressed to the respective parties at
its usual and principal place of business. Such notices shall be deemed
to have been effectively given and received on the day of delivery if
delivered personally, or, if by telegram, telecopy, telex, or air
freight, on the next day following the sending of such notice by
telegram, telecopy, telexes or air freight provided that receipt shall
have been acknowledged, and, if mailed, on the seventh (7th) business
day following such mailing.
11.8 ENTIRE AGREEMENT. This Agreement contains the entire and only agreement
of Licensee and RS with respect to the Technology License and supersedes
entirely any and all other agreements either verbal or written between the
parties with respect thereto, and each of Licensee and RS acknowledge that
it has no claims against the other under or arising from any prior
understanding or document. No agreement, statement or promise relating to
the subject matter of this Agreement which is not contained herein shall
be valid or binding.
11.9 CHANGES OR AMENDMENT. Any change, revision, termination or attempted
waiver of any of the provisions contained in this Agreement shall not be
binding unless in writing and signed by the party against whom the same is
sought to be enforced. This Section may only be waived in writing. This
Agreement shall be amended or supplemented only by written instrument duly
executed by or on behalf of the parties hereto, and if and when so
supplemented or amended shall include all such supplements and any
amendments.
11.10 ARBITRATION. Any dispute or claim arising out of or in connection with
this Agreement will be finally settled by binding arbitration in Colorado
under the Rules of Arbitration of the Chamber of Commerce by one
arbitrator appointed in accordance with those rules. The arbitrator will
apply Colorado law to the merits of any dispute or claim, without
reference to conflict of law principles. Judgment of the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof
notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for temporary or preliminary injunctive relief
without breach of this arbitration provision.
11.11 ATTORNEYS' FEES. In the event of any controversy, claim or dispute
between the parties hereto arising out of or relating to this Agreement,
including but not limited to a controversy settled by arbitration, the
prevailing party shall be entitled to recover from the losing party
reasonable expenses, including attorneys' fees and costs.
11.12 FORCE MAJEURE. If the performance by any party of any of its obligations
under this Agreement shall be in any way prevented, interrupted, or
hindered as a result of any force majeure, including, without limitation,
war, civil disturbance, strike or other labor disturbance, lockout,
legislation or restriction of any governmental or other authority, fire,
unavailability of materials or finished goods, delay of carriers or any
other similar circumstances (other than financial difficulties) beyond the
reasonable control of such party, the obligations of the party concerned
shall be wholly or partially suspended during the continuance and to the
extent of such prevention, interruption or hindrance, provided however,
that local commercial unavailability of materials or finished goods shall
not alone constitute force majeure for purposes hereof if such
- 16 -
<PAGE>
materials or finished goods are otherwise (even if it is at a higher cost)
available. A party unable to perform timely its obligations under this
Agreement due to any of the foregoing reasons must take all reasonable
steps to remedy its nonperformance or delay its performance with the least
possible delay and by doing whatever may reasonably be done to mitigate
the adverse affect of its nonperformance upon the other party of this
Agreement.
11.13 HEADINGS. The headings of the Sections of this Agreement have been
inserted for convenience or reference only and shall in no way affect the
interpretation of any of the terms or conditions of this Agreement.
11.14 AUTHORIZED SIGNATURES. The parties acknowledge that this Agreement is
subject to the approval of the respective board of directors of each
party, and that upon such approval this Agreement constitutes a legally
binding and enforceable obligation of the respective parties herein.
IN WITNESS WHEREOF, the undersigned parties to this Agreement have executed this
document as of the date and year first above written.
"LICENSOR" "LICENSEE"
Racom Systems, Inc. Racom Japan LTD.
By: /s/ Richard L. Horton By:
--------------------------------- -------------------------------------
Name: Richard L. Horton Name:
------------------------------- -----------------------------------
Title: President Title:
------------------------------ ----------------------------------
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<PAGE>
MEMORANDUM OF UNDERSTANDING
1. Racom Systems Inc. (RS) shall grant Racom Japan Inc. (RJ) RS "License" and
"Technology"
2. "License" means the right to manufacture one chip IC with FRAM for
contactless IC cards, that is being granted by Ramtron, and all inventions RS
owns and will own.
3. "Technology" means technologies RS owns and will own to design, develop and
manufacture contactless IC card products.
4. License and Technology RS grant to RJ is strictly limited in Japan and
Japanese market.
5. RS shall grant RJ sub-license right of License and Technology to Japanese
company (ies) on RJ discretion with RS prior approval.
6. RJ shall pay RS 100 M yen for the grant of License and Technology.
7. RJ shall pay RS 50 % of license fee that Japanese company (ies) pays for
sub-licensing.
8. RS can not grant RJ sub-license right of License with including IC sales
right by Japanese licensee (s) until January 1 1999.
Racom Systems Inc. Racom Japan Inc.
/s/ Richard L. Horton /s/ Yasunori Nakazaki
-------------------------- --------------------------
Richard L. Horton Yasunori Nakazaki
President President
March 8 1996 March 8 1996
<PAGE>
[LOGO] RACOM SYSTEMS, INC.
6080 Greenwood Plaza Boulevard
Greenwood Village, CO 80111
Tel. (303) 771-2077
Fax (303) 771-4708
FACSIMILE LEAD SHEET
TO: YASUNORI NAKAZAKI/RACOM JAPAN 011 81 44 952 5416
FROM: Richard Horton
DATE: March 8, 1996
PAGE 1 OF: 2
- --------------------------------------------------------------------------------
CONFIDENTIALITY NOTICE
THIS FACSIMILE TRANSMISSION (AND/OR DOCUMENTS ACCOMPANYING IT) MAY CONTAIN
CONFIDENTIAL INFORMATION BELONGING TO THE SENDER. THIS INFORMATION IS
INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY NAMED BELOW. IF YOU ARE
NOT THE INTENDED RECIPIENT, YOU ARE HEREBY NOTIFIED THAT ANY DISCLOSURE,
COPYING, DISTRIBUTION OR TAKING OF ANY ACTION IN RELIANCE ON THE CONTENTS OF
THIS INFORMATION IS STRICTLY PROHIBITED. IF YOU HAVE RECEIVED THIS
TRANSMISSION IN ERROR, PLEASE IMMEDIATELY NOTIFY US BY TELEPHONE TO ARRANGE
FOR RETURN OF THE DOCUMENTS. YOU MAY REACH US AT THE NUMBER ABOVE. THANK YOU
FOR YOUR ASSISTANCE.
- --------------------------------------------------------------------------------
Dear Yas-san,
1) Attached is signed M.O.U. Since we must complete this transaction
quickly to meet your needs, I am drafting a Final Agreement, rather than
preliminary, for signature and will fax to you by Thursday, March 15
latest.
2) Nesa Hassanein, Itochu's Denver lawyer, finally did show up for her
second appointment today, after missing her first appointment without
apology or explanation. She spent four hours examining our legal and
financial records and reviewed the Ramtron License in detail. She also
wanted to review our Bull and Rohm agreements which are confidential and
we cannot disclose without their permission. She still has not given us
a copy of her re-draft to the Share Purchase Agreement. She seems
distrustful and opinionated and accused us of hiding information from her.
Frankly, I do not understand her behavior. Please explain the situation
to Itochu and ask how they would like us to proceed.
Best regards,
/s/ Richard
Richard
<PAGE>
RACOM SYSTEMS, INC.
LIST OF MATERIAL AGREEMENTS
- - AGREEMENTS WITH NITETTSU SHOJI/RACOM JAPAN
Technology License Agreement March 22, 1996
Exclusive Distributor Agreement with Racom Japan August 4, 1995
Letter to N/S May 22, 1995
Letter of Intent January 24, 1994
Exclusive Distributor Agreement with Racom Japan (orig.) October 20, 1993
Joint Venture Agreement October 20, 1993
Application for Stock July 8, 1993
- - AGREEMENTS WITH BULL CP8
Development & Supply Agreement January 25, 1996
Distribution Agreement (See Sandy's Files)
Letter of Intent September 12, 1994
- - AGREEMENTS WITH ROHM CO., LTD.
Letter of Understanding December 11, 1995
Cooperative Agreement for Licensed Manufacturing of
Ferroelectric RFID Products June 21, 1995
Consent and Support Agreement (Ramtron Intl. Corp.) June 27, 1995
Stock Purchase Agreement June 27, 1995
Agreement for Development of HF ASIC w/Microprocessor October 1, 1994
- - AGREEMENTS WITH INTAG INTL.
Settlement Agreement DRAFT
Common Stock Subscription Warrant June 14, 1994
Assignment and Security Agreement March 23, 1995
Secured Notes Payable various
- - OTHER
Promissory Notes (Concord Services, Inc.) various
Engagement Letters:
Cyber-Card Investors
Meridian Dunhill
Liberty Partners
Dain Bosworth
Holland & Hart (Stock Pledge/License)
Holland & Hart (Benton Bankruptcy)
Holland & Hart (General)
Letter of Intent - KAPSCH (Distribution/Mfg)
Consulting Agreements:
Russ Broshous
William Skolout
John McFarland
Lease Agreements: Removed
2nd Amendment Lease
Leasehold Improvements
1st Amendment Lease
Original Lease Agreement
Summary of Racom's Major Holdings
Racom's Related Party Accounts
Racom's List of Integrators
Racom's List of Sales Representatives
Racom's List of Distributors
<PAGE>
EXCLUSIVE DISTRIBUTOR AGREEMENT
This Agreement is entered into as of the 4TH day of AUGUST, 1995, by and
among RACOM SYSTEMS, INC., a corporation organized and existing under the
laws of the State of Delaware, U.S.A., having offices at 6080 Greenwood Plaza
Boulevard, Englewood, Colorado 80111, (hereinafter referred to as "RACOM")
and RACOM JAPAN, INC., a company incorporated under the laws of Japan, with
its principal office at Otsuka-shinyurigaoka, Building 5-3, Kamiasao 1-chome,
Asao-ku, Kawasaki-shi, Kanagawa-ken, Japan (hereinafter referred as "RJ").
WHEREAS, RACOM is involved in designing and developing radio frequency
contactless identification and smart card transponders and communicators;
WHEREAS, RJ desires to enter into an exclusive arrangement with RACOM to
market in Japan products manufactured by RACOM; and
WHEREAS, RACOM desires to enter into such an exclusive arrangement with
RJ to authorize RJ to market RACOM's products in Japan;
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto hereby agree as follows:
ARTICLE 1 - APPOINTMENT
1.1 Subject to the immediately succeeding sentence, RACOM hereby appoints RJ as
its exclusive distributor in Japan (hereinafter referred to as the
"Territory") for RACOM products (hereinafter referred to as "Products")
manufactured and/or sold by RACOM to RJ, and RJ hereby accepts such
appointment.
ARTICLE 2 - TERM OF AGREEMENT
2.1 This Agreement shall become effective as of the date set forth above when
it has been duly executed by authorized representatives of RACOM and RJ.
It shall continue in full force and effect for a term of two (2) years
after such date (subject to Article 16 and 17), and shall be extended for
additional one year terms upon the mutual agreement of the parties.
2.2 This Agreement includes Appendix A: Standard Terms and Conditions of Sale
which is incorporated herein and made part of this Agreement.
1
<PAGE>
ARTICLE 3 - DUTIES OF DISTRIBUTOR
In addition to all other duties herein set forth, RJ shall have the
following material obligations
3.1 SOLICITATION OF ORDERS
RJ shall extend its reasonable efforts in soliciting orders for and selling
Products for delivery to customers within the Territory.
3.2 ADVERTISING
RJ shall advertise Products to such an extent and in such media as is
reasonably necessary to encourage the sale of Products in the Territory.
The entire cost of said advertising shall be paid by RJ, unless otherwise
agreed to in writing by RACOM. If so agreed, RACOM may, at its sole
discretion, contribute an amount up to one-half (1/2) of the cost of said
advertising.
3.3 MAILING LIST
RJ shall develop and maintain a mailing list of existing and prospective
customers within the Territory, and shall periodically mail advertising
literature to said customers.
3.4 TRAINING OF SALES FORCE AND SERVICE PERSONNEL
RJ shall at all times maintain an adequate staff of sales personnel
reasonably necessary to carry out the obligations of RJ under this
Agreement, and shall fully train said sales personnel with respect to all
pertinent aspects of the Products.
3.5 MONTHLY REPORTS
RJ shall submit monthly reports to RACOM showing total sales of Products by
complete part number and type, quantity sold, unit price, price extension,
and customer identification and location. Each monthly report shall be
submitted to the person designated by RACOM, as appropriate, by the end of
the month immediately following the month covered by the report, and shall
further include an itemization of the RJ's inventory of each covered
Product as of the end of the month covered by the report.
3.6 MAINTENANCE OF SALES FACILITIES
RJ shall maintain sales offices in the Territory to encourage the sale of
Products and maintain adequate facilities to assure prompt handling of
inquiries, orders and shipments.
2
<PAGE>
3.7 SALES AND TECHNICAL LITERATURE
RJ shall at all times maintain sales data on the Products, including price
lists, catalogs and technical bulletin files. RJ shall keep confidential
all know-how and technical information, and any other proprietary
information furnished to it by RACOM.
3.8 BUSINESS INTEGRITY
RJ shall pursue a high degree of business integrity in its dealings with
customers.
ARTICLE 4 - PRICES
4.1 RACOM shall sell the Products to RJ at the prices designated as distributor
cost in RACOM's current price list or at prices negotiated between RACOM
and RJ, whichever is lower. Such prices are F.O.B. Englewood, Colorado,
United States of America, and do not include local sales, use excise,
customs, export, import or similar taxes. RJ shall assume and pay, or
cause to be paid, any and all such taxes, license fees or other charges
incident of the sale of Products. RJ shall pay all fees, assessments and
taxes levied against Products in RJ's possession.
4.2 RACOM may from time to time, notwithstanding the above, upon written notice
to RJ, change the distributor cost set forth in RACOM's current price list,
such change to be effective thirty (30) days after the date of mailing of
said notice to RJ. RACOM's price list shall then be automatically amended
accordingly.
4.3 Any order from RJ received and accepted by RACOM prior to a price increase
on Products which are the subject of such order shall be shipped at the
price in effect at the time of acceptance of such order. Any order from RJ
received and accepted prior to a price decrease on Products which are the
subject of such order will be shipped at the price in effect at the time of
shipment of such order.
4.4 In the event that the price of precious metals (including, but not limited
to, gold and silver) that are incorporated into the Products rises prior to
the delivery of such Products by RACOM, RACOM may adjust the prices set
forth in the current price list immediately by written notice to RJ, and
such prices shall apply to all Products not delivered at the time of such
notice. Such adjustments shall be made in accordance with a formula,
determined solely by RACOM, reasonably designed to pass on the increased
cost of such precious metals.
4.5 In the event of a decrease made under this Agreement in distributor cost on
any Product, RJ may apply for a credit with respect to all items of such
Product then in RJ's inventory equal to the difference between RJ's
original purchase price for such item (adjusted for any credits previously
given with respect to such item pursuant to this paragraph 4.5 or
otherwise) and
3
<PAGE>
the new lower price. Application for such credit must be submitted to
RACOM within thirty (30) days following the effective date of the price
decrease, and must include a tabulated list setting forth the following
with respect to each applicable Product: RACOM's part number, quantity,
unit price paid, quantity on hand and new unit price. If necessary, the
price paid for such Products by RJ shall be determined on a first-in,
first-out basis. This credit will apply only for products purchased within
twelve (12) months of price decrease. Any such application for credit will
be subject to verification by RACOM, for which purpose RACOM shall be
permitted access to RJ's books and records. No credit will be issued
except upon approval of the application by RACOM. To receive a credit, RJ
must be in full compliance with Paragraph 3.5 (Monthly Reports). Credits
shall be applied against pending or future purchase orders. No cash
refunds will be made. All rights of RJ under this Section 4.5 shall
expire upon termination of this Agreement for any reason.
ARTICLE 5 - PAYMENT
5.1 All payments for covered Products hereunder shall be made by RJ in
accordance with the terms and conditions set forth in Appendix A.
5.2 All payments which are not paid when due shall bear interest at the lesser
of 1.5% per month or the maximum lawful rate permitted to be charged under
the Japanese Commercial Code from the date of invoice until payment is
received.
ARTICLE 6 - CHANGES IN PRODUCTS
6.1 Upon 90 days notice to RJ, RACOM may discontinue the manufacture or sale of
any Product and improve or change the design of any Product, and RACOM
shall not incur any liability thereby, or any obligation to provide such
improvements on Products previously purchased and/or sold by RJ.
ARTICLE 7 - WARRANTY AND TERMS OF SALE TO END USERS
7.1 RACOM agrees to provide warranty terms to RJ's customers identical to the
standard warranty terms and procedures set forth in Appendix A, except that
the warranty period shall begin at the time of shipment to RJ's customer
from RJ. Subject to the preceding sentence and except as otherwise
expressly provided herein, RACOM MAKES NO REPRESENTATION OR WARRANTY OF
ANY KIND, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS FOR
PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE PRODUCTS. RJ
shall not make any additional representations or warranties regarding the
Products.
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7.2 RJ shall not, on behalf of RACOM, extend or pass on to purchaser of RACOM's
Products any warranty, other than RACOM's standard warranty, without
written authorization from RACOM.
ARTICLE 8 - RELATIONSHIP OF PARTIES
8.1 The relationship of RJ to RACOM hereunder is solely that of vendee and
vendor. Nothing contained herein shall be deemed to create an agency,
joint venture or partnership relationship between the parties hereto.
Nothing contained herein shall be deemed or construed as granting to
RJ any right or authority to assume or to create any obligation or
responsibility, express or implied, for, on behalf of or in the name
of RACOM, or to bind either RACOM, or any parent, subsidiary or
affiliate of either such party, in any way or manner whatsoever.
ARTICLE 9 - ASSIGNMENT OF AGREEMENT
9.1 Neither this Agreement nor any interest herein is assignable by any party
hereto, whether by way of assignment, operation of law or otherwise,
without the prior written consent of the other party hereto. Any attempted
assignment or transfer by any party hereto without the prior written
consent of the other shall be null and void. Transfer of a controlling
interest in any party hereto to a party not in control at the time of the
execution of this Agreement shall be deemed an assignment of this Agreement
for purposes of the restrictions set forth in this Article 9.
Notwithstanding the foregoing, RACOM may assign or delegate the performance
of part or all of its obligations under this Agreement to one or more of
its parent, subsidiary or sister companies or affiliates, provided that:
(a) Such assignment or delegation shall not relieve RACOM of primary
responsibility for performance of its obligations under this
Agreement; and
(b) Any such assignment or delegation or any acts pursuant thereto will
not be deemed to create any relationship between RJ and any such
assignee other than that of vendee and vendor.
ARTICLE 10 - PATENTS, TRADEMARKS AND TRADE NAMES
10.1 No rights are granted hereunder to RJ under any of RACOM's patents or
trademark. RJ shall sell and promote the Products only under the
trade names and trademarks regularly applied to the Products by RACOM.
10.2 Whenever RJ shall make reference to its relationship with RACOM,
whether in advertising or otherwise, such relationship shall be
expressed only as follows:
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"the exclusive distributor of RACOM products in Japan."
The foregoing right shall not survive termination of this Agreement. RJ
shall be entitled to use the "RACOM" name and trademarks only to promote
the sale of RACOM products within the Territory and shall not use the
"RACOM" name and trademarks, or any variations thereof, alone or in
combination with other words, or in connection with any product or service
which has not been supplied by RACOM.
ARTICLE 11 - WAIVERS AND AMENDMENTS
11.1 No failure or delay by either party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial waiver thereof preclude any other or
further exercise thereof or the exercise of any other rights, powers
or privileges.
11.2 Unless otherwise provided herein, this Agreement may not be changed,
waived, discharged or terminated orally, but only by a written
document signed by a duly authorized officer or designee of each party
hereto.
ARTICLE 12 - EXPORT CONTROL LAWS AND REGULATIONS
12.1 Nothing contained in this Agreement shall be construed to require any
party to do, and RJ shall not directly or indirectly do, any act or
thing that will or could constitute a violation of the export control
laws, or other laws and regulations similar in purpose or effect,
applicable in the United States of America, the Territory or any other
country having proper jurisdiction.
ARTICLE 13 - COMMERCIAL POLICY
13.1 Each party hereto agrees that it will not, in connection with this
Agreement or its performance hereunder, directly or indirectly offer,
pay, promise to pay or authorize the payment of any money or thing of
value to any government official or to any person, while knowing or
having reason to know that all or a portion of such money or thing of
value will be offered, given or promised, directly or indirectly, to a
government official for the purpose of (a) influencing any act or
decision of such government official, including a decision to fail to
perform his official functions; or (b) inducing such government
official to use his or her influence with any government of
instrumentality thereof to affect or influence any act or decision of
such government or instrumentality, in order to assist in obtaining or
retaining business or directing business, to any other party.
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13.2 As used in this Article 13, the term "government official" means
any officer or employee of any government or any department, agency,
instrumentality or wholly-owned corporation thereof, or any person
acting in an official capacity for or on behalf of any such government
or department, agency, instrumentality or wholly-owned corporation
thereof, or any candidate for political office.
13.3 Each party hereto shall notify the others immediately of any extortive
solicitation, demand or other request for anything of value, by or on
behalf of any government official or employee of any government and
related to the sale and/or service of the Products in the Territory.
ARTICLE 14 - COMPETITION
14.1 RJ shall give RACOM sixty (60) days prior written notice before
stocking, handling, selling or offering for sale products competitive
with the Products and shall notify RACOM immediately of any
competitive products which RJ has agreed formally or informally to
stock, handle, sell or offer for sale.
14.2 In the event that RACOM receives notice from RJ regarding the sale of
competing products, RACOM shall have the right, on the provision of
thirty (30) days prior written notice, to terminate this Agreement
without any liability or obligation to RJ.
ARTICLE 15 - FORCE MAJEURE
15.1 In the event that any party hereto shall be rendered wholly or partly
unable to carry out its obligations under this Agreement by reason of
causes beyond its control, including but not limited to fire, flood,
explosion, action of the elements, acts of God, accidents, epidemics,
strikes, lockouts, or other labor trouble or shortage, inability to
obtain, or shortage of, material, equipment or transportation,
insurrection, riots or other civil commotion, war, enemy action, acts,
demands or requirements of the governments in any state, or by any
other cause which it could not reasonably be expected to avoid, then
the performance of the obligations of any party as they are affected
by such causes shall be excused during the continuance of any
inability so caused, but such inability shall as far as possible be
remedied within a reasonable period of time; provided, however, that
notwithstanding the above, the provisions of this Article 15 shall not
apply to payment of monies due and owning from one party to another.
ARTICLE 16 - TERMINATION FOR CAUSE
16.1 This Agreement shall immediately terminate upon written notice to such
effect by any party to the other party, without the necessity of prior
advance notice: (a) in the event of the other party's voluntary or
involuntary bankruptcy or insolvency; (b) in the event that the other
party shall make an assignment for the benefit of creditors; or (c) in
the event that a petition shall have been filed against the other
party under a bankruptcy law, or other law for relief of
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debtors, or other law similar in purpose of effect, the effect of
which is to cause the other party to have its business effectively
discontinued and such petition is not dismissed within thirty (30)
days after such filing.
16.2 If a party to this Agreement should breach any material obligation
hereunder, the injured party may give written notice to the defaulting
party specifying the respect in which the said party has breached the
Agreement. In the event that such breach is not remedied within
thirty (30) days after such notice, the injured party may, by written
notice to the defaulting party, terminate this Agreement with respect
to the defaulting party, effective upon receipt of such notice.
16.3 The failure of a party to terminate this Agreement due to a breach on
the part of the other party shall not constitute a waiver of its right
to terminate on the basis of such breach or any subsequent breach.
ARTICLE 17 - RIGHTS
17.1 Upon expiration or termination of this Agreement, RJ shall return to
RACOM or, at RACOM's direction, dispose of the price lists,
advertising matter and other materials furnished by RACOM, and all
customer records showing sales of Products, as RACOM may direct, and
RACOM's name, trademarks, part numbers and similar identifying symbols
shall not be displayed or used by RJ thereafter.
17.2 In the event of termination of this Agreement for any reason by the
other party hereto, within thirty (30) days after the effective date
of such termination, RACOM agrees to purchase and RJ agrees to sell
RJ's entire inventory of standard Products which are not non-moving
inventory or obsolete Products and which are in the original packages
and undamaged and unaltered in any manner from the original form. All
such inventory shall be subject to test inspection and acceptance by
RACOM. The price to be paid by RACOM for such inventory shall be
RACOM's standard distributor price for the quantity of each Product
in RJ's inventory, in effect at the time of termination. RJ shall
ship such inventory to the location designated by RACOM, freight and
insurance prepaid by RJ.
17.3 In the event this Agreement is terminated with respect to RJ by RACOM
under Article 16, RJ agrees to sell and RACOM agrees to purchase RJ's
entire inventory of Products at a price computed as set forth in
subparagraph 17.2, less a handling charge equal to fifteen percent
(15%) of such price. RJ shall ship such inventory to the location
designated by RACOM, freight and insurance prepaid by RJ.
17.4 In the event of a termination of this Agreement by a party hereto,
RACOM shall not be required to furnish Product to RJ ordered between
the date a termination notice is given and the effective date of the
termination of this Agreement, unless payment for such Product is
received in advance of delivery.
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17.5 Upon termination of this Agreement in any manner and for any
reason, RACOM shall not be responsible for compensating or reimbursing
RJ for any loss or damage relating to the loss by RJ of present or
prospective profits or anticipated sales or expenditures, investments
or commitments made in connection therewith or for any loss or damage
in connection with the establishment, development or maintenance of
RJ's business, including any goodwill associated therewith.
ARTICLE 18 - NOTICES
18.1 Any notice required or permitted to be given by any party to the other
pursuant to this Agreement shall be in writing and shall be deemed to
have been effectively given only if written in the English language
and either delivered to an officer of the other party hereto at such
party's address set forth above or at such other address as shall
hereafter be designated in writing by such party, or when sent to such
address by registered mail, postage prepaid. When a notice is given
by any other means, it shall be effective only upon the actual receipt
by an officer of the party for which it is intended.
ARTICLE 19 - WAIVER
19.1 No failure by a party to enforce or take advantage of any provision
hereof shall constitute a waiver of the right subsequently to enforce
or take advantage of such provision.
ARTICLE 20 - GOVERNING LAW
20.1 Except as altered or expanded by this Agreement, the laws of Japan
shall govern in all respects as to the validity, interpretation,
construction and enforcement of this Agreement.
ARTICLE 21 - GOVERNING LANGUAGE
21.1 The official text of this Agreement shall be in the English language,
and any interpretation or construction of this Agreement shall be based
thereon.
ARTICLE 22 - ENTIRE AGREEMENT
22.1 This Agreement, including the Appendix hereto, is the entire
understanding between the parties with regard to the distribution of
Products, and supersedes and shall be substituted for each and every
agreement or understanding with respect to distribution of the
Products.
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22.2 In the event of any conflict between any of the terms of this
Agreement and anything in the Appendix hereto, the terms of this Agreement
shall govern.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement which
has been executed in two (2) English language original counterparts which shall
be regarded as one and the same instrument.
RACOM SYSTEMS, INC. RACOM JAPAN, INC.
By: /s/ Richard L. Horton By: /s/ Y. Nakazaki
--------------------------- ----------------------
Title: President Title: President
------------------------ -------------------
Date: August 4, 1995 Date: August 4, 1995
------------------------- --------------------
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[RACOM SYSTEMS, INC. LOGO]
EXHIBIT A
TERMS AND CONDITIONS OF SALE
1. ACCEPTANCE. Purchase orders for Products shall be placed by Distributor in
writing, and shall be accepted only upon these Terms and Conditions of Sale in
effect at the time of acceptance of the order. The acceptance of a delivery of
Products by Distributor shall constitute acceptance by Distributor of these
Terms and Conditions. Racom reserves the right reasonably to reject any
purchase orders placed by Distributor, and shall not be liable for any damages
by reason of such rejections. Racom may make changes in such Terms and
Conditions from time to time upon written notice to Distributor. Any such
change shall form a part of the Terms and Conditions of Sale as to orders
accepted thereafter, and these Terms and Conditions shall automatically be
amended to conform to any such changes unless Distributor objects to such
changes in a writing delivered to Racom within ten (10) days after receipt of
Racom notice. Any terms and conditions presented in orders placed by
Distributor which are in conflict with these Terms and Conditions then in effect
shall be inapplicable to any sale of Products hereunder.
2. TERMS OF PAYMENT. Unless otherwise stated in any applicable agreement or
on the face of Racom's order acknowledgment (or otherwise agreed upon as, for
instance, in a letter of credit), all payments are due 50% at time of order
placement and 50% at time of delivery, unless credit terms have been approved in
advance. ALL PAYMENTS WHICH ARE NOT PAID WHEN DUE SHALL BEAR INTEREST AT THE
LESSER OF 1.5% PER MONTH OR THE MAXIMUM LAWFUL RATE FROM THE DATE OF INVOICE
UNTIL PAYMENT IS RECEIVED. All payments shall be made to Racom at the office
indicated on Racom's invoice, and in United States currency.
3. TAXES. The sales price for the Products includes all taxes imposed on the
Products to be delivered hereunder while title to such Products remains with
Racom. Distributor shall be responsible for all taxes imposed on the Products
coincident with or subsequent to transfer of title to such Products to
Distributor.
4. DELIVERY. The delivery dates set forth on any applicable agreement or on
Racom's order acknowledgment are approximate only, and Racom shall not be liable
for, nor shall Racom be in breach of its obligations to Distributor because of,
any delivery made within a reasonable time after the stated delivery date.
Racom may, by written notice to Distributor, change any delivery date, and such
date shall become the agreed upon delivery date unless Distributor objects to
such date in a writing delivered to Racom within ten (10) days of receipt of
Racom's notice. Racom shall not be liable for any late delivery caused by the
failure of Distributor to provide any necessary information in a timely manner.
However, Racom will study with the Distributor the appropriate commercial
compensation to Customer for unreasonable changes in the delivery date.
5. PRICES. All prices shall be as stated in the applicable sales or supply
agreement or, if one does not exist, in the Purchase Order. If no price is
stated for any item, the price for that item shall equal the price most recently
quoted in writing or charged by Racom to Distributor for such item.
6. TITLE AND RISK OF LOSS. All shipments covered by these Terms and
Conditions are F.O.B. Racom Plant unless otherwise agreed by Racom in writing,.
Title to and risk of loss for Products shall pass from Racom to Distributor upon
Racom making delivery to the carrier at the F.O.B. point.
7. CHANGES IN PRODUCTS. Racom may, at any time, either change or discontinue
any of the Products. Any such change or discontinuation shall be immediately
effective upon giving of written notice of such change to Distributor and upon
receipt of such notice these Terms and Conditions shall be automatically amended
to conform to such notice. Racom may discontinue the manufacture or sale of any
Product and improve or change the design of any Product at any time, and Racom
shall not incur any liability thereby, or any obligation to provide such
improvements to Products previously purchased by Distributor.
<PAGE>
EXHIBIT A
TERMS AND CONDITIONS OF SALE
8. WARRANTY. Racom warrants that Products delivered hereunder shall conform
to the specifications of their respective data sheets and shall be free from
defects in material and workmanship under normal use and service for a period of
one (1) year from the delivery of Products to Distributor. If, during such one
year period, (i) Racom is notified promptly in writing upon discovery of any
defect in the Products, including a detailed description of such defect, (ii)
such Products are returned to Racom, F.O.B. Racom facility, upon Racom request
(iii) any such return is authorized by the release by Racom of a Return Material
Authorization (RMA) and the RMA number issued by Racom is clearly marked on
all accompanying documentation and (iv) Racom's examination of such Products
discloses to Racom's satisfaction that such Products are defective and such
defects are not caused by accident, abuse, misuse, neglect, alteration, improper
installation, repair or alteration by someone other than Racom, improper
testing, or use contrary to any instructions issued by Racom, then within a
reasonable time, Racom shall (at its sole option) either repair, replace or
credit Distributor for such Products. Racom shall return any Products repaired
or replaced under this warranty to Distributor, transportation prepaid, and
reimburse Distributor for the transportation charges paid by Distributor for
such Products. The performance of this warranty does not extend the warranty
period of any Products beyond that period applicable to the Products originally
delivered.
THE FOREGOING WARRANTY CONSTITUTES RACOM'S EXCLUSIVE LIABILITY, AND THE
EXCLUSIVE REMEDY OF DISTRIBUTOR, FOR ANY BREACH OF ANY WARRANTY OR OTHER
NONCONFORMITY OF PRODUCTS. THIS WARRANTY IS EXCLUSIVE, AND IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WHICH
ARE HEREBY EXPRESSLY DISCLAIMED.
9. PATENTS. Racom shall defend, at its expense, any claim (including any
suit) brought against Distributor alleging that any Products furnished
hereunder infringe any patent, copyright, or mask work right, and shall pay all
costs and damages finally awarded, provided that Distributor gives Racom prompt
written notice of such claim, and information, reasonable assistance and sole
authority to defend of settle the claim. In the defense or settlement of the
claim, Racom shall obtain for Distributor the right for using the Products or
replace or modify Products so they become non-infringing, or if such remedies
are not reasonably available, grant Distributor a credit for the Products as
depreciated and accept their return. Racom shall not have any liability if the
alleged infringement is based upon the use, license or sale of other products
(including software, or hardware) not furnished by Racom used in combination
with the Products. RACOM DISCLAIMS ALL OTHER LIABILITY FOR VIOLATION,
MIS-APPROPRIATION OR INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS, AND FURTHER
DISCLAIMS ANY LIABILITY FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES
10. CONSEQUENTIAL DAMAGES. RACOM AND DISTRIBUTOR HEREBY EXPRESSLY WAIVES
ALL CLAIMS FOR INDIRECT, CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THE SALE OF THE PRODUCTS HEREUNDER,
INCLUDING, BUT NOT LIMITED TO, ANY SUCH DAMAGES ARISING BY REASON OF LOST
PROFITS, ANY INDEMNITY HEREIN, FAILURE OR DELAY IN MANUFACTURE OR DELIVERY OF
PRODUCTS, OR IN THE USE OR PERFORMANCE OF PRODUCTS.
11. WAIVER. No failure by either party to enforce or take advantage of any
provision hereof shall constitute a waiver of the right subsequently to enforce
or take advantage of such provision.
<PAGE>
EXHIBIT A
TERMS AND CONDITIONS OF SALE
12. GOVERNING LAW. The law of the State of Colorado, United States of
America, shall govern in all respects as to the validity, interpretation,
construction and enforcement of this Agreement, without reference to conflict
of laws principles. For International Customers, all disputes, controversies,
or differences which may arise between the parties, out of or in relation to or
in connection with this Agreement, or the breach thereof, which cannot be
resolved between the parties shall be settled by arbitration in accordance with
the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. Arbitrator(s) shall be appointed in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of Commerce. Such
arbitration shall be held in the English language in Denver, Colorado. The
award shall be final and binding upon the parties. This article does not
apply to breaches of obligation of Attachment D Confidentiality and
Non-Disclosure. Each party may seek relief from the courts (including
injunctive and other equitable relief) in connection with any such breach.
13. FORCE MAJEURE. In the event that either party hereto shall be rendered
wholly or partly unable to carry out its obligations under this Agreement by
reason of causes beyond its control, including but not limited to fire, flood,
explosion, action of the elements, acts of God, accidents, epidemics, strikes,
lockouts, or other labor trouble or shortage, inability to obtain, or shortage
of, material, equipment or transportation, insurrection, riots or other civil
commotion, war, enemy action, acts, demands or requirements of the governments
in any state, or by any other cause which it could not reasonably be expected
to avoid, then the performance of the obligations of either party or both as
they are affected by such causes shall be excused during the continuance of any
inability so caused, but such inability shall as far as possible be remedied
within a reasonable period of time, provided, however, that notwithstanding the
above, the provisions of this Article shall not apply to payment moneys due and
owing from one party to the other.
14. ADDITIONAL OR INCONSISTENT TERMS. The Parties may modify these Terms and
Conditions on a case by case basis. Any New Terms and Conditions set forth in
a specific purchase order or in any document provided by Distributor to Racom
which differ from or conflict with or are not included in the applicable supply
agreement and/or the Purchase Order shall not become a part of any agreement
between Racom and Distributor unless such Terms and Conditions are specifically
agreed to in writing by Racom and Distributor. Unless otherwise agreed in
writing by Racom and Distributor, the Terms and Conditions specified herein
shall govern over any conflicting terms and conditions contained in any other
agreement between Distributor and Racom.
15. ENTIRE AGREEMENT. These Terms and Conditions constitute part of the
agreement between Racom and Distributor, which agreement sets forth the entire
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes all other oral or written representations and
understandings between the parties concerning the subject matter hereof.
<PAGE>
EXHIBIT 10.7
DEVELOPMENT AND SUPPLY AGREEMENT
This Agreement is made and entered into as of January 25, 1996 by and between:
RACOM SYSTEMS, INC., a Delaware corporation with a place of business in
Englewood, CO., (hereinafter referred to as "Racom") and
CP8 TRANSAC, a French corporation with a place of business in Louveciennes,
78430, France (hereinafter referred to as "CP8").
Whereas, based in part on Racom's proposal, CP8 has accepted an order
(hereinafter referred to as the "Semurval Order") as described in an agreement
signed with "le Syndicat Intercommunal pour les Transports Urbains de la Region
de Valenciennes", for a project named "Semurval" to provide certain smart cards
and controllers to be developed for delivery in a designated time frame;
Whereas, in order to fulfill its obligations towards Semurval, CP8 desires to
subcontract to Racom the development of and order the delivery of those
products;
Whereas both parties wish to define the terms for undertaking such activity to
reflect the specific relationships between CP8 and Racom;
Now, therefore, in consideration of the foregoing premises and mutual promises
set forth herein, the parties agree as follows:
1. PURPOSE
The purpose of this Agreement is to set forth the relationships between
CP8 and Racom under which Racom agrees to develop the Products and
Deliverables (as hereafter defined), excluding the development of the
Operating System, applications programmable interface, pre-
personalization and personalization tools (collectively, the "CP8
Software"), as described in Exhibit A3, and the development of the HF
Cards and Controllers, and Racom software and BIOS, as described in
Exhibit A2, and to sell the Products (as hereafter defined) to CP8 in
accordance with prices and, when relevant, delivery dates pursuant to
Article 5.
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2. DEFINITIONS
The following terms shall have the meanings set forth in this article
when used in this Agreement.
"BIOS" shall mean the Basic Input Output System. This is a set of
operating system software routines which run in the microprocessor and
manage the RF communication, selection of the I/O and FRAM memory I/0 as
more specifically described in Exhibit A2
"CARD(S)" shall mean such portable devices as more specifically described
in Exhibit A4 to this Agreement. Each Card includes at least one Masked
Micro, with means for establishing connection to an external device
through a contactless interface and with or without a contacted
interface.
"CONTROLLER(S)" shall mean such external device as more specifically
described in Exhibit A4 to this Agreement, with means for establishing
connection without contact to a Card.
"CP8 TECHNOLOGY" shall mean intellectual property rights, including but
not limited to, all rights in patents, copyrights and trade secrets
relating to the designs, plans, inventions, developments, trade secrets,
software and documentation thereto which now exist or which are hereafter
developed by CP8 in connection with the CP8 Software and contacted
interface features of the Products.
"DELIVERABLES" shall mean those items listed in Exhibit A1 and developed
by Racom which are delivered to CP8, under specific milestones described
in Exhibit B, for test and/or validation under this development
agreement.
"FRAM" shall mean the ferroelectric technology protected by intellectual
property rights including but not limited to patents for which Ramtron
International Corporation has granted to Racom certain exclusive license
rights for contactless applications including the Products and
Deliverables defined herein.
"MASKED MICRO(S)" shall mean a Micro incorporating a BIOS and an
Operating System, as more specifically described in Exhibit A4.
"MICRO(S)" shall mean any semiconductor device including on the same
chip, a microprocessor or microcomputer with at least one processing unit
which is able to perform tasks specified in a program or microcode which
can be stored in the Micro itself or elsewhere and allowing the
implementation of functions and including at least all the following:
(i) on board FRAM memory (with or without other types of memories),
(ii) circuitry for contactless connection and (iii) with or without pads
for contact connection, as more specifically described in Exhibit A4.
"MICRO MODULE(S)" shall mean the module more specifically described on
Exhibit A4, the final use of which is to be incorporated in a Card,
including in the same package at least:(i) a Masked Micro, (ii) flexible
circuits for contactless connection and (iii) a coil.
"OPERATING SYSTEM" shall mean such software, as more specifically
described in Exhibit A3, stored in the Micro itself which controls the
Micro and implements the functionalities for the use
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of the Micro. Such software will be developed by CP8 and delivered to
the Micro manufacturer during the term of this Agreement.
"PRODUCT(S)" shall mean the TBHF products listed in Article 5.1 for
exclusive sale to CP8.
"RACOM TECHNOLOGY" shall mean intellectual property rights, including but
not limited to, all rights in patents, copyrights and trade secrets,
relating to the designs, plans, inventions, developments, trade secrets,
software and documentation thereto which now exist or which are hereafter
developed by Racom in connection with the development set forth in this
Agreement.
"SEMURVAL PROJECT" shall mean the automatic fare collection project in
France awarded to CP8 for which Racom has made a quotation to CP8 for the
supply of Products provided for in Article 5.1 of this Agreement.
"TOOL(S)" shall mean the hardware and software products as more
specifically described in Exhibit A1 necessary to develop, test and use
the Products.
3. DEVELOPMENT MILESTONES AND PRODUCT DELIVERY DATES
3.1 Racom agrees to undertake its responsibilities for the development of the
Deliverables in accordance with the technical specifications set forth in
Exhibit A4 and the milestones set forth in Exhibit B and for the Product
delivery schedule listed in Article 5.1, using the same degree of care
it uses for its own developments. Exhibit B contains certain steps, each
of them being subject to acceptance tests by CP8 in accordance with
Article 12.3.
3.2 Any modification or substitution to the Exhibits referred to in this
Agreement requires the prior written approval of both parties.
3.3 Racom shall investigate if it is possible to start earlier the delivery
of the Products by Racom but shall have no liability for any failure to
start earlier.
4. DEVELOPMENT PAYMENT SCHEDULE
4.1 As full and total compensation to Racom for the works done under its
development activities under this Agreement, CP8 will pay to Racom the
following:
1) An advance payment of $ 500,000.00 (five hundred thousand US
Dollars), to be paid within ten (10) days of the date of this
Agreement.
2) An amount of $ 200,000.00 (two hundred thousand US Dollars) upon
satisfactory completion of Milestone T4 as identified in Exhibit B.
3) An amount of $ 200,000.00 (two hundred thousand US Dollars) upon
satisfactory completion of Milestone T9 as identified in Exhibit B.
4) An amount of $ 250,000.00 (two hundred and fifty thousand US
Dollars) upon satisfactory completion of Milestone T13 as identified
in Exhibit B.
5) An amount of $ 100,000.00 (one hundred thousand US Dollars) upon
satisfactory completion of Milestone T16 as identified in Exhibit B.
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6) An amount of $ 250,000.00 (two hundred and fifty thousand
US Dollars) upon satisfactory completion of Milestone T20 as
identified in Exhibit B.
4.2 The development work set forth in this agreement including the
Deliverables and Products as defined herein and the costs associated
therewith, as set forth in this Article, are firm and cannot be changed
except by written agreement between CP8 and Racom. CP8 and Racom
understand and agree that changes to the technical specifications for the
Deliverables and the Products and to the development schedule are likely
to be necessary and that any such changes may effect the cost and
delivery schedule associated with the development. Any changes will
therefore require the mutual consent of both parties which will not be
unreasonably withheld. No further royalty or other compensation or fee
shall be payable by CP8 for the development work set forth in this
Agreement.
4.3 Racom shall submit invoices to CP8 upon completion of certain milestones
set forth in Exhibit B, pursuant to this Article. Payment shall be made
via wire transfer by CP8 to Racom within thirty (30) days from receipt of
each invoice, subject to CP8's acceptance of each milestone in accordance
with Article 12.3.
5. SUPPLY, DELIVERY AND PRICING OF PRODUCTS
5.1 As part of this Agreement, CP8 agrees to buy and Racom agrees to sell the
Products in the quantities, and at the prices and delivery dates set
forth in the table below.
---------------------------------------------------------------------------
PRODUCT QUANTITY DELIVERY DATE (1) PRICE
---------------------------------------------------------------------------
TBHF 32K(1) Cards 5,000 Milestone T12+90days $ 5.63
or(2)
TBHF 32K(2) Cards 5,000 Milestone T9+90days $ 5.63
---------------------------------------------------------------------------
TBHF 16K Cards 5,000 Milestone T9+90days $ 5.20
---------------------------------------------------------------------------
TBHF 16K Cards 15,000 Milestone T9+120days $ 5.20
---------------------------------------------------------------------------
TBHF 16K Cards 15,000 Milestone T9+150days $ 5.20
---------------------------------------------------------------------------
TBHF Controllers 100 Milestone T7+60days $ 183.00
---------------------------------------------------------------------------
TBHF Controllers 460 Milestone T7+90days $ 183.00
---------------------------------------------------------------------------
4/15
<PAGE>
Notes:
(1) The delivery dates are subject to completion of the Milestones set
forth in Exhibit B and may be changed upon mutual written agreement
by the parties. CP8 has the right to cancel or delay all or part of
this order due to a corresponding cancellation or delay of the
Semurval Order before T9 validation for the card only or due to a
failure by Racom to deliver (i) Deliverables meeting the technical
specifications set forth in Exhibit A4 or according to the schedule
described in Exhibit B, or (ii) Products set forth in Article 5.1 in
accordance with the dates set forth in the table above or a changed
date agreed to in writing by the Parties. Failure to deliver
Products on or before the delivery dates specified in this paragraph
shall not be a breach of this Agreement but shall entitle CP8 to
cancel or delay the order for that Product as set forth herein. If
CP8 exercises its right to cancel all or part of an order for
Products in accordance with this Article 5.1 then Racom's
obligations with respect to delivering such canceled Products shall
cease.
(2) The object of this line item order is the delivery of 5,000
TBHF 32K(1) Card Products. CP8 and Racom acknowledge that the
TBHF 32K(1) Card Product delivery schedule does not support the
requirements of the Semurval Project delivery dates. In the event,
prior to Milestone T9, that Racom is not able to move the
TBHF 32K(1) Card Deliverable and Product delivery schedule forward
to meet the required Semurval Product delivery dates, CP8 will then
agree, for this specific order, to a substitution of the TBHF 32K(2)
for the TBHF 32K(1) Card Products according to Milestone T18. In
the event, prior to T9, that Racom determines that the delivery of
the 5,000 TBHF 32K(1) Card Product can take place before the
delivery dates defined in Milestone T19, CP8 shall have the option
to take delivery of the TBHF 32K(1) Card Products in lieu of the
TBHF 32K(2) Card Products according to the new delivery schedule
proposed by Racom at such time.
5.2 Racom agrees to provide CP8 with an additional quantity of Products of up
to 100% of the total quantity set forth in the table above and at the
prices set forth above for a period of two years from the date of this
Agreement. Racom shall have six (6) months to deliver such additional
Products from the date it receives an order from CP8. Racom agrees, as
quickly as possible, to use its reasonable efforts to supply Controllers
at prices competitive with similar products available from other
manufacturers. After such period, Racom will offer to CP8 prices, terms
and conditions that are in the aggregate no less favorable than the
prices, terms and conditions offered to any other customer of Racom for
the purchase, under substantially similar circumstances, of similar
products.
5.3 Delivery shall take place FOB (Incoterms 1990) at Racom's site unless
otherwise agreed upon.
5.4 Payment for Products will be made via wire transfer by CP8 within thirty
(30) days from receipt of each invoice, provided that CP8 will have the
right of inspection and rejection of any shipment as set forth in
Article 8.3.
6. TITLE AND RISK OF LOSS
Title and risk of loss shall pass to CP8 upon delivery according to
Article 5.
5/15
<PAGE>
7. TAXES AND DUTIES
Prices set forth in this Agreement do not include any taxes, duties,
shipping, insurance and other incidental charges which are the
responsibility of CP8.
8. WARRANTIES AND INDEMNIFICATION
8.1 Racom represents and warrants that CP8 shall acquire good title to the
Cards and Controllers purchased under this agreement, free and clear of
all liens and encumbrances. Racom further represents and warrants to CP8
that, to the exclusion of the CP8 Software and contacted interface
features, Racom is, anywhere in the world, the rightful owner or licensee
of all lights, title and interests, including patents, copyrights, trade
secrets, trademarks, mask-works and other proprietary interests in the
Deliverables and Products and has the right to fulfill its obligations
under this Agreement and that Racom is under no restraint arising from
contractual or confidential relationships with third parties which may
adversely affect or be inconsistent in any manner with the terms and
conditions of this Agreement.
8.2 Racom further warrants to the best of its actual knowledge that, to the
exclusion of the CP8 Software and contacted interface features, there
are, anywhere in the world, no claims or suits threatened or pending
against Racom for infringement of any patents, copyrights, trade secrets
or any other proprietary rights and relating to the Deliverables and the
Products which are covered by this Agreement, and that Racom has no
actual knowledge of any patents, copyrights, trade secrets, trademarks,
mask-works or other property rights relating to the Deliverables or the
Products which represent a substantial or material liability to Racom or
to CP8.
8.3 Racom warrants that all Deliverables delivered to CP8 will meet the
technical specifications described in Exhibit A4 and will be free from
defects in material and workmanship for the period prior to the delivery
of Products to Semurval in which Deliverables are evaluated by CP8 for
the purpose of fulfilling its obligation to the Semurval Project.
Racom shall repair or replace the Deliverables, at no charge to CP8,
correcting any deficiencies specified in the notice of rejection or
return. Racom shall have no obligations with respect to any defect,
damage, or nonconformance of any Deliverables that results from improper
installation, transport, handling, storage, operation or maintenance,
unauthorized modification, or from accidents or other such occurrences
after delivery.
Upon receipt, CP8 shall have thirty (30) days to inspect the Products and
shall either accept or reasonably reject the same by written notification
to Racom, provided that a failure to respond within thirty (30) days
shall be deemed to be acceptance. Any rejection shall specify the
reasons therefore.
6/15
<PAGE>
Racom further warrants that all Products delivered to CP8 will meet the
technical specifications described in Exhibit A4 and will be free from
defects in material and workmanship for a period of two years from
delivery to CP8's final customer but in no event more than three years
from delivery to CP8. Any return of defective Products shall specify the
reasons therefore.
Racom shall repair or replace the Products, at no charge to CP8,
correcting any deficiencies specified in the notice of rejection or
return. Racom shall have no obligations with respect to any defect,
damage, or nonconformance of any Product that results from improper
installation, transport, handling, storage, operation or maintenance,
unauthorized modification, or from accidents or other such occurrences
after delivery.
REMEDIES UNDER THIS WARRANTY ARE LIMITED TO REPLACEMENT OR REPAIR OF
DEFECTIVE PRODUCTS, AND RACOM HAS NO LIABILITY OF ANY NATURE FOR ANY
DAMAGE, EITHER DIRECT OR INDIRECT, ARISING FROM ANY MALFUNCTION OR OTHER
FAILURE OF A PRODUCT EXCEPT FOR THE OBLIGATION TO REPLACE OR REPAIR
DEFECTIVE PRODUCTS. EXCEPT AS MUTUALLY AGREED BY THE PARTIES IN WRITING,
THE FOREGOING EXPRESS WARRANTIES ARE GIVEN IN LIEU OF ALL OTHER
WARRANTIES, WHETHER WRITTEN, ORAL OR IMPLIED (INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE), SUCH OTHER
WARRANTIES BEING HEREBY DISCLAIMED. THE FOREGOING SHALL CONSTITUTE THE
SOLE REMEDY OF CP8 AND THE SOLE LIABILITY OF RACOM FOR BREACH OF SUCH
WARRANTY.
8.4 Racom agrees to defend, indemnify and hold CP8 harmless from all costs,
expense and liability, including reasonable attorney's fees, arising out
of any claim or action based on actual or alleged (i) breach of Racom's
warranty that Racom is under no restraints arising from contractual or
confidential relationships with third parties which may adversely affect
or be inconsistent in any manner with the terms and conditions of this
Agreement or (ii) infringement by the Deliverables or Products, exclusive
of the CP8 Software and contacted interface features, of any third party,
patent, copyright, trade secret, trademark, mask-works or other
proprietary interest. CP8 shall give Racom prompt notice of and full
authority to defend and/or settle any such breach of warranty or
infringement claim or action which may arise under this Agreement, and
shall provide at Racom's expense reasonable cooperation in the defense or
settlement thereof. If a claim or action is made or threatened, then,
without limitation of CP8's other rights under this agreement, Racom
shall have the right, at Racom's option and expense, to (1) procure for
CP8 the right to continue using the Deliverables or Products (2) modify
the Deliverables or Products, so that it becomes non-infringing, provided
however in all instances that such new or modified Products and
Deliverables meet the technical specifications and prices set forth in
this Agreement. If, after having made good faith attempts, Racom is
unable to do either of the acts specified in clauses (1) and (2) on
commercially reasonable terms, Racom shall have the right to take the
Deliverables or Products and, at Racom's expense, refund the purchase
price of all infringing Deliverables or Products and the development cost
attributable to that Deliverable or Product. Racom's obligation to
refund any portion of the development cost will cease effective one year
from the date of expiration or termination of this Agreement.
Notwithstanding the preceding sentence, if a notice of a claim or action
is given to Racom prior to the end of such period, Racom's obligation
under this Article 8.4 shall continue, but only with regard to such claim
or action, notwithstanding the expiration of such period.
7/15
<PAGE>
8.5 CP8 agrees to defend, indemnify and hold Racom harmless from all costs,
expense and liability including reasonable attorney's fees, arising out
of any claim or action based on actual or alleged infringement of any
third party patent, copyright, trade secret, or other proprietary
interest arising with respect to the CP8 Software or contacted interface
features. Racom shall give CP8 prompt notice of and full authority to
defend and/or settle any such claim or action and shall provide, at CP8's
expense, reasonable cooperation in the defense or settlement thereof.
9. LICENSES AND OWNERSHIP RIGHTS
9.1 Except as set forth in Article 9.2 and 12.4, Racom is and shall be the
exclusive owner of all Racom Technology. Racom shall grant CP8 a non-
exclusive, royalty-free license to any improvements to Racom Technology
which is developed in connection with the development set forth in this
Agreement and which are jointly created with a material contribution by
CP8.
9.2 CP8 is and shall be the exclusive owner of all CP8 Technology. CP8 shall
grant Racom a non-exclusive, royalty-free license to any improvements to
CP8 Technology which is developed in connection with the development set
forth in this Agreement and which are jointly created with a material
contribution by Racom.
9.3 Racom hereby acknowledges that Deliverables and Products are designed to
meet CP8's specific requirements and the technical specifications
provided by CP8 are therefore Confidential and Proprietary Information
subject to Article 10 of this Agreement. Racom shall not use
Deliverables nor sell, deliver or otherwise transfer Deliverables or
Products to any third party without CP8's prior written consent. Racom
agrees not to use the final design, layout and mask developed hereunder
to manufacture, have manufactured and sell Micros as specified in Exhibit
A4 developed hereunder and Products incorporating such Micro without the
prior written consent of CP8.
9.4 Racom hereby grants to CP8 a non-exclusive, worldwide, royalty-free,
perpetual and non-transferable (except to the extent provided herein)
license to use the Racom Technology solely in connection with the
evaluation and use of Deliverables and the marketing and use of the
Products which, in either case, are delivered by Racom to CP8 pursuant to
this Agreement. CP8 shall have the right to grant a right to use the
Products to CP8's distributors and customers.
9.5 CP8 hereby grants to Racom a non-exclusive, worldwide, royalty-free,
perpetual and non-transferable (except to the extent provided herein)
license to use the CP8 Technology during the term of this Agreement
solely in connection with the development of the Deliverables and the
manufacture of the Products for CP8. Racom shall have the right to
sublicense the license granted hereunder to subcontractors for the
limited purpose of developing and manufacturing Deliverables and Products
to be delivered by Racom to CP8 pursuant to this Agreement.
9.6 Except as expressly indicated in this Agreement, no other license,
sublicense or use rights are granted to either party.
8/15
<PAGE>
10. CONFIDENTIALITY
10.1 A party receiving Confidential and Proprietary Information from the other
party shall maintain such Confidential and Proprietary Information in
confidence for a period of ten (10) years. The receiving party shall
secure and protect the Confidential and Proprietary Information received
hereunder with the same care the receiving party uses in the protection
of the receiving party's own Confidential and Proprietary Information and
take reasonable precautions to limit the disclosure of such Confidential
and Proprietary Information only to its employees, contractors and
consultants with a need to know to fulfill the receiving party's rights
and obligations pursuant to this Agreement. The receiving party shall
not copy such Confidential and Proprietary Information in whole or in
part, or make any other use of such Confidential and Proprietary
Information without the prior written consent of the transmitting party
except as may be necessary to exercise its rights and fulfill its
obligations pursuant to this Agreement. The receiving party shall not
divulge, in whole or in part, such Confidential and Proprietary
Information to any other third party without the prior written consent of
the transmitting party and shall reproduce and include the transmitting
party's copyright and trade secret notices on all copies of Confidential
and Proprietary Information.
10.2 Confidential and Proprietary Information shall mean information in
documented form or oral form the substance of which is promptly reduced
to writing and marked thereon as Confidential and Proprietary. Such
Confidential and Proprietary Information shall not include:
(a) information which was publicly known at the time of disclosure
hereunder, or
(b) information which was rightfully in the receiving party's possession
without binder of secrecy prior to the time of its disclosure
hereunder, or
(c) information which, though originally Confidential and Proprietary
Information, subsequently becomes part of the public knowledge or
literature through no fault of the receiving party, as of the date
of its becoming part of the public knowledge or literature, or
(d) information which, though originally Confidential and proprietary
Information, subsequently is received by the receiving party from a
third party who has rightfully disclosed the information without
binder of secrecy, as of the date of such third party disclosure, or
(e) information independently developed by the receiving party's
employees or agents who had no access to Confidential and
Proprietary Information received hereunder.
10.3 The provisions of this Article 10 shall survive the expiration or
termination of this Agreement.
9/15
<PAGE>
11. TERM AND TERMINATION
11.1 The initial term of this Agreement shall be two (2) years from the date
hereof, unless terminated by either party as provided herein and shall be
renewed for additional one year periods, subject to annual negotiations
to establish pricing and define the work to be performed, unless either
party gives written notice to the other at least ninety (90) days prior
to the end of the initial or renewal term of termination effective at the
end of the then current initial or renewal term.
11.2 If either party (i) ceases to perform or fails to comply with any of the
terms and conditions of this Agreement, other than a failure by Racom to
deliver Deliverables or Products which reasonably meet the technical
specifications on or before the relevant milestone date which failure
will be governed by the provisions of Article 12.3; or (ii) is
adjudicated bankrupt, or a trustee, receiver or liquidator is appointed
or otherwise gains control of such party's operations or assets; or
(iii) makes an assignment for the benefit of creditors; or (iv) files a
voluntary petition in bankruptcy; or (v) has filed against it an
involuntary petition in bankruptcy, and in the case of (i) such condition
is not cured within 30 days of receipt of written notice of such
cessation or failure or in the case of (ii) through (v) any such
condition is not cured within ninety (90) days, then except for those
articles which by their own terms survive any termination of this
Agreement, the non-defaulting party shall have the right to terminate
this Agreement upon written notice to the defaulting party.
11.3 The rights and obligations of Article 4.3, Articles 6 through 10, this
Article 11.3, Article 12.4 and Article 13 shall survive the expiration or
termination of this Agreement.
12. ACCEPTANCE OF DELIVERABLES AND PRODUCTS
12.1 The parties agree that regular and frequent communication is necessary to
ensure that the Development Schedule is maintained and that CP8 is fully
informed of the current status of Racom's efforts.
12.2 During the development, CP8 shall have the right to conduct reviews, from
time to time and upon reasonable notice, during normal business hours, to
verify the progress of the work and Racom's performance in accordance
with the technical specifications of Exhibit A4. Such reviews may
include, among other things, design review and review of software,
hardware, documentation, test, scripts, test results, project plans, and
planning. Racom shall take all reasonable steps necessary to correct any
deficiencies reasonably identified during such reviews.
10/15
<PAGE>
12.3 The parties agree to jointly establish reasonable acceptance tests to be
used to determine if the Deliverables and Products meet the technical
specifications set forth in Exhibit A4. Racom agrees to apply these
tests to each Deliverable and Product and provide these results to CP8 at
the time of delivery of such Deliverable or Product. CP8 shall also
apply these tests to determine if each Deliverable or Product reasonably
meets the technical specification. CP8 shall complete these tests and
notify Racom in writing of any deficiencies within the validation period
set forth in Exhibit B or, if not specified, within twenty (20) days of
receiving each Deliverable or Product. Acceptance of the completion of
each Deliverable or Product shall be deemed valid only when CP8 has
validated such completion in writing, provided that a failure to respond
within the applicable validation period plus ten days shall be deemed to
be acceptance. In the event any such Deliverable or Product does not
reasonably pass these tests, CP8 shall provide Racom with the test
results identifying the deficiencies in such case. If Racom fails to
complete a Deliverable or Product to a level required for acceptance on
or before the relevant milestone date, then Racom shall have until the
milestone date for such Deliverable or Product, plus (i) a ninety (90)
day grace period in the case of a delay in a Deliverable and (ii) a one
hundred and eighty (180) day grace period in the case of a delay in a
Product under Article 5.1 (collectively the "Grace Period" however
defined), in which to correct the deficiencies noted.
The following procedure shall apply if Racom fails to deliver a
Deliverable or Product which reasonably meets the technical specification
on or before the relevant milestone date plus the Grace Period specified
above. On or before the last day of the Grace Period, Racom shall
present to CP8 a plan to correct any remaining deficiencies, which plan
shall also propose revised milestone dates for all remaining Deliverables
and Products. CP8, by written notice to Racom, may either accept or
reject such plan except that a failure to respond within 10 days shall be
deemed to be acceptance of such plan. If CP8 accepts the plan, Racom
shall deliver a Deliverable or Product which reasonably meets the
technical specification in accordance with the revised milestone date.
If CP8 rejects the plan, or if Racom after notice from CP8 fails to
diligently prosecute the plan in accordance with its terms, or if Racom
fails to deliver a Deliverable or Product which reasonably meets the
technical specifications on or before the revised milestone date, then
CP8 shall have the right to declare Racom in default under this Article
12.3, terminate this Agreement and seek recourse as set forth below in
Article 12.4.
Notwithstanding anything herein to the contrary, Racom shall not be
responsible for a failure to deliver a Deliverable or Product which
reasonably meets the technical specification if such delivery is delayed
by a force majeure event as specified in Article 13.11 or a failure of
CP8 to fulfill its obligations under this Agreement. In such event, all
milestone dates shall be reasonably adjusted to account for such delay
provided that the period of adjustment shall not be less than the period
of the delay.
11/15
<PAGE>
12.4 In the event of a default under Article 12.3, CP8 shall have the right to
assume control of the development to complete, or have completed, any
such Deliverable giving rise to the default and any remaining
Deliverables or Products specified in this Agreement. Racom will
continue to supply CP8 with such Deliverables or Products which were
accepted by CP8 prior to such default and CP8 may require, at a price to
be negotiated, but in any case which should not exceed: (i) the price
indicated in Article 5.1 for a completed Product, or (ii) the acquisition
cost plus ten percent for an item procured from a third part, or
(iii) the manufacturing cost plus ten percent for a part of an incomplete
Product manufactured by Racom. In addition, Racom will cooperate in good
faith with CP8 in its efforts to complete the development and among other
things will provide and deliver to CP8 a copy of hardware materials,
source code, documentation, diagrams, designs and such other materials as
may reasonably be of assistance to CP8 in completing the remaining
Deliverables and Products(the "Design Documents"). Except as set forth
in this Article 12.4 and Article 12.5, Racom shall bear no further
obligation for the development and shall have no obligation to CP8 with
respect to the default and CP8 shall bear no further obligations to pay
Racom for the development of the Deliverables and/or Product concerned,
and any order for the Products shall be canceled.
To permit such continuation of the development, Racom hereby grants CP8 a
non-exclusive, royalty-free license, effective as of the date of a
default under Article 12.3, to use the Design Documents, Racom Additional
Technology and the Racom Technology to complete the development of any
remaining Deliverables or Products to manufacture, have manufactured,
market, distribute, install, support, correct and maintain that number of
Products which were to have been purchased by CP8 from Racom pursuant to
Article 5. Such license shall not extend beyond that number of Products
specified in Article 5, and CP8 shall have no right to use the Design
Documents, Racom Additional Technology and the Racom Technology with
respect to any additional Products or other products except to the extent
that the parties mutually agree upon a separate license for such use.
The license granted to CP8 to use the Design Documents, Racom Additional
Technology and the Racom Technology to complete the development of any
remaining Deliverables and manufacture or have manufactured products
shall terminate upon the later of (i) the date on which the last of that
number of products which were to have been purchased by CP8 from Racom
pursuant to Article 5.1 has been manufactured by or on behalf of CP8
pursuant to the license, or (ii) two years after the date of the default
under Article 12.3. Upon termination of such license, CP8 shall return to
Racom the Design Documents and all copies, transcriptions or other
reproductions thereof, and any notes relating thereto, and shall provide
to Racom a certificate of an officer of CP8 confirming that all such
materials have been returned in accordance with this Article 12.4.
12.5 In the event of a default under Article 12.3 above, Racom shall promptly
return any payment or advances related to Deliverables previously paid by
CP8 other than (i) payments and advances relating to Deliverables
previously accepted by CP8, and (ii) that portion of any payments and
advances actually incurred for the development activities undertaken with
respect to Deliverables rejected by CP8 except if CP8 exercises the right
set forth in Article 12.4.
12/15
<PAGE>
13. MISCELLANEOUS
13.1 Waiver. The failure at any time of either party to enforce any of the
provisions of this Agreement, or any right with respect thereto or to
exercise any option herein provided, will in no way be construed as a
waiver of such provisions, rights or options or in any way affect the
validity of this Agreement.
13.2 Assignment & Successors. Except as provided in Sections 9.4 and 9.5, and
except for an assignment incidental to a merger, consolidation or sale of
all or substantially all of the assets of a party, neither this Agreement
nor any interest or rights hereunder may be assigned or delegated, in
whole or in part, by either party without the advance written consent of
the other party. No such assignment shall be effective unless the
assignee or successor agrees in writing to be bound by the terms and
conditions of this Agreement.
13.3 Dispute Resolution. Any and all controversies, claims and matters of
difference between CP8 and Racom relating to or arising from this
Agreement which cannot be resolved through negotiations shall be
submitted to arbitration before a panel of three arbitrators appointed
in accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce and otherwise conducted in accordance
with the said Rules. Such arbitration shall be held in the English
language, in Denver, Colorado if CP8 is the demanding party, or in Paris,
France, if Racom is the demanding party. Any award rendered by the
arbitration panel shall be final and binding upon the parties. The
validity, performance and construction of this Agreement shall be
governed by and interpreted in accordance with the laws of the State of
New York, without regard to principles of conflicts of laws.
13.4 Complete Agreement. This Agreement and Exhibits A1, A2, A3, A4 and B
constitute the final written expression of all of the terms and
conditions of the subject matter covered herein and is a complete and
exclusive statement of those terms. Any and all representations,
promises, warranties or statements made by either party that differ in
any way from the terms of this Agreement shall be given no force or
effect. Racom and CP8 expressly represent to the other that there are no
additional or supplemental agreements between them related in any way to
its purpose specified herein, except the Distribution Agreement signed
the 15th day of December, 1994.
13.5 Contract Language. The official language of this Agreement is English.
Documents or notices not originally written in English shall have no
effect under this Agreement until they have been translated into English
by the party providing the notice or document and the English translation
shall then be the controlling form of the document or notice.
13.6 No Conflicts. Each party represents and warrants to the other party that
it is under no restriction or obligation with anyone that conflicts with
any provision of this Agreement, which would prevent or hinder the party
from fulfilling its obligations under this Agreement, or which would
deprive the other party of its benefits or rights under this Agreement.
13/15
<PAGE>
13.7 EXCEPT FOR LIABILITY PURSUANT TO ARTICLES 8.4 AND 8.5, NEITHER PARTY
SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS) ARISING FROM ANY CLAIM OR
ACTION HEREUNDER, WHETHER BASED ON TORT, WARRANTY, CONTACT OR ANY OTHER
LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. IN NO
EVENT SHALL THE MAXIMUM LIABILITY OF ANY PARTY TO THE OTHER EXCEED THE
TOTAL DOLLAR AMOUNT COMMITTED UNDER THIS AGREEMENT FOR THE DEVELOPMENT
AND/OR SUPPLY OF PRODUCTS AS THE CASE MAY BE.
13.8 Each party represents to the other that it has due and proper authority
to make and perform all duties and obligations set forth and envisioned
by this Agreement.
13.9 CP8 acknowledges that the re-exportation of the Deliverables, the
Products or related data may be subject to compliance with the Export
Administration Act of 1979 of the United States of America, as amended,
and any rules and regulations promulgated from time-to-time thereunder.
CP8 agrees to commit no act which, directly or indirectly, would violate
any United States law, regulation, or treaty to which the United States
adheres or with which the United States complies relating to the export
or re-export of any of the Deliverables, the Products or related data.
The same provisions shall apply mutatis mutandis to Racom with respect to
the CP8 Technology embedded in any Deliverable or Product, or
incorporated in related data which may be subject to the laws of France.
13.10 Neither party shall be liable for a failure to perform any obligation
hereof in whole or in part if such failure is attributable to an event
which is beyond such party's reasonable control, such as an act of God,
natural disaster, sovereign or political action or intervention, or
failure of a supplier due to such an event or the other party to this
Agreement to deliver. If the performance of this Agreement is delayed,
prevented, restricted or interfered with by reason of any such event, the
party whose performance is delayed, prevented, restricted or interfered
with shall give prompt notice to the other party of the event and shall
be excused from performance to the extent delayed or prevented.
13.11 Headings. The Articles headings appearing on this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of an Article, nor in any way affect this
Agreement.
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<PAGE>
13.12 Neither CP8 nor Racom shall make any press release or other public
announcement with respect to the subject matter of the Agreement except
with the prior consent of the other and the prior approval by the other
of the content and language of such release or announcement, such consent
and approval not to be unreasonably withheld.
IN WITNESS THEREOF the parties hereto have duly executed this Agreement,
including Exhibits which are incorporated herein and made part hereof, in two
copies.
CP8 Transac Racom
By: /s/ Geraldine Capdeboscq By: /s/ Richard Horton
------------------------ -------------------------
Geraldine Capdeboscq, Richard Horton,
President and President and
Chief Executive Officer Chief Executive Officer
Date: 26/1/96 Date: 1-29-96
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<PAGE>
EXHIBIT A1
DELIVERABLES
CARDS
- Development engineering and testing under Racom responsibility
* Card TBHF 16K, as defined in Exhibit A4
* Card TBHF 32K(2), as defined in Exhibit A4
* Card TBHF 32K(1), as defined in Exhibit A4
CONTROLLER
- Development engineering and testing under Racom responsibility
* TBHF Controller, as defined in Exhibit A4
TOOLS, to develop, use or sell TBHF Products
- Development engineering and testing under Racom responsibility
* TBHF controller test software (Specification to be determined)
- Used for internal test and development
* TBHF controller exerciser software 8-bit parallel interface (Specification
to be determined)
- Function: may be used to test and/or develop TBHF applications
- using TBHF Controller
- Bi-directional 8-bit parallel data interface
* TBHF Demonstration
- A demonstration of the read/write functionality of HFS 16K Cards (as
described in Exhibit A2) through both the contact and contactless
interfaces, with the HF Controller (as described in Exhibit A2) and a
Contact Reader Prototype (or interface with TLP 224 CP8 Reader)
- Demonstrated and/or sold to customers to promote the sale of the
TBHF Systems
Page 1/1
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EXHIBIT A2
RACOM PRELIMINARY HF PRODUCT DATA SHEET
CARD, to be supplied by Racom in Phase 1
* HFS 16K Card, including
- Micro HFS 16K
- Ramics-8 microprocessor
- 4K bytes integrated ROM
- 512 bytes integrated RAM
- contactless HF circuitry (analog and digital) and pads to connect
directly to a coil
- contact interface circuitry and pads (I/O) for contact module
- HFS 16K BIOS
- Printed circuit with circuitry for a contact and a contactless
interface
- 2K bytes of external FRAM
- contactless interface
- contact interface
- 1.5mm card packaging delivered in T2
- ISO card packaging delivered in T3
- Racom HF read/write contact and contactless read/write demonstration
software
CONTROLLER, to be supplied by Racom in Phase 1
- Development engineering and testing under Racom responsibility
* HF Controller, including:
- Antenna (power and data)
- HF transmit receive and decoding circuits
- Card powering
- RS232 serial interface
- HF Controller Operating System
- Host - controller protocol for establishing connection without contact
to an HFS 16K Card
- Controller - card protocol for establishing connection without contact
to an HFS 16K Card
- Message handling
- Test and diagnostic
- Racom Read/Write demonstration software for the contactless interface
Page 1/2
<PAGE>
EXHIBIT A2, CONTINUED
CONTROLLER SOFTWARE, to be incorporated in the HF and TBHF Controllers
- Development engineering and testing under Racom responsibility
* HF Controller Operating System
* HF Host - controller protocol for establishing connection without contact
to an HFS 16K Card, TBHF 16K, 32K(1) and 32K(2) Cards
* HF Controller - card protocol for establishing connection without contact
to an HFS 16K Card, TBHF 16K, 32K(1) and 32K(2) Cards
BIOS, to be incorporated in the HFS 16 Micro, Masked Micro TBHF 16K and Masked
Micro TBHF 32K by the semiconductor manufacturer
- Development engineering and testing under Racom responsibility
* Object code of HFS 16K BIOS, including
- RF communication
- RF message handling
- FRAM memory I/0 management
- Management of switching between the contactless and contacted I/O
- ASIC self test (inhibited when TBHF Operating System is Active)
- Anti-collusion code, included in Phase 2
HF DEMONSTRATION SOFTWARE
- Development engineering and testing under Racom responsibility
* Racom HF Card and Controller read/write software demonstrating the
read/write functionality of the contact and contactless interfaces of the
HFS 16K Card.
Page 2/2
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EXHIBIT A3
CP8 SOFTWARE
OPERATING SYSTEMS, to be incorporated in Masked Micros by the semiconductor
manufacturer
- Development engineering and testing under CP8 responsibility
* Object code of OS TBHF 16K, including
- Full compatible TB100 functionality
- Contact I/O Management
- BIOS interface management (Racom's documentation is required)
- 1K byte memory emulation shell
- Anticollison management software TBD
- FRAM management for Micro Module TBHF 16K
- FRAM management for Micro Module TBHF 32K(2)
* Object code of OS TBHF 32K, including:
- Full compatible TB100 functionality
- Contact I/O Management
- BIOS interface management (Racom's documentation is required)
- 1K byte memory emulation shell
- Anticollison management software TBD
- internal FRAM management for Masked Micro TBHF 32K
TOOLS TO DEVELOP OR USE PRODUCTS
- Development engineering and testing under CP8 responsibility
* Applications Programmable Interface (Handler and Library) for PC, protocol
TLP 224
- Function: may be used and/or to develop TBHF applications
- RS232 serial, contact interface, protocol TLP 224
- RS232 serial, contactless interface, protocol TLP 224
* Pre-personalization and personalization tools
- contact interface TBHF pre-personalization software
- contact interface TBHF personalization software
- contact interface TBHF test software
- contactless interface TBHF test software
- Function: may be used to pre-personalize and or personalize cards.
Page 1/1
<PAGE>
EXHIBIT A4
TECHNICAL SPECIFICATIONS
This exhibit includes:
1. TBHF Cards and controllers characteristics general specification rev. 12
(3 pages)
2. TBHF cards characteristics - Technical specification ref. 76 664 090
rev. C (7 pages)
3. Contactless TBHF controller characteristics - Technical specification
ref. 76 664 091 rev. C (16 pages)
4. TBHF 16K chip (micro) - Technical specification ref. 76 664 092 rev. C
(9 pages)
5. TBHF 32K Asic (micro) - Technical specification ref. 76 664 094 rev. C
(9 pages)
Proposed Final TBHF 16 Memory map definitions Revised 24 Jan. 96
(2 pages)
Page 1/1
<PAGE>
TBHF CARDS AND CONTROLLERS
GENERAL CHARACTERISTICS
TECHNICAL SPECIFICATIONS
CARDS
* Card TBHF 16K, including:
- MICRO MODULE TBHF 16K, microelectronic assembly with chip(s)
encapsulation and simple geometry for embedding, including:
- Printed circuit with circuitry for contact and contactless
interfaces
- Discrete components
- 2K bytes external FRAM
- MASKED MICRO TBHF 16K, including
- HFS 16K BIOS, described in Exhibit A2
- Operating System TBHF 16K, described in Exhibit A3
- MICRO 16K, including
- Ramics-8 microprocessor
- 8K bytes integrated ROM
- 256 or 512 bytes integrated RAM
- contactless HF circuitry (analog and digital) and pads
to connect directly to a coil
- contact interface circuitry and pads (I/O) for contact
module
- circuit and pads to interface to 2K bytes external FRAM
- Plastic card according to ISO standards 7810, 7813, 7816-1, 7816-2
and 10536-1
- Possibility to have a 4 color printed card (offset printing is
prefered)
- Compatibility with a photography insertion (needed for "Semurval
project") TBD
- This Card will have been tested
* Card TBHF 32K(2) Card including:
- MICRO MODULE TBHF 32K(2) microelectronic assembly with chip(s)
encapsulation and simple geometry for embedding, including:
- Printed circuit with circuitry for contact and
contactless interfaces
- Discrete components
- 4K bytes external FRAM
- MASKED MICRO TBHF 16K, including
- HFS 16K BIOS, described in Exhibit A2
- Operating System TBHF 16K, described in Exhibit A3
- MICRO 16K, including
- Ramics-8 microprocessor
- 8K bytes integrated ROM
- 256 or 512 bytes integrated RAM
- contactless HF circuitry (analog and digital)
and pads to connect directly to a coil
Page 1/3
<PAGE>
- contact interface circuitry and pads (I/O) for
contact module
- circuit and pads to interface to 4K bytes
external FRAM
- Plastic card according to ISO standards 7810, 7813, 7816-1, 7816-2 and
10536-1
- Possibility to have a 4 color printed card (offset printing is
prefered)
- Compatibility with a photography insertion (needed for "Semurval
project") TBD
- This Card will have been tested
* Card TBHF 32K(1), including:
- MICRO MODULE TBHF 32K(1), microelectronic assembly with chip(s)
encapsulation and simple geometry for embedding, including:
- Printed circuit with circuitry for contact and contactless
interfaces
- Discrete components
- MASKED MICRO TBHF 32K, including
- HFS 16K BIOS, described in Exhibit A2
- Operating System TBHF 32K, described in Exhibit A3
- MICRO 32K (MONOLITHIC), including
- Ramics-8 microprocessor
- 8K bytes integrated ROM
- 3K or 4K bytes integrated FRAM
- contactless HF circuitry (analog and digital) and pads
to connect directly to a coil
- contact interface circuitry and pads (I/O) for contact
module
- Plastic packaging according to ISO standards 7810, 7813, 7816-1,
7816-2 and 10536-1
- Possibility to have a 4 color printed card (offset printing is
prefered)
- Compatibility with a photography insertion (needed for "Semurval
project") TBD
- This Card will have been tested
CONTROLLERS
- Development engineering and testing under Racom responsibility
- The TBHF Controller will work with each of the three Cards: TBHF 16K,
TBHF 32K(1) and TBHF 32K(2) Cards
* TBHF Controller, including:
- Hardware completing AES PRODATA requirements:
- maximum dimensions: 14lx67x2O mm
- operating temperature range: -10 DEG. to 55 DEG. C
- controller to card read distance in ticketing machine: 100mm
- Bi-directional 8-bit parallel data interface
- Anticollision management software TBD
- HF Controller Operating System for establishing connection without
contact to TBHF 16K, 32K(1), and 32K(2) Cards
- HF Host - controller protocol for establishing connection without
contact to TBHF 16K, 32K(1) and 32K(2) Cards
Page 2/3
<PAGE>
- HF Controller - card protocol for establishing connection without
contact to TBHF 16K, 32K(1) and 32K(2) Cards
- Host to Controller protocol TLP224
- including the following features of the HF Controller described in
Exhibit A3
- Antenna (power and data)
- HF transmit receive and decoding circuits
- Card Powering
- RS232 serial interface
- Message handling
- Test and diagnostics
Page 3/3
<PAGE>
COOPERATIVE AGREEMENT FOR LICENSED MANUFACTURING OF
FERROELECTRIC RFID PRODUCTS
THIS AGREEMENT (the "Agreement") is made on the 21 day of June, 1995 by
and between Racom Systems, Inc., a corporation organized under the laws of
Delaware, U.S.A. having its principal place of business at 6080 Greenwood
Plaza Boulevard, Englewood, Colorado 80111 ("Racom"), and Rohm Co., Ltd., a
corporation organized under the laws of Japan, having its principal place of
business at 21, Saiin Mizosaki-cho, Ukyo-Ku, Kyoto, 615, Japan ("Rohm").
WITNESSETH THAT:
WHEREAS, Racom has developed a ferroelectric RFID technology and products
based upon an underlying technology licensed from Ramtron International
Corporation ("Ramtron"); and
WHEREAS, Rohm has licensed Ramtron's ferroelectric technology for certain
uses excluding ferroelectric RFID applications and desires to participate in the
market opportunity for Custom Ferroelectric RFID Products in Japan and for
Japanese Based Customers; and
WHEREAS, Racom and Rohm wish to cooperate in the design, licensed
manufacture and sale of custom ferroelectric products within Japan and for
Japanese Based Customers; and
WHEREAS, Racom and Rohm desire to enter into this Agreement to definitively
set forth their respective rights concerning such license.
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
AGREEMENT
ARTICLE ONE
DEFINITIONS
When used in this Agreement, the following terms have the following
meanings:
1.1 "CUSTOM FERROELECTRIC RFTD PRODUCTS" means single chip RFID
products utilizing the Ferroelectric RFID Technology and consisting of or
containing application specific integrated circuits (ASICs) which are
designed, manufactured and sold each to a unique customer specification. A
product shall be considered custom if (i) in wafer form, it is photomask
tooled to a single customer specification, or (ii) if microcoded, a minimum
of 20% of the code is unique to a single customer. An electrically
programmable product shall not be considered a custom product. Custom
Ferroelectric RFID Products shall include, without limitation, Custom ASIC
Chips, Custom ASIC Modules, Custom ASIC Cards, Custom Readers/Controllers and
Non-Recurring Engineering expenses.
1.2 "EFFECTIVE DATE" means the date of this Agreement.
1.3 "FERROELECTRIC RFID TECHNOLOGY" means (i) the underlying
ferroelectric technology licensed by Racom from Ramtron pursuant to that
Technology License Agreement dated October 23, 1991 ("Technology License
Agreement"), as amended, for applications including contactless smart cards
wherein interface to the product is by non-contact means such as inductive,
capacitive or sonic coupling plus (ii) all patents, processes, formulae, trade
secrets, know-how, technical data or other information relevant or useful to the
design of Custom Ferroelectric RFID Products developed and owned by Racom for
contactless applications. Ferroelectric RFID Technology shall not include any
of the above items which Racom is contractually or legally restricted from
disclosing to Rohm.
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<PAGE>
1.4 "IMPROVEMENTS" means all improvements, enhancements and developments
to the Ferroelectric RFID Technology made by either party or its Subsidiaries
during the term of this Agreement.
1.5 "LICENSE" has the meaning set forth in Section 2.1.
1.6 "LICENSED APPLICATIONS" means the design, manufacture and
distribution of Custom Ferroelectric RFID Products within Japan.
1.7 "SUBSIDIARY" or "AFFILIATE" means any corporation, company or
other entity more than fifty percent (50%) of the outstanding shares of stock
entitled to vote for election of directors (other than any shares of stock whose
voting rights are subject to restriction) of which is owned or controlled by
either party hereto, directly or indirectly, now or hereafter during the term of
this Agreement. Any corporation, company or other entity which would at any
time be a Subsidiary of Rohm or Racom by reason of the foregoing shall be
considered a Subsidiary for the purpose of this Agreement only so long as the
ownership or control, directly or indirectly, by Rohm or Racom meets the
conditions set forth herein. Any Subsidiary of Rohm or Racom which ceases to be
a Subsidiary shall cease use of any Ferroelectric RFID Technology it has
received pursuant to this Agreement and shall return all such Ferroelectric RFID
Technology to the parties in a manner satisfactory to both parties.
1.8 "INTERNAL TRANSFER PRICE" means the price at which Rohm's Custom
Ferroelectric RFID Products manufacturing operations sells Custom Ferroelectric
RFID Products to other Rohm divisions, departments or Subsidiaries.
1.9 "TERRITORY" means Japan and Japanese Based Customers.
1.10 "JAPANESE BASED CUSTOMERS" means those companies which have their
headquarters in Japan, and their Asian Subsidiaries and Affiliated companies
including those which do not have their headquarters in Japan.
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1.11 "ASIAN" means those countries listed in Exhibit A attached hereto
and incorporated herein by this reference.
ARTICLE TWO
GRANT OF LICENSE
2.1 GRANT OF LICENSE. In consideration of Rohm's obligations under
Articles Three and Five, Racom hereby grants to Rohm and its Subsidiaries, a
non-exclusive, non-sublicensable, non-transferrable right and license (the
"License") to use the Ferroelectric RFID Technology in connection with the
design, development, manufacture and sale of Custom Ferroelectric RFID Products
for use within the Territory but not otherwise. Sales to any party where Rohm
reasonably believes the products will be resold or come to rest outside the
Territory is prohibited. The License may not be used by Rohm for any purpose
other than those specifically stated in this Section 2.1. In the event that
Rohm has a significant sales opportunity outside the Territory, Rohm shall so
notify Racom in writing. In the event that such Rohm sales opportunity is not
in conflict with Racom's or Ramtron's interests, to be reasonably determined by
Racom and Ramtron, Racom and Rohm agree to mutually discuss and decide how to
proceed with such opportunity.
2.2 RESERVATION OF OTHER TECHNOLOGY. Nothing in this Agreement shall
be construed to grant any rights, express or implied, in or to Racom's
intellectual property, inventions, methods, technical information, expertise,
know-how or knowledge not specifically defined as Ferroelectric RFID Technology,
or any rights to the Ferroelectric RFID Technology outside the Territory or for
use other than in the Custom Ferroelectric RFID Products and the Licensed
Applications, and all such rights are expressly reserved by Racom.
2.3 SOLE IMPROVEMENTS. Any Upgrades which are made or developed by
either party shall be and remain the exclusive property of such party; provided,
however, that such party hereby grants to the other party a royalty-free, non-
exclusive, non-sublicensable, non-transferable, perpetual license to use such
Improvements during the term of this Agreement. In the case of
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<PAGE>
Racom, such right shall be worldwide and in the case of Rohm, such right shall
be within the Territory. Such license shall not include the right to have a
third party manufacture products using such improvements without prior written
approval by the other party.
2.4 JOINT IMPROVEMENTS. In the event that an Improvement (including
but not limited to patents) is made during the term of this Agreement where at
least one (1) employee each from both Racom and Rohm is involved in such
Improvement, then the parties shall jointly own such Improvement with each party
having an undivided equal ownership in such Improvement. Each party may
perpetually use such Improvement for any purpose without any payment to the
other party; provided that if a party grants a license to such Improvement to a
third party other than that party's Subsidiary, then that party shall obtain the
prior written approval of the other party to the sublicense within a reasonable
period of time.
ARTICLE THREE
COMPENSATION
3.1 LICENSE FEES. As partial consideration for the grant to Rohm of
the License, Rohm shall pay to Racom a non-refundable, non-cancelable, license
fee, in an amount equal to US$1,000,000, payable in four installments of
US$250,000 each. Such installments shall be due and payable as follows:
US$250,000 within thirty (30) days following each of the following milestones:
Upon signing of this Agreement, Rohm's sale of a cumulative amount of ten
million Custom Ferroelectric RFID Products, fifty million Custom Ferroelectric
RFID Products, and one hundred million Custom Ferroelectric RFID Products,
respectively.
3.2 PURCHASE OF STOCK. Within ten (10) days following the Effective
Date, Rohm shall purchase 300,000 shares of Racom common stock, par value $0.01,
for a purchase price of US$3.00 per share. Rohm shall purchase an additional
200,000 shares of Racom common stock, par value $0.01, for a purchase price of
US$3.00 per share upon Rohm's cumulative sale of ten
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million Custom Ferroelectric RFID Products as described in 3.1 above. The
purchase of such common stock shall be evidenced by appropriate documentation to
be prepared and executed by the parties within the time period specified above.
3.3 SALES PROCESSING AND FEES. Rohm's sales group shall be responsible
for all contact with its customers. Upon obtaining an order for Custom
Ferroelectric RFID Products, Rohm's sales group shall simultaneously send a copy
of the purchase order to Racom and a duplicate copy of the purchase order to
Rohm's manufacturing group. Upon completion of the Custom Ferroelectric RFDD
Products specified in such purchase order, Rohm's manufacturing group shall
invoice Racom for such products at the Internal Transfer Price. Racom shall
then invoice Rohm's sales group for such products at the Internal Transfer Price
plus a sales processing fee of two percent (2%) of the sales price of such
products, F.O.B. factory, charged by Rohm's sales group to the customer. In the
event that Rohm's sales group purchases more than 25 million units of Custom
Ferroelectric RFID Products on an accumulated basis in any given calendar
quarter, the sales processing fee payable to Racom for the units purchased
during such calendar quarter, shall be one and four tenths percent (1.4%) of the
sales price charged by the Rohm sales group to the customer. In such event,
payment terms and conditions for the products and sales processing fee shall be
separately arranged by the parties. If Racom so requests, all such sales shall
be made through Racom, Japan.
3.4 DISPUTE REGARDING SALES PROCESSING FEES. In the event of any dispute
regarding the amount of any sales processing fee payment allegedly due under or
pursuant to this Agreement, the parties shall agree in commercial good faith on
and appoint a nationally recognized firm of independent certified public
accountants who shall audit the books and records of Rohm to determine the
amount, if any, of the disputed fee payment or payments, which determination
shall be final and legally binding on the parties for all purposes of this
Agreement. If the parties are unable to agree on such a firm of independent
certified public accountants, such firm shall be appointed by the chairman,
president or the highest officer at such time of the American Institute of
Certified Public Accountants. Racom shall pay the cost of any audit conducted
pursuant to this Section; provided, however, that if it is determined that the
proper amount of any disputed fee
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<PAGE>
payment is more than US$5,000 greater than the amount reported by Rohm, then
Rohm shall pay the cost of such audit, in addition to the additional sales
processing fees that are determined to be due.
3.5 ENTIRE COMPENSATION. The parties acknowledge and agree that the
payments specified in this Agreement shall be the full and entire compensation
which Rohm shall pay Racom pursuant to the terms of this Agreement. The parties
agree that Rohm shall have no obligation to make direct payments to Ramtron for
the license granted by Racom to Rohm hereunder.
3.6 ADDITIONAL COMPENSATION. After payment by Rohm of the amounts
set forth in Section 3.1 and 3.2, no additional fees shall be due by Rohm to
Racom during the term of this agreement or any extension thereof except for the
payment of Sales Processing Fees specified in Section 3.3 by Rohm to Racom.
3.7 JOINT PRODUCT DEVELOPMENT. Racom and Rohm agree to cooperate in
the development of Ferroelectric RFID Products. Racom's responsibilities
shall be the definition, electrical design, marketing and sales. Rohm's
responsibilities shall be the physical design, wafer manufacturing and
testing. Rohm will have the exclusive manufacturing right for jointly
developed products and Racom will have the exclusive marketing and sales
rights. Each party will be responsible for funding their own efforts under
their respective development responsibilities. After successful completion
of development, Racom will order and purchase jointly developed products from
Rohm in accordance with Section 5.1. Rohm and Racom agree that the first two
designs for joint development are the LF II ASIC and a second HF ASIC both
scheduled to complete development by the end of 1996.
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<PAGE>
ARTICLE FOUR
NON-TRANSFERABILITY OF LICENSE
Notwithstanding anything else contained herein or elsewhere to the
contrary, the License may not be assigned, sublicensed, subdivided or
transferred in any way whatsoever, in whole or in part, by Rohm, except to its
Subsidiaries, without Racom's prior written consent, such consent to be within
Racom's sole and absolute discretion.
ARTICLE FIVE
MANUFACTURING SOURCE AND DISTRIBUTION RIGHTS
5.1 MANUFACTURING SOURCE. As partial consideration for the grant of the
License, Racom hereby commits to engage Rohm as its primary manufacturing source
for ferroelectric RFID products. Rohm shall have the first opportunity to
supply Racom's needs for ferroelectric RFID products worldwide including both
direct purchases by Racom from Rohm and indirect purchases made through Ramtron.
As partial consideration for the grant of the License, Rohm commits to use its
best efforts to supply Racom's ferroelectric RFID product manufacturing needs
under most favorable commercial terms and with competitive quality, delivery and
pricing. In addition to the rights granted in Section 2.1 above, during the
term of this Agreement, Racom hereby grants to Rohm a royalty-free, non-
exclusive, non-sublicensable, non-transferable right and license to use the
Ferroelectric RFID Technology for the sole purpose of manufacturing for, and
sale of ferroelectric RFID products exclusively to Racom.
5.2 DISTRIBUTOR. At Rohm's option, Racom Japan will appoint Rohm as a
distributor for Racom's standard ferroelectric RFID products for Japan under
most favorable commercial terms.
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ARTICLE SIX
INTELLECTUAL PROPERTY RIGHT
The parties shall cooperate and use their best efforts to defend the
Ferroelectric RFID Technology and any Improvements against claims asserted by a
third party that such technology is invalid or unenforceable, or an infringement
of the intellectual property rights of a third party.
ARTICLE SEVEN
TERM OF AGREEMENT
This Agreement becomes effective on the Effective Date. It shall
continue in full force and effect for a term of five (5) years, commencing on
the Effective Date and continuing for so long thereafter as the licenses granted
hereunder remain in force and effect and Rohm continues to manufacture
ferroelectric RFID products; provided that it may be terminated by each party
pursuant to Article Eight hereof.
ARTICLE EIGHT
TERMINATION
8.1 This Agreement shall immediately terminate upon written notice to
such effect by either party hereto to the other party, without the necessity of
prior notice, (i) in the event of such other party's voluntary or involuntary
bankruptcy or insolvency, (ii) in the event that such other party shall make an
assignment for the benefit of creditors, or (iii) in the event that a petition
should have been filed against such other party under a bankruptcy law, any
other law for relief of debtors, or other law similar in purpose or effect, the
effect of which is to cause such other party to have its business effectively
discontinued.
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<PAGE>
8.2 This Agreement shall automatically terminate upon the termination of
the technology license between Ramtron and Racom for the Ferroelectric RFID
technology for any reason whatsoever. In the event that Racom's Ferroelectric
RFID Technology License with Ramtron terminates for any reason whatsoever,
Ramtron has agreed to grant directly to Rohm substantially all of the rights
granted by Racom to Rohm hereunder without any additional payments by Rohm,
other than sales processing fees as specified in Section 3.3 herein, per Exhibit
B attached hereto.
8.3 If any party to this Agreement should breach any material obligation
herein, the injured party may at its option give written notice to the
defaulting party specifying the respect in which the defaulting party has
breached this Agreement. In the event that such breach is not remedied within
sixty (60) days after such notice, the injured party may, by written notice to
the defaulting party, terminate this Agreement with immediate effect.
8.4 If a party (the "Terminating Party") terminates this Agreement under
Sections 8.1 or 8.3, any and all licenses granted to the Terminating Party
hereunder shall survive such termination, provided that Articles 3 and 5 are
complied with.
8.5 Racom represents and warrants that it has all right, title and
interest to the Ferroelectric RFID Technology, including but not limited to
airline, postal and courier applications, licensed hereunder to Rohm and/or its
subsidiaries, and that it has the right to grant to Rohm and/or its Subsidiaries
the License granted herein.
ARTICLE NINE
CONFIDENTIALITY
9.1 "Confidential Information" shall mean any information disclosed
by one party to the other or any of its Subsidiaries or jointly created by the
parties pursuant to this Agreement which is on written, graphic, machine
readable or other tangible form and is marked "Confidential" or in some other
manner to indicate its confidential nature. Confidential Information may also
include
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oral information disclosed by one party to the other pursuant to this
Agreement, provided that such information is designated as confidential at
the time of disclosure and is reduced to writing by the disclosing party
within a reasonable time (not to exceed thirty (30) days) after its oral
disclosure, and such writing is marked in a manner to indicate its
confidential nature and delivered to the receiving party.
9.2 Each party may not, during the term of this Agreement and for
three (3) years thereafter, disclose in any manner to any person, firm or
corporation, any confidential knowledge or information obtained by such party
from the other party in carrying on its business hereunder. Each party shall
require each of its Subsidiaries, employees, representatives and agents to whom
such knowledge or information is made available to observe the party's
obligations under this Agreement. Notwithstanding anything herein to the
contrary, Confidential Information shall not include (i) information previously
known to recipient or any of its Subsidiaries as evidenced by the written
records of the receiving party or any of its Subsidiaries, (ii) information
which becomes publicly available by other than unauthorized disclosure, (iii)
information which is received by recipient or any of its Subsidiaries from a
third party whose disclosure does not violate any confidentiality obligation or
(iv) information which is independently developed by recipient or any of its
Subsidiaries.
9.3 Disclosure of Confidential Information will not be prohibited if
such disclosure is:
(a) in response to a valid order of a court or government body of the
United States or Japan; provided, however, that the receiving
party shall first have given notice to the disclosing party and
made a reasonable effort to obtain a protective order requiring
that the Confidential Information so disclosed be used only for
the purpose for which the order was issued;
(b) otherwise required by law; or
(c) to the legal representative of a party hereto.
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9.4 Nothing in this Agreement creates any obligation in any way
limiting or restricting assignment or reassignment of employees by the
receiving party or any of its Subsidiaries, or to or from or within any such
Subsidiaries.
9.5 The parties hereby agree that the terms and conditions of this
Agreement shall be Confidential Information.
9.6 If deemed by the parties to be necessary for the purpose of this
Agreement, each party will designate one (1) or more documentation manager(s)
whose responsibility is to receive, on behalf of the receiving party, all
Confidential Information pursuant to this Agreement, and to monitor within
their company the distribution of the received Confidential Information for
the purpose of this Agreement.
ARTICLE TEN
REPRESENTATION/WARRANTY AND LIMITATION OF LIABILITY
10.1 Racom and Rohm represent and warrant that (i) they have full
power and authority to enter into this Agreement and (ii) the terms and
conditions of this Agreement, and either party's obligations hereunder, do not
conflict with or violate any terms and conditions of any other agreement or
commitment to which either party is a signatory or by which it is bound. Either
party will defend and indemnify the other party against any third party claims
arising out of or related to the above warranties.
10.2 Racom represents and warrants that it has all right, title and
interest to the Ferroelectric RFID Technology licensed hereunder to Rohm and/or
its Subsidiaries, and that it has the right to grant to Rohm and/or its
Subsidiaries the license granted herein.
10.3 Each party represents and warrants to the other party that it
shall not disclose to the other party any confidential proprietary information
of any third party or parties without having obtained the written consent of
such third party or parties for such disclosure.
12
<PAGE>
10.4 Each party guarantees that its Subsidiaries will comply with
the terms and conditions of this Agreement, and each party will be responsible
for such compliance. If a Subsidiary is unable to comply with the terms and
conditions of this Agreement, then such Subsidiary shall not have any rights
under Article 2.
10.5 OTHER THAN THOSE SPECIFIED IN THIS ARTICLE 10, NEITHER PARTY MAKES
ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, REGARDING FERROELECTRIC
RFID TECHNOLOGY, PATENTS, TRADE SECRET RIGHTS, COPYRIGHTS MASK WORK RIGHTS OF
ANY TYPE WHATSOEVER REGARDING CUSTOM FERROELECTRIC RFID PRODUCTS, INCLUDING
THEIR MERCHANTIBILITY, FITNESS FOR ANY PARTICULAR PURPOSE, SEGMENT OF ANY
THIRD PARTY PATENT, PERFORMANCE, RELIABILITY OR QUALITY. UNDER NO CIRCUMSTANCES
SHALL EITHER PARTY BE RESPONSIBLE OR LIABLE FOR DAMAGES, WHETHER DIRECT OR
INDIRECT, CONSEQUENTIAL OR INCIDENTAL, WHICH MIGHT ARISE OUT OF THE OTHER
PARTY'S USE OF FERROELECTRIC RFID TECHNOLOGY, PATENTS, TRADE SECRET RIGHTS,
COPYRIGHTS MASK WORK RIGHTS OF ANY TYPE WHATSOEVER REGARDING CUSTOM
FERROELECTRIC RFID PRODUCTS.
ARTICLE ELEVEN
FORCE MAJEURE
In the event that either party hereto shall be rendered wholly or
partly unable to carry out its obligations under this Agreement by reasons of
causes beyond its reasonable control, including but not limited to fire, flood,
explosion, action of the elements, acts of God, accidents, epidemics, inability
to obtain equipment or material, or insurrection, riots or other civil
commotion, war, enemy action, acts, demands or requirements of the government in
any state or by other cause which it could not reasonably be expected to avoid,
then the performance of the obligations of each party or the parties as they are
affected by such causes shall be excused during the continuance of
13
<PAGE>
any inability so caused but such inability shall as far as possible be remedied
with all reasonable dispatch.
ARTICLE TWELVE
COMPLIANCE WITH LAWS AND REGULATIONS
12.1 The parties shall comply with all applicable governmental laws,
ordinances and regulations. Each party shall be solely responsible for its own
individual violations of any such laws, ordinances, and regulations.
12.2 The parties understand and agree that they are subject to all
applicable laws and regulations of the United States of America ("U.S."), Japan
and any other applicable jurisdiction with respect to the export and use of the
Ferroelectric RFID Technology or the Custom Ferroelectric RFID Products. The
parties shall comply in all respects with such laws, and regulations insofar as
they may apply to their performance under this Agreement. Without limiting the
generality of the foregoing, the parties shall not sell, re-export, deliver or
re-transfer, the Ferroelectric RFID Technology or the Custom Ferroelectric
RFID Products, directly or indirectly, to any country to which such export,
sale, re-export, delivery or re-transfer is restricted or prohibited by
Japanese, U.S. or other relevant laws, without obtaining prior authorization
from competent government authorities as required by those laws.
ARTICLE THIRTEEN
ASSIGNMENT
13.1 Each party to this Agreement may not assign this Agreement or any
rights under this Agreement without the express written permission of the other
party.
13.2 Notwithstanding the above, in the event of transfer of a
controlling interest in a party to a party not in control at the time of the
execution of this Agreement, this Agreement shall bind and inure to the benefit
of each party, its successors and assigns.
14
<PAGE>
ARTICLE FOURTEEN
ARBITRATION
All disputes, controversies, or differences which may arise between
the parties, out of or in relation to or in connection with this Agreement, or
the breach thereof, which cannot be resolved between the parties shall be
settled by arbitration in accordance with the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three (3) arbitrators.
Each party shall appoint one (1) arbitrator of its choosing, and the two (2)
arbitrators thus selected shall appoint the third arbitrator, who may not be a
national of U.S. or Japan. Such arbitration shall be held in the English
language in Denver, Colorado, if Rohm is the demanding party, or in Osaka,
Japan, if Racom is the demanding party. The award shall be final and binding
upon the parties. This Article does not apply to breaches of obligation of
Article Nine (Confidentiality). Each party may seek relief from the courts
(including injunctive and other equitable relief) in connection with any such
breach.
ARTICLE FIFTEEN
GOVERNING LAW AND LANGUAGE
This Agreement shall be construed and interpreted in accordance with,
and the rights and obligations of the parties hereto shall be determined by, the
laws of the State of California, U.S.A, without giving effect to the principles
of conflicts of laws. This Agreement shall be executed in the English language
which shall be the original and shall control in the event of any difference
between the English text of this Agreement and any translation hereof which may
be made.
15
<PAGE>
ARTICLE SIXTEEN
AMENDMENTS
No part of this Agreement may be amended, altered or otherwise changed
unless in writing duly executed by the parties hereto.
ARTICLE SEVENTEEN
ENTIRE AGREEMENT
This Agreement is the entire agreement between the parties and supersedes
and shall be substituted for each and every agreement with respect to the
subject matter hereof, whether written, oral or otherwise in effect between the
parties.
ARTICLE EIGHTEEN
NOTICES
All notices and other communications that are required pursuant to
this Agreement shall be written in the English language and transmitted by air-
mail and/or telex, acknowledgment of receipt required, to the addressee party at
its respective address set forth in the first paragraph of this Agreement or
such other address as the addressee party may from time to time designate to the
other party in writing.
ARTICLE NINETEEN
GENERAL PROVISIONS
19.1 TRADEMARKS. Nothing contained in this Agreement shall be
construed as conferring any rights to use in advertising, publicity or other
marketing activities, any name, trade name, trademark or other designation of
either party hereto (including any contraction, abbreviation or
simulation of any of the foregoing).
16
<PAGE>
19.2 PUBLICITY. All notices to third parties and all other publicity
concerning the terms and conditions of this Agreement shall be jointly
planned and coordinated by and between the parties. Neither of the parties
shall act unilaterally in this regard, without the prior written approval of
the other party. It is expected that the parties will mutually agree upon a
press release which will be issued after the effective date of this Agreement.
19.3 NO WAIVER. No failure or delay on either party in the exercise
of any right or privilege hereunder shall operate as waiver thereof, nor shall
any single or partial exercise of such right or privilege preclude other or
further exercise thereof or any other right or privilege.
19.4 CAPTIONS. The captions used in this Agreement are for convenience
of reference only and are not to be used in interpreting the obligations of the
parties under this Agreement.
19.5 SEVERABILITY. In the event that any provision is found to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
19.6 INDEPENDENT CONTRACTOR. The parties are independent contractors.
Nothing contained herein or done pursuant to this Agreement shall constitute the
parties as entering into a joint venture or partnership, or shall constitute
either party as the agent of the other party for any purpose or in any sense
whatsoever.
19.7 SURVIVAL. Unless otherwise specified hereunder, Articles Nine,
Ten, Twelve, and Fourteen, and Sections 2.4, and 3.5 shall survive and continue
after expiration and/or termination of this Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized representatives to sign this Agreement on the day and year first
above written in duplicate, each party retaining an original copy.
RACOM SYSTEMS, INC.
By: /s/ Richard L. Horton
---------------------------------
Richard L. Horton, President
ROHM CO., LTD.
By: /s/ Junichi Hikita
---------------------------------
Junichi Hikita, Managing Director
18
<PAGE>
EXHIBIT A
ASIAN COUNTRIES
- - Afghanistan
- - Bangladesh
- - Bhutan
- - Brunei
- - Cambodia
- - China
- - Cook Islands
- - Hong Kong
- - India
- - Indonesia
- - Laos
- - Malaysia
- - The Maldives
- - Mongolia
- - Myanmar (Burma)
- - Nepal
- - Niue
- - North Korea
- - Pakistan
- - Philippines
- - Qatar
- - Singapore
- - South Yemen
- - South Korea
- - Sri Lanka
- - Taiwan
- - Thailand
- - Tibet
- - Vietnam
19
<PAGE>
SUPPLEMENT
By way of supplement to the COOPERATIVE AGREEMENT FOR LICENSED
MANUFACTURING OF FERROELECTRIC RFID PRODUCTS between Racom Systems, Inc.
("Racom') and ROHM Co., Ltd. ("Rohm") entered into between the parties on the
21st day of June, 1995 (the "Cooperative Agreement"), Racom and Rohm hereby
further agree as follows:
1. Racom represents and warrants that any other companies other than Racom
shall not have rights to sub-license the Ferroelectric RFID Technology
described in the Cooperative Agreement, licensed by Ramtron International
Corporation to Racom.
The parties hereto have caused this Supplement to be executed by their
respective duly authorized representatives in duplicate, each party retaining an
original copy.
Racom Systems, Inc.
/s/ Richard L. Horton
---------------------------------
Name: Richard L. Horton
Title: President
Date:
Rohm Co., Ltd.
/s/ Junichi Hikita
---------------------------------
Name: Junichi Hikita
Title: Managing Director
Date:
<PAGE>
Exhibit 10.9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into effective as
of the 21 day of June, 1995 by and between Rohm Co., Ltd., a corporation
organized under the laws of Japan, having its principal place of business at
21, Saiin Mizosaki-cho, Ukyo-Ku, Kyoto, 615, Japan ("Rohm"), and Racom
Systems, Inc., a company organized under the laws of the State of Delaware,
U.S.A., having its principal place of business at 6080 Greenwood Plaza
Boulevard, Englewood, Colorado 80111 ("Racom").
RECITALS
--------
THIS AGREEMENT sets forth the understandings and agreements pursuant to
which Rohm will acquire from Racom a total of 500,000 shares of Racom common
stock.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements contained herein, the parties agree as follows:
ARTICLE ONE
SALE AND PURCHASE
-----------------
1.1 SALE AND PURCHASE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement and in reliance on the representations and
warranties contained herein, Rohm hereby agrees to purchase from Racom and
Racom hereby agrees to sell to Rohm a total of 500,000 shares of Racom common
stock, par value $0.01. On the Closing Date (as hereinafter defined), Rohm
shall purchase from Racom 300,000 shares of Racom common stock, par value
$0.01, for a purchase price of US$900,000 (US$3.00 per share). In addition,
on the Second Closing Date (as hereinafter defined) Rohm shall purchase from
Racom an additional 200,000 shares of Racom common stock, par value $0.01,
for a purchase price of US$600,000 (US$3.00 per share). The terms,
designations, rights, preferences and limitations of the Common Stock are as
set forth in Racom's certificate of incorporation and bylaws. The parties
agree that the Purchase Price shall be paid in the manner specified in
Article 2 below.
ARTICLE TWO
CLOSING AND SECOND CLOSING
--------------------------
2.1 CLOSING AND SECOND CLOSING. For purposes of this Agreement, (i) the
term "Closing" or "Closing Date" shall mean a date not more than ten (10) days
following the execution by the parties of the Cooperative Agreement for Licensed
Manufacturing of Ferroelectric RFID Products, such date to be mutually agreed to
by the parties, and (ii) the term "Second Closing" or "Second Closing Date"
shall mean a date not more than thirty (30) days following the cumulative sale
by Rohm of ten million Custom Ferroelectric RFID Products, such date to be
mutually agreed
<PAGE>
by the parties. Subject to the performance, satisfaction or waiver of each
condition precedent set forth in Article 5 hereof, the Closing and Second
Closing of the purchase and sale of the common stock shall take place at a
mutually convenient location as agreed by the parties.
2.2 SUBMISSIONS OF RACOM. On each of the Closing Date and Second
Closing Date, Racom shall deliver to Rohm the following:
(a) A stock certificate(s) duly endorsed or with stock power(s)
duly endorsed in favor of Rohm for the appropriate number of shares
of common stock being purchased on such date;
(b) A copy of the resolutions of Racom's Board of Directors
approving the execution of this Agreement and the consummation of the
transactions contemplated by this Agreement; and
(c) Such other documents or instruments as may be reasonably
requested by Rohm to consummate the transactions contemplated in this
Agreement.
2.3 SUBMISSIONS OF ROHM. On each of the Closing Date and Second Closing
Date, Rohm shall:
(a) Wire transfer to Racom at Racom's direction the applicable
purchase price for the common stock being purchased on such date and submit
such certifications or confirmations, as deemed reasonably necessary by
Racom, verifying the payment of the purchase price; and
(b) Such other documents or instruments as may be reasonably
requested by Racom to consummate the transactions contemplated in
this Agreement.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
------------------------------
OF RACOM
--------
Racom hereby represents and warrants to Rohm as follows:
3.1 ORGANIZATION AND GOOD STANDING. Racom is a corporation, duly
organized, validly existing and in good standing under the laws of the State
of Delaware, U.S.A. and has all requisite power and authority to conduct its
business as such business is now conducted.
3.2 CORPORATE POWER. Racom has complete power to execute, deliver and
perform this Agreement and, as of the Closing, has taken all corporate action
required by law, its articles of incorporation, its bylaws or otherwise, to
authorize the execution, delivery and performance of this
2
<PAGE>
Agreement, and this Agreement is a valid and binding obligation of Racom,
enforceable in accordance with its terms.
3.3 NO VIOLATION. Neither the execution nor the consummation of this
Agreement will constitute a violation of or default under any term or provision
of Racom's articles of incorporation or bylaws, or any contract, commitment,
indenture or other agreement or restriction of any kind or character to which
Racom is a party or by which Racom is bound. No consent or approval by, or
filing with, any governmental authority is required in connection with the
execution and delivery of this Agreement by Racom or the consummation of the
transactions contemplated hereby.
3.4 RESTRICTIONS. The shares of Common Stock to be transferred pursuant
to this Agreement will be transferred free and clear of all liens and other
encumbrances.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES
------------------------------
OF ROHM
-------
Rohm represents and warrants to Racom as follows:
4.1 ORGANIZATION AND GOOD STANDING. Rohm is a corporation, duly
organized, validly existing and in good standing under the laws of Japan and
has all requisite power and authority to conduct its business as it is now
conducted.
4.2 CORPORATE POWER. Rohm has complete power to execute, deliver and
perform this Agreement and, as of the Closing, has taken all corporate action
required by law, its articles of incorporation, its bylaws or otherwise, to
authorize the execution, delivery and performance of this Agreement, and this
Agreement is a valid and binding obligation of Rohm, enforceable in
accordance with its terms.
4.3 NO VIOLATION. Neither the execution nor the consummation of this
Agreement will constitute a violation of or default under any term or
provision of Rohm's articles of incorporation or bylaws, or any contract,
commitment, indenture or other agreement or restriction of any kind or
character to which Rohm is a party or by which Rohm is bound. No consent or
approval by, or filing with, any governmental authority is required in
connection with the execution and delivery of this Agreement by Rohm or the
consummation of the transactions contemplated hereby.
4.4 INVESTMENT PURPOSE. Rohm is acquiring the shares of common stock
for its own account for investment purposes and not for the interest of any
other person, and with no present intention of reselling or distributing the
shares of common stock. Rohm acknowledges that the common stock being sold
hereunder has not been registered under the Securities Act of 1933, as
amended, and as such, the common stock is deemed to be "restricted stock" and
may only be resold in compliance with applicable state and federal securities
laws.
3
<PAGE>
4.5 ACCREDITATION. Rohm, and its respective officers and directors,
have such knowledge and experience in business and financial matters as to be
capable of evaluating the merits and risks of investing in the common stock,
and can afford a complete loss of this investment.
ARTICLE FIVE
CONDITIONS PRECEDENT
--------------------
5.1 CONDITIONS PRECEDENT TO RACOM'S OBLIGATIONS. The obligations of
Racom contained in this Agreement are subject to the fulfillment prior to or
at the Closing or Second Closing, as appropriate, of each of the following
conditions:
(a) COMPLIANCE WITH AGREEMENT. Rohm shall have performed,
in all material respects, its obligations and agreements, and complied
in all material respects with its covenants, contained in this
Agreement to the extent required to be performed prior to or at the
Closing or Second Closing, as appropriate.
(b) SUPPORTING DOCUMENTS. All corporate action required to be
taken by Rohm in connection with the transactions contemplated by this
Agreement, as reasonably determined by Racom, shall be evidenced by
documents reasonably satisfactory in form and substance to Racom.
(c) ROHM REPRESENTATIONS. All representations and warranties of
Rohm shall be valid and true on the Closing Date or Second Closing
Date, as appropriate, as if made then and Rohm shall deliver to Racom
such written certification as deemed reasonably necessary by Racom
certifying the validity and truth of Rohm's representations and
warranties.
5.2 CONDITIONS PRECEDENT TO ROHM'S OBLIGATIONS. The obligations of
Rohm contained in this Agreement are subject to the fulfillment prior to or
at the Closing or Second Closing, as appropriate, of each of the following
conditions:
(a) COMPLIANCE WITH AGREEMENT. Racom shall have performed,
in all material respects, its respective obligations and agreements,
and complied in all material respects with its covenants, contained in
this Agreement to the extent required to be performed prior to or at
the Closing or Second Closing, as appropriate.
(b) SUPPORTING DOCUMENTS. All corporate action required to be
taken by Racom in connection with the transactions contemplated by
this Agreement, as reasonably determined by Rohm, shall be evidenced
by documents reasonably satisfactory in form and substance to Rohm.
4
<PAGE>
(c) RACOM REPRESENTATIONS. All representations and
warranties of Racom shall be valid and true on the Closing Date or
Second Closing Date, as appropriate, as if made then and Racom shall
deliver to Rohm such written certification as deemed reasonably
necessary by Rohm certifying the validity and truth of Racom's
representations and warranties.
ARTICLE SIX
INDEMNIFICATION
---------------
6.1 RACOM. Racom shall protect, defend, indemnify and hold Rohm and
its respective officers, directors, employees and agents harmless from any
and all claims (including, without limitation, all losses, liabilities,
demands, expenses, damages, court costs and attorneys' fees and costs),
resulting directly or indirectly, entirely or in part, from any breach of
Racom's obligations, representations and warranties under this Agreement.
Notwithstanding any provision in this Section 6.1 to the contrary, Rohm and
its respective officers, directors, employees and agents shall have no right
to indemnification under this Section 6.1 if the claim results solely from
Rohm's or its respective officers', directors', employees' or agents'
negligent or intentional act or omissions or from a claim by Racom against
Rohm or its respective officers, directors, employees or agents.
6.2 ROHM. Rohm shall protect, defend, indemnify and hold Racom and its
respective officers, directors, employees and agents harmless from any and
all claims (including, without limitation, all losses, liabilities, demands,
expenses, damages, court costs and attorneys' fees and costs), resulting
directly or indirectly, entirely or in part, from any breach of Rohm's
obligations, representations and warranties under this Agreement.
Notwithstanding any provision in this Section 6.2 to the contrary, Racom and
its respective officers, directors, employees and agents shall have no right
to indemnification under this Section 6.2 if the claim results solely from
Racom's or its respective officers', directors', employees' or agents'
negligent or intentional acts or omissions or from a claim by Rohm against
Racom or its respective officers, directors, employees and agents.
ARTICLE SEVEN
EXPENSES OF THE PARTIES
-----------------------
7.1 NO BROKERS OR FINDERS. The parties agree that no broker or finder
is involved in this transaction and no commission is due any broker or
finder. Each party shall indemnify the other against all losses suffered by
the other if the party's warranty hereunder is incorrect or inaccurate.
7.2 PAYMENT OF EXPENSES. Each party to this Agreement agrees to pay
its own expenses incurred in connection with (i) the execution and adoption
of this Agreement and (ii) the consummation of the transactions hereunder,
including, without limitation, disbursements, costs, charges, printing
expenses, attorneys' and accountants' fees (including audit costs).
5
<PAGE>
ARTICLE EIGHT
MISCELLANEOUS
8.1 AMENDMENTS. No part of this Agreement may be amended, altered or
otherwise changed unless in writing duly executed by the parties hereto.
8.2 ENTIRE AGREEMENT AND COUNTERPARTS. This Agreement contains the
entire agreement between the parties and supersedes and shall be substituted
for each and every agreement with respect to the subject matter hereof,
whether written, oral or otherwise in effect between the parties.
8.3 GOVERNING LAW. This Agreement shall be construed and interpreted
in accordance with, and the rights and obligations of the parties shall be
determined by, the laws of the State of California, U.S.A. without giving
effect to the principles of conflicts of laws. This Agreement shall be
executed in the English language which shall be the original and shall
control in the event of any difference between the English text of this
Agreement and any translation hereof which may be made.
8.4 NOTICES. All notices and communications that are required pursuant
to this Agreement shall be written in the English language and transmitted by
airmail and/or telex, acknowledgment of receipt required, to the addressee
party at its respective address set forth in the first paragraph of this
Agreement or such other address as the addressee party may from time to time
designate to the other party in writing
8.5 ASSIGNMENT. Each party to this Agreement may not assign this
Agreement or any rights under this Agreement without the express written
permission of the other party. Notwithstanding the above, in the event of
transfer of a controlling interest in a party to a party not in control at
the time of the execution of this Agreement, this Agreement shall bind and
inure to the benefit of each party, its successors and assigns.
8.6 ARBITRATION. All disputes, controversies, or differences which may
arise between the parties, out of or in relation to or in connection with
this Agreement, or the breach thereof, which cannot be resolved between the
parties shall be settled by arbitration in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of Commerce by
three (3) arbitrators. Each party shall appoint one (1) arbitrator of its
choosing, and the two (2) arbitrators thus selected shall appoint a third
arbitrator, who may not be a national of U.S. or Japan. Such arbitration
shall be held in the English language in Denver, Colorado if Rohm is the
demanding party, or in Osaka, Japan, if Racom is the demanding party. The
arbitration award shall be final and binding upon the parties.
6
<PAGE>
8.7 SEVERABILITY. In the event that any provision hereof is found to
be invalid, illegal or unenforceable, the validity, legality and
unenforceability of the remaining provisions shall in no way be affected or
impaired thereby.
8.8 FURTHER ASSURANCES. In addition to the acts and deeds recited
herein and contemplated to be performed, executed and/or delivered by either
Racom or Rohm, Racom and Rohm shall perform, execute and/or deliver, or cause
to be performed, executed and/or delivered at the Closing or Second Closing,
or, if necessary, after the Closing or Second Closing, any and all further
acts, deeds and assurances as may from time to time be reasonably requested
to consummate the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized representatives to sign this Agreement on the day and year first
above written in duplicate, each party retaining an original copy.
ROHM CO., LTD.
By: /s/ Junichi Hikita
-------------------------------
Name: Junichi Hikita
-----------------------------
Title: Managing Director
----------------------------
RACOM SYSTEMS, INC.
By: /s/ illegible
-------------------------------
Name: ILLEGIBLE
-----------------------------
Title: PRESIDENT/CEO
----------------------------
7
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into effective as of
the 21 day of June, 1995 by and between Rohm Co., Ltd., a corporation organized
under the laws of Japan, having its principal place of business at 21, Saiin
Mizosaki-cho, Ukyo-Ku, Kyoto, 615, Japan ("Rohm"), and Racom Systems, Inc., a
company organized under the laws of the State of Delaware, U.S.A., having its
principal place of business at 6080 Greenwood Plaza Boulevard, Englewood,
Colorado 80111 ("Racom").
RECITALS
--------
THIS AGREEMENT sets forth the understandings and agreements pursuant to
which Rohm will acquire from Racom a total of 500,000 shares of Racom common
stock.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements contained herein, the parties agree as follows:
ARTICLE ONE
SALE AND PURCHASE
-----------------
1.1 SALE AND PURCHASE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement and in reliance on the representations and
warranties contained herein, Rohm hereby agrees to purchase from Racom and
Racom hereby agrees to sell to Rohm a total of 500,000 shares of Racom common
stock, par value $0.01. On the Closing Date (as hereinafter defined), Rohm
shall purchase from Racom 300,000 shares of Racom common stock, par value
$0.01, for a purchase price of US$900,000 (US$3.00 per share). In addition,
on the Second Closing Date (as hereinafter defined) Rohm shall purchase from
Racom an additional 200,000 shares of Racom common stock, par value $0.01,
for a purchase price of US$600,000 (US$3.00 per share). The terms,
designations, rights, preferences and limitations of the Common Stock are as
set forth in Racom's certificate of incorporation and bylaws. The parties
agree that the Purchase Price shall be paid in the manner specified in
Article 2 below.
ARTICLE TWO
CLOSING AND SECOND CLOSING
--------------------------
2.1 CLOSING AND SECOND CLOSING. For purposes of this Agreement, (i)
the term "Closing" or "Closing Date" shall mean a date not more than ten (10)
days following the execution by the parties of the Cooperative Agreement for
Licensed Manufacturing of Ferroelectric RFID Products, such date to be
mutually agreed to by the parties, and (ii) the term "Second Closing" or
"Second Closing Date" shall mean a date not more than thirty (30) days
following the cumulative sale by Rohm of ten million Custom Ferroelectric
RFID Products, such date to be mutually agreed
<PAGE>
by the parties. Subject to the performance, satisfaction or waiver of each
condition precedent set forth in Article 5 hereof, the Closing and Second
Closing of the purchase and sale of the common stock shall take place at a
mutually convenient location as agreed by the parties.
2.2 SUBMISSIONS OF RACOM. On each of the Closing Date and Second
Closing Date, Racom shall deliver to Rohm the following:
(a) A stock certificate(s) duly endorsed or with stock power(s)
duly endorsed in favor of Rohm for the appropriate number of
shares of common stock being purchased on such date;
(b) A copy of the resolutions of Racom's Board of Directors
approving the execution of this Agreement and the consummation of the
transactions contemplated by this Agreement; and
(c) Such other documents or instruments as may be reasonably
requested by Rohm to consummate the transactions contemplated in this
Agreement.
2.3 SUBMISSIONS OF ROHM. On each of the Closing Date and Second
Closing Date, Rohm shall:
(a) Wire transfer to Racom at Racom's direction the applicable
purchase price for the common stock being purchased on such date and submit
such certifications or confirmations, as deemed reasonably necessary by
Racom, verifying the payment of the purchase price; and
(b) Such other documents or instruments as may be reasonably
requested by Racom to consummate the transactions contemplated in this
Agreement.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
------------------------------
OF RACOM
--------
Racom hereby represents and warrants to Rohm as follows:
3.1 ORGANIZATION AND GOOD STANDING. Racom is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware, U.S.A. and has all requisite power and authority to conduct its
business as such business is now conducted.
3.2 CORPORATE POWER. Racom has complete power to execute, deliver and
perform this Agreement and, as of the Closing, has taken all corporate action
required by law, its articles of incorporation, its bylaws or otherwise, to
authorize the execution, delivery and performance of this
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Agreement, and this Agreement is a valid and binding obligation of Racom,
enforceable in accordance with its terms.
3.3 NO VIOLATION. Neither the execution nor the consummation of this
Agreement will constitute a violation of or default under any term or
provision of Racom's articles of incorporation or bylaws, or any contract,
commitment, indenture or other agreement or restriction of any kind or
character to which Racom is a party or by which Racom is bound. No consent
or approval by, or filing with, any governmental authority is required in
connection with the execution and delivery of this Agreement by Racom or the
consummation of the transactions contemplated hereby.
3.4 RESTRICTIONS. The shares of Common Stock to be transferred
pursuant to this Agreement will be transferred free and clear of all liens
and other encumbrances.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES
------------------------------
OF ROHM
-------
Rohm represents and warrants to Racom as follows:
4.1 ORGANIZATION AND GOOD STANDING. Rohm is a corporation, duly
organized, validly existing and in good standing under the laws of Japan and
has all requisite power and authority to conduct its business as it is now
conducted.
4.2 CORPORATE POWER. Rohm has complete power to execute, deliver and
perform this Agreement and, as of the Closing, has taken all corporate action
required by law, its articles of incorporation, its bylaws or otherwise, to
authorize the execution, delivery and performance of this Agreement, and this
Agreement is a valid and binding obligation of Rohm, enforceable in
accordance with its terms.
4.3 NO VIOLATION. Neither the execution nor the consummation of this
Agreement will constitute a violation of or default under any term or
provision of Rohm's articles of incorporation or bylaws, or any contract,
commitment, indenture or other agreement or restriction of any kind or
character to which Rohm is a party or by which Rohm is bound. No consent or
approval by, or filing with, any governmental authority is required in
connection with the execution and delivery of this Agreement by Rohm or the
consummation of the transactions contemplated hereby.
4.4 INVESTMENT PURPOSE. Rohm is acquiring the shares of common stock
for its own account for investment purposes and not for the interest of any
other person, and with no present intention of reselling or distributing the
shares of common stock. Rohm acknowledges that the common stock being sold
hereunder has not been registered under the Securities Act of 1933, as
amended, and as such, the common stock is deemed to be "restricted stock" and
may only be resold in compliance with applicable state and federal securities
laws.
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4.5 ACCREDITATION. Rohm, and its respective officers and directors,
have such knowledge and experience in business and financial matters as to be
capable of evaluating the merits and risks of investing in the common stock,
and can afford a complete loss of this investment.
ARTICLE FIVE
CONDITIONS PRECEDENT
--------------------
5.1 CONDITIONS PRECEDENT TO RACOM'S OBLIGATIONS. The obligations of
Racom contained in this Agreement are subject to the fulfillment prior to or
at the Closing or Second Closing, as appropriate, of each of the following
conditions:
(a) COMPLIANCE WITH AGEEMENT. Rohm shall have performed, in all
material respects, its obligations and agreements, and complied in all
material respects with its covenants, contained in this Agreement to
the extent required to be performed prior to or at the Closing or
Second Closing, as appropriate.
(b) SUPPORTING DOCUMENTS. All corporate action required to be
taken by Rohm in connection with the transactions contemplated by this
Agreement, as reasonably determined by Racom, shall be evidenced by
documents reasonably satisfactory in form and substance to Racom.
(c) ROHM REPRESENTATIONS. All representations and
warranties of Rohm shall be valid and true on the Closing Date or
Second Closing Date, as appropriate, as if made then and Rohm shall
deliver to Racom such written certification as deemed reasonably
necessary by Racom certifying the validity and truth of Rohm's
representations and warranties.
5.2 CONDITIONS PRECEDENT TO ROHM'S OBLIGATIONS. The obligations of
Rohm contained in this Agreement are subject to the fulfillment prior to or
at the Closing or Second Closing, as appropriate, of each of the following
conditions:
(a) COMPLIANCE WITH AGREEMENT. Racom shall have performed,
in all material respects, its respective obligations and agreements,
and complied in all material respects with its covenants, contained in
this Agreement to the extent required to be performed prior to or at
the Closing or Second Closing, as appropriate.
(b) SUPPORTING DOCUMENTS. All corporate action required to
be taken by Racom in connection with the transactions contemplated by
this Agreement, as reasonably determined by Rohm, shall be evidenced
by documents reasonably satisfactory in form and substance to Rohm.
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(c) RACOM REPRESENTATIONS. All representations and
warranties of Racom shall be valid and true on the Closing Date or
Second Closing Date, as appropriate, as if made then and Racom shall
deliver to Rohm such written certification as deemed reasonably
necessary by Rohm certifying the validity and truth of Racom's
representations and warranties.
ARTICLE SIX
INDEMNIFICATION
---------------
6.1 RACOM. Racom shall protect, defend, indemnify and hold Rohm and
its respective officers, directors, employees and agents harmless from any
and all claims (including, without limitation, all losses, liabilities,
demands, expenses, damages, court costs and attorneys' fees and costs),
resulting directly or indirectly, entirely or in part, from any breach of
Racom's obligations, representations and warranties under this Agreement.
Notwithstanding any provision in this Section 6.1 to the contrary, Rohm and
its respective officers, directors, employees and agents shall have no right
to indemnification under this Section 6.1 if the claim results solely from
Rohm's or its respective officers', directors', employees' or agents'
negligent or intentional act or omissions or from a claim by Racom against
Rohm or its respective officers, directors, employees or agents.
6.2 ROHM. Rohm shall protect, defend, indemnify and hold Racom and its
respective officers, directors, employees and agents harmless from any and
all claims (including, without limitation, all losses, liabilities, demands,
expenses, damages, court costs and attorneys' fees and costs), resulting
directly or indirectly, entirely or in part, from any breach of Rohm's
obligations, representations and warranties under this Agreement.
Notwithstanding any provision in this Section 6.2 to the contrary, Racom and
its respective officers, directors, employees and agents shall have no right
to indemnification under this Section 6.2 if the claim results solely from
Racom's or its respective officers', directors', employees' or agents'
negligent or intentional acts or omissions or from a claim by Rohm against
Racom or its respective officers, directors, employees and agents.
ARTICLE SEVEN
EXPENSES OF THE PARTIES
-----------------------
7.1 NO BROKERS OR FINDERS. The parties agree that no broker or finder
is involved in this transaction and no commission is due any broker or
finder. Each party shall indemnify the other against all losses suffered by
the other if the party's warranty hereunder is incorrect or inaccurate.
7.2 PAYMENT OF EXPENSES. Each party to this Agreement agrees to pay
its own expenses incurred in connection with (i) the execution and adoption of
this Agreement and (ii) the consummation of the transactions hereunder,
including, without limitation, disbursements, costs, charges, printing expenses,
attorneys' and accountants' fees (including audit costs).
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ARTICLE EIGHT
MISCELLANEOUS
-------------
8.1 AMENDMENTS. No part of this Agreement may be amended, altered or
otherwise changed unless in writing duly executed by the parties hereto.
8.2 ENTIRE AGREEMENT AND COUNTERPARTS. This Agreement contains the
entire agreement between the parties and supersedes and shall be substituted
for each and every agreement with respect to the subject matter hereof,
whether written, oral or otherwise in effect between the parties.
8.3 GOVERNING LAW. This Agreement shall be construed and interpreted
in accordance with, and the rights and obligations of the parties shall be
determined by, the laws of the State of California, U.S.A. without giving
effect to the principles of conflicts of laws. This Agreement shall be
executed in the English language which shall be the original and shall
control in the event of any difference between the English text of this
Agreement and any translation hereof which may be made.
8.4 NOTICES. All notices and communications that are required pursuant
to this Agreement shall be written in the English language and transmitted by
airmail and/or telex, acknowledgment of receipt required, to the addressee
party at its respective address set forth in the first paragraph of this
Agreement or such other address as the addressee party may from time to time
designate to the other party in writing
8.5 ASSIGNMENT. Each party to this Agreement may not assign this
Agreement or any rights under this Agreement without the express written
permission of the other party. Notwithstanding the above, in the event of
transfer of a controlling interest in a party to a party not in control at
the time of the execution of this Agreement, this Agreement shall bind and
inure to the benefit of each party, its successors and assigns.
8.6 ARBITRATION. All disputes, controversies, or differences which may
arise between the parties, out of or in relation to or in connection with
this Agreement, or the breach thereof, which cannot be resolved between the
parties shall be settled by arbitration in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of Commerce by
three (3) arbitrators. Each party shall appoint one (1) arbitrator of its
choosing, and the two (2) arbitrators thus selected shall appoint a third
arbitrator, who may not be a national of U.S. or Japan. Such arbitration
shall be held in the English language in Denver, Colorado if Rohm is the
demanding party, or in Osaka, Japan, if Racom is the demanding party. The
arbitration award shall be final and binding upon the parties.
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8.7 SEVERABILITY. In the event that any provision hereof is found to be
invalid, illegal or unenforceable, the validity, legality and
unenforceability of the remaining provisions shall in no way be affected or
impaired thereby.
8.8 FURTHER ASSURANCES. In addition to the acts and deeds recited
herein and contemplated to be performed, executed and/or delivered by either
Racom or Rohm, Racom and Rohm shall perform, execute and/or deliver, or cause
to be performed, executed and/or delivered at the Closing or Second Closing,
or, if necessary, after the Closing or Second Closing, any and all further
acts, deeds and assurances as may from time to time be reasonably requested
to consummate the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized representatives to sign this Agreement on the day and year first
above written in duplicate, each party retaining an original copy.
ROHM CO., LTD.
By: /s/ Junichi Hikita
-------------------------------
Name: Junichi Hikita
-----------------------------
Title: Managing Director
----------------------------
RACOM SYSTEMS, INC.
By: /s/ illegible
-------------------------------
Name: ILLEGIBLE
-----------------------------
Title: PRESIDENT/CEO
----------------------------
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EXHIBIT 10.10
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is entered into effective as
of the 30th day of June, 1995, by and between Intag International Limited,
ACN 009 270 188, a company organization and existing under the laws of New South
Wales, Australia ("Intag"), and Racom Systems, Inc., a corporation organized and
existing under the laws of Delaware, U.S.A. ("Racom").
RECITALS
A. Pursuant to the terms of that certain Racom/Intag In-Charge
Strategic Agreement negotiated between Intag and Racom ("In-Charge Agreement"),
Racom agreed to sublicense to Intag certain ferroelectric technology rights
Racom had previously licensed from Ramtron International Corporation
("Ramtron").
B. The In-Charge Agreement was prepared and was subject to final
review and approval of the Board of Directors of Racom. In expectation of
the execution of the In-Charge Agreement, Racom received a deposit of
US$l million from Intag and is entitled to receive a further payment of
US$l million.
C. Ramtron, however, did not consent to the execution of the
In-Charge Agreement and thus, such agreement was never executed.
D. Pursuant to the terms of that certain Bagtag/Intertrak License
Agreement between Intag and Intag Systems, Inc. ("ISI"), a wholly owned
subsidiary of Racom ("Bagtag Agreement"), Intag agreed to sublicense the
Bagtag/Intertrak technology to ISI which Intag had previously obtained from
Magellan Consolidated Pty Limited ACN 050 219 666 ("Magellan").
E. The Bagtag Agreement was prepared and was subject to final
review and approval by the Board of Directors of Intag and also of Magellan.
In expectation of the execution of the Bagtag Agreement, Intag received a
deposit from Racom in the amount of US$200,000 and a deposit from ISI in the
amount of US$300,000.
F. Magellan, however, did not consent to the execution of the
Bagtag Agreement and thus, such agreement was never executed.
G. As a result of these and other outstanding issues, Intag,
Racom and Ramtron entered into a binding memorandum of understanding dated
May 8, 1995 ("MOU"), whereunder Intag and Racom have agreed to modify and
finally settle several outstanding issues between the parties including,
without limitation, issues in connection with the In-Charge Agreement and the
Bagtag Agreement.
<PAGE>
H. Intag and Racom now desire to set forth their intention and
agreement to resolve these outstanding issues between the parties all as set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
AGREEMENT
1. IN-CHARGE AGREEMENT. Racom and Intag hereby agree to abandon
all discussions concerning the In-Charge Agreement and the license by Racom
to Intag of certain ferroelectric technology thereunder. Pursuant to the
terms of the MOU, the parties anticipate that the license of such ferroelectric
technology to Intag shall be granted directly by Ramtron. In connection with
the abandonment of discussions concerning the In-Charge Agreement, Racom shall
return to Intag the US$1 million deposit previously paid by Intag to Racom. Such
amount shall be settled between the parties as specified in Section 4 below.
2. RACOM CONSENT. Racom hereby consents to the Ramtron/Intag
license described in Section 1 above. Notwithstanding the above, Racom's
consent shall only be valid for a license by Ramtron to Intag of the
ferroelectric technology for exclusive use in combination with contactless
technology (and including a microprocessor) for airline, postal, courier and
conveyor-fed applications. It is expected that Intag will hold these rights
exclusively except that Racom shall also have the right to sell financial
transaction cards in those markets which are not conveyor fed and do not
require a tunnel reader. As part of such license, Intag shall also be granted
a non-exclusive, worldwide rights to develop and sell products incorporating
the ferroelectric and contactless technology (but not incorporating a
microprocessor) for other RFID applications. Such license shall not grant to
Intag the right to manufacture FRAM chips.
3. BAGTAG/INTERTRAK AGREEMENT. In contemplation of Intag and ISI
entering into the Bagtag Agreement, Intag received a deposit from Racom in
the amount of US$200,000 and a deposit from ISI in the amount of US$300,000.
The parties hereby agree to abandon further discussions concerning the Bagtag
Agreement and Intag agrees to (i) refund to Racom the US$200,000 deposit and
(ii) refund to ISI the US$300,000 deposit. All such refunds shall be settled
in the manner specified in Section 4 before. Intag acknowledges and agrees
that the ISI deposit specified above was made by ISI pursuant to advances
from Racom. Accordingly, Intag acknowledges and agrees that ISI, upon receipt
of such deposit refund, shall repay such advances to Racom. Following such
repayment by ISI, Intag agrees to purchase all of the issued and outstanding
common stock of ISI from Racom for a purchase price of US$100,000. Such
purchase shall be consummated pursuant to a Stock Purchase Agreement
substantially in the form of Exhibit A attached hereto and incorporated
herein.
4. COMPENSATION AND PAYMENTS. As partial consideration for Racom's
consent described above and for the other agreements contained herein, Intag
(i) has paid to Racom the sum of US$200,000 (net), (ii) has paid to Ramtron, on
behalf of Racom, the sum of
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US$600,000, and (iii) shall offset the sum of US$400,000 against amounts owed
by Racom to Intag, as set forth below,
As additional consideration, effective on the date of this Agreement,
Intag agrees to convert all amounts of principal and interest outstanding under
the Original Loans and the Working Capital Loans, as such amounts are shown on
Exhibit B attached hereto and incorporated herein, to Racom common stock, par
value $0.01, at $1.50 and $2.50 per share, respectively.
Additionally, the parties agree that effective on the effective date
of this Agreement, the parties shall offset all amounts owed by Intag to Racom
under section 4(iii) above against US$400,000 of principal owed by Racom to
Intag under the license amendment loan. Racom shall pay to Intag all interest
outstanding under such loan within ninety (90) days following the effective date
hereof.
Intag also agrees to defer Racom's payment of the US$500,000 in
Secured Promissory Notes due by Racom to Intag for a period of twelve (12)
months from the date of this Agreement, or until Racom is reasonably able to
repay such amount out of proceeds from new capital raisings, whichever occurs
first.
With regard to the refund of deposits for the In-Charge Agreement
and Bagtag Agreement as specified above, effective on the date of this
Agreement, the parties agree that Intag shall offset the amount of
US$ 600,000 (constituting the US$ 200,000 deposit refund to Racom, the
US$300,000 deposit refund to ISI and the US$100,000 purchase price for the ISI
stock) against the In-Charge deposit owed by Racom to Intag. Effective on the
date of this Agreement, the remaining US$400,000 shall be converted by Intag to
Racom common stock, par value $0.01, at a rate of US$2.50 per share (160,000
shares).
5. TERMINATION OF SECURITY AGREEMENT. Upon payment in full by Racom
of all amounts outstanding as Secured Promissory Notes as described in Section 4
above, Intag shall terminate the Assignment and Security Agreement entered into
by the parties on March 23, 1995 ("Security Agreement"), and concurrent with
such termination, Intag shall take all reasonable steps and execute all
reasonable documentation to release its security interest in all collateral
subject to such Security Agreement.
6. GATAF SUBLICENSE. Racom hereby agrees to sublicense to Intag
certain assembly and marketing (but not manufacturing) rights for the sole
purpose of further sublicensing such rights to Gataf. The sublicense to Gataf
shall be subject to Racom's review and approval, not to be unreasonably
withheld, of Intag's sublicense agreement with Gataf. Intag and Racom agree to
jointly support the modification and implementation of the Gataf sublicense,
sharing equally in any future license fees and/or royalties net of expenses
attributable to Racom products.
7. SUCCESSORS AND ASSIGNS AND BINDING EFFECT. The rights and
benefits of the parties under this Agreement shall accrue to, and run in favor
of, each party's successors and assigns.
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The rights and obligations of the parties under this Agreement shall be
binding upon their respective successors and assigns.
8. ASSIGNMENTS. No party shall make or purport to make any
assignment, transfer or conveyance, in whole or in part, of its rights and
obligations under this Agreement without the prior written consent of the
other party such consent to be within the other party's sole discretion.
9. GOVERNING LAW. This Agreement shall take effect under, be
construed and enforced according to, and be governed by the laws in force in
the State of Colorado, USA, without reference to conflict of laws principles.
10. SEVERABILITY. The provisions of this Agreement are severable.
If any provision or part of this Agreement shall be held by any court or other
official body of competent jurisdiction to be invalid or unenforceable for any
reason, the remaining provision or parts hereof shall continue to be given
effect and shall bind the parties hereto unless the unenforceability or
illegality has the consequence of substantially altering the respective rights
and obligations of the parties hereto.
11. WAIVERS. Any waiver exercised under any provision of this
Agreement shall not be deemed a general waiver with respect to any other
provision of this Agreement, and no failure to exercise and no delay in
exercising, any right, power or privilege hereunder shall operate as a waiver
thereof, except where specified to the contrary herein, nor shall any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or of any other right, power or privilege.
The rights and remedies provided herein are, and shall be interpreted to be,
cumulative and not exclusive of any other rights provided by law or otherwise.
12. NOTICES. All notices permitted or required to be given to the
parties of this Agreement shall be in writing and delivered personally or
sent by certified or registered airmail (return receipt required, postage
prepaid), by air freight (return receipt requested), or by telefax or telex
(with receipt acknowledgement requested) addressed to the respective party at
its usual and principal place of business. Such notices shall be deemed to
have been effectively given and received on the day of delivery if delivered
personally, or, if by telegram, telefax, telex, or air freight, on the next
day following the sending of such notice by telegram, telefax, telex, or air
freight provided that receipt shall have been acknowledged, and, if mailed, on
the seventh (7th) business day following such mailing.
13. ENTIRE AGREEMENT. This Agreement contains the entire and only
agreement of the parties with respect to the subject matter contained herein
and supersedes and entirely replaces any and all other agreements either oral
or written between the parties with respect thereto including, without
limitation, the provisions of the MOU relating to the parties, and each of
the parties acknowledges that it has no claims against the other under or
arising from any prior understanding or document. No agreement, statement or
promise relating to the subject matter
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of this Agreement, executed prior to the date hereof, which is not contained
herein shall be valid or binding.
14. CHANGES OR AMENDMENT. Any change, revision, termination or
attempted waiver of any of the provisions contained in this Agreement shall
not be binding unless in writing and signed by the party against whom the
same is sought to be enforced. This Section may only be waived in writting.
This Agreement shall be amended or supplemented only by written instrument
duly executed by or on behalf of the parties hereto.
15. COUNTERPARTS. This Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute one and
the same agreement.
IN WITNESS WHEREOF, the undersigned parties to this Agreement have
executed this document as of the date and year first above written.
INTAG INTERNATIONAL LIMITED RACOM SYSTEM, INC.
By: By:
---------------------------- ---------------------------
Name: Name:
-------------------------- -------------------------
Title: Title:
------------------------- ------------------------
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Exhibit 10.11
ASSIGNMENT AND SECURITY AGREEMENT
THIS ASSIGNMENT AND SECURITY AGREEMENT (hereinafter "Agreement") is entered
into as of the 23rd day of March, 1995, by Racom Systems, Inc., a corporation
organised under the laws of the State of Delaware, USA having its principal
place of business at 6080 Greenwood Plaza Boulevard, Englewood, Colorado
80111 (hereinafter "Racom") and Intag International Limited (ACN 009 270 188
a company organized under the laws of the State of New South Wales, Australia
having its principal place of business at 9th Floor, 27-31 Macquarie Place,
Sydney NSW 2000, Australia (hereinafter "Intag")
RECITALS
A. As of the date of this Agreement, Intag has advanced to Racom certain
funds for use by Racom for operations and working capital.
B. The parties anticipate that Intag will make further advances to Racom in
the future for similar purposes.
C. To induce Intag to make further advances, the parties desire to secure
Racom's repayment of such past and future advances in the manner provided in
this Agreement.
NOW, THEREFORE, in consideration of the recitals set forth above and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
AGREEMENT
Section 1. ASSIGNMENT AND GRANT OF SECURITY, As security for the
payment of the Secured Moneys, Racom does hereby assign and pledge to Intag
and does hereby grant to Intag a continuing security interest in and lien
upon, all of the right, title and interest of Racom, in and to all of Racom's
personal property, rights and interests, whether tangible or intangible, now
owned or hereafter acquired, including without limitation, all "goods"
(including but not limited to "equipment" and "inventory"), "accounts",
"chattel paper", "documents", "instruments", "fixtures" and "general
intangibles" (including but not limited to contract and intellectual property
rights), as such terms are defined in Article 9 of the Uniform Commercial
Code as in effect in the State of Colorado from time to time and in all books
and records related thereto or which are otherwise necessary or helpful in
the collection thereof or realisation thereupon, and all renewals,
substitutions, replacements, additions, accessions, proceeds and products
thereof, specifically excluding, however, those assets described on Exhibit A
attached hereto and incorporated herein by this reference (hereinafter
referred to from time to time as the "Collateral"). For purposes of this
Agreement:
(a) the term "Secured Moneys" means all debts and monetary liabilities of
Racom to Intag, of any nature, irrespective of whether the debts or
liabilities are present or future; actual, prospective or contingent; owed or
incurred to or for the account of Racom alone or severally or jointly with
any other person; owed or incurred as principal, interest, fees, charges,
taxes, duties or other imposts, damages (whether for breach of contract or
tort or incurred on any ground), losses, costs or expenses or on any other
account, or comprising any combination of the foregoing and shall include
without limitation:
<PAGE>
(i) all amounts advanced by Intag to Racom prior to the date of this
Agreement (collectively "OLD OBLIGATIONS") which total [US$2,433,797.98]
comprising Original Loans - $933,797.98; Working Capital Facility -
$700,000, License Amendment Loan - $400,000 and Additional Working Capital
Facility - $400,000, the details of which are particularised in Exhibit B;
and
(ii) certain secured promissory notes or working capital facility
advances issued or made concurrent with and subsequent to the date
of the Agreement ("SECURED PROMISSORY NOTES");
(b) the term Collateral shall also be deemed to incorporate all assets
acquired by Racom, in any manner whatsoever, subsequent to the date of this
Agreement.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS. Racom represents
and warrants to and covenants with Intag as follows:
(a) Racom is the legal and beneficial owner of all of the Collateral and has
not granted and there does not exist any other assignment, pledge, lien,
security interest, encumbrance or other right, title or interest of any
person in the Collateral except as specified on Exhibit C attached hereto and
Racom shall defend the Collateral against all claims and demands of all
persons at any time claiming the same or any interest therein adverse to
Intag's interests therein.
(b) Except as specified on Exhibit C attached hereto, there is no financing
statement or similar filing, registration, notice or assignment under the law
of any jurisdiction (collectively "Registrations") now existing, on file or
registered in any public office covering any interest of any kind in the
Collateral and so long as any Secured Money remains unpaid, Racom will not
execute or permit or suffer to exist any other, further or future
Registration relating to the Collateral, except Registrations filed in
respect of and covering the security interest of Intag in the Collateral
granted hereby.
(c) This Agreement has been duly authorised by all necessary legal action
and by Racom's Board of Directors and constitutes the duly authorised, legal,
valid and binding obligation of Racom enforceable in accordance with its
terms.
SECTION 3. SPECIAL PROVISIONS CONCERNING COLLATERAL. Racom agrees
to cause all payments received by Racom for the sale of any of the Collateral
to be made directly to Intag. To the extent that Racom shall receive any
such payments for the sale of Collateral directly, such payments shall be
held in trust for the benefit of Intag and Racom will promptly forward all
proceeds so received by it directly to Intag.
SECTION 4. REGISTRATIONS; DOCUMENTARY STAMP TAXES. Racom agrees at
any time and from time to time to execute and deliver to Intag such
Registrations, in form acceptable to Intag, as may be necessary or
appropriate, as determined by Intag in its discretion, to establish and
maintain a valid, enforceable, perfected security interest in the Collateral.
Racom will pay any applicable filing fees, documentary stamp taxes and
related expenses in connection with the filing of such Registrations.
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SECTION 5. EVENTS OF DEFAULT
Each of the following shall constitute an event of default under
this Agreement:
(a) Failure by Racom to repay any of the Secured Moneys when due
and payable.
(b) Failure by Racom to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of
the documents referred to in Exhibit B.
(c) The appointment of a receiver for any part of Racom's
property, any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of the proceeding under any bankruptcy laws by
or against Racom.
Section 6. SPECIAL PROVISIONS CONCERNING REMEDIES AND SALE. In
addition to any rights and remedies now or hereafter granted under applicable
law and not by way of limitation, Intag shall at all times have all of the
rights and remedies, in law or equity, of a secured party under Colorado law
in addition to the rights and remedies provided herein, including, without
limitation, all rights and remedies of a secured party under Article 9 of the
Uniform Commercial Code as in effect in the State of Colorado from time to
time. Intag is hereby appointed Racom's attorney-in-fact, at Intag's option,
to take such action with respect to Racom's accounts as Intag is authorised
by law or this Agreement to take. The power granted hereunder, being coupled
with an interest, shall be irrevocable so long as any of the Secured Money
remains unpaid. After final payment in full of the Secured Moneys, any
Collateral held by Intag shall be turned over to Racom and any and all
security interests held by Intag on the Collateral shall be deemed
automatically terminated without any further representations, warranties or
agreements of any kind, and Intag shall timely perform and undertake at the
request of Racom all actions necessary for the release of such security
interests in the Collateral.
Section 7. MISCELLANEOUS
(a) Any notice or demand upon either party shall be deemed to have
been sufficiently given mailed if, postage prepaid, by registered or
certified air mail, five (5) days after deposit in the mails, or if telexed,
when sent, with an answer-back received, or if delivered by hand, when
delivered, in each case to the address set forth in the first paragraph
hereof or to such other address as either party may designate in writing.
(b) No delay on the part of Intag in exercising any of its rights,
remedies, powers and privileges hereunder or any partial or single exercise
thereof shall constitute a waiver thereof. None of the terms and conditions
of this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by Racom and Intag. No notice to or
demand on Racom in any case shall entitle Racom to any other or further
notice or demand in similar or other circumstances or constitute a waiver of
any of the rights of Intag to any other or further action in any
circumstances without notice or demand.
(c) The Secured Promissory Notes and Old Obligations shall remain
in full force and effect without regard to, and shall not be impaired by (i)
any exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement, any other agreement or
instrument relating to the Secured Promissory Notes and Old Obligations, any
guaranty, or any other security for any of the Secured
3
<PAGE>
Promissory Notes and Old Obligations; or (ii) any amendment to or
modification or extension of, any agreement, document or instrument
evidencing or relating to the Secured Promissory Notes and/or Old
Obligations, the Secured Promissory Notes and/or Old Obligations themselves
or any security or guaranty for any of the Secured Promissory Notes and/or
Old Obligations, whether or not Racom shall have notice or knowledge of any
of the foregoing. The rights and remedies of Intag herein provided are
cumulative and not exclusive of any rights or remedies which Intag would
otherwise have.
(d) This Agreement shall be binding upon Racom and its successors
and assigns and shall inure to the benefit of Intag and its successors and
assigns, except that Racom may not transfer or assign any of its obligations,
rights or interests hereunder without the prior written consent of Intag. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement.
(e) The descriptive headings of the several sections of this
Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provisions hereof.
(f) Any provisions hereof which are prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
(g) It is expressly agreed, notwithstanding anything herein or in
any other agreement to the contrary, that Racom shall be and remain liable to
perform all of its obligations (including without limitation, its obligations
to preserve, protect and maintain the Collateral, and to collect payments due
under the Collateral) with respect to the Collateral and Intag shall not have
any obligations or liabilities with respect to the Collateral by reason of or
arising out of this Agreement, nor shall Intag be required or obligated in
any manner to perform or fulfil any of the obligations of Racom under or
pursuant to the Collateral.
(h) This Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and be governed by the laws
of the State of Colorado.
(i) The parties acknowledge that the Secured Promissory Notes and
the promissory notes evidencing the Old Obligations currently have or may
have in the future certain provisions whereunder the debt evidenced by such
promissory notes may be converted into Racom common stock. In the event that
Intag exercises its rights under such notes and converts all or a portion of
the debt evidenced by such notes into Racom common stock, the parties agree
that the Secured Moneys shall be reduced by an amount equal to the amount of
debt evidenced by such promissory notes which in converted into Racom common
stock on the date any such conversion takes effect.
Section 8. VARIATION OF AGREEMENT. Following the date hereof, this
Agreement may be varied, by a writing signed by both parties on terms
acceptable to Intag and Racom, to accommodate Racom's capital raising
proposals.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered as of the date first written above.
4
<PAGE>
Racom Systems, Inc. by order of its Board of Directors:
By: /s/ Brian L. Harcourt
----------------------------------------------
Name: Brian L. Harcourt
Title: Chairman and Chief Executive Officer
Intag International Limited
By:
----------------------------------------------
Name:
Title:
5
<PAGE>
EXHIBIT A
NONE
<PAGE>
EXHIBIT B
LOAN SUMMARY
As of March 23, 1995
ORIGINAL LOANS: $933,797.98
WORKING CAPITAL FACILITY: $700,000.00
LICENSE AMENDMENT LOAN: $400,000.00
SECURED PROMISSORY NOTES: $400,000.00
-----------
TOTAL $2,433,797.98
*The above represents principle only and does not include accrued interest
payable.
<PAGE>
ORIGINAL LOANS
ORIGINAL OUTSTANDING
DATE AMOUNT BALANCE
- ---- ----------- -----------
September 2, 1993 85,000.00
October 5, 1993 120,000.00
November 1, 1993 120,000.00
December 1, 1993 120,000.00
December 23, 1993 15,000.00
December 31, 1993 28,797.98
January 11, 1994 50,000.00
January 21, 1994 50,000.00
February 2, 1994 50,000.00
February 18, 1994 60,000.00
March 10, 1994 50,000.00
March 22, 1994 25,000.00
March 24, 1994 10,000.00
March 30,1994 100,000.00
April 11, 1994 50,000.00
-----------
Total $933,797.98 $933,797.98
<PAGE>
WORKING CAPITAL FACILITY
ORIGINAL OUTSTANDING
DATE AMOUNT BALANCE
- ---- ----------- -----------
April 21, 1994 $50,000.00
April 26, 1994 50,000.00
October 11, 1994 100,000.00
October 11, 1994 100,000.00
October 14, 1994 300,000.00
November 3, 1994 300,000.00
December 13, 1994 100,000.00
December 22, 1994 (200,000.00)
December 29, 1994 (100,000,00)
-----------
Total $700,000.00 $700,000.00
<PAGE>
SECURED PROMISSORY NOTES
ORIGINAL OUTSTANDING
DATE AMOUNT BALANCE
- ---- ----------- -----------
February 22, 1995 $150,000.00
February 28, 1995 60,000.00
March 6, 1995 90,000.00
March 15,1995 100,000.00
-----------
Total $400,000.00 $400,000.00
March 29, 1995 50,000.00
March 31, 1995 50,000.00 $500,000.00
-----------
500,000.00
<PAGE>
EXHIBIT C
Various operating leases on office equipment including copiers, fax machines
and computers.
<PAGE>
EXHIBIT 10.12
TECHNOLOGY LICENSE AGREEMENT
THIS AGREEMENT, dated as of the 23rd day of October , 1991, by and
between RAMTRON CORPORATION ("Ramtron"), a Delaware, USA, corporation having its
principal office at 1850 Ramtron Drive Colorado Springs, Colorado 80921, United
States of America and Racom Systems Inc. ("Licensee"), a Delaware USA
corporation having its principal office at ____________________________________.
RECITALS
A. Ramtron has developed and owns certain confidential and proprietary
thin-film ferroelectric technology with minimum physical dimensions of
1.2 microns utilizing a storage cell comprised of two transistors and
two capacitors which, when applied to a separate base semiconductor
technology, can be used for the manufacture and production of
nonvolatile, random access semiconductor memory devices.
B. Licensee desires to acquire a license to use the Ferroelectric
Technology in order to manufacture and sell Ferroelectric RF/ID
Products, and Ramtron is willing to grant such a license to Licensee
subject to the terms of this Agreement.
C. Ramtron is a wholly-owned subsidiary of Ramtron International
Corporation ("RIC"), a Delaware, USA, corporation having the same
principal office as Ramtron.
NOW, THEREFORE, in consideration of the recitals and the mutual covenants
contained herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Ramtron and Licensee hereby agree as
follows:
ARTICLE I Definitions
When used in this Agreement, the following terms have the following meanings:
1.1 "Affiliate" means any enterprise, whether a corporation,
unincorporated association, joint venture, partnership or otherwise in
which a person or corporation, any holding company or subsidiary of
such corporation, or any holding company or subsidiary of such holding
company, participates directly or indirectly and in relation to such
enterprise, such person, corporation or any such holding company or
subsidiary has the power to appoint the management thereof, or control
the majority of votes at a general meeting.
1.2 "Ferroelectric Technology" means the technology referred to in Recital
A and all patents, semiconductor chip or circuit Layout rights,
copyrights, utility models, designs, confidential or other proprietary
rights and applications or rights for registration therefor,
processes, formulae, drawings, trade secrets, know-how,
<PAGE>
technical data and other information relevant to the design and
manufacture of "Ferroelectric RF/ID Products" (as hereinafter defined)
based on the Technology referred to in Recital A made or developed by
Ramtron as of the date of this Agreement together with the
Improvements.
1.3 "RF/ID Product" means a device remotely powered by electromagnetic
waves or sound waves in which data can be retained in such device
and/or altered using electromagnetic waves or sound waves without
electrical or physical contact; this includes a device containing a
microprocessor, commonly known as a "smart card." RF/ID Product does
not include random access non-contact memory cards whose primary
application is data storage, not identification.
1.4 "Ferroelectric RF/ID Products" means RF/ID Products that
Monolithically Incorporate the Ferroelectric Technology and have a
memory capacity of no more than 256-kilobits.
1.5 "Improvements" means all improvements, enhancements and developments
to the Ferroelectric Technology, processes and materials for use
therein, made by Ramtron or its Affiliates prior to June 30, 1996, or
to which Ramtron or its Affiliates may be entitled or may become
entitled prior to June 30, 1996. "Improvements" shall not include any
such improvements, enhancements and developments: (a) if Ramtron or any
of its Affiliates, as the case may be, are expressly prohibited from
making same available to Licensee pursuant to a bona fide contract with a
third party; and (b) unless they have been reduced to commercial
practice, or are capable of imminent reduction to commercial practice
by Ramtron, its Affiliates or Licensee.
1.6 "dollars" or "$" means United States currency unless otherwise
specified.
1.7 "Technology License" has the meaning set forth in Section 2.1.
1.8 "Effective Date" means date of this Agreement.
1.9 "Net Sales" means the total of all gross amounts Licensee invoices or
charges purchasers or licensees or otherwise receives, whether from
purchasers or licensees for or with regard to the sale, license or
other transfer for value of Ferroelectric RF/ID Products in integrated
circuit or wafer form that are Manufactured By (or manufactured on
behalf of Licensee by any sublicensee or subcontractor) Licensee, less
costs of insurance incident to transportation and shipping charges,
excise taxes and customs duties, allowances for actual returns and
uncollectible accounts. Should Licensee sell such Ferroelectric RF/ID
Products in combination with other components or equipment, then the
calculation of Net Sales shall be based on the price normally charged
by Licensee for such Ferroelectric RF/ID Products when separately
invoiced or priced or if no such separately invoiced or priced sales
of such Ferroelectric RF/ID Products have been made, then the
calculation of Net Sales shall be based on the price which Licensee
would charge for such Ferroelectric RF/ID Products in an
<PAGE>
arm's-length commercial sale transaction for cash. "Net Sales" shall
not include any amount which Licensee invoices or charges purchasers
or licensees or otherwise receives from purchasers or licensees with
regard to products purchased by Licensee pursuant to the Supply
Agreement of even date between the parties or any similar agreement
which may be entered into between the parties or their Affiliates from
time to time.
1.10 "Royalty Period" means a period of three (3) months ending on the last
day of March, June, September and December of each year this Agreement
is in effect referred to in Section 2.4, following the expiration of
the immediately preceding Royalty Period.
1.11 "Royalty Year" means each period comprised of each consecutive set of
four (4) Royalty Periods.
1.12 "FRAM Product" means a random access semiconductor memory device
utilizing Ramtron's thin-film ferroelectric technology.
1.13 "Monolithically Incorporate" means all electronic functions are
contained in a single integrated circuit.
1.14 "Manufactured By" means RF/ID products manufactured by Licensee or for
or on behalf of Licensee by any person other than Ramtron or any of
its Affiliates.
ARTICLE II Technology License and Fees
2.1 Grant of License
(a) Upon the terms and subject to the conditions of this Agreement,
Ramtron hereby grants to Licensee a worldwide, nonexclusive,
nontransferable, right and license to use the Ferroelectric
Technology in the design, manufacture, sale, lease and
distribution of Ferroelectric RF/ID Products (the "Technology
License"). The Technology License may not be used by Licensee
for any purpose other than those specifically stated in this
Section 2.1.
(b) With respect to Ramtron's grant of licenses subsequent to the
date or this Agreement other than to the Licensee, Ramtron may,
in its sole discretion, restrict such licenses to preclude the
use of the Ferroelectric Technology in the design, manufacture,
sale, lease or distribution of Ferroelectric RF/ID Products by
including provisions with the following intent:
"Notwithstanding any other provision of this license, the
licensee acknowledges to Ramtron that the right to use the
Ferroelectric Technology in the design, manufacture, sale, lease
or distribution of Ferroelectric RF/ID Products is expressly
excluded from the rights conferred on the licensee hereunder and
the licensee is expressly prohibited from
<PAGE>
using the Ferroelectric Technology in the design, manufacture,
sale, lease and distribution of Ferroelectric RF/ID Products."
(c) In the event that Ramtron does not restrict such licenses as
described above and such licensee or any of its Affiliates
commercially sells Ferroelectric RF/ID Products on or before
December 31, 1996, then, subject to Subsection (f) below,
Licensee shall be entitled to give written notification to
Ramtron requiring either that: (i) if Licensee has paid to
Ramtron the Additional License Fee pursuant to Section 2.2.1(b),
then Ramtron shall pay to Licensee the sum of TWO MILLION DOLLARS
($2,000,000) within thirty (30) days after receiving the
notification; or (ii) if Licensee has not paid to Ramtron the
Additional License Fee pursuant to Section 2.2.1(b), then Ramtron
shall cancel the Additional License Fee referred to in Section
2.2.1(b) Ramtron and Licensee hereby acknowledge that the
payment of TWO MILLION DOLLARS ($2,000,000.00) or alternatively
the cancellation of the Additional License Fee shall constitute
Licensee's sole and exclusive right in such event and such amount
represents a genuine pre-estimate of the liquidated damages
likely to be suffered by the Licensee as a result of commercial
sales of Ferroelectric RF/ID Products by such other licensee or
its Affiliates.
(d) Ramtron acknowledges that there is no restriction imposed upon
Seiko Epson Corporation or Deutsche ITT Industries GWBH ("ITT")
pursuant to licenses granted by Ramtron to such parties to
exploit the Ferroelectric Technology under License Agreement
dated 2 March, 1989 and 1 June, 1988, respectively, as amended
from time to time. In the event that either of Seiko Epson
Corporation or ITT or any of their respective Affiliates
commercially sells Ferroelectric RF/ID Products on or before June
30 1996, then, subject to Subsection (f) below, Licensee shall be
entitled to give written notification to Ramtron requiring either
that: (i) if License has paid to Ramtron the Additional License
Fee pursuant to Section 2.2. 1 (b) , then Ramtron shall pay to
the Licensee the sum of ONE MILLION DOLLARS ($1,000,000.00)
within thirty (30) days after receiving the notification; or (ii)
if Licensee has not paid to Ramtron the Additional License Fee
pursuant to Section 2.2.1(b), then Ramtron shall reduce the
Additional License Fee referred to in Section 2.2.1(b) by the sum
of ONE MILLION DOLLARS ($1,000,000.00). Ramtron and Licensee
hereby acknowledge that the payment of ONE MILLION DOLLARS
($1,000,000.00) or alternatively the reduction of the Additional
License Fee by, ONE MILLION DOLLARS ($1,000,000.00) shall
constitute Licensee's sole and exclusive right in such event and
such amount represents a genuine estimate of the liquidated
damages likely to be suffered by the Licensee as a result of
commercial sales of Ferroelectric RF/ID Products by both or any
of Seiko Epson Corporation, ITT or their Affiliates.
<PAGE>
(e) Neither Ramtron nor any Affiliate of Ramtron shall manufacture, sell,
lease or distribute either Ferroelectric RF/ID Products or
semiconductor components that Ramtron "knows" are intended to
Monolithically Incorporate RF/ID Products and the Ferroelectric
Technology to any company other than Licensee; nor shall it directly
enter into the RF/ID Product business except pursuant to its owner-
ship interest in Licensee. As used herein, "knows" shall mean the
actual acknowledge of Ramtron or any Affiliate of Ramtron and Ramtron
shall have no obligation to make affirmative inquiry of any persons
other that Ramtron's employees and employees of Ramtron's Affiliates
regarding the intended use of any such Ferroelectric RF/ID Products or
semiconductor components that it manufactures sells, leases, or
distributes.
(f) Notwithstanding anything contained in this Agreement or elsewhere to
the contrary:
(i) Licensee shall be entitled to the remedies set forth in
Subsection (c) above only once, that is, only with respect to the
first such additional licensee who commercially sells
Ferroelectric RF/ID Products on or before December 31 1996, and
Licensee shall not be entitled to the referenced payment or
cancellation of the Additional License Fee with respect to
additional licensees, regardless of number;
(ii) Licensee shall be entitled to the remedies set forth in
Subsection (d) above only once, that is, only with respect to
commercial sales of Ferroelectric RF/ID Products on or before
June 30 1996 by the first of Seiko Epson Corporation, ITT or
their respective Affiliates, and not by each of such parties; and
(iii) The amount of any payment or cancellation of the Additional
License Fee to which Licensee may be entitled under Subsection
(c) above shall be reduced (but not below zero) by the amount of
any payment or debt forgiveness to which Licensee may be
entitled, or may have received, under Subsection (d) above, and
vice versa, such that the maximum aggregate amount of payments
and/or debt forgiveness to which Licensee is or may be entitled
under Subsection (c) and (d) above shall not exceed TWO MILLION
DOLLARS ($2,000,000) in any event.
2.2 License Fees. For and in consideration of Ramtron's grant to Licensee
of the Technology License:
2.2.1 Licensee shall pay the following non-refundable initial and additional
license fees to Ramtron:
<PAGE>
(a) INITIAL LICENSE FEE. Licensee shall pay an initial license fee
to Ramtron of TWO MILLION DOLLARS ($2,000,000.00) ("Initial
License Fee") on or before October 30, 1991; provided that
Ramtron shall credit against the payment of this Initial License
Fee the Option Payment made by Licensee to Ramtron pursuant to
Section 2 of the Option Agreement entered into by the parties as
of October 16, 1991.
(b) ADDITIONAL LICENSE FEE. Licensee shall pay an additional license
fee to Ramtron of TWO MILLION DOLLARS ($2,000,000.00)
("Additional Licensee Fee") on or before the later to occur of
(i) June 30 1993 or (ii) the date on which Ramtron notifies
Licensee that Ramtron has sold, to at least three (3) customers
of Ramtron, qualified Ramtron FRAM Product that have a memory
capacity of at least 64-kilobits.
2.2.2 Licensee shall issue to Ramtron, at no additional cost to Ramtron,
such quantity of shares as Ramtron shall be entitled to receive
pursuant to the provisions of that certain Shareholders Agreement of
even date herewith between Ramtron, Intaq International Limited,
Licensee and AWA Limited.
2.3 Royalties. As additional consideration the grant of the Technology
License, Licensee agrees to pay to Ramtron for the period from the
Effective Date through to June 30 1996, royalties equal to two
percent (2%) of the Net Sales earned by Licensee from the sale,
license or other of transfer for value of Ferroelectric RF/ID
Products Manufactured By Licensee during each Royalty Period.
Thereafter, Licensee shall similarly pay Ramtron royalties but at the
reduced rate of one percent (l%) of Net Sales. This section shall
not apply to products purchased by Licensee pursuant to the Supply
Agreement of even date between the parties or any similar agreement
which may be entered into between the parties from time to time.
2.4 Certification of Royalties. Licensee shall, on or before 30 April, July
31, October 31 and January 31 in each year during which royalties are
payable under this Agreement furnish to Ramtron a statement, certified by a
financial officer of Licensee, concerning the Net Sales by or on behalf of
Licensee of Ferroelectric RF/ID Products Manufactured By Licensee during
the preceding Royalty Period in sufficient detail to permit the computation
of the royalties due for such Royalty Period, and shall accompany such
statement by payment, in immediately available dollar funds, of the
royalties due according to that statement. On or before the last day of
the first three month period following the end of each Royalty Year,
Licensee shall furnish to Ramtron a comparable statement, certified by an
internationally, recognized firm of independent certified public
accountants, certifying the Net sales by or on behalf of Licensee
of Ferroelectric RF/ID Products Manufactured By Licensee during the
preceding Royalty Year.
<PAGE>
Licensee shall accompany such statement by payment in immediately available
United States dollar funds of any amounts due to Ramtron for such preceding
Royalty Year.
2.5 Dispute Regarding Royalties. In the event of any dispute regarding the
amount of any royalty payment allegedly due under or pursuant to this
Agreement, the parties shall agree in commercial good faith on and appoint
an internationally recognized firm of independent certified public
accountants, who shall audit the books and records of Licensee and
determine the amount, if any, of the disputed royalty payment or payments,
which determination shall be final and legally binding on the parties for
all purposes of this Agreement. If the parties are unable to agree on such
a firm of independent certified public accountants, such a firm shall be
appointed by the Chairman, President or the highest officer at such time of
the American Institute of Certified Public Accountants. Ramtron and
Licensee shall pay fifty percent (50%) of the cost of any audit conducted
pursuant to this Section 2.5.
ARTICLE III Technical Materials and Assistance.
3.1 Technical Materials. Each of Licensee and Ramtron shall furnish and
provide to the other reasonable technical assistance, materials information
and data reasonably necessary for the exploitation of the Technology
License, to the extent it shall be reasonably necessary for the other
party's performance of its obligations undertaken in this Agreement,
provided, unless otherwise agreed, that all costs and expenses, including
salary, employee benefits, travel and lodging of such personnel, and
support staff shall be paid in advance by the party receiving such benefit
or reimbursed immediately upon presentation to the recipient of appropriate
documentation evidencing the other party's having paid or incurred such
costs or expenses as a result of such assistance.
3.2 Assistance. Ramtron shall at the request of Licensee and a Ramtron's
expense (to be agreed from time to time), provide up to two (2) of
Ramtron's personnel for no more than one (1) year to assist Licensee in the
transfer of the Ferroelectric Technology to Licensee for Licensee's
manufacture of Ferroelectric RF/ID Products. However, in the event that
such Ramtron employees shall be required to travel to Licensee's premises,
Licensee shall pay all travel and travel related costs of such Ramtron
employees. For a period of three (3) years from the Effective Date of the
Technology License, Ramtron agrees to receive and to educate and train
personnel of Licensee at Ramtron's principal plant or facility in the
United States. The number of persons to be received for such education and
training sessions shall not exceed two (2) at any one time, and the number
and frequency of such sessions shall be determined by Ramtron in good
faith based upon its experience in such matters. Such Licensee personnel
shall not at any time be considered to be Ramtron's employees and the
salaries, employee benefits, travelling and living costs and expenses and
all other costs of the attendees of such training sessions shall be borne
by and shall be the sole responsibility of Licensee. In the event that any
employee of Licensee shall be assigned to Ramtron's
<PAGE>
premises or any employee of Ramtron shall be assigned to Licensee's
premises under this Section 3.2, the sending party shall be responsible for
any and all liability of any type whatever to any other person, firm or
entity arising from any direct or indirect action or inaction relating to
the carrying out of his/her duties under the terms of the assignment. The
sending party shall cause such employees to be covered by its liability
insurance policy or policies. Whether or not any action or inaction of any
such employee is covered by insurance, the sending party shall hold
harmless and indemnify the other party against and from all losses, claims,
damages, liabilities, obligations or expenses (including attorneys' fees,
court costs and costs of investigation) incurred by the receiving party or
to which it may become subject as a result of any action or inaction
relating to the carrying out of the said employee's duties while assigned
to the receiving party.
3.3 Scheduling. All services of the parties to be provided pursuant to this
Article III shall be scheduled and conducted so as not to interfere
unreasonably with the normal course of their businesses. In determining and
carrying out such activities, the parties shall act towards each other in
commercial good faith, with a view toward minimizing the respective cost to
each party of carrying out such activities. The parties acknowledge that
the costs incurred by Ramtron in furtherance of its obligations under this
Article III are anticipated to be incidental in nature and amount.
3.4 Supply of Information. From time to time during the period commencing from
the date of this Agreement through June 30 1996, Licensee may request in
writing that Ramtron provide to Licensee specific information developed by
Ramtron or any Affiliate in relation to the Ferroelectric Technology and
relevant to the design, manufacture, sale, lease and distribution of
Ferroelectric RF/ID Products. Each such written request by Licensee shall
specify in detail the particular information that is sought. If Licensee
does not itself have sufficient knowledge to specify in detail the
particular information that is sought, Licensee shall be entitled to
request information of a particular description. Ramtron shall consider
each such request and if Ramtron determines, in its reasonable discretion,
that the requested information is (i) sufficiently developed toward
commercial use or application and (ii) relevant to the design, manufacture,
sale, lease and distribution of the Ferroelectric RF/ID Products; and (iii)
able to be provided to Licensee by Ramtron or such Affiliate in the
ordinary course of business, then Ramtron shall provide such information
to Licensee within forty-five (45) days after Ramtron's receipt of the
specific request therefor. Any such information that is provided by
Ramtron to Licensee shall be deemed to be licensed by the Technology
License. All such information furnished by Ramtron or any Affiliate to
Licensee pursuant to this Section 3.4 shall remain confidential to Ramtron
and such Affiliate. Ramtron and such Affiliate shall retain for itself and
for the benefit of all other Affiliates the right to utilize or furnish to
others such information in any way whatsoever, subject to the terms of this
Agreement.
<PAGE>
ARTICLE IV Nontransferability, of Technology License.
4.l Nontransferability. Except as provided in Sections 4.2 and 4.4, the
Technology License may not be assigned, sublicensed, subdivided or
transferred in any way whatsoever by Licensee without Ramtron's prior
written consent, such consent to be within Ramtron's sole discretion.
Notwithstanding the preceding sentence, if Licensee desires to sublicense
the Technology License to third parties (but not more than one third party
at any time) for subcontract manufacturing purposes only, Ramtron shall not
unreasonably withhold its consent provided that Licensee ensures that such
sublicense does not result in the transfer to such third parties of any
rights or information not needed by such third parties in order to perform
subcontract manufacturing for Licensee. Notwithstanding the prior
sentence, Licensee may not sublicense the Technology License for
subcontract manufacturing purposes to those entities, or parties related to
such entities or their Affiliates, identified on Attachment 1, attached
hereto and incorporated herein by this reference without Ramtron's prior
written consent, such consent to be within Ramtron's sole discretion.
4.2 Ramtron hereby consents to the grant of a sub-license of the type
contemplated by section 4.1 to AWA Microelectronics Pty Limited. In
addition, Ramtron hereby consents to the grant of a sub-license of the type
contemplated by Section 4.1 to any one of those entities, or parties
related to such entities, identified on Attachment 2, attached hereto and
incorporated herein by this reference, without Ramtron's prior written
consent provided, however, that the parties hereto acknowledge and agree
that at least thirty (30) days prior to each anniversary of the Effective
Date hereof, the parties shall revise the list set forth on Attachment 2
for the immediately following year, such that the list of parties set forth
on Attachment 2 to this Agreement shall be reviewed and revised on or prior
to each anniversary of the Effective Date of this Agreement.
4.3 Change in Control. For purposes of this Agreement and the Technology
License, any of the following events shall be deemed to be an attempted
transfer of the Technology License and shall be subject to the provisions
of this Agreement including, but not limited to, the provisions of Sections
4.4 and 8.3;
(a) A "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting shares of Licensee and is entitled
to exercise more than 25% of the total voting power of all
outstanding voting shares of Licensee (including any voting shares
that are not then outstanding of which such person or group is
deemed the beneficial owner unless such "person" or "group' was
entitled to exercise more than 25% of such total voting power as of
the Effective Date; or
<PAGE>
(b) Any consolidation of Licensee with, or merger of Licensee into, any
other entity, any merger of another entity into Licensee, or any sale
or transfer of all or substantially all of the assets of Licensee to
another entity (other than a merger which does not result in any
reclassification conversion, exchange or cancellation of outstanding
shares of Licensee or a merger which is effected solely to change the
jurisdiction of incorporation of Licensee).
This Section shall not apply to any shares issued by Licensee in accordance
with the provisions of the Shareholders Agreement a copy of which is
Exhibit "C" to the Option Agreement between the parties.
4.4 Transfer by Change in Control. Licensee may not transfer the Technology
License by any of the events described in Section 4.3 without Ramtron's
prior written consent, such consent not to be unreasonably withheld,
notwithstanding the prior sentence, Licensee may not transfer the
Technology License so those entities, or parties related to such entities,
identified in Attachment 1 without Ramtron's prior written consent, such
consent to be within Ramtron's sole discretion.
ARTICLE V Disclaimers of Warranty and Limitations of Liability.
5.1 Reliance on Disclaimers and Limitations. The license fees for the
Technology License, and the substance of the other rights and duties of
Licensee and Ramtron in this Agreement, have been negotiated in reliance
on, and are based upon the applicability and enforceability of, the
disclaimers, warranties and limitations of liability contained in this
Article V.
5.2 DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED IN THIS ARTICLE V,
RAMTRON MAKES NO WARRANTIES TO LICENSEE OR TO ANY OTHER PARTY BY VIRTUE OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREUNDER, AND RAMTRON
EXPRESSLY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR ARISING BY
USAGE OF TRADE, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, AND LICENSEE UNCONDITIONALLY ACCEPTS
SUCH DISCLAIMER LICENSEE SHALL NOT MAKE OR PASS ON TO ITS CUSTOMERS
(WHOLESALE OR RETAIL) OR SUBLICENSEES ANY WARRANTY OR REPRESENTATION ON
BEHALF OF PAYMENT.
5.3 Limitation of Liability for Termination. Notwithstanding anything
contained in this Agreement or under applicable law to the contrary, in no
event shall Ramtron be liable for any indirect, special, incidental or
consequential damages, including, without limitation, loss of business,
income or profits, resulting from Ramtron's termination of this Agreement,
whether or not Ramtron has been advised of the possibility, of such damages
arising in any way out of the termination of this Agreement. Without
limiting the generality of the foregoing, Licensee assumes all risks
arising out of or relating to its inability to meet any commitments made to
and/or perform any agreements entered into with any customer (wholesale or
retail) of Licensee in the event of any termination
<PAGE>
by Ramtron of this Agreement. Provided, however, that nothing contained in
this Section 5.3 is intended to disclaim or waive any rights that Licensee
may have against Ramtron with respect to actual and direct damages suffered
by Licensee as a result of the breach of this Agreement or the wrongful
termination of this Agreement by Ramtron and provided further that nothing
contained in this Section 5.3 shall prejudice or restrict Licensee's right
and entitlement to also terminate this Agreement in the event of any breach
of this Agreement by Ramtron.
ARTICLE VI Protection of the Ferroelectric Technology.
6.1 Patents, Copyrights and Intellectual Property. Ramtron shall at its own
cost obtain such patent, copyright or similar registration or intellectual
property protection of the Ferroelectric Technology throughout the world as
is reasonable having regard to: the relative cost thereof; the benefit of
the protection obtained; and all other relevant circumstances. Upon
request by Licensee, Ramtron shall provide Licensee a list of all issued
patents pertaining to the Ferroelectric Technology.
6.2 Patent and Other Applications. From time to time during the term of this
Agreement, but no less frequently than once each calendar quarter, Ramtron
shall provide to Licensee, insofar as Ramtron lawfully may, a general
description of each application for any patent copyright, utility, model,
design, circuit layout or semiconductor chip protection filed by Ramtron or
any Affiliate anywhere in the world during the immediately preceding
calendar quarter on any invention, work, design, circuit layout or mask or
other aspect of the Ferroelectric Technology relating to the design or
manufacture of Ferroelectric RF/ID Products and licensed under this
Agreement. Licensee may, within sixty (60) days of receipt of such
information from Ramtron, request in writing that Ramtron or such Affiliate
allow an officer or employee of Licensee to visit the premises of Ramtron
or such Affiliate for the purpose of reviewing a copy of any such
application that Licensee designates in such notice. Thereafter, Ramtron
or its Affiliate shall allow such officer or employee of Licensee access to
the facilities of Ramtron or such Affiliate at reasonable times and upon
reasonable notice for the sole purpose of reviewing a copy of any such
application; provided, however, that the officer or employee of Licensee
shall not be permitted to make or take copies of all or any portion of such
application without the express written consent of Ramtron or such
Affiliate. If, after any such review by Licensee, Licensee determines that
the invention disclosed by any such application may or would be useful to
Licensee in connection with the manufacture and sale of Ferroelectric RF/ID
Products, then Licensee may, within sixty (60) days after its review of any
such application, request in writing that Ramtron or its Affiliate file a
corresponding application in any country in which Licensee exercises or
intends to exercise any of the rights granted herein or in which such
application or an analogous application is fileable. Ramtron shall, or
procure that such Affiliate shall, insofar as it lawfully may, comply with
any such request; provided,
<PAGE>
however, that if Ramtron, in its reasonable discretion, determines that any
such filing may impair or affect any pending applications filed by Ramtron
or any Affiliate with respect to a particular invention, or may impair or
affect the ability of Ramtron or such Affiliate to file any additional
applications or registrations in any other jurisdiction in the future,
then Ramtron and such Affiliate shall not be required to comply with any
such request.
If Ramtron or any Affiliate does file a companion application in any
jurisdiction at the request of Licensee, then Licensee shall bear the full
costs (including government fees, taxes, charges and the like and
associated charges for attorneys' services) for such application and the
issuance and maintenance of any resulting registration. Any application so
filed at Licensee's expense, as well as any other registrations relating to
the Ferroelectric Technology relevant to the manufacture of Ferroelectric
RF/ID Products applied for or taken out by Ramtron or any Affiliate shall
be included in the Technology License granted in Article 2.1 hereof. If
Licensee fails to pay any costs payable by it hereunder when due, such
failure shall constitute a breach of and default under this License,
subject to the terms and provisions of Section 8.2 hereof.
6.3 Notice of Infringement. Each of Ramtron and Licensee shall promptly
advise the other in writing of any claim, action, lawsuit, or
proceeding threatened, made, or brought against them or either them for
infringement of a patent issued to a third party, or for violation of a
third party's patent trade secret, or other intellectual property right
based in any instance upon Licensee's use of the Technology License, or
Licensee's sale, lease, or distribution of Ferroelectric RF/ID Products
or based in any instance upon Ramtron or any of Ramtron's licensees or
Affiliates of which Ramtron knows, use of the Ferroelectric Technology
as the case may be.
6.4 Infringement by Ferroelectric Technology. In the event that the
Ferroelectric Technology is, or in the reasonable judgement of Ramtron, is
likely to become the subject of any legal action based in whole or in part
on a claim that the Ferroelectric Technology infringes the proprietary
rights of any person, Ramtron may reasonably demand that Licensee cease to
use the Technology License and that Licensee cease to sell, lease and
distribute Ferroelectric RF/ID Products utilizing the allegedly infringing
Ferroelectric Technology until and unless there is a final judgement or
other final resolution establishing Ramtron's right to continue licensing
the Ferroelectric Technology. In the event that Licensee fails to cease
to use the Technology License or fails to cease selling, leasing and
distributing Ferroelectric RF/ID Products utilizing the allegedly
infringing Ferroelectric Technology promptly upon such demand by Ramtron,
Licensee shall indemnify and hold Ramtron harmless against any and all
costs and expenses ( including reasonable attorneys' fees) paid or
payable by Ramtron as a result of Licensee's failure to promptly cease
such activities. Notwithstanding anything else contained herein to the
contrary, the
<PAGE>
failure by Licensee to cease use of the Technology License and the selling,
leasing and distributing of Ferroelectric RF/ID Products shall not
constitute a breach of or default under this Agreement. However, in the
event of any such failure by Licensee, Ramtron shall be entitled to require
Licensee to provide, and Licensee shall provide to Ramtron, reasonable
security for Licensee's indemnification obligation to Ramtron as a result
of Licensee's continued use of the Technology License and/or manufacture,
lease or sale of the Ferroelectric RF/ID Products. Ramtron shall have
control of the defense of such claim, action, lawsuit, or proceeding, and
shall pay the costs thereof (except any cost of the Licensee's associated
attorneys, if any); and Licensee shall assist Ramtron, at Ramtron's cost
and expense, in the defense of any such claim, action, lawsuit, or
proceeding. Licensee shall have the right to be represented by an attorney
at its own expense in any such controversy.
6.5 Indemnification by Ramtron. Ramtron shall, at its own expense,
indemnify, defend, and hold harmless Licensee from and against any cost,
liability, loss, or expense arising from any actual or alleged
infringement by Licensee or any patent, trademark, copyright, or other
intellectual property right of any third party provided that: (i) such
alleged infringement is attributable solely to the Ferroelectric
Technology and does not arise from the use of such Ferroelectric
Technology as a part of or in combination with any other devices or
parts; (ii) such alleged infringement does not arise from any portion or
aspect of a Ferroelectric RF/ID Product that was designed or specified
by Licensee or any consultant to or representative of Licensee (other
than Ramtron); (iii) Licensee gives Ramtron immediate notice in writing
of any such suit and permits Ramtron, through counsel of its choice, to
answer the charge of infringement and defend such suit; (iv) such cost,
liability, loss, or expense does not result from Licensee's failure to
promptly cease use of the Ferroelectric Technology and sale, lease, and
distribution of Ferroelectric RF/ID Products after notification by
Ramtron in accordance with Section 6.4 above; and (v) Licensee gives
Ramtron all the needed information, assistance, and authority, at
Ramtron's expense, to enable Ramtron to defend such suit.
Notwithstanding anything else contained in this Section 6.5 or elsewhere
this Agreement to the contrary, in no event shall Ramtron's total
payments in respect of liability to Licensee hereunder, whether or not
the result of more than one actual or alleged infringement, exceed the
aggregate amounts paid by Licensee to Ramtron pursuant to Section 2.3
hereof, provided, however that if the aggregate amount of such cost,
liability, loss, or expense incurred by Licensee exceeds the aggregate
amounts paid by Licensee to Ramtron pursuant to Section 2.3 hereof, then
the Licensee shall be entitled to offset any such excess against
subsequent amounts owed or owing by Licensee to Ramtron pursuant to
Section 2.3 hereof. THIS SECTION 6.5 STATES RAMTRON'S TOTAL LIABILITY
AND RESPONSIBILITY, AND LICENSEE'S SOLE REMEDY FOR ANY ACTUAL OR ALLEGED
INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT, OR OTHER INTELLECTUAL
PROPERTY RIGHT BY THE FERROELECTRIC TECHNOLOGY LICENSED HEREUNDER, OR
ANY PART THEREOF. THIS SECTION 6.5 IS IN
<PAGE>
LIEU OF AND REPLACES ANY OTHER EXPRESSED, IMPLIED, OR STATUTORY WARRANTY
AGAINST INFRINGEMENT. IN NO EVENT SHALL RAMTRON BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM ANY
SUCH INFRINGEMENT.
6.6 Indemnification by Licensee. Licensee shall, at its own expense,
indemnify, defend, and hold harmless Ramtron from and against any cost,
liability, loss, or expense arising from any actual or alleged infringement
by Licensee, or any Affiliate, of any patent, trademark, copyright, or
other intellectual property right of any third party, provided that: (i)
such alleged infringement is not attributable solely to the Ferroelectric
Technology; (ii) Ramtron gives Licensee immediate notice in writing of any
such suit and permits Licensee, through counsel of its choice, to answer
the charge of infringement and defend such suit; and (iii) Ramtron gives
Licensee all the needed information, assistance, and authority, at
Licensee's expense, to enable Licensee to defend such suit. In the case of
a final award of damages in any such suit, Licensee shall pay such award
but shall not be responsible for any settlement made without its prior
written consent. THIS SECTION 6.6 STATES LICENSEE'S TOTAL LIABILITY AND
RESPONSIBILITY, AND RAMTRON'S SOLE REMEDY (EXCEPT TO THE EXTENT SET FORTH
IN SECTION 6.4 HEREOF), FOR ANY ACTUAL OR ALLEGED INFRINGEMENT OR ANY
PATENT, TRADEMARK, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE
FERROELECTRIC RF/ID PRODUCTS, OR ANY PART THEREOF. THIS SECTION 6.6 IS IN
LIEU OF AND ANY REPLACES ANY OTHER EXPRESSED, IMPLIED, OR STATUTORY
WARRANTY AGAINST INFRINGEMENT, EXCEPT AS SET FORTH IN SECTION 6.4 HEREOF.
IN NO EVENT SHALL LICENSEE BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
OR CONSEQUENTIAL DAMAGES RESULTING FROM ANY SUCH INFRINGEMENT.
6.7 Infringement by Third Party. Upon becoming aware of any material
infringement by a third party or any of the rights covered by this
Agreement, each party shall promptly notify the other party of such
infringement. After receipt of notice of such infringement, Ramtron
shall have the right, in its sole discretion, either to (i) assert a
claim, action, lawsuit or legal proceeding on its own behalf and/or on
behalf of Licensee in which Ramtron shall be entitled to all awards and
recoveries resulting directly from, and shall be responsible for any and
all costs and expenses arising out of, such claim, action, lawsuit or
proceeding or (ii) determine not to assert any claim, lawsuit, legal
proceeding or action of any kind against the alleged infringer. In the
event that Ramtron elects not to assert any claim, lawsuit, legal
proceeding or action of any kind against the alleged infringer, then
Ramtron shall, if requested by Licensee in writing, permit and authorize
Licensee to assert a claim, action, lawsuit or legal proceeding against
the alleged infringer, in which case, Licensee shall be entitled to any
and all awards and recoveries resulting directly from, and shall be
responsible for any and all costs and expenses arising out of, such
claim, action, lawsuit or legal proceeding; provided, however, that in
such event, if at any time after Licensee has commenced any claim, action,
lawsuit or legal proceeding against the alleged infringer, Ramtron elects
to join in such proceeding, then Licensee
<PAGE>
shall take all actions necessary to allow Ramtron to formally join
in such proceeding and, thereafter, Ramtron shall have the right
to participate in and direct and control any such action or
proceeding, and Ramtron shall be responsible for any and all
further costs and expenses arising after the commencement of
Ramtron's participation in any such claim, action, lawsuit or legal
proceeding; provided further that notwithstanding any intervention
by Ramtron in any such proceeding, Licensee shall be entitled to
any and all awards and recoveries resulting directly from such
proceeding, after reimbursing Ramtron for all actual
out-of-pocket costs and expenses incurred by Ramtron in connection
with such proceeding. Notwithstanding the foregoing, Licensee
shall be entitled to commence and join in any proceedings to
recover any losses or damage suffered by Licensee on its own
account, provided Licensee shall bear all the costs and expenses of
so doing.
ARTICLE VII Confidentiality.
7.1 Confidentiality. The parties agree with each other to keep
strictly confidential and not without the prior written consent of
the other parties to disclose to any person or entity any
information whatever which is part of or which relates to the
Ferroelectric Technology, Ferroelectric RF/ID Products or Ramtron
FRAM Products, and each party further agrees to bind in a manner so
as to be legally enforceable, its employees, agents, consultants,
advisors and representatives to such confidentiality, including
without limitation as to such disclosures as may be necessary for
the parties performance of their obligations and enjoyment of their
rights under this Agreement, and otherwise as the relevant other
party may consent to in writing.
7.2 Marking of Documents and Materials. In furtherance, but not in
limitation, of the provisions of Section 7.1, each party shall
use its reasonable endeavors to cause all written materials and
other physical documents and materials of all types relating to or
containing information of or about the Ferroelectric Technology,
Ferroelectric RF/ID Products or Ramtron FRAM Products to be plainly
marked to indicate the secret, proprietary and confidential nature
thereof and to prevent the unauthorized use or reproduction
thereof, directly or indirectly.
7.3 Indemnification. Without limitations of any other right,
remedy or benefit accruing to either party under this Agreement or
by law, each party shall indemnify the other party fully for all
damages caused by any unauthorized disclosure or use of any
information intended to be kept secret confidential and
proprietary in accordance with this Article VII by such party or
its representatives, employees, agents, consultants, sublicensees,
etc.
7.4 Survival. This Article VII shall survive the expiration or
earlier termination of this Agreement and of the Technology License
and shall remain in effect for so long as the Ferroelectric
Technology is being used or Ramtron FRAM Products are being
manufactured, anywhere in the world.
<PAGE>
7.5 Public Domain. The provisions of this Article VII shall not
apply to any information that the party can demonstrate by written
evidence was in the public domain through no unlawful action or
omission by such party or obtained from third parties not bound by
law or confidentiality agreements to maintain the confidentiality
thereof.
7.6 Obligations to Disclose. This Article VII shall not prohibit
the parties from disclosing under legally enforceable obligations
any information required to be disclosed to any governmental
authorities and shall not prohibit the parties from disclosing
general financial and technical information in order to obtain
funding or other financial advantages from any authority or
institution or corporation or for the relevant party to exercise
its rights and perform its obligations in respect of the Technology
License or to otherwise carry on its business in the ordinary
course. Nothing contained in this section shall entitle Licensee
to transfer or assign the Ferroelectric Technology or the
Technology License.
7.7 Trademark. Licensee shall have right to utilize Ramtron's
FRAM trademark. Ramtron makes no representation, warranty or
covenant of any type whatsoever regarding such trademark.
ARTICLE VIII Terms and Termination.
8.1 Expiration. This Agreement and the Technology License shall
remain in full force and effect from the Effective Date until
termination under this Article VIII. Unless terminated earlier,
this Agreement and the Technology License shall terminate on the
date of the expiration of the last to expire of any effective
rights protecting the material part of the Ferroelectric Technology
as it relates to the Ferroelectric RF/ID Products anywhere in the
United States, Canada, the countries of the European Economic
Community, Japan, South Korea, Taiwan, China, Hong Kong, Singapore,
Australia and New Zealand whether by applicable law of patents,
trade secrets or other equivalent applicable legal protection of
proprietary business know-how and technology.
8.2 Termination for Breach. In the event of a material breach or
default by a party in the performance of its respective duties,
obligations or undertakings set forth in this Agreement, the other
party shall have the right to give written notice to the defaulting
party, notifying such party of the specific breach or default
involved and, if within ninety (90) days after such notice the
defaulting party shall not have remedied or commenced diligently to
remedy the breach or default and thereafter prosecute such remedy
to completion within a commercially reasonable time, the aggrieved
party shall have the right in addition to any other right, remedy
or benefit it may have under this Agreement or applicable law, to
terminate this Agreement and the Technology License upon five (5)
days written notice to the defaulting party and effective upon the
fifth (5th) day after the giving of such termination notice, this
Agreement and the Technology License shall be terminated without
any further act or writing whatever.
<PAGE>
8.3 Termination By Ramtron. Notwithstanding any other provision of
this Agreement and in addition to any other right, remedy or
benefit Ramtron may have under this Agreement or applicable law,
Ramtron shall have the unconditional right to terminate this
Agreement and the Technology License effective immediately, if:
(a) Licensee fails or refuses to: (i) pay to Ramtron on the date
due any payment provided to be made to Ramtron in accordance with
Sections 2.2.1(a) or 2.2.1(b); or (ii) issue shares to Ramtron in
accordance with Section 2.2.2; or (iii) pay to Ramtron within
thirty (30) days of written demand after the due date thereof for
any royalties due hereunder provided, however, nothing in this
subparagraph shall be construed to relieve Licensee of its
liability to pay to Ramtron the Initial License Fee or Additional
License Fee if such is due and payable and royalties on all
Ferroelectric RF/ID Products Manufactured By Licensee and sold,
leased or otherwise transferred by Licensee prior to or after
the date of such termination in accordance with this Agreement.
(b) At any time Licensee is adjudged by a court of law to be
bankrupt or insolvent, or files petition in bankruptcy or an answer
admitting the material facts recited in such petition if filed by
another, or is put or decides to go into dissolution or
liquidation, or otherwise discontinues its business, makes an
assignment for the benefit of its creditors or enters into any
other general arrangement with its creditors, becomes insolvent, or
has a trustee, receiver or custodian of any kind appointed to
administer any substantial amount of its property, or is placed or
enters into any comparable situation under the laws of any other
nation, or any state or province in which its operations may be
conducted, or otherwise seeks to take advantage any bankruptcy or
insolvency statute now or hereafter in effect in any such location;
or
(c) Licensee purports to assign, subdivide, sublicense or transfer
in any way whatsoever the Technology License in contravention of
the provisions of this Agreement.
(d) Licensee uses or attempts to use the Technology License in the
manufacture, sale, lease, distribution or transfer of any type
whatsoever of a product or application which does not involve a
Ferroelectric RF/ID Product.
8-4 Termination By Licensee. Notwithstanding any other provision
of this Agreement and in addition to any other right, remedy or
benefit Licensee may have under this Agreement or applicable law,
Licensee shall have the right and option in its sole discretion to
terminate this Agreement and Technology License without payment of
any penalty and without incurring any obligation to pay royalties
after the effective date of such termination if, with respect of
Ferroelectric RF/ID Products or the Ferroelectric Technology, any
<PAGE>
order is made or given in any proceedings which are commenced
against Licensee or Ramtron having the effect of restraining or
impairing the exercise of the Technology License or any of the
Licensee's material rights under this Agreement.
8.5 Effects of Termination. Upon termination of this Agreement and
the Technology License for whatever reason:
(a) The rights under the Technology License and all intellectual
property and other rights granted to Licensee under this Agreement
shall immediately revert to, and vest in, Ramtron and absolutely no
interest whatever in any of such rights, in whole or in part shall
thereafter remain in Licensee or any of its subcontractors, agents,
employees or shareholders, or any person or entity in any way
affiliated with, or related to, Licensee. Accordingly, from the
date of said termination such rights, and any of them, may not, and
they shall not, be exercised in any way, in whole or in part, by
Licensee or any person or entity with whom Licensee shall have
entered into any agreement or understanding relating in any way to
the Technology License or any of the rights granted to Licensee
under this Agreement whether or not such agreement or understanding
shall have been approved by Ramtron unless Licensee has lawfully
acquired or is lawfully able to use such rights.
(b) Except and to the extent that Licensee has lawfully acquired
or is lawfully able to exercise such rights, Licensee shall
cease forthwith the manufacture, sale and distribution of the
Ferroelectric RF/ID Products under the Technology License and not
use further, except as herein provided, and return to Ramtron
specifications, data sheets, drawings, designs, photographs,
photostats, negatives, undeveloped film, tape recordings and other
electronic records, writing in any language and any other documents
or materials furnished to Licensee or otherwise obtained by
Licensee from Ramtron, including without limitation any and all
notes and written or electronic transcriptions on any part of the
Ferroelectric Technology and any and all similar materials in any
way, in whole or in part, based thereof, as well as any and all
similar materials which in any way contain, reflect or relate to
any of the Ferroelectric Technology.
(c) Licensee shall offer in writing to Ramtron the right to
purchase any or all Ferroelectric RF/ID Products which are unsold
at the time of such termination. The price for such goods to
Ramtron shall not be less favorable than the price offered to third
parties. If Ramtron does not accept any such offer within seven
(7) days following receipt then it shall be deemed to have declined
same.
<PAGE>
8.6 Sale of Stock. Notwithstanding the provisions of Section 8.5,
after termination of this Agreement and the Technology License,
Licensee shall be entitled to sell existing units of Ferroelectric
FF/ID Products which are in Licensee's stock on the date of such
termination, if any, but only to existing customers of Licensee as
of the date of termination. Royalties shall be payable on any such
sales in accordance with Article II of this Agreement.
8.7 Survival. Articles V, VI, VII, X and sections 8.5, 8.6, 12.3,
12.5 and 12.10 of this Agreement shall permanently survive any
termination or expiration of this Agreement.
ARTICLE IX Governmental Requirements.
9.1 Compliance With Laws. In performing their respective duties
hereunder and in carrying out their activities under the Technology
License, the parties shall comply with all applicable laws,
regulations procedures, ordinances and rulings of any governmental
authority having jurisdiction over Licensee Ramtron, Licensee's use
of the Technology Licensee or Licensee's design, manufacture, use,
sale, lease or distribution of Ferroelectric RF/ID Products.
9.2 Exports. Without limitation of any other provision of this
Agreement, Licensee shall not, without receiving the prior
authorization of the United States Office of Export Administration
or other appropriate governing body exercising controls over
exports and re-exports of United States goods and technical data,
export or re-export directly or indirectly any technical data
included in Ferroelectric RF/ID products or the Ferroelectric
Technology to any country or area forbidden to such exports under
United States law or regulation.
9.3 Governmental Approvals. Licensee shall use its best efforts,
with the cooperation of Ramtron, to obtain any necessary approval
of this Agreement by any governmental authorities having
jurisdiction over Licensee's activities pursuant to this Agreement
and to obtain the consent of any governmental to the remittance of
payments under this Agreement in accordance with its terms, in the
event that any such consent should become necessary.
ARTICLE X Payments and Taxes.
10.1 Payments. Any and all payments of every kind which may be
payable by Licensee under the terms of this Agreement shall be paid
in immediately available funds in United States dollars to Ramtron or
at such bank as Ramtron may from time to time designate in writing
to Licensee.
10.2 Taxes. Any and all taxes (including withholding taxes payable
in correction with Sections 2.2 or 2.3 to any country other than
the United States), duties, excises and imposts (other than income
or profits taxes, except for withholding taxes, assessed or imposed
directly an Ramtron alone and based solely on Ramtron's income)
payable with respect to any sums due under this Agreement to
<PAGE>
Ramtron shall be borne and discharged by Licensee and no part
thereof shall be deducted from the amounts otherwise payable under
any provision of this Agreement, all of said amounts to be net,
free and clear of any and all deductions under any and all
conditions whatever.
ARTICLE XI Assignment By Ramtron.
11.1 Assignment by Ramtron Licensee hereby consents to an
assignment by Ramtron to RIC of this Agreement and Ramtron's rights
and obligations arising hereunder, provided that RIC agrees to be
bound by all of the terms of this Agreement and the Ferroelectric
Technology has been assigned to RIC.
ARTICLE: XII Miscellaneous.
12.1 Successors and Assigns and Binding Effect. The rights and
benefits of the parties under this Agreement shall accrue to, and
run in favor of, each party's successors and assigns. The rights
and obligations of the parties under this Agreement shall be
binding upon their respective successors and assigns.
12.2 Assignments. Except as provided in Articles IV and XI and
notwithstanding the provisions of Section 12.1, no Party shall make
or purport to make any assignment, transfer or conveyance, in whole
or in part, of its rights and obligations under this Agreement
without the prior written consent of the other party such consent to
be within the other party's sole discretion.
12.3 Governing Law. This Agreement shall take effect under, be
construed and enforced according to, and be governed by the laws
in force in the State of Colorado, USA, without reference to
conflict of laws principles, and subject to section 12.10, the
parties irrevocably submit to the personal and exclusive
jurisdiction and venue of the Colorado state courts of El Paso
County.
12.4 Severability. The provisions of this Agreement are
severable. If any provision or part of this Agreement shall be
held by any court or other official body of competent jurisdiction
to be invalid of unenforceable for any reason, the remaining
provision or parts hereof shall continue to be given effect and
shall bind the parties hereto unless the unenforceability or
illegality has the consequences of substantially altering the
respective rights and obligations of the parties hereto.
12.5 No Partnership or Other Relationship Created. The parties are
not, nor shall any party hold itself out to be, the partner, agent,
joint venturer, employee or independent contractor of the other for
and purpose whatever, nor shall any legal or fiduciary relationship
between them, other than as may be explicitly provided in this
Agreement, exist by virtue of this Agreement. No party shall be or
become liable for any representation, act or omission of the other
as a consequence of this Agreement and no party is authorized to
create any such liability on behalf of the other. This Agreement is
<PAGE>
not for the benefit of any third party and shall not of itself be
deemed to give any right or remedy to any third party for any
purpose whatever.
12.6 Waivers. Any waiver exercised under any provision of this
Agreement shall not be deemed a general waiver with respect to any
other provision of this Agreement, and no failure to exercise and
no delay in exercising, any right, power or privilege hereunder
shall operate as a waiver thereof, except where specified to the
contrary herein, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further
exercise thereof or of any other right, power or privilege. The
rights and remedies provided herein are, and shall be interpreted
to be, cumulative and not exclusive of any other rights provided
by law or otherwise.
12.7 Notices. All notices permitted or required to be given to the
parties of this Agreement shall be in writing and delivered
personally or sent by certified or registered airmail (return,
receipt required, postage prepaid), by air freight (return
requested), or by telefax or telex (with receipt acknowledgement
requested) addressed to the respective parties at its usual and
principal place of business. Such notices shall be deemed to have
been effectively given and received on the day of delivery if
delivered personally, or, if by telegram, telecopy, telex, or air
freight, on the next day following the sending of such notice by
telegram, telecopy, telex, or air freight provided this receipt
shall have been acknowledged, and of mailed, on the seventh (7th)
business day following such mailing.
12.8 Entire Agreement. This Agreement contains the entire and
only agreement of licensee and Ramtron with respect to the
Technology License and supersedes entirely any and all other
agreements either oral or written between the parties with respect
thereto, and each of Licensee and Ramtron acknowledge that it has
no claims against the other under or arising from any prior
understanding or document. No agreement, statement or promise
relating to the subject matter of this Agreement which is not
contained herein shall be valid or binding.
12.9 Changes or Amendment. Any change, revision, termination or
attempted waiver of any of the provisions contained in this
Agreement shall not be binding unless in writing and signed by the
part against whom the same is sought to be enforced. This Section
may only be waived in writing. This Agreement shall be amended or
supplemented only by written instrument duly executed by or on
behalf of the parties hereto, and if and when so supplemented or
amended shall include all such supplements and any amendments.
12.10 Arbitration. Any dispute or claim arising out of or in
connection with this Agreement will be finally settled by binding
arbitration in Colorado Springs, Colorado under the Rules of
Arbitration of the International Chamber of Commerce by one
arbitrator appointed in accordance with those rules. The arbitrator
<PAGE>
will apply Colorado law to the merits of any dispute or claim,
without reference to conflict of law principles. The arbitration
and all pleadings and written evidence shall be in the English
language. Judgement on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Notwithstanding
the foregoing, the parties may apply to any court of competent
jurisdiction for temporary or preliminary injunctive relief without
breach of this arbitration provision.
12.11 Attorney's Fees. In the event of any controversy, claim or
dispute between the parties hereto arising out of or relating to
this Agreement, including but not limited to a controversy settled
by arbitration the prevailing party shall be entitled to recover
from the losing party reasonable expenses, including attorneys'
fees and costs.
12.12 Force Majeure. If the performance by any party of any of its
obligations under this Agreement shall be in any way prevented,
interrupted, or hindered as a result of any force majeure,
including, without limitation, war, civil disturbance, strike or
other labor disturbance, lockout, legislation or restriction of any
governmental or other authority, fire, unavailability of materials
or finished goods, delay of carriers or any other similar
circumstances (other than financial difficulties) beyond the
reasonable control of such party, the obligations of the party
contested shall be wholly or partially suspended during the
continuance and to the extent of such prevention, interruption or
hinderance, provided however, that local commercial availability of
materials or finished goods shall not alone constitute force
majeure for purposes hereof if such materials or finished goods are
otherwise (even if it is at a higher cost) available. A party
unable to perform timely its obligations under this Agreement due
to any of the foregoing reasons must take all reasonable steps to
remedy its nonperformance or delay its performance with the lesser
possible delay and by doing whatever may reasonably be done to
mitigate the adverse effect of its nonperformance upon the other
party of this Agreement.
12.13 Headings. The headings of the Sections of this Agreement have
been inserted for convenience or reference only and shall in no way
affect the interpretation of any of the terms or conditions of this
Agreement.
IN WITNESS WHEREOF, the undersigned parties to this Agreement have enacted
this document as of the date and year first above written.
"RAMTRON" "LICENSEE"
RAMTRON CORPORATION RACOM SYSTEMS, INC.
By: /s/ George J. Stathakis By: /s/ [illegible]
----------------------- ---------------------
Its: George J. Stathakis Its: /s/ [illegible]
----------------------- ---------------------
Chief Executive Officer
0843G
<PAGE>
ATTACHMENT I
IBM
TEXAS INSTRUMENTS
MOTOROLA
INTEL
MICRON TECHNOLOGIES
NEC CORPORATION
HITACHI CORPORATION
TOSHIBA
FUJITSU
MATSUSHITA ELECTRICAL INDUSTRIAL CO. LTD.
MITSUBISHI ELECTRIC CORPORATION
OKI SEMICONDUCTOR
SONY CORPORATION
SAMSUNG
LUCKY GOLDSTAR
DAEWOO
TAIWAN SEMICONDUCTOR
NMB SEMICONDUCTOR CO. LTD.
SIEMENS
SGS-THOMSON
PHILIPS
NATIONAL SEMICONDUCTOR
ATTACHEMENT II
To be advised.
<PAGE>
EXHIBIT 10.13
AMENDMENT
TO
TECHNOLOGY LICENSE AGREEMENT AND SUPPLY AGREEMENT
This amendment to Technology License Agreement and Supply Agreement
("Agreement"), is entered into as of the 31 day of March, 1994, by and between
Ramtron International Corporation, a Delaware corporation, having its principal
offices at 1850 Ramtron Drive, Colorado Springs, Colorado 80921 ("Ramtron") and
Racom Systems, Inc., a Delaware corporation, having its principal offices at
6080 Greenwood Plaza Boulevard, Englewood, Colorado 80111 ("Racom").
RECITALS
A. Ramtron and Racom have entered into that certain Supply Agreement dated
October 23, 1991 ("Supply Agreement") and that certain Technology
License Agreement dated October 23, 1991 ("License Agreement") whereby
Ramtron has agreed to license certain of its ferroelectric technology to
Racom and to supply Racom with certain products incorporating such
technology.
B. Ramtron and Racom desire to amend the Supply Agreement and License
Agreement and desire to set forth certain terms and conditions under
which the parties shall operate all as set forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, and for other good and valuable
consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
ARTICLE ONE
AMENDMENTS TO LICENSE AGREEMENT
1.1 Section 1.5 of the License Agreement shall be modified in its entirety as
set forth below:
"Improvements" means all improvements, enhancements and
developments to the Ferroelectric Technology, of any kind,
whatsoever, including all 1 Transistor, 1 Capacitor
<PAGE>
Cell, sub 1.2 micron devices and technology, processes and
materials for use therein, made by Ramtron or its Affiliates,
or to which Ramtron or its Affiliates may be entitled or may
become entitled. "Improvements" shall not include any such
improvements, enhancements, and developments if Ramtron or
any of its Affiliates, as the case may be, are prohibited from
making the same available to Licensee pursuant to a contract
with a third party or pursuant to any judicial order or
proceeding.
Notwithstanding the foregoing, Licensee will not have the
right to require Ramtron or its Affiliates to utilize any
Improvements which have not been reduced to commercial
practice by Ramtron or its Affiliates. Licensee's rights
to the Ferroelectric Technology and to any and all Improvements,
shall not be diminished in any way whatsoever if Ramtron
or its Affiliates do not reduce to commercial practice,
for any reason whatsoever, any or all such Improvements.
Ramtron agrees to inform Licensee of any Improvements on
a timely basis. All requests for information regarding
Improvements from Licensee must be such as to not unreasonably
interfere with Ramtron's normal course of business. Ramtron
further agrees to provide complete details of any Improvements
to Licensee at the earlier of (a) the time they are included
in any issued patents, (b) the time they are included in
Ramtron's internal register of trade secrets, or (c) the
time they are formally documented for internal use. Ramtron
will not be required, but may, in its sole discretion, inform
Licensee of any developments or Improvements which do not yet
meet the requirements set forth above without incurring any
further obligation to Licensee.
1.2 Section 2.1(c) of the License Agreement shall be modified in its entirety
as set forth below:
(c) In the event that Ramtron does not restrict such licenses
as described above and such licensee or any of its Affiliates
commercially sells Ferroelectric RF/ID Products on or before
December 31, 1996, then subject to Subsection (f) below,
Licensee shall be entitled to give written notification to
Ramtron requiring that
- 2 -
<PAGE>
Ramtron transfer to Licensee for no payment or additional
consideration whatsoever One Million Three Hundred Thirty-Three
Thousand Three Hundred Thirty-Three (1,333,333) shares of
Licensee's common stock currently held by Ramtron. Ramtron
represents and warrants to Licensee that all shares
transferred by Ramtron to Licensee pursuant to this clause
shall be fully paid up in the name of Ramtron and absolutely
free from any mortgage, charge, pledge, lien, encumbrance,
security interest, preferential right, trust arrangement,
contractual right of set off or any other security agreement
or arrangement in favor of any other person. Ramtron and
Licensee hereby acknowledge that the entitlement to receive
a transfer of shares of Licensee's common stock described
above shall constitute Licensee's sole and exclusive right
in such event and such amount represents a genuine pre-estimate
of the liquidated damages likely to be suffered by Licensee
as a result of commercial sales of Ferroelectric RF/ID Products
by such other licensee or its Affiliates.
1.3 Section 2.1(d) of the License Agreement shall be modified in its entirety
as set forth below:
(d) Ramtron acknowledges that there is no restriction imposed
upon Seiko Epson Corporation or Deutsche ITT Industries GMBH
("ITT") pursuant to the licenses granted by Ramtron to such
parties to exploit the Ferroelectric Technology under License
Agreements dated 2 March, 1989, and 1 June, 1988, respectively.
In the event that either Seiko Epson Corporation or ITT or any
of their respective Affiliates commercially sells
Ferroelectric RF/ID Products on or before June 30, 1996, then,
subject to subsection (f) below Licensee shall be entitled to
give written notification to Ramtron requiring that Ramtron,
at Ramtron's sole option, either (i) pay to Licensee the sum
of One Million Dollars ($1,000,000), or (ii) transfer to
Licensee for no payment or additional consideration whatsoever
Six Hundred Sixty-Six Thousand Six Hundred Sixty-Seven (666,667)
shares of Licensee's common stock currently held by Ramtron.
Ramtron represents and warrants to Licensee that all shares
transferred by Ramtron to Licensee pursuant to this clause
shall be fully paid up in the name of Ramtron and absolutely
free from any mortgage, charge, pledge, lien, encumbrance,
security interest, preferential
- 3 -
<PAGE>
right, trust arrangement, contractual right of set off or
any other security agreement or arrangement in favor of any
other person. Ramtron and Licensee hereby acknowledge that
the payment described under subparagraph (i) or entitlement
to receive a transfer of shares of Licensee's common stock
described under subparagraph (ii) above shall constitute
Licensee's sole and exclusive right in such event and such
amount or transfer represents a genuine pre-estimate of the
liquidated damages likely to be suffered by Licensee as a
result of commercial sales of Ferroelectric RF/ID Products
by such other licensee or its Affiliates.
1.4 Section 2.1(e) of the License Agreement shall be modified by adding the
following paragraph at the end of such section:
Notwithstanding the above, Ramtron may sell Ferroelectric
RF/ID Products to any party without restriction after
December 31, 1998, unless Ramtron and Licensee agree to
extend this date.
1.5 Section 2.1(f)(i) of the License Agreement shall be modified in its
entirety as set forth below:
(i) Licensee shall be entitled to the remedy set forth in
Subsection (c) above only once, that is, only with respect
to the first such additional licensee who commercially sells
Ferroelectric RF/ID Products on or before December 31, 1996,
and Licensee shall not be entitled to receive the transfer
of shares of Licensee's common stock described in
Subsection (c) with respect to additional licensees,
regardless of number.
1.6 Section 2.1(f)(iii) of the License agreement shall be modified in its
entirety as set forth below:
(iii) The number of shares issued as the Additional License
Fee which Licensee may be entitled to receive transfer of
under Subsection (c) above shall be reduced (but not below
zero) by (1) the number of shares which Licensee receives
transfer of under Subsection (d)(ii) above, (2) the number
of shares which could be purchased with the cash payment
received by Licensee under Subsection (d)(i) above, at the
current market value of such shares at the time such payment
is made, and (3) the number of shares which
- 4 -
<PAGE>
could be purchased with the cash payment received by Licensee
under Section 2.1 (i) below, at the current market value of
such shares at the time such payment is made, and vice versa,
such that the total maximum number of shares that Licensee is
or may be entitled to under Subsections (c) and (d) above
shall not exceed the equivalent of One Million Three Hundred
Thirty-Three Thousand Three Hundred Thirty-Three (1,333,333)
shares.
1.7 A new Section 2.1(g) is hereby added to the License Agreement as set forth
below:
(g) Notwithstanding the provisions of Section 2.1 (e) above,
in the event that Licensee does not purchase from Ramtron at
least fifty percent (50%) of the annual quantities of units
set forth below for any given year and fails to do so within
one hundred twenty (120) days after being notified by Ramtron
of such deficiency, then, effective on the expiration of such
one hundred twenty (120) day period, the provisions of
Section 2.1(e) hereof and any other restriction or prohibition
on the sale of Ferroelectric RF/ID Products by Ramtron to any
third party, shall be null and void and from such date forward
Ramtron shall not be subject to any restriction, penalty or
prohibition against or arising from the sale of such products
by Ramtron to any third party.
ANNUAL PURCHASE MILESTONES (000'S)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
System Products Units 43 960 3940 12,615 12,615
Component Products Units -- 240 5720 26,820 26,820
----- ----- ------ ------
1,200 9,660 39,435 39,435
For purposes of this Section 2.1 (g) and Section 2.3 below,
"System Products" shall mean evaluation systems including,
without limitation the DSS 1000, finished controllers
including, without limitation the RFC 1000 and finished
transponders including, without limitation, the RFM 256CC,
and "Component Products" shall mean chips, COB transponder
assemblies, and board/module level controllers.
1.8 A new Section 2.1(h) is hereby added to the License Agreement as set forth
below:
- 5 -
<PAGE>
(h) In the event of any reconstruction of the shares of
Licensee's common stock through any means including, without
limitation, any stock-split, reverse stock-split or stock
dividend ("Reconstruction"), then the number of shares of
Licensee's common stock, to be transferred by Ramtron to
Licensee pursuant to Subsection (c) or (d) above shall also
be adjusted and reconstructed in the same proportions and
in a manner consistent with the Reconstruction.
1.9 A new Section 2.1(i) is hereby added to the License Agreement as set forth
below:
(i) In the event that Ramtron must transfer certain shares
of Licensee's common stock to Licensee pursuant to
Subsections (c) or (d) above and Ramtron does not own
sufficient shares to satisfy such obligations, then Ramtron
shall make a cash payment to Licensee, the amount of which
shall be calculated as follows:
P = (N - T)M
Where: P equals the cash payment to be made by Ramtron to
Licensee; N equals the number of shares of Licensee's common
stock required to be transferred by Ramtron to Licensee
pursuant to Subsection (c) or (d), as appropriate; T equals
the number of shares of Licensee's common stock actually
transferred by Ramtron to Licensee pursuant to Subsections (c)
or (d), as appropriate; and M equals the market value of
each share of Licensee's common stock as of the date any such
transfer is required to be made pursuant to Subsections (c)
or (d). The market value of such shares shall be determined
by the mutual agreement of the parties. Any dispute between
the parties concerning the number of shares to be transferred
or the market value of such shares shall be settled by
arbitration in the manner provided in Section 12.10 below.
1.10 Section 2.2.1(b) of the License Agreement shall be modified in its entirety
as set forth below:
(b) ADDITIONAL LICENSE FEE. The term "Additional License Fee"
shall mean the issuance by Licensee of one million three hundred
thirty-three thousand three hundred thirty-
- 6 -
<PAGE>
three (1,333,333) new shares of Licensee's common stock of
$0.01 par value, at a stated value of $1.50 per share to
Ramtron on or before March , 1994.
---
1.11 Section 2.3 of the License Agreement shall be modified by adding the
following new paragraph at the end of such section:
Additionally, during the term of this Agreement, Licensee
hereby agrees to pay to Ramtron a royalty of two percent (2%)
on the sale, or other transfer for value, by or on behalf
of Licensee of all System Products and Component Products
manufactured by or on behalf of Licensee which incorporate
chips manufactured by or on behalf of Ramtron.
1.12 Section 2.4 of the License Agreement shall be modified in its entirety
as set forth below:
2.4 CERTIFICATION OF ROYALTIES. Licensee shall, on or
before April 30, July 31, October 31 and January 31
in each year during which royalties are payable under
this Agreement , furnish to Ramtron a statement,
certified by a financial officer of Licensee,
concerning the Net Sales by or on behalf of Licensee
of Ferroelectric RF/ID Products manufactured by or on
behalf of Licensee and the sale by or on behalf of
Licensee of all system hardware and component hardware
products manufactured by or on behalf of Licensee which
incorporate chips manufactured by or on behalf of Ramtron,
during the preceding Royalty Period in sufficient detail
to permit the computation of the royalties due for such
Royalty Period, and shall accompany such statement by
payment, in immediately available United States dollar
funds, of the royalties due according to that statement.
On or before the last day of the first three month
period following the end of each Royalty Year, Licensee
shall furnish to Ramtron a comparable statement,
certified by an internationally recognized firm of
independent certified public accountants, certifying
the Net Sales made by or on behalf of Licensee of
Ferroelectric RF/ID Products manufactured by or on
behalf of Licensee and the sale by or on behalf of
Licensee of all system hardware and component hardware
products manufactured by or on behalf of
- 7 -
<PAGE>
Licensee which incorporate chips manufactured by or on
behalf Ramtron, during the preceding Royalty Year.
Licensee shall accompany such statement by payment in
immediately available United States dollar funds of any
amounts due to Ramtron for such preceding Royalty Year.
1.13 Section 8.3(a) of the License Agreement shall be modified in its entirety
as set forth below:
(a) Licensee fails or refuses to: (i) pay to Ramtron on the
date due any payment provided to be made to Ramtron in
accordance with Section 2.2.1(a) or issue shares to Ramtron
in accordance with Section 2.2.1(b); or (ii) issue shares to
Ramtron in accordance with Section 2.2.2; or (iii) pay to
Ramtron within thirty (30) days of written demand after the
due date thereof for any royalties due hereunder provided,
however, nothing in this subparagraph shall be construed to
relieve Licensee of its liability to pay to Ramtron the Initial
License Fee or issue shares to Ramtron as the Additional
License Fee if such are due and payable or issuable, as
appropriate, and royalties on all Ferroelectric RF/ID Products
manufactured by or on behalf of Licensee and all system
hardware and component hardware products which are
manufactured by or on behalf of Licensee which incorporate
chips manufactured by or on behalf of Ramtron, and sold,
leased or otherwise transferred by Licensee prior to or after
the date of such termination in accordance with this Agreement.
1.14 All other provisions of the License Agreement shall remain in full force
and effect.
ARTICLE TWO
AMENDMENTS TO SUPPLY AGREEMENT
2.1 The first paragraph of Section 2.1 of the Supply Agreement shall be
modified in its entirety as set forth below:
2.1 Products. Subject to the terms and conditions hereof,
at Racom's request, Ramtron shall sell to Racom and
make timely delivery of, and Racom shall
- 8 -
<PAGE>
purchase from Ramtron and take delivery of, Products
in an amount sufficient to satisfy up to: (i) one
hundred percent (100%) of Racom's requirements
therefor for calendar years 1994 and 1995 and
(ii) fifty percent (50%) of Racom's requirements
therefor for calendar years 1996, 1997, and 1998;
provided, however, that in no event shall Ramtron
be required to supply to Racom more than twenty
million (20,000,000) units (assuming maximum
possible die of 3000 per 6 inch wafer) of the
Products in any given year, unless Ramtron agrees
to do so in its sole and absolute discretion.
2.2 The second sentence of the second paragraph of Section 2.1 of the Supply
Agreement shall be amended as follows:
Racom shall compensate Ramtron for the design of these
additional products at rates to be negotiated between
Ramtron and Racom; provided that the non-recurring
engineering ("NRE") charges for development of such
products shall be as set forth below.
2.3 A new paragraph shall be added to the end of Section 2.1 of the Supply
Agreement setting forth the following:
Ramtron hereby agrees to provide Racom with engineering
research and development services, on an ongoing basis.
Ramtron hereby agrees to provide these services at its
approximate cost. The fees charged to Racom for these
services will be the direct expenses incurred by Ramtron
to provide these services. These expenses will be limited
to Compensation, Materials and Overhead as defined below.
(i) Compensation means, for the purposes of calculating fees,
1.20 x Direct Labor (see table below) where Direct Labor is
calculated, according to the rate table below, for the actual
time spent by the various classes of professionals, as
defined in the table, working on Racom projects. It is
agreed that this rate table will be in effect through
December 31, 1994 and will be increased by 5% annually
thereafter for the term of this Agreement. It is agreed
by both parties that this formula will be sufficient to
pay for all direct and indirect labor costs. A detailed
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<PAGE>
summary of the individuals and expenses included in this
calculation will be provided to Racom with each billing.
DIRECT LABOR RATES (PER MONTH)
------------------------------
Senior Design $5,475
Junior Design $3,425
Senior Layout $4,750
Junior Layout $3,950
(ii) Materials means, for purposes of calculating fees,
all items directly consumed in providing the services to
Racom. This includes but is not limited to supplies, parts,
packaging and similar items. Included under this definition
are only those items which will have no value after being
utilized in providing the services to Racom. Any items
having a life or value beyond providing the services to
Racom and any items which would normally be capitalized
under generally accepted accounting principles are hereby
excluded from this calculation. A detailed list of these
items will be provided to Racom with each billing.
(iii) Overhead is defined and provided for by calculating
a fixed charge of 50% of Compensation for each billing period.
It is agreed by both parties that this formula will be
sufficient to pay for all other expenses, direct, indirect
or otherwise, not included and provided for under
Compensation and Materials.
2.4 Section 3.1 of the Supply Agreement shall be modified in its entirety as
follows:
3.1 PURCHASE PRICE. Ramtron's prices to Racom for the
Products shall be as set forth below in the second paragraph
of this Section 3.1; provided, however, that Ramtron
represents and warrants to Racom that the prices available
to Racom for the Products shall be no less favorable than
the prices offered to or established by any third party for
the same or similar goods and quantities not exceeding the
quantities anticipated to be purchased by Racom under the
terms of this Agreement. Prices shall be stated and payments
shall be made in United States dollars.
- 10 -
<PAGE>
Ramtron hereby agrees to charge Racom for each Tested Wafer
Out ("TWO") provided under this Agreement according to the
following schedule:
(i) For the period January 1, 1994 to December 31, 1994 the
price per TWO will be $3,000 for up to 250 TWO's and $2,500
for additional purchases above 250 during this period.
(ii) Commencing January 1, 1995 and continuing thereafter,
Ramtron will charge Racom for each TWO according to the
formula: 1.55 x DWMC where DWMC = VWMC + FWMC as further
defined below:
a. VWMC = DVC + W where:
- DVC = Ramtron's total direct variable manufacturing
costs incurred on a monthly basis. Expenses
in this category will be those variable costs
generally identified as such by semiconductor
industry standards and practices.
- W is the physical quantity of all finished wafers
actually produced in each monthly period.
b. FWMC = DFC + (WCM x .80) where:
- DFC = Direct fixed manufacturing costs generally
recognized by Ramtron for financial reporting
purposes on a monthly basis. Expenses in this
category will be those fixed manufacturing
costs generally identified as such by
semiconductor industry standards and practices.
- WCM = Wafer capacity per month at Ramtron's
manufacturing plant assuming a three shift,
24 hour per day, five day per week manufacturing
- 11 -
<PAGE>
schedule. Ramtron has indicated that its
current rated capacity is 1,500 wafers per
month based on this formula.
c. The parties agree that pricing under the above formula
will be determined on an annual basis as of the first
day of each calendar year and adjusted quarterly for
fluctuations in raw material prices or changes in
manufacturing overhead.
2.5 Section 9.1 of the Supply Agreement shall be modified in its entirety as
set forth below:
9.1 Term. This Agreement shall become effective on the date
signed by both parties and shall continue in effect until
December 31, 1998 unless sooner terminated in accordance
with the terms of this Agreement.
2.6 All other provisions of the Supply agreement shall remain in full force and
effect.
ARTICLE THREE
OTHER AGREEMENTS
3.1 As partial consideration for extension of the Supply Agreement and the
other terms and conditions specified herein, Racom shall issue, on the
effective date of this Agreement, 666,667 shares of Racom common stock to
Ramtron at a stated value of $1.50 per share.
3.2 Ramtron hereby agrees to support continuing discussions between Intag
International Limited ("Intag") and Racom concerning opportunities
presented to Racom by the Magellan Technology, including review and
discussion of the Frost and Sullivan Marketing Report for purposes of
reaching an early decision regarding Intag's current license negotiations
with Racom.
3.3 Ramtron confirms its support to AWA Microelectronics ("AWAM") as originally
agreed once the AWAM license is activated.
- 12 -
<PAGE>
3.4 Intag hereby agrees, in its sole discretion, to fund Racom's current
operations, on a short-term basis, by way of convertible notes ("Notes").
Such Notes shall accrue interest at a rate of the ten percent (10%) per
annum and shall be, at Intag's option, either convertible, at a rate of
$1.50 per share, into Racom's common stock at the time of Racom's initial
public offering, or shall be redeemable at any time after April 30, 1994.
Notwithstanding the above, at the time of conversion of such Notes by
Intag, Ramtron shall have the right to purchase from Intag up to fifty
percent (50%) of the outstanding Notes at a purchase price equal to $1.50
per share multiplied by the number of shares each purchased Note converts
into so as to afford Ramtron the opportunity to maintain an ownership
position in Racom equal to that of Intag.
3.5 Ramtron and Racom agree to form a marketing council to discuss
opportunities to achieve revenues from direct RF/ID chip sales, while at
the same time, preserving or enhancing Racom's system level opportunities.
In the event such opportunities arise, Racom will approve such direct sales
by Ramtron to noncompetitive entities on a case-by-case basis. Racom and
Ramtron shall negotiate the payment of any royalties in connection with
such sales.
3.6 This Agreement may be executed simultaneously in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
RACOM SYSTEMS, INC.
[ILLEGIBLE]
----------------------------------------
RAMTRON INTERNATIONAL CORPORATION
[ILLEGIBLE]
----------------------------------------
FOR THE LIMITED PURPOSE SET FORTH IN
SECTION 3.4 HEREOF
INTAG INTERNATIONAL LIMITED
By: [ILLEGIBLE]
-------------------------------------
Its: MANAGING DIRECTOR
------------------------------------
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<PAGE>
EXHIBIT 10.14
SECOND AMENDMENT
TO
TECHNOLOGY LICENSE AGREEMENT AND SUPPLY AGREEMENT
This Second Amendment to Technology License Agreement and Supply
Agreement ("Agreement"), is entered into as of the 17th day of February, 1995,
by and between Ramtron International Corporation, a Delaware corporation, having
its principal offices at 1850 Ramtron Drive, Colorado Springs, Colorado 80921
("Ramtron") and Racom Systems, Inc., a Delaware corporation, having its
principal offices at 6080 Greenwood Plaza Boulevard, Englewood, Colorado 80111
("Licensee" or "Racom," as appropriate).
RECITALS
A. Ramtron and Licensee have entered into that certain Supply Agreement
dated October 23, 1991 ("Supply Agreement") and that certain
Technology License Agreement dated October 23, 1991 ("License
Agreement") whereby Ramtron has agreed to license certain of its
ferroelectric technology to Racom and to supply Racom with certain
products incorporating such technology.
B. Ramtron and Licensee amended certain provisions of the Supply
Agreement and License Agreement pursuant to an amendment entitled
"Amendment to Technology License Agreement and Supply Agreement" dated
March 31, 1994 ("Amendment").
C. Ramtron and Licensee have entered into that certain Memorandum of
Understanding dated February 2, 1995 ("MOU") and now desire to further
amend the Supply Agreement and License Agreement in accordance with
the provisions of the MOU all as set forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
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AGREEMENT
ARTICLE ONE
AMENDMENTS TO LICENSE AGREEMENT
1.1 Section 2.1(b) of the License Agreement shall be modified in its
entirety as set forth below:
(b) Except as provided in subparagraph (j) below, Ramtron and its
Affiliates hereby agree, through the end of the year 2005, not to
further license the Ferroelectric Technology to any party for use
in Ferroelectric RF/ID Products. Ramtron's agreement to refrain
from such further licenses shall be contingent upon Licensee's
satisfaction of its obligations described in Section 2.1 (g) below.
Beginning January 1, 2006, Ramtron shall be free to further license
the Ferroelectric Technology for any purpose and in Ramtron's sole
discretion.
1.2 Section 2.1(d) of the License Agreement shall be modified in its
entirety as set forth below:
(d) Notwithstanding Section 2.1(b), Ramtron and Licensee
acknowledge that there is no restriction imposed upon Seiko Epson
Corporation ("Seiko") or Deutsche ITT Industries GMBH ("ITT")
pursuant to the licenses granted by Ramtron to such parties to
exploit the Ferroelectric Technology under License Agreements dated
2 March, 1989, and 1 June, 1988, respectively. The parties
acknowledge and understand that Ramtron may have no power or
authority to prevent either Seiko or ITT from developing or selling
Ferroelectric RF/ID Products. Accordingly, the parties agree that
in the event that either Seiko or ITT develop or sell Ferroelectric
RF/ID Products during the term of this Agreement, Ramtron shall be
under no obligation to compensate Licensee in any way whatsoever as
a result of such event.
1.3 Section 2.1(e) of the License Agreement shall be modified in its
entirety as follows:
(e) Neither Ramtron nor any affiliate or licensee of Ramtron or its
Affiliates shall manufacture, sell, lease or distribute either
Ferroelectric RF/ID Products or semiconductor components that
Ramtron "knows" are
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intended to Monolithically Incorporate RF/ID Products and the
Ferroelectric Technology to any company other than Licensee; nor
shall it directly enter into the RF/ID Product business except
pursuant to its ownership interest in Licensee. As used herein,
"knows" shall mean the actual knowledge of Ramtron or any Affiliate
of Ramtron and Ramtron shall have no obligation to make affirmative
inquiry of any persons other than Ramtron's employees and
employee's of Ramtron's Affiliates regarding the intended use of
any such Ferroelectric RF/ID Products or semiconductor components
that it manufactures, sells, leases or distributes.
Notwithstanding the above, Ramtron may sell Ferroelectric RF/ID
Products to any party without restriction after December 31, 2005,
unless Ramtron and Licensee agree to extend this date. Ramtron's
agreement to refrain from such sales of Ferroelectric RF/ID
Products during such time periods shall be contingent upon
Licensee's satisfaction of its obligations described in
Section 2.1(g) below.
1.4 Section 2.1(g) shall be modified in its entirety as set forth below:
(g) Notwithstanding the provisions of Sections 2.1(b) or 2.1(e)
above, in the event that Licensee does not purchase from Ramtron or
its licensees at least fifty percent (50%) of the annual quantities
of units set forth below for any given year and fails to do so
within one hundred twenty (120) days after being notified by
Ramtron of such deficiency, then, effective on the expiration of
such one hundred twenty (120) day period, the provisions of
Sections 2.1(b) and 2.1(e) hereof and any other restriction or
prohibition on the license of Ferroelectric Technology or sale of
Ferroelectric RF/ID Products by Ramtron to any third party, shall
be null and void and from such date forward Ramtron shall not be
subject to any restriction, penalty or prohibition against or
arising from the sale of such products by Ramtron to any third
party. The parties agree that the units comprising the annual
purchase milestones set forth below must be supplied by Ramtron or
its licensees.
ANNUAL PURCHASE MILESTONES (000'S)
1994 1995 1996 1997-2005
---- ---- ---- ---------
System Products Units 43 960 3940 12,615
Component Products Units -- 240 5720 26,820
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For purposes of this Section 2.1(g) and Section 2.1 of the
Supply Agreement, as amended, "System Products" shall mean
evaluation systems including, without limitation the
DSS 1000, finished controllers including, without limitation
the RFC 1000 and finished transponders including, without
limitation, the RFM 256CC, and "Component Products" shall
mean chips, COB transponder assemblies, and board/module
level controllers.
1.5 A new Section 2.1(j) shall be added to the License Agreement as set
forth below:
(i) The parties acknowledge that Ramtron has begun discussions with
Toshiba Corporation ("Toshiba") concerning the possible license by
Ramtron of the Ferroelectric Technology to Toshiba.
Notwithstanding the provisions of Section 2.1(b), the parties
acknowledge and agree that Ramtron shall be entitled, in its sole
discretion, to complete such discussions and to finalize a license
arrangement with Toshiba by the end of 1995 for the Ferroelectric
Technology and such license may allow Toshiba to use such
Ferroelectric Technology in the manufacture and sale of
Ferroelectric RF/ID Products commencing January 1, 1999.
1.6 The first sentence of Section 6.5 of the License Agreement shall be
modified in its entirety and a new second sentence to such Section shall
be added both as set forth below:
Ramtron shall, at its own expense, indemnify and hold harmless Licensee
from and against any cost, liability, loss or expense arising from the
actual or alleged infringement by Licensee of any patent, trademark,
copyright or other intellectual property of any third party provided
that: (i) such alleged infringement is attributable solely to the
Ferroelectric Technology and does not arise from the use of such
Ferroelectric Technology as part of or in combination with any other
devices or parts; (ii) such alleged infringement does not arise from any
portion or aspect of a Ferroelectric RF/ID Product that was designed or
specified by Licensee or any consultant to or representative of Licensee
(other than Ramtron); (iii) Licensee gives Ramtron immediate notice in
writing of any such suit or permits Ramtron, through counsel of its
choice, to answer the charge of infringement and defend such suit; (iv)
such cost, liability, loss or expense does not result from Licensee's
failure to promptly cease use of the Ferroelectric Technology and sale,
lease, and distribution of Ferroelectric RF/ID Products after
notification by Ramtron in accordance with Section 6.4 above; and (v)
Licensee gives Ramtron all the needed information, assistance, and
authority, at Ramtron's expense, to enable Ramtron to defend
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such suit if Ramtron chooses to do so. In the event Ramtron does not
elect to assert the defense of any such suit, Licensee, at its sole
discretion and expense, shall have the right to assert such defense.
1.7 All other provisions of the License Agreement shall remain in full force
and effect.
ARTICLE TWO
AMENDMENTS TO SUPPLY AGREEMENT
2.1 The first paragraph of Section 2.1 of the Supply Agreement shall be
modified in its entirety as set forth below:
2.1 Products. Subject to the terms and conditions hereof, at
Racom's request, Ramtron shall sell to Racom and make timely
delivery of, and Racom shall purchase from Ramtron and take
delivery of, Products in an amount sufficient to satisfy up
to: (i) one hundred percent (100%) of Racom's requirements
therefor for calendar years 1994 and 1995 and (ii) fifty
percent (50%) of Racom's requirements therefor for calendar
years 1996-2005; provided, however, that in no event shall
Ramtron be required to supply to Racom more than twenty
million (20,000,000) units (assuming maximum possible die of
3000 per 6 inch wafer) of the Products in any given year,
unless Ramtron agrees to do so in its sole and absolute
discretion.
2.2 Section 9.1 of the Supply Agreement shall be modified in its entirety as
set forth below:
9.1 Term. This Agreement shall become effective on the date
signed by both parties and shall continue in effect until
December 31, 2005 unless sooner terminated in accordance with
the terms of this Agreement.
2.6 All other provisions of the Supply agreement shall remain in full force
and effect.
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ARTICLE THREE
OTHER AGREEMENTS
3.1 As consideration for the modifications to the License Agreement and
Supply Agreement set forth herein, Racom has paid to Ramtron the sum of
US$400,000 concurrent with the execution of the MOU, has delivered to
Ramtron One Million shares of Racom common stock, par value $0.01, valued
at US$3.00 per share, concurrent with the execution of this Agreement,
and shall pay to Ramtron the sum of US$600,000 on or before March 31,
1995.
3.2 This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
RACOM SYSTEMS, INC.
/s/ [ILLEGIBLE]
----------------------------------
RAMTRON INTERNATIONAL CORPORATION
/s/ [ILLEGIBLE], CEO
----------------------------------
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
December 18, 1996.
