SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____ to _____
Commission File Number 0-25148
COIN BILL VALIDATOR, INC.
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(Name of small business issuer in its charter)
New York 11-2974651
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
425B Oser Avenue, Hauppauge, New York 11788
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(Address of principal executive office) (Zip Code)
Issuer's telephone number 516-231-1177
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. [X]
For the year ended September 30, 1996, the revenues of the registrant were
$16.693 million.
The aggregate market value of the Common Stock of the registrant held by
nonaffiliates of the registrant, based on the average bid and asked prices on
December 17, 1996, was approximately $27,757,813.
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by nonaffiliates on the basis of reasonable
assumptions, if the assumptions are stated.
As of December 23, 1996, the registrant had a total of 2,750,000 Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Proxy Statement for the year ended September 30,
1996 are incorporated by reference into Part III.
Transitional Small Business Disclosure format (Check one): Yes [ ] No [X]
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PART I
Item 1. Description of Business
General
Coin Bill Validator, Inc. (the "Company") was incorporated in New York in 1988.
The Company designs and manufactures paper currency validators and related paper
currency stackers and markets its products in the United States and numerous
international markets. Validators receive and authenticate paper currencies in a
variety of automated machines, including gaming machines and beverage and
vending machines which dispense products, services, coinage, and other
currencies. Stackers are sold with most validators and are designed to store
validated paper currency, usually in secure removable cassettes. Though the
Company knows of no commercially available validator that is
counterfeit-currency-proof, the Company's validators and stackers offer
significant protections against tampering and counterfeit currencies and provide
tamper-evident storage of validated currency. The Company's paper currency
validators are adaptable to a wide variety of OEM (original equipment
manufacturer) applications, offer a highly competitive level of performance, and
are designed to provide ease of maintenance and repair.
Background and History
In the 1980s, a general trend developed with respect to an increase in the
incorporation of paper currency validators in a large number of beverage, food
and novelty vending machines which offered primarily low-priced items.
Subsequent technological improvements in the sensory capabilities of validators
created the ability to process high volumes of larger denomination bills which
led to extensive use of validators in casino gaming machines throughout the
United States. This trend accelerated during the 1990s as a result of overall
growth in the United States gaming industry resulting from an increase in the
number of states permitting legalized gambling and the growth of gambling
facilities on Indian reservations and riverboats. Concurrently, the
international gaming industry has also expanded creating a growing worldwide
market for paper currency validators which the Company has sought to address
since its inception.
Since incorporation, the Company's net revenues have grown from approximately
$35,000 in fiscal 1989 to approximately $9.7 million in fiscal 1994, and to
approximately $16.7 million in fiscal 1996. Prior to January 1993, the Company's
marketing efforts were directed primarily towards domestic distributors and
end-users who focused on the replacement and retrofit markets for validators in
amusement and gaming machines.
Commencing in January 1993, the Company began to focus its marketing efforts on
OEMs of gaming machines and automated vending machines dispensing beverages,
telephone cards and postage stamps. In addition, since such date, the Company
has increased its marketing efforts to international customers. As a result, the
Company's international sales amounted to 66.2 percent of total units sold in
fiscal 1996. International sales, as a percentage of units sold, have
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increased in three of the last four years. Management believes the international
market for validators may grow at a faster rate than in the United States and
therefore may represent the Company's best long-term growth opportunity.
Strategy
The Company has focused its marketing efforts on those segments of the
marketplace requiring a relatively high degree of security and substantial
custom design work that was often not efficiently served by larger competitors,
who focused primarily on the broader, higher-volume market for standardized
product configurations. This "niche" strategy allowed the Company to develop
domestic and international customers who were too new or too small to attract
larger competitors. During fiscal 1996, while continuing its niche marketing
strategy, the Company began redefining and broadening its target markets and
product offerings to enable the Company to achieve market penetration and build
market share in the mainstream domestic and international markets for currency
validators.
In fiscal 1997, the Company intends to further utilize its existing customer
base and its product technology expertise, including comprehensive currency
databases covering more than 50 countries, to pursue market share in the global
beverage, vending and gaming industries. To achieve this, in October 1996, the
Company announced the creation of a new division to focus sales and marketing
efforts on the beverage and vending industries. The Company's President, William
H. Wood, was also named President of this new division. In this capacity, Mr.
Wood has responsibility for all sales and marketing activities directed toward
the beverage and vending industries. The creation of this new division is part
of the Company's strategy to reposition itself to achieve market share growth in
all segments of the global validator business.
In fiscal 1996, the Company spent approximately $61,000 on research and
development. In 1997, the Company expects to increase investment in product
development and focus on providing a range of validator products - potentially
including extensions of the Company's current product offering as well as new
products - specifically targeting the performance and value requirements of the
beverage and vending industries. The Company believes this strategy will enable
it to significantly grow its overall market share both domestically and
internationally.
Products
Since its inception, the Company has endeavored, through its research and
development and manufacturing efforts, to provide products that fill the
specific performance requirements of its customers. These requirements are
continually evolving as the markets for paper currency validators continue to
grow and as technological advances are incorporated into the products' design.
During fiscal 1996, the Company's principal products included three basic
validator models and a wide range of comprehensive currency databases and bill
stacker configurations.
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The Model 125 ("M-125") is the Company's multi-country, multi-denominational
validator model specifically designed for the beverage and vending industries
where its space-saving up-stacker design makes it popular for use in any machine
where space is at a premium. The M-125's bill stackers are fully detachable and
available with capacities of 150, 300 and 600 bills.
The Model IVO ("M-IVO") is a multi-country, multi-denominational validator
designed to fit machines where space is available either to the rear or
downward. The M-IVO is available with locking removable cassette bill stackers
in 500, 1,000 and 2,000 bill capacities and is United States Postal Service and
Gaming Laboratories, Inc. approved.
The Model IDS ("IDS") represents the Company's second generation validator and
features several technological advances designed specifically to meet the
exacting requirements of the gaming industry. The unit is offered in a
down-stack configuration which allows the bill stacker, a security removable
cassette, to be reached through a separate front entrance in the gaming machine.
The IDS is also available in configurations which stack the bills to the front
or rear depending upon space constraints within the equipment. The front section
of the validator head opens easily to allow for maintenance, repair or clearance
of the currency pathway without violating the integrity of the associated
security stacker. IDS models offer currency acceptance of notes up to 3.34
inches (85 mm) in width and have enhanced features for gaming and high security
applications. These features include a multi-level high security validation
process with side-looking sensors, an animated bill runway with "smart visuals"
for customer attraction, a user selectable currency denomination acceptance and
an optional bar-code reader for tickets and coupons. The IDS also offers a soft
drop analyzer ("SDA") (patent pending) as an optional feature. The SDA allows
the bill cassette to maintain and track information such as: currency or coupons
in the validator by quantity and denomination; the specific machine or game that
the cassette was removed from; the acceptance rate of the validator; and
time-in/time-out of cassette from the gaming machine. This information can be
easily downloaded, via a docking station provided by the Company, to a personal
computer allowing instant feedback/tracking for the machine operator.
Commencing in the first quarter of fiscal 1997, the Company introduced the Model
IUS ("IUS") incorporating many of the features offered in its IDS model line.
The IUS has been specifically designed for beverage and vending applications in
machines where space is available above the validation unit. The Company
anticipates introducing further new validator models to meet growing and
changing customer requirements which could incorporate features from existing
products as well as proprietary technological advances where applicable and
based on costs and benefits to the customer.
Product Performance and Warranties
The Company's validator and bill stacker products are generally covered by a
one-year warranty against defects in materials or workmanship, which the Company
believes is standard for the industry. The Company will repair or replace, at
its factory, any units which require
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warranty service. The Company does not warrant that its validators will reject
all counterfeit currencies and believes there is no commercially available
validator that is counterfeit-currency-proof or warranteed as such.
Marketing and Sales
The Company's primary sales and marketing efforts in both domestic and
international markets are conducted by an "in-house" sales force consisting of
sales representatives, sales/product technicians, and customer service support
personnel. In addition, sales are also generated by Coin Bill Validator (UK)
Limited ("CBV-UK"), an unrelated third party. CBV-UK is based in London, U.K.
and is the Company's exclusive distributor in Europe (with the exception of
Italy) according to the terms of an Agent License Agreement dated July 16, 1996.
Under the terms of this agreement, CBV-UK is responsible for generating sales
and market development, applications support, service support and training and
installation support in its stated territory. In addition, CBV-UK has agreed to
certain minimum sales commitments and service support standards over the
three-year term of the agreement.
In August 1996, the Company obtained a 50% interest in Coin Bill Validator South
Africa (Proprietary) Limited ("CBV-SA"). CBV-SA markets and sells paper currency
validators and related paper currency stackers as a principal and agent for the
Company. In fiscal 1996, the results of operations of this entity were not
material.
Customer Concentration and Various Risk Factors
During fiscal 1996, the Company's two largest customers accounted for 39.4
percent of units sold. Unit sales to the gaming industry accounted for
approximately 60.9 percent of the Company's total units sold during such year
with the remaining 39.1 percent from product applications outside of gaming.
The continued success of the Company may be dependent upon the use of paper or
simulated paper currency in gaming and vending machines. A substantial
diminution in the use of paper currency as a means of payment - through a return
to extensive use of high-value, metal-based coinage or the widespread adoption
of electronic funds transfer systems based on credit, debit or "smart-cards" -
could materially and adversely affect the Company's future growth until and
unless the Company develops other products that are not solely dependent on the
use of paper or simulated paper currency. The Company believes that aspects of
its technology and manufacturing expertise - for example, the technology
applicable to electro/optical scanning and certain of its proprietary algorithms
- - may be applicable to products and systems for validating transactions using
other than paper currency. The Company plans to thoroughly investigate such
opportunities and endeavor to develop new product applications where markets for
such new products may exist. However, no assurance can be given that the Company
will be able to successfully develop and market such new products and systems.
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Manufacturing
Since 1995, the Company's operations have been conducted from a leased facility
of 40,000 square feet housing manufacturing and administrative functions in
Hauppauge, New York. Manufacturing operations consist of mechanical and
electro/optical assembly and the provision of wiring harnesses between
components and between the validator and the gaming or vending machine in which
the finished product is to be used. The Company routinely tests all components
and has extensive "burn-in" procedures for both the electronic components and
the final assembled product. Direct control over fabrication and testing permits
the Company to shorten its production cycle and protect proprietary technology.
The Company depends on a limited number of suppliers for various stamped or
formed housings, gears, cogs and wheels and electronic assemblies or components,
including certain microprocessor chips. The Company believes that concentrating
its purchases from its existing suppliers provides, in certain cases, better
prices, better quality and consistency and more reliable deliveries. The Company
maintains on-going communications with its suppliers to prevent interruptions in
supply and, to date, generally has been able to obtain adequate supplies in a
timely manner. The Company has entered into volume blanket agreements with
selected suppliers to guard against shortages of unique components, limiting the
Company's exposure to business interruptions. Furthermore, many of the
electronic components used by the Company, including its microprocessors, are
widely used in many applications and are available from a number of sources.
However, the short wavelength light source which forms a critical part of the
Company's optical scanning device is now commercially available from only a very
limited number of suppliers. The Company believes that if such supply were to
become unavailable, its units could be redesigned to use other light sources and
still remain competitive in the marketplace. However, any interruption in the
supply of key components which cannot be quickly remedied could have a
materially adverse effect on the Company's results of operations.
Competition
The market for the Company's products is very competitive. Most competitors have
significantly greater financial, technical, sales and marketing resources than
the Company. A number of competitors offer products that target the same markets
as do the Company's products.
In the domestic market, certain competitors are divisions or affiliates of
manufacturers of vending machines. For example, Royal Vendors, Inc. is an
affiliate of Coin Acceptors, Inc. ("Coinco") and Rowe Validator ("Rowe") is a
division of Rowe International, Inc. Accordingly, such validator manufacturers
enjoy a competitive advantage in providing for the significant validator
requirements of their affiliates. For validators sold for use in beverage, food,
snack and lower-priced goods or amusement vending, the market is dominated by
Coinco, with Mars Electronics International ("MEI"), Ardac, Inc. ("Ardac") and
Rowe also being significant competitors. The largest supplier of validators used
in gaming machines for the
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domestic market is Japan Cash Machines Co., Ltd. ("JCM"). The Company has
focused marketing efforts on the higher-priced domestic validator market and
competes on the basis of quality, durability and performance while maintaining a
reasonable level of protection against tampering and counterfeit currencies, as
well as a competitive price point.
In the international markets, the Company competes for gaming machine business
with JCM, Ardac, Cashcode Company, Inc., MEI and Diversified Systems, Inc.,
while for product and service vending machines the Company competes with these
competitors as well as Coinco, Sanyo Electric Company (primarily in the Middle
East), Conlux USA Corporation, Coegis, Innovative Technology, Ltd. and various
smaller local manufacturers. The Company has been more willing to address
smaller markets than its larger competitors and expects to encounter increased
competition as the markets addressed by its products continue to grow. The
Company believes that performance, quality and protection against tampering and
counterfeit currency are relatively more important and price relatively less
important, as competitive factors in the international marketplace.
Intellectual Property
The Company relies on certain proprietary know-how and trade secrets to protect
its technology. Important components of this proprietary information are the
Company's library of distinguishing characteristics of the currencies which its
validators scan and validate and its proprietary algorithms. The Company has
entered into non-disclosure and secrecy agreements with certain of its key
employees having access to this technology.
In addition, the Company holds four U.S. patents as follows: "Paper Currency
Acceptor and Method of Handling Paper Currency for Vending Machines and the
Like," granted December 5, 1989, "Bill Accumulating and Stacking Device,"
granted June 21, 1994; design for "Escrow Box for Coin Operated Machines,"
granted April 22, 1986; and "Anti-fraud Currency Acceptor," granted November 9,
1993. The first two patents cover technology used in the Company's first and
second generation validator product lines and the remaining patents cover
technology used in certain special models. The Company has also applied for four
additional U.S. patents, the most important of which covers the use of short
wave-length light in a validator to discern the color and other characteristics
of bills being scanned, the soft drop analyzer and new anti-fraud devices.
If issued, and if corresponding foreign patents are obtained, the Company
believes these patents could provide important protection for certain
technological advantages its validators have in international markets. However,
the Company believes that it will not be materially and adversely affected if
these patents are not issued. No assurances can be given that any patent
applications will result in the issuance of additional patents. As of this date,
the Company has received no foreign patents.
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Although the Company has not received any claims that its products infringe on
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that any such assertion may not require the Company to enter into royalty
arrangements or result in protracted or costly litigation.
Government Regulation
As a supplier of paper currency validators to customers subject to gaming
regulations and postal regulations, the Company is, indirectly, subject to such
regulations that are reflected in customer purchase orders or customer
specifications. The Company believes that it is in full compliance with such
regulations. Any failure to comply with such regulations, however, could have a
materially adverse effect on the results of operations of the Company.
Special Note Regarding Forward-Looking Statements
A number of statements contained in this report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties that could cause actual results to differ
materially from those expressed or implied in the applicable statements. These
risks and uncertainties include but are not limited to: the Company's dependence
on the paper currency validator market and its potential vulnerability to
technological obsolescence; the risks that its current and future products may
contain errors or defects that would be difficult and costly to detect and
correct; potential manufacturing difficulties; potential difficulties in
managing growth; dependence on key personnel; the Company's limited customer
base and reliance on a relatively small number of customers; the possible impact
of competitive products and pricing; and other risks described in the Company's
filings with the Securities and Exchange Commission.
Employees
On December 17, 1996 the Company had 146 employees, including 6 executives; 9
sales and customer service representatives; 27 engineers and software
developers; 21 materials, quality control and quality assurance personnel; 5
administrative personnel; 7 clerical personnel; and 71 assembly/factory workers.
The Company believes its relationships with its employees are good.
Item 2. Description of Property
The Company leases approximately 40,000 square feet housing manufacturing and
administrative functions in Hauppauge, New York, for a term expiring March 31,
2000, at an annual base rental of $240,000, increasing annually to approximately
$270,000 in the final year of the term. The Company believes that this facility
is adequate for its manufacturing needs for the foreseeable future.
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Item 3. Legal Proceedings
Not material.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
a) Market Information
The Company's Common Stock is listed and trades on the NASDAQ National Market
System under the symbol CBVI. The following table sets forth, on a per share
basis, the high and low sale prices for the Company's Common Stock for the
first, second, third and fourth quarters of fiscal 1996 and for the second,
third and fourth quarters of fiscal 1995.
Common Stock
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Quarter Ended High Low
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February 7, 1995* to March 31, 1995 11 1/4 8
June 30, 1995 15 9 3/4
September 30, 1995 12 7 1/8
December 31, 1995 8 7/8 6
March 31, 1996 7 1/4 5 1/2
June 30, 1996 13 1/2 5 1/2
September 30, 1996 11 3/4 7 3/8
*Date of initial public offering
b) Holders
The approximate number of beneficial holders of the Company's Common Stock
as of December 4, 1996, was 340.
c) Dividends
The holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. The Company has not paid
and does not expect to declare or pay any dividends in the foreseeable
future.
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Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fiscal year ended September 30, 1996 vs. September 30, 1995
For the fiscal year ended September 30, 1996, the Company reported net income of
$272,000 or $0.10 per share as compared with $1.551 million for the fiscal year
ended September 30,1995. On a pro forma basis, assuming a C Corporation income
tax provision for the entire year, the Company earned $1.116 million, or $0.45
per share, in 1995. This year-to-year decline in net income is primarily
attributable to an inventory write-down taken in the second quarter in the
approximate amount of $1.1 million, on a pre-tax basis. This write-down relates
to certain early generation products, the future sales of which management
believes will be adversely impacted by sales of newly released products. The
decline also reflects increased operating expenses associated with higher
facility costs and investments in additional personnel. Excluding the impact of
the inventory write-down, net income would have been $906,000 or $.33 per share
in 1996.
Net sales increased by 18.2% or $2.568 million to $16.693 million in 1996 as
compared with $14.125 million in 1995. The increase is attributable to increased
sales of the Company's new product line of paper currency validators and related
paper currency stackers to domestic and international OEM (original equipment
manufacturer) customers, primarily in the gaming industry. Net sales to
international customers increased substantially in 1996 and represented 73% of
total net sales as compared with 37% of total net sales in 1995.
Gross profit decreased by 6.6% to $5.257 million or 31.5% of net sales in 1996
as compared with $5.629 million or 39.9% of net sales in 1995. The decrease was
primarily due to the inventory write-down previously described as well as the
result of increased overhead costs associated with the Company's new facility
and increased direct and indirect labor costs. Excluding the effect of the
inventory write-down, the Company's gross profit would have been $6.389 million
or 38.3% of net sales.
Operating expenses increased by 31.9% to $4.777 million in 1996 as compared with
$3.622 million in 1995. As a percent of sales, operating expenses increased to
28.6% in 1996 as compared with 25.6% in 1995. This increase was principally due
to increased staffing and related payroll costs to support the expansion of
engineering and new product development efforts, increased benefit costs due to
the introduction of certain employee benefits and additional bad debt expense
recorded due to the financial condition of certain customers with which the
Company has since changed selling terms to include letters of credit and other
forms of security.
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Fiscal year ended September 30, 1995 vs. September 30, 1994
For the fiscal year ended September 30, 1995, the Company reported net income,
as adjusted to reflect income taxes which would have been paid had the Company
been a C Corporation for the entire period, of $1.166 million as compared with
$1.427 million for the fiscal year ended September 30, 1994. Despite the
increase in sales, net income decreased primarily due to increases in
manufacturing and operating expenses necessary to support the Company's
anticipated future growth.
Net sales increased by 45.7% or $4.432 million to $14.125 million for the fiscal
year ended September 30, 1995 as compared with $9.693 million in fiscal year
1994. This increase is attributable to increased sales of paper currency
validators and related paper currency stackers to OEM customers and domestic
gaming industry customers. Although sales to international customers increased,
the Company's overall sales mix as a proportion of total sales shifted toward
U.S. sales from international sales compared to the sales mix in the comparative
period in the previous year because of the Company's one-time, large
retro-fitting order for a U.S. customer. Additionally, a large portion of fiscal
1995 sales within the U.S. were related to products with lower gross margins
than had been the case in the previous fiscal year.
Gross profit dollars increased by 27.2% to $5.629 million in 1995 as compared
with $4.425 million in 1994. As a percentage of net sales, gross profit
decreased to 39.9% in 1995 as compared with 45.7% of net sales in 1994. As
described above, the near term trend toward U.S. sales in fiscal 1995 adversely
impacted the gross profit percentage since sales to U.S. customers are generally
made at lower margins than those to international customers. This decrease was
also the result of increased overhead costs associated with the Company's new
facility, increased product costs, increased labor costs and costs related to
additional overhead, principally in manufacturing.
Operating expenses increased by 82.1% to $3.622 million or 25.6% of net sales in
1995 as compared with $1.989 million or 20.5% of net sales in 1994. This
increase was due principally to costs associated with the Company's new
facility, as well as increased staffing and related payroll costs to support
expansion of engineering efforts and increased accounting, legal and selling
expenses to support marketing activities associated with the Company's
aggressive growth strategy.
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Liquidity and Capital Resources
The Company has no significant fixed commitments for capital expenditures. Its
capital requirements consist primarily of those necessary to continue to expand
its manufacturing and product development capabilities, its sales and marketing
operations, and, to a lesser degree, interest payments should the Company decide
to utilize borrowings to fund future growth. Historically, the Company has met
its capital requirements through the sale of securities and through
institutional financing. The Company believes that its available resources,
including its credit facility, should be sufficient to meet its obligations as
they become due and permit continuation of its expansion throughout fiscal 1997
and beyond.
In September 1996, the Company entered into an agreement with The Chase
Manhattan Bank (the "Bank") for a secured line of credit in the aggregate amount
of $5,000,000 with the intent of borrowings to be made when necessary to meet
short-term working capital needs. Outstanding borrowings will bear interest at
rates to be determined based on the amount of the borrowings. The rate will
range between the Bank's prime rate plus one-quarter of one percent per annum
and, for borrowings greater than $500,000, the option of the Reserve Adjusted
London Interbank Offering Rate (LIBOR) plus 275 basis points per annum. The line
of credit is secured by a first priority perfected security interest in the
assets of the Company. As of September 30, 1996, no amounts were outstanding
under this line of credit. This line of credit will expire on September 30,
1997. At September 30, 1996, the Company had cash of $2.727 million.
Net cash provided by operating activities amounted to $1.58 million in 1996. Net
income of the Company, adjusted for noncash items, was $2.075 million in 1996.
This amount was offset primarily by an increase in deferred income taxes and
income taxes payable of $284,000, a decrease in accounts payable and accrued
expenses of $98,000 and an increase in inventory of $147,000, excluding the
effect of the inventory write-down. Net cash used by operating activities
amounted to $83,000 in 1995. The net income of the Company, adjusted for noncash
items, amounted to $1.914 million in 1995. This amount was augmented by an
increase in accounts payable and accrued expenses of $447,000 and an increase in
deferred income taxes and income taxes payable of $340,000, and was primarily
offset by an increase in inventory of $1.761 million and an increase in accounts
receivable of $1.197 million.
Net cash used in investing activities amounted to $664,000 in 1996 as compared
with $469,000 in 1995. Such amounts were used for the purchase of property and
equipment.
Net cash provided by financing activities amounted to $1.83 million in 1995.
Approximately $4.0 million of the proceeds of the Company's initial public
offering ("IPO") of $6.63 million were used to make a final distribution to
shareholders of the Company prior to the offering, which amount represented the
accumulated "S" Corporation earnings through the date of the offering which were
eligible for such a distribution pursuant to the terms of the IPO. Additionally,
$800,000 was used to repay amounts outstanding under the Company's bank line of
credit.
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Fiscal 1996 saw continued moderation in the level of inflation. In order to
offset the resulting rise in the costs of operations, the Company is currently
attempting to reduce product manufacturing costs to increase profit margins and
expects to continue this approach to cope with future cost changes.
Item 7. Financial Statements
The financial statements of the Company required by this item are set forth
beginning on page F-1.
Item 8. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
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PART III
Items 9 through 12 inclusive are omitted per General Instruction E. The
information required by Part III shall be incorporated by reference from the
Registrant's definitive proxy statement pursuant to Regulation 14A for the
fiscal year ended September 30, 1996.
Item 13. Exhibits, List and Reports on Form 8K
(a) Exhibits
Certain of the following exhibits were, as indicated previously,
filed as Exhibits to the registration statements filed by the
Registrant under the Securities Act of 1933 and are hereby
incorporated by reference.
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Exhibit
No.
- -------
3.1 Certificate of Incorporation filed October 25, 1988 (1)
3.2 Certificate of Amendment dated August 6, 1993 (1)
3.3 Form of Certificate of Amendment filed November 17, 1994 (1)
3.4 Amended and Restated By-Laws (4)
9 Voting Trust Agreement dated May 23, 1996 among Odyssey Financial
Company, Joan Vogel, The Joseph Vogel Revocable Trust and Stephen
Katz (3)
10.1 Lease dated September 21, 1994 between the Company and Heartland
Associates (1)
10.2 Employment Agreement dated August 24, 1993 between the Company and
Michael Walsh (1)
10.3 Employment Agreement dated January 31, 1993 between the Company and
William H. Wood (1)
10.4 Employment Agreement dated August 8, 1994 between the Company and
Henry Kayser (1)
10.5 1994 Stock Option Plan (1)
10.6 Bill Validator Development and Supply Agreement dated September 2,
1994 between the Company and Aristocrat Leisure Industries Pty. Ltd.
(1)
10.7 Employment Agreement dated December 1, 1994 between the Company and
Robert W. Nader (2)
10.8 Form of Lock-Up Agreement (2)
10.9 Credit Agreements dated September 9, 1996 and September 10, 1996
between the Company and The Chase Manhattan Bank (4)
10.10 Security Agreement dated September 9, 1996 between the Company and
The Chase Manhattan Bank (4)
10.11 Agreement between the Company and certain shareholders establishing
lines of credit (2)
10.12 Employment Agreement dated May 23, 1996 between the Company and
Stephen Katz (3)
10.13 Agent License Agreement dated July 15, 1996 between the Company and
Currency Validator International, Ltd. (4)
21 Subsidiaries (4)
27 Financial Data Schedule (4)
(1) Incorporated by reference to the initial filings of the Registration
Statement on Form SB-2.
(2) Incorporated by reference to Amendment No. 2 to the Registration
Statement.
(3) Incorporated by reference to the Company's Report on Form 8-K dated June
7, 1996
(4) Filed herewith.
(b) No Reports on Form 8-K have been filed during the last quarter covered by
this Report.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Coin Bill Validator, Inc.
By: s/Stephen Katz
----------------------------------
Stephen Katz
Chairman of the Board and
Chief Executive Officer
Date: December 24, 1996
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Date Title
--------- ---- -----
s/Stephen Katz December 24, 1996 Chairman of the Board
- ------------------------ and Chief Executive Officer
Stephen Katz
s/William H. (Bill) Wood December 24, 1996 President and Director
- ------------------------
William H. (Bill) Wood
s/Edward Seidenberg December 24, 1996 Director and
- ------------------------ Principal Financial Officer
Edward Seidenberg
s/Jay Goldberg December 24, 1996 Director
- ------------------------
Jay Goldberg
s/Richard Gerzof December 24, 1996 Director
- ------------------------
Richard Gerzof
s/Henry Ellis December 24, 1996 Director
- ------------------------
Henry Ellis
s/Joan Vogel December 24, 1996 Director
- ------------------------
Joan Vogel
s/Thomas McNeill December 24, 1996 Controller and
- ------------------------ Principal Accounting Officer
Thomas McNeill
s/Henry Kayser December 24, 1996 Director
- ------------------------
Henry Kayser
18
<PAGE>
COIN BILL VALIDATOR, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F - 1
Balance Sheets as of September 30, 1996 and 1995 F - 2
Statements of Income for the years ended
September 30, 1996 and 1995 F - 3
Statements of Shareholders' Equity for the years ended
September 30, 1996 and 1995 F - 4
Statements of Cash Flows for the years ended
September 30, 1996 and 1995 F - 5
Notes to Financial Statements F - 6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coin Bill Validator, Inc.:
We have audited the accompanying balance sheets of Coin Bill Validator, Inc. (a
New York corporation) as of September 30, 1996 and 1995, and the related
statements of income, shareholders' equity 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 Coin Bill Validator, Inc. as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Melville, New York
November 22, 1996
F-1
<PAGE>
COIN BILL VALIDATOR, INC.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND 1995
(in 000s, except share data)
ASSETS
1996 1995
------- -------
CURRENT ASSETS:
Cash and cash equivalents $ 2,727 $ 1,811
Accounts receivable, less allowance for doubtful
accounts of $268 and $159, respectively 2,789 3,323
Inventory, less allowance for obsolescence of
$1,069 and $118, respectively 3,794 4,779
Prepaid expenses 83 11
Deferred income taxes 570 119
------- -------
Total current assets 9,963 10,043
PROPERTY AND EQUIPMENT, net 887 460
OTHER ASSETS 53 59
------- -------
Total assets $10,903 $10,562
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 807 $ 1,129
Accrued expenses and other current liabilities 551 327
Income taxes payable 597 459
------- -------
Total current liabilities 1,955 1,915
------- -------
DEFERRED INCOME TAXES 29 --
------- -------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Note 6):
Common stock, 20,000,000 shares authorized; $.01 par value,
2,750,000 shares issued and outstanding 28 28
Additional paid-in capital 7,978 7,978
Retained earnings 913 641
------- -------
Total shareholders' equity 8,919 8,647
------- -------
Total liabilities and shareholders' equity $10,903 $10,562
======= =======
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
COIN BILL VALIDATOR, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(in 000s, except share and per share data)
1996 1995
---------- ----------
NET SALES $ 16,693 $ 14,125
COST OF SALES 11,436 8,496
---------- ----------
Gross profit 5,257 5,629
OPERATING EXPENSES 4,777 3,622
---------- ----------
INCOME FROM OPERATIONS 480 2,007
INTEREST INCOME, net 6 29
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 486 2,036
PROVISION FOR INCOME TAXES (Notes 1, 2 and 7) 214 485
---------- ----------
NET INCOME $ 272 $ 1,551
========== ==========
NET INCOME PER SHARE $ 0.10
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,750,000
==========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
COIN BILL VALIDATOR, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(in 000s, except share data)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-in Retained
Shares Amount Capital Earnings Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 2,000,000 $ 20 $ 955 $ 3,491 $ 4,466
Issuance of shares in initial public
offering, net of expenses of $1,620
(Note 1) 750,000 8 6,622 -- 6,630
Distribution to shareholders (Note 1) -- -- -- (4,000) (4,000)
Retained earnings reclassified as
additional paid-in capital upon
termination of S Corporation election
(Note 1) -- -- 401 (401) --
Net income for the year ended September
30, 1995 -- -- -- 1,551 1,551
--------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 1995 2,750,000 28 7,978 641 8,647
Net income for the year ended September
30, 1996 -- -- -- 272 272
--------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 1996 2,750,000 $ 28 $ 7,978 $ 913 $ 8,919
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
COIN BILL VALIDATOR, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(in 000s)
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 272 $ 1,551
------- -------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 237 130
Provision for losses on accounts receivable 434 201
Provision for inventory obsolescence 1,132 --
Loss on disposal of fixed assets -- 32
Changes in operating assets and liabilities:
Accounts receivable 100 (1,197)
Inventory (147) (1,761)
Prepaid expenses and deferred registration costs (72) 188
Deferred income taxes (422) (119)
Other assets 6 (14)
Accounts payable (322) 200
Accrued expenses and other current liabilities 224 247
Income taxes payable 138 459
------- -------
Total adjustments 1,308 (1,634)
------- -------
Net cash provided by (used in)
operating activities 1,580 (83)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of proceeds
from disposals (664) (469)
------- -------
Net cash used in investing activities (664) (469)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank 500 200
Repayment of notes payable to bank (500) (1,000)
Issuance of stock, net of offering expenses -- 6,630
Distribution to shareholders -- (4,000)
------- -------
Net cash provided by financing activities -- 1,830
------- -------
Net increase in cash and cash equivalents 916 1,278
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,811 533
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,727 $ 1,811
======= =======
CASH PAID DURING THE YEAR FOR:
Interest $ 15 $ 33
======= =======
Income taxes $ 497 $ 145
======= =======
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
COIN BILL VALIDATOR, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
1. ORGANIZATION, NATURE OF BUSINESS AND INITIAL PUBLIC OFFERING OF COMMON STOCK:
Coin Bill Validator, Inc. (the "Company"), was established in 1988. The Company
designs, manufactures and markets paper currency validating equipment used in
vending and gaming machines in the United States and other countries.
Substantially all of the Company's revenues are derived from the sale of paper
currency validators and related bill stackers, specifically the Company's M-IVO,
IDS and the M-125 validator models. Fluctuations in the Company's results of
operations may be caused by various factors, including the timing and market
acceptance of new products introduced by the Company and its competitors, the
size and timing of product orders and shipments, the relative mix of products
sold by the Company, specific economic conditions in the gaming industry, from
which the Company derives a substantial portion of its revenues, and general
economic conditions. Additionally, the Company depends on a single or limited
number of suppliers for certain housings, parts and components, including
certain microprocessor chips and short wave-length light sources. The Company
has entered into volume blanket purchase agreements with suppliers to guard
against unique component shortages, limiting the Company's exposure to business
interruptions.
Effective February 7, 1995, the Company issued 750,000 shares of common stock in
an initial public offering for $11.00 per share, generating net proceeds of
approximately $6,630,000. In connection with this offering, the Company issued
warrants to the representative of the several underwriters to purchase 75,000
shares of the Company's common stock at $13.20 per share. Concurrent with this
public offering, the Company no longer qualified as a subchapter S Corporation,
and became subject to subchaper C Corporation taxation from that point on. The
Company has used a portion of the net proceeds to make a final distribution, to
shareholders of the Company prior to the offering, of $4 million. This amount
represented the accumulated S Corporation earnings through the date of the
offering which were eligible for such a distribution pursuant to the terms of
the initial public offering, which terms limited such distribution to a maximum
of $4 million. Upon termination of the S Corporation election, $401,000 of S
Corporation retained earnings which were not distributed to shareholders were
reclassified as additional paid-in capital.
Significant Customers
For the fiscal year ended September 30, 1996, the three largest customers of the
Company accounted for approximately 37%, 9% and 9% of net sales, respectively.
Net sales to international customers were approximately 73% of total net sales
in fiscal 1996.
For the fiscal year ended September 30, 1995, the three largest customers of the
Company accounted for approximately 16%, 13% and 6% of net sales, respectively.
Net sales to international customers were approximately 37% of total net sales
in fiscal 1995.
F-6
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Cash equivalents are stated at cost which approximated market value. Highly
liquid investments with maturities of three months or less at the purchase date
are considered cash equivalents for purposes of the balance sheets and
statements of cash flows.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or market
value.
Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets (Note 4) or,
in the case of leasehold improvements, the life of the related lease, whichever
is shorter. Maintenance and repair costs are charged to expense as incurred.
Expenditures which significantly increase value or extend useful asset lives are
capitalized.
Research and Development
Research and development costs incurred by the Company are included in operating
expenses in the year incurred. Such costs amounted to $61,000 and $72,000 in the
years ended September 30, 1996 and 1995, respectively.
Costs aggregating $350,000 related to certain research and development for
product development were funded by a customer through fiscal 1995. The terms of
the Company's agreement with its customer provided for repayment of such costs
as sales of the Company's products were made to this customer. Through September
30, 1995, approximately 64% of the contractually agreed number of units were
sold. The remaining units under the contract were sold and billed accordingly
during the year ended September 30, 1996.
Warranty Policy
The Company warrants that its products are free from defects in material and
workmanship for a period of one year from the date of initial purchase. The
warranty does not cover any losses or damage that occur as a result of improper
installation, misuse or neglect and repair or modification by anyone other than
the Company. Warranty costs within one year of purchase have historically been
immaterial to the Company's results of operations. Warranty costs beyond one
year from the date of initial purchase are charged to the Company's customers.
Income Taxes
Effective October 1, 1990, the Company elected status as an S Corporation and,
therefore, had not been subject to federal income tax as a separate entity.
Instead, the shareholders were taxed on the Company's income, whether or not
distributed, and they were entitled to deduct Company losses, if any, to the
extent of the tax basis each shareholder had in the Company's common shares. The
F-7
<PAGE>
Company was subject to certain corporate taxes on the state level. In connection
with its initial public offering effective February 7, 1995, the Company
terminated its S Corporation election and the Company's income subsequent to
this date became subject to taxation as a subchapter C Corporation. The Company
has, accordingly, provided for income taxes as a C Corporation for the period
from February 7, 1995 through September 30, 1995 and for the year ended
September 30, 1996 in the accompanying financial statements (Note 7).
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
an asset and liability approach for financial reporting for income taxes. Under
SFAS 109, deferred taxes are provided for temporary differences between the
carrying values of assets and liabilities for financial reporting and tax
purposes at the enacted rates at which these differences are expected to
reverse.
Net Income Per Share
Net income per share was computed by dividing the Company's net income by the
weighted average number of common shares outstanding during the year ended
September 30, 1996. Fully diluted net income per share has not been presented
because the inclusion of stock options outstanding (Note 6) would not have a
dilutive impact in excess of 3% with respect to net income per share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year financial statement amounts have been reclassified to conform
to the current year's presentation.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement
establishes financial accounting and reporting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement is effective for
financial statements for fiscal years beginning after December 15, 1995,
although earlier application is encouraged. The Company expects that the
adoption of this statement in fiscal 1997 will not have a material adverse
effect on the financial position or results of operations of the Company.
F-8
<PAGE>
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
entities to adopt a fair value based method of accounting for stock compensation
plans. However, SFAS No. 123 also permits the Company to continue to measure
compensation costs under pre-existing accounting pronouncements. If the fair
value based method of accounting is not adopted, SFAS No. 123 requires pro forma
disclosures of net income (loss) per common share in the financial statements.
The accounting requirements of SFAS No. 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995. The disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995, or for an earlier fiscal year for which
SFAS No. 123 is initially adopted for recognizing compensation cost. The Company
will adopt this statement in fiscal 1997 by providing the required pro forma
disclosures.
3. INVENTORY:
The following is a summary of the composition of inventory as of September 30,
1996 and 1995:
(in 000s)
-----------------------
1996 1995
------ ------
Raw materials $2,257 $3,272
Work-in-process 1,278 1,048
Finished goods 259 459
------ ------
$3,794 $4,779
====== ======
4. PROPERTY AND EQUIPMENT, NET:
Major classifications of property and equipment as of September 30, 1996 and
1995 are as follows:
(in 000s)
Useful Lives 1996 1995
------------ ------ -----
Leasehold improvements 5 years $ 129 $ 94
Furniture and fixtures 5-7 years 131 84
Machinery and equipment 5-10 years 453 147
Computer software 5 years 370 257
Computer hardware 3 years 231 68
------ ----
1,314 650
Less: Accumulated depreciation and
amortization (427) (190)
------ ----
$ 887 $460
====== ====
5. NOTES PAYABLE TO BANK:
On May 18, 1994, the Company borrowed $200,000 of an available $400,000 credit
line from a bank under the terms of a demand note which provided for interest at
one percent (1%) above the bank's prime rate (7.75% at September 30, 1994).
F-9
<PAGE>
In September 1994, the Company borrowed $600,000 from a bank, as evidenced by a
promissory note. The loan was to be repaid in forty-eight consecutive monthly
installments of principal and interest commencing October 30, 1994 and
thereafter through September 30, 1998. The note bore interest at a fluctuating
rate per annum equal to one and one half percent (1.5%) above the bank's prime
rate (7.75% at September 30, 1994). The proceeds of the loan were used to repay
certain notes payable to and amounts due to shareholders then outstanding.
During fiscal 1995, the Company repaid these demand and promissory notes.
In March 1996, the Company borrowed $500,000 from a bank under a business loan
agreement. The loan was to be repaid in thirty-six consecutive monthly
installments of principal and interest commencing April 1, 1996 and thereafter
through March 1, 1999. The note bore interest at an annual rate of eight and
one-half percent. The proceeds of the note were used to satisfy working capital
requirements for an interim period. The note was repaid in its entirety in July
1996.
6. SHAREHOLDERS' EQUITY:
Stock Split
In October 1994, the Company's Board of Directors approved a 1.64-to-one stock
split in the form of a stock dividend to the Company's common shareholders of
record at October 19, 1994. The new shares were issued to such shareholders of
record on November 10, 1994. Par value remained at $.01 per share. The stock
dividend resulted in the issuance of 780,420 additional shares of common stock,
for a total of 2,000,000 common shares outstanding. This action required
shareholder approval of a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized common shares from 2,000,000
to 20,000,000. All information contained in the financial statements has been
retroactively restated to give effect to this stock split.
Stock Option Plans
In October 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan") covering up to 150,000 of the Company's common shares pursuant to which
officers, directors and key employees of the Company and consultants to the
Company are eligible to receive incentive and/or non-qualified stock options. In
March 1996, the Board of Directors adopted the 1996 Stock Option Plan (the "1996
Plan"), subject to shareholder approval. The purpose and provisions of the 1996
Plan are essentially the same as the 1994 Plan. The 1996 Plan originally covered
200,000 of the Company's common shares. The total shares available for grant
under the 1996 Plan were subsequently increased to 450,000, as approved by the
Board of Directors, in September 1996.
Both the 1994 Plan, which expires on October 17, 2004, and the 1996 Plan, which
expires on March 18, 2006, will be administered by the Compensation and Stock
Option Committee of the Board of Directors. The selection of participants, grant
of options, determination of price and other conditions relating to the exercise
of options will be determined by the Compensation and Stock Option Committee of
the Board of Directors.
Incentive stock options granted under both the 1994 and 1996 Plans are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the common shares on the
date of the grant, except that the term of an incentive stock option granted
under each of the plans to a shareholder owning more than 10% of the outstanding
common shares may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the common shares on the date of the
grant.
F-10
<PAGE>
During fiscal 1995, incentive stock options for 25,000 shares and 15,000 shares,
exercisable at the initial offering price during a five-year period, had been
granted under the 1994 Plan to the Company's president and one other officer,
respectively. These options are exercisable for one-fifth of the shares
immediately and for an additional one-fifth of the shares covered thereby on the
first four anniversaries of the date of grant. During fiscal 1996, 50,000
incentive stock options and 50,000 non-qualified options were granted to the
Chairman and Chief Executive Officer of the Company under the 1994 Plan. These
options will become exercisable over a three-year vesting period as to one-third
of the shares covered on each of the first three anniversaries after the date of
grant. During fiscal 1996, a total of 206,750 options were granted under the
1996 Plan, including 128,750 non-qualified options to an officer and various
non-employee directors and consultants of the Company. These non-qualified
options will become exercisable between three and five years from the grant date
in equal amounts of covered shares commencing with the first anniversary from
the date of grant, with the exception of 11,000 options which will become
exercisable in March 1997. The incentive stock options issued under the 1996
Plan all have five year vesting periods.
Transactions involving the Stock Option Plans are summarized as follows:
For the Fiscal Years
Ended September 30,
----------------------
1996 1995
------- -------
Options outstanding, beginning of period 40,000 --
Granted 306,750 40,000
Exercised -- --
Canceled -- --
------- -------
Options outstanding, end of period 346,750 40,000
======= =======
Options exercisable, end of period 16,000 8,000
======= =======
Exercise price per share for options
outstanding, end of period $6.00 - $11.00 $ 11.00
============== =======
At September 30, 1996, there were 10,000 shares available for grant under the
1994 Plan and 243,250 shares available for grant under the 1996 Plan.
7. INCOME TAXES:
Concurrent with the consummation of the initial public offering during fiscal
1995, the Company no longer qualified as a subchapter S Corporation and became a
subchapter C Corporation.
F-11
<PAGE>
The provision for income taxes is comprised of the following:
For the Fiscal Years
Ended September 30,
(in 000s)
-----------------------
1996 1995
----- -----
Current:
Federal $ 558 $ 439
State and local 197 165
----- -----
755 604
----- -----
Deferred:
Federal (400) (94)
State and local (141) (25)
----- -----
(541) (119)
----- -----
Total $ 214 $ 485
===== =====
Significant components of deferred tax assets and liabilities are as follows:
September 30, 1996
(in 000s)
------------------
Non-current deferred tax liability:
Depreciation $ (29)
-----
Current deferred tax assets:
Accounts receivable 111
Inventory 438
Accrued liabilities 21
-----
570
-----
Net deferred tax asset $ 541
=====
The Company believes that, based upon its consistent history of profitable
operations, it is probable that the net deferred tax assets will be realized,
primarily from the generation of future taxable income.
Reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate is as follows:
For the Fiscal Years
Ended September 30,
---------------------
1996 1995
---- ----
U.S. Federal statutory rate 34.0% 34.0%
State income taxes, net of Federal benefit 7.6 7.6
Income from S Corporation period taxable
to shareholders -- (18.7)
All other, net 2.4 .9
---- ----
Effective income tax rate 44.0% 23.8%
==== ====
F-12
<PAGE>
8. COMMITMENTS AND CONTINGENCIES:
Minimum Lease Commitments
The operations of the Company are conducted in leased premises. The Company also
leases various office equipment. At September 30, 1996, the approximate minimum
annual rentals under these leases, which expire in fiscal year 2000, were as
follows:
For the Fiscal Year Ended September 30, (in 000s)
--------------------------------------- ---------
1997 $290
1998 272
1999 279
2000 141
Total rent expense for all operating leases was $278,000 and $215,000 in fiscal
1996 and 1995, respectively.
Employment Agreements
The Company has entered into various employment agreements with five officers
and two other employees of the Company expiring through the end of fiscal 1999,
with minimum compensation requirements as follows:
For the Fiscal Year Ended September 30, (in 000s)
--------------------------------------- ---------
1997 $862
1998 311
1999 121
Line of Credit
In September 1996, the Company entered into an agreement with The Chase
Manhattan Bank (the "Bank") for a secured line of credit in the aggregate amount
of $5,000,000 with the intent of borrowings to be made when necessary to meet
short-term working capital needs. Outstanding borrowings will bear interest at
rates to be determined based on the amount of the borrowings. The rate will
range between the Bank's prime rate plus one-quarter of one percent per annum
and, for borrowings greater than $500,000, the option of the LIBOR rate plus 275
basis points per annum. The line of credit is secured by a first priority
perfected security interest in the assets of the Company. As of September 30,
1996, no amounts were outstanding under this line of credit. This line of credit
will expire on September 30, 1997.
Litigation
There are various claims, lawsuits and disputes with third parties against the
Company incident to the operation of its business. It is the opinion of
management and its counsel that their ultimate resolution will not have a
materially adverse effect on the Company's financial position or results of
operations.
F-13
Exhibit 3.4
AMENDED AND RESTATED
BY-LAWS
of
COIN BILL VALIDATOR, INC.
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting - An annual meeting of shareholders shall be
held in each year at the date, time and place (either within or without the
State of New York) as shall be fixed by the Board of Directors and specified in
the notice of meeting for the purpose of electing directors and transacting such
other business as may properly be brought before the meeting.
Section 2. Special Meeting - A special meeting of shareholders may be
called at any time by the Chairperson or President and shall be called by the
Secretary at the request in writing of a majority of the Board of Directors then
in office or at the request in writing filed with the Secretary by the holders
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at such meeting. Any such request shall state the
purpose or purposes of the proposed meeting. Special meetings shall be held at
such time, date and place (either within or without the State of New York) as
shall be specified in the notice thereof. Business transacted at any special
meeting of shareholders shall be confined to the purposes set forth in the
notice thereof.
Section 3. Notice of Meetings - Written notice of the time, and place and
purpose of every meeting of shareholders (and, if other than an annual meeting,
indicating the person or persons at whose discretion the meeting is being
convoked), shall be given by the Chairperson, President, a Vice-President or by
the Secretary to each shareholder of record entitled to vote at such meeting and
to each shareholder who, by reason of any action proposed at such meeting, would
be entitled to have his stock appraised if such action were taken, not less than
ten nor more than fifty days prior to the date set for the meeting, either
personally or by mailing said notice by first class mail to each shareholder at
his address appearing on the stock book of the Corporation or at such other
address supplied by him in writing to the Secretary of the Corporation for the
purpose of receiving notice. Notice by mail
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shall be deemed to be given when deposited, postage prepaid, in a post office or
official depository under the exclusive care and custody of the United States
Post Office Department. The record date for determining the shareholders
entitled to such notice shall be determined by the Board of Directors in
accordance with Section 6 of ARTICLE FIFTH of these By-Laws.
If the directors shall adopt, amend or repeal a by-law regulating an
impending election of directors the notice of the next meeting of shareholders
for the election of directors shall set forth the by-law so adopted, amended or
repealed together with a concise statement of the changes made as required by
Section 601(b) of the Business Corporation Law. If any action is proposed to be
taken which would, if taken, entitle shareholders to receive payment for their
shares, the notice of meeting shall include a statement to such effect.
A written waiver of notice setting forth the purposes of the meeting for
which notice is waived, signed by the person or persons entitled to such notice,
whether before or after the time of the meeting stated therein, shall be deemed
equivalent to the giving of such notice. The attendance by a shareholder at a
meeting either in person or by proxy without protesting the lack of notice
thereof shall constitute a waiver of notice of such shareholder.
All notice given with respect to an original meeting shall extend to any
and all adjournments thereof and such business as might have been transacted at
the original meeting may be transacted at any adjournment thereof; no notice of
any adjourned meeting need be given if an announcement of the time and place of
the adjourned meeting is made at the original meeting.
Section 4. Quorum - The holders of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of shareholders for the transaction of business except as otherwise
provided by statute or the Certificate of Incorporation. If, however, a quorum
shall not be present or represented at any meeting of shareholders, the
shareholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. When a quorum is once present to organize a
meeting, such quorum is not deemed broken by the subsequent withdrawal of any
shareholders.
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Section 5. Voting - Every shareholder entitled to vote at any meeting
shall be entitled to one vote for each share of stock entitled to vote and held
by him of record on the date fixed as the record date for said meeting and may
so vote in person or by proxy. At all elections of directors when a quorum is
present, a plurality of the votes cast by the holders of shares entitled to vote
shall elect and any other corporate action, when a quorum is present, shall be
authorized by a majority of the votes cast by the holders of shares entitled to
vote thereon except as may otherwise be provided by statute or the Certificate
of Incorporation.
Section 6. Proxies - Every proxy must be signed by the shareholder
entitled to vote or by his duly authorized attorney-in-fact and shall be valid
only if filed with the Secretary of the Corporation or with the Secretary of the
meeting prior to the commencement of voting on the matter in regard to which
said proxy is to be voted. No proxy shall be valid after the expiration of
eleven months from the date of its execution unless otherwise expressly provided
in the proxy. Every proxy shall be revocable at the pleasure of the person
executing it except as otherwise provided by Section 609 of the Business
Corporation Law. Unless the proxy by its terms provides for a specific
revocation date and except as otherwise provided by statute, revocation of a
proxy shall not be effective unless and until such revocation is executed in
writing by the shareholder who executed such proxy and the revocation is filed
with the Secretary of the Corporation or with the Secretary of the Meeting prior
to the voting of the proxy.
Section 7. Shareholders' List - A list of shareholders as of the record
date, certified by the Secretary of the Corporation or by a transfer agent
appointed by the Board of Directors shall be prepared for every meeting of
shareholders and shall be produced by the Secretary or some other officer of the
Corporation thereat.
Section 8. Inspectors at Meetings - In advance of any shareholders'
meeting, the Board of Directors may appoint one or more inspectors to act at the
meeting or at any adjournment thereof and if not so appointed the person
presiding at any such meeting may, and at the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties as set forth in Section 611 of
the Business Corporation Law, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability.
Section 9. Conduct of Meeting - All meetings of shareholders shall be
presided over by the Chairperson, or if not present, by the President, or if
neither the Chairperson nor the President is present by a Vice-President or if
none of such persons is present, by a chairperson thereby chosen by the
shareholders at the meeting.
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The Secretary of the Corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting but if neither the Secretary nor the
Assistant Secretary is present, the chairperson of the meeting shall appoint any
person present to act as secretary of the meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Function and Definition - The business and property of the
Corporation shall be managed by its Board of Directors who may exercise all the
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the shareholders.
Section 2. Number and Qualification - The number of directors constituting
the entire Board shall be not less than three nor more than fifteen, as may be
fixed by resolution of the Board of Directors; provided that any such action of
the Board shall require the vote of a majority of the entire Board. The phrase
"entire Board" as used herein means the total number of directors which the
Corporation would have if there were no vacancies. The term of any incumbent
director shall not be shortened by any such action by the Board of Directors or
by the shareholders.
Each director shall be at least twenty-one years of age. A director need
not be a shareholder, a citizen of the United States or a resident of the State
of New York.
Section 3. Election Term and Vacancies - Except as otherwise provided in
this Section, all directors shall be elected at the annual meeting of
shareholders and all directors who are so elected or who are elected in the
interim to fill vacancies and newly created directorships, shall hold office
until the next annual meeting of shareholders and until their respective
successors have been elected and qualified.
In the interim between annual meetings of shareholders, newly-created
directorships resulting from an increase in the number of directors or from
vacancies occurring in the Board, but not, except as hereinafter provided, in
the case of a vacancy occurring by reason of removal of a director by the
shareholders, may be filled by the vote of a majority of the directors, then
remaining in office, although less than a quorum may exist.
In the case of vacancy occurring in the Board of Directors by reason of
the removal of one or more directors by action of the
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shareholders, such vacancy may be filled by the shareholders at a special
meeting duly called for such purpose.
In the event a vacancy is not filled by such election by shareholders,
whether or not the vacancy resulted from the removal of a director with or
without cause, a majority of the directors then remaining in office, although
less than a quorum, may fill any such vacancy.
Section 4. Removal - The Board of Directors may, at any time, with cause,
remove any director.
The shareholders entitled to vote for the election of directors may, at
any time, remove any or all of the directors with or without cause.
Section 5. Meetings - The annual meeting of the Board of Directors for the
election of officers and the transaction of such other business as may come
before the meeting, shall be held, without notice, immediately following the
annual meeting of shareholders, at the same place at which such shareholders'
meeting is held.
Regular meetings of the Board of Directors shall be held at such time and
place, within or outside the State of New York, as may be fixed by resolution of
the Board, and when so fixed, no further notice thereof need be given. Regular
meetings not fixed by resolution of the Board may be held on notice at such time
and place as shall be determined by the Board.
Special meetings of the Board of Directors may be called on notice at any
time by the Chairperson or the President, and shall be called by either at the
written request of a majority of the directors then in office.
Section 6. Notice of Meeting - In the case of all special meetings and of
regular meetings not fixed by resolution of the Board, written notice of the
time and place of each such meeting shall be mailed to each director, addressed
to his residence or usual place of business, not less than four days before the
date on which such meeting is to be held, or shall be sent to such address by
telegraph, or be given personally, or by telephone, not less than one day before
the date on which such meeting is to be held. The notice of the meeting need not
specify the purpose of the meeting.
Any meeting of the Board of Directors for which notice is required by
these By-Laws or by statute need not be given to any director who submits a
signed Waiver of Notice whether before or after the meeting, or who attends the
meeting without protesting
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prior thereto or at its commencement the lack of notice to him. All signed
Waivers of Notice shall be filed with the minutes of the meeting.
Section 7. Conduct of Meetings - The Chairperson, or not present, the
President, shall preside at all meetings of directors. At all meetings at which
neither the Chairperson nor the President is present, any other director chosen
by the Board shall preside.
Section 8. Quorum, Adjournment, Voting - Except as otherwise provided by
the Certificate of Incorporation, a majority of the entire Board shall be
requisite and shall constitute a quorum at all meetings of the Board of
Directors for the transaction of business. Where a vacancy or vacancies prevents
such majority, a majority of the directors then in office shall constitute a
quorum.
A majority of the directors present at any meeting, whether or not a
quorum is present, may adjourn the meeting to another time and place without
further notice other than an announcement at the meeting.
Except as otherwise provided by the Certificate of Incorporation, when a
quorum is present at any meeting, a majority of the directors present shall
decide any questions brought before such meeting and the act of such majority
shall be the act of the Board.
Section 9. Action Without Meeting - Any action required or permitted to be
taken by the Board of Directors or of any committee thereof may be taken without
a meeting if all members of the Board of Directors or of any committee thereof
consent in writing to the adoption of a resolution authorizing the action.
Any one or more members of the Board of Directors or of any committee
thereof may participate in a meeting of said Board or of any such committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
Section 10. Compensation of Directors - The Board of Directors may
determine, from time to time, the amount of compensation which shall be paid to
its outside (non-employee) members. The Board of Directors shall also have
power, in its discretion, to allow a fixed sum for attendance at each regular or
special meeting of the Board of Directors, or of any Committee of the Board of
Directors; in addition, the Board of Directors shall also have power, in its
discretion, to provide for and pay to directors rendering services to the
Corporation not ordinarily rendered by directors, as such, special compensation
appropriate to
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the value of such services, as determined by the Board of Directors from time to
time. Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving reasonable
compensation therefor.
Section 11. Committees - The Board of Directors, by resolution of a
majority of the entire Board, may designate from among its members one or more
committees, each consisting of three or more directors, and each of which, to
the extent provided in such resolution, shall have all the authority of the
Board except that no such committee shall have authority as to any of the
following matters:
(a) the submission to stockholders of any action as to which stockholders'
authorization or approval is required by statute, the Certificate of
Incorporation or by these By-Laws;
(b) the filing of vacancies in the Board of Directors or in any committee
thereof;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee thereof;
(d) the amendment or repeal of these By-Laws or the adoption of new
By-Laws; and
(e) the amendment or repeal of any resolution of the Board of Directors
which by its terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any
such committee who may replace any absent member or members at any meeting of
such committee.
Each such committee shall serve at the pleasure of the Board. The Board of
Directors shall have the power at any time to fill vacancies in, to change the
membership of, or to discharge any such committee. Committees shall keep minutes
of their proceedings and shall report the same to the Board of Directors at the
meeting of the Board next succeeding, and any action by the committee shall be
subject to revision and alteration by the Board of Directors, provided that no
rights of a third party shall be affected in any such revision or alteration.
Section 12. Nomination of Board Members - Only persons who are nominated
in accordance with the procedures set forth in this Section 12 shall be eligible
for election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders (i) by or
at the direction of the Board of Directors or (ii) by any
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nominating committee or person appointed by the Board of Directors or (iii) by
any shareholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 12. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to notice in writing to the
Secretary of the Corporation, which notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less than 30
days nor more than 60 days prior to the meeting; provided, however, that in the
event that less than 40 days' notice or prior public disclosure of the date of
the meeting is given or made to shareholders, any notice of nomination by the
shareholder must be so received not later than the close of business on the 10th
day following the earlier of (i) the day on which such notice of the date of the
meeting was mailed or (ii) the day on which such public disclosure was made.
A shareholder's notice of nomination shall set forth (a) as to each person
whom the shareholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares that are entitled to vote of the Corporation which
are beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director, if elected); and (b) as to
the shareholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such shareholder and (ii) the class and number of
shares that are entitled to vote of the Corporation which are beneficially owned
by such shareholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish
such other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as director of the
Corporation.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 12.
The Chairperson of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the By-Laws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
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ARTICLE III
OFFICERS
Section 1. Executive Officers - The officers of the Corporation shall not
be limited in number and shall include a Chairperson of the Board, a
Vice-Chairperson of the Board, a Chief Executive Officer, a President, a Chief
Financial Officer, one or more Vice Presidents, a Secretary, a Treasurer and
such Assistant Secretaries and Assistant Treasurers and other officers as the
Board of Directors may determine. Any two or more offices may be held by the
same person (except the offices of President and Secretary) , unless all of the
issued and outstanding shares of capital stock of the Corporation are owned by
one person, in which event such person may hold all or any combination of
offices.
Section 2. Election - The Chairperson of the Board, the Vice-Chairperson
of the Board, the Chief Executive Officer and the President shall be chosen from
among the directors and together with one or more Vice-Presidents, the Chief
Financial Officer, the Secretary and the Treasurer shall be elected by the Board
of Directors to hold office until the meeting of the Board held immediately
following the next annual meeting of shareholders and shall hold office for the
term for which elected and until their successors have been elected and
qualified. The Board of Directors may from time to time appoint all such other
officers as it may determine and such officers shall hold office from the time
of their appointment and qualifications until the time at which their successors
are appointed and qualified. A vacancy in any office arising from any cause may
be filled for the unexpired portion of the term by the Board of Directors.
Section 3. Removal - Any officer may be removed from office by the Board
at any time with or without cause.
Section 4. Delegation of Powers - The Board of Directors may from time to
time delegate the power or duties of any officer of the Corporation, in the
event of his absence or failure to act otherwise, to any other officer or
director or person whom they may select.
Section 5. Compensation - The compensation of each officer shall be such
as the Board of Directors may from time to time determine.
Section 6. Chairperson of the Board of Directors - The Chairperson of the
Board of Directors shall preside at all meetings of the Board of Directors,
unless the Chairperson delegates these powers to another director and meeting of
shareholders. The Chairperson shall exercise the powers and perform the duties
usual
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to a Chairperson and shall be the person, on behalf of the Board to whom the
Chief Executive Officer and Chief Financial Officer reports. The Chairperson
shall see that all orders and resolutions of the Board of Directors are carried
into effect; and shall do and perform such other duties as from time to time may
be assigned to the Chairperson by the Board of Directors. The Chairperson shall
have the power to execute bonds, mortgages and other contracts, agreements and
instruments of the Corporation. Unless otherwise ordered by the Board of
Directors, the Chairperson, or another officer of the Corporation designated by
the Chairperson, shall have full power and authority on behalf of the
Corporation to attend and to act and to vote at any meetings of security holders
of corporations in which the Corporation may hold securities, and at such
meetings shall possess and may exercise any and all rights and powers incident
to the ownership of such securities, and which, as the owner thereof, the
Corporation might have possessed and exercised, if present. The Board of
Directors by resolution from time to time may confer like powers upon any other
person or persons.
Section 7. Vice-Chairperson of the Board of Directors - The
Vice-Chairperson of the Board of Directors shall, in the absence of the
Chairperson, act as chairperson of all meetings of the Board of Directors and at
all special and annual meetings of the shareholders. The Vice-Chairperson shall
perform such other duties as may from time to time be assigned to the
Vice-Chairperson by the Board. In the event that the position of
Vice-Chairperson shall be vacant, the duties of the Vice-Chairperson shall be
performed by the Chief Executive Officer.
Section 8. Chief Executive Officer - The Chief Executive Officer shall
have general supervision and discretion of the business and affairs of the
Corporation, subject to the control of the Board. The Chief Executive Officer
may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts and other instruments. The Chief Executive Officer shall, when
requested, counsel and advise the other officers of the Corporation and shall
perform such other duties as the Board may from time to time determine. In the
event that the position of Chief Executive Officer shall be vacant, the duties
of the Chief Executive Officer shall be performed by the President.
Section 9. President - The President shall be the chief operating officer
of the Corporation and shall be in charge of the day to day operations and
affairs of the Corporation. The President may sign and execute in the name of
the Corporation contracts and other instruments in connection with the day to
day operations and affairs of the Corporation. The President shall perform such
other duties as the Chief Executive Officer or the Board may from time to time
determine.
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Section 10. Vice Presidents - Each Vice president shall have such powers
and perform such duties as the Board of Directors may from time to time
prescribe. In the absence or inability of the President to perform his duties or
exercise his powers, the Vice president or, if there be more than one, a Vice
President designated by the Board, shall exercise the powers and perform the
duties of the president subject to the direction of the Board of Directors.
Section 11. Secretary - The Secretary shall keep the minutes of all
meetings and record all votes of shareholders, the Board of Directors and
committees in a book to be kept for that purpose. He shall give or cause to be
given any required notice of meetings of shareholders, the Board of Directors or
any committee, and shall be responsible for preparing or obtaining from a
transfer agent appointed by the Board, the list of shareholders required by
Article II, Section 7 thereof. He shall be the custodian of the seal of the
Corporation and shall affix or cause to be affixed the seal to any instrument
requiring it and attest the same and exercise the powers and perform the duties
incident to the office of the Secretary subject to the direction of the Board of
Directors.
Section 12. Chief Financial Officer - The Chief Financial Officer shall be
the chief financial and accounting officer of the Corporation and shall be
responsible for and shall supervise the preparation of any financial reports and
projections related to the operations of the Corporation. The Chief Financial
Officer shall render a statement of the conditions of the finances of the
Corporation at each regular meeting of the Board of Directors, at each annual
meeting of the shareholders and at such other times as shall be required. The
Chief Financial Officer shall report directly to the President and shall perform
such other duties as the Chief Executive Officer or the Board may from time to
time determine.
Section 13. Other Officers - All other officers, if any, shall have such
authority and shall perform such duties as may be specified from time to time by
the Board of Directors.
ARTICLE IV
RESIGNATIONS
Any director or officer of the Corporation or any member of any committee
of the Board of Directors of the Corporation, may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary. Any
such resignation
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shall take effect at the time specified therein or, if the time is not specified
therein, upon the receipt thereof, irrespective of whether any such resignation
shall have been accepted.
ARTICLE V
CERTIFICATE REPRESENTING SHARES
Section 1. Form of Certificates - Each shareholder shall be entitled to a
certificate or certificates in such form as prescribed by the Business
Corporation Law and by any other applicable statutes, which Certificate shall
represent and certify the number, kind and class of shares owned by him in the
Corporation. The Certificates shall be numbered and registered in the order in
which they are issued and upon issuance the name in which each Certificate has
been issued together with the number of shares represented thereby and the date
of issuance shall be entered in the stock book of the Corporation by the
Secretary or by the transfer agent of the Corporation. Each certificate shall be
signed by the Chairperson, President or a Vice President and countersigned by
the Secretary or Assistant Secretary and shall be sealed with the Corporate Seal
or a facsimile thereof. The signature of the officers upon a certificate may
also 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 a certificate shall have ceased to be such officer before
the certificate is issued, such certificate may be issued by the Corporation
with the same effect as if the officer had not ceased to be such at the time of
its issue.
Section 2. Consideration - A certificate representing shares shall not be
issued until the full amount of consideration therefor has been paid to the
Corporation, except if otherwise permitted by Section 504 of the Business
Corporation Law.
Section 3. Lost Certificates - The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation, alleged to have been lost,
mutilated, stolen or destroyed, upon the making of an affidavit of that fact by
the person so claiming and upon delivery to the Corporation, if the Board of
Directors shall so require, of a bond in such form and with such surety or
sureties as the Board may direct, sufficient in amount to indemnify the
Corporation and its transfer agent against any claim which may be made against
it or them on account of the alleged loss, destruction, theft or mutilation of
any such certificate or the issuance of any such new certificate.
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Section 4. Fractional Share Interests - The Corporation may issue
certificates for fractions of a share where necessary to effect transactions
authorized by the Business Corporation Law; or it may pay in cash the fair
market value of fractions of a share as of the time when those entitled to
receive such fractions are determined; or it may issue scrip in registered or
bearer form over the manual or facsimile signature of an officer of the
Corporation or its agent, exchangeable as therein provided for full shares, but
such scrip shall not entitle the holder to any rights of a shareholder except as
therein provided.
Section 5. Share Transfers - Upon compliance with provisions restricting
the transferability of shares, if any, transfers of shares of the Corporation
shall be made only on the share record of the Corporation by the registered
holder thereof, or by his duly authorized attorney, upon the surrender of the
certificate or certificates for such shares properly endorsed with payment of
all taxes thereon.
Section 6. Record Date for Shareholders - For the purpose of determining
the shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof or to express consent or dissent from any proposal
without a meeting, or for the purpose of determining the shareholders entitled
to receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of any meeting nor
more than fifty days prior to any action taken without a meeting, the payment of
any dividend or the allotment of any rights, or any other action. When a
determination of shareholders of record entitled to notice of or to vote at any
meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date under this Section for the adjourned meeting.
Section 7. Shareholders of Record - The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of New York.
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ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be for an annual period ending on
the 30th day of September of each year. By resolution duly adopted, the Board of
Directors may alter such fiscal year.
ARTICLE VII
CORPORATE SEAL
The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its incorporation and the words "Corporate Seal" and
"New York" and shall be in such form and contain such other words and/or figures
as the Board of Directors shall determine. The Corporate seal may be used by
printing, engraving, lithographing, stamping or otherwise making, placing or
affixing, or causing to be printed, engraved lithographed, stamped or otherwise
made, placed or affixed, upon any paper or document, by any process whatsoever,
an impression, facsimile or other reproduction of said Corporate seal.
ARTICLE VIII
BOOKS AND RECORDS
There shall be maintained at the principal office of the Corporation books
of account of all the Corporation's business and transactions.
There shall be maintained at the principal office of the corporation or at
the office of the Corporation's transfer agent a record containing the names and
addresses of all shareholders, the number and class of shares held by such and
the dates when they respectively became the owners of record thereof.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS,
OFFICERS EMPLOYEES AND AGENTS
Any person made or threatened to be made a party to an action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate, then is or was a director,
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officer, employee or agent of the Corporation, or then serves or has served any
other corporation in any capacity at the request of the Corporation, shall be
indemnified by the Corporation against reasonable expenses, judgments, fines and
amounts actually and necessarily incurred in connection with the defense of such
action or proceeding or in connection with an appeal therein, to the fullest
extent permissible by the laws of the State of New York. Such right of
indemnification shall not be deemed exclusive of any other rights to which such
person may be entitled.
ARTICLE X
AMENDMENTS
The shareholders entitled at the time to vote in the election of directors
and the Board of Directors by vote of a majority of the entire Board, shall have
the power to amend or repeal these By-Laws and to adopt new By-Laws, provided,
however, that any by-law adopted, amended or repealed by the Board of Directors
may be amended or repealed by the shareholders entitled to vote thereon as
herein provided.
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Exhibit 10.9
[Letterhead of Chase Manhattan Bank]
September 9, 1996
Mr. Edward D. Seidenberg
Vice President & Chief Financial Officer
Coin Bill Validator, Inc.
425-B Oser Avenue
Hauppauge, NY 11788
Dear Ed,
Based upon our preliminary discussions and investigations, The Chase Manhattan
Bank (the "Bank") is willing to consider the extension of a secured line of
credit (the "Line") outlined below to Coin Bill Validator, Inc. (the
"Borrower"). This letter is made available for discussion purposes only and as
such does not constitute an agreement to lend on the part of the Bank, but
rather serves merely as an expression of our interest in discussing further the
possibility of structuring a credit facility for the Borrower and a summary of
some basic terms and conditions which may serve as a basis for negotiation
between us.
The Line might, for example, consist of the following:
Line and Amount: A $5,000,000 secured line of credit (the "Line") which would
be used by the Borrower for working capital. The Line would
cancel and replace any existing lines of credit currently
extended to the Borrower. Advances under the Line would be
subject to the sole discretion of the officers of the Bank,
to the execution and delivery of such documentation as the
Bank deems necessary and appropriate and the receipt and
continuing satisfaction with current financial and other
information. The Bank would, among other things, require
full repayment of the Line for a consecutive thirty (30) day
period. Any Line arrangement would expire upon one (1) year
following its inception.
Collateral: A first priority perfected security interest in all personal
property of the Borrower, whether now owned or hereafter
acquired and wherever located, including, without
limitation, accounts, inventory, machinery, equipment,
fixtures, chattel
<PAGE>
paper, insurance proceeds, contract rights, cash, bank
accounts, documents, instruments and general intangibles.
Interest Rate: The Bank is considering pricing for the Line as: (i)The
Chase Manhattan Bank's Prime Rate (floating), the rate
publicly announced at its principal office from time to time
as its "Prime Rate" (360 day basis), plus 1/4 of 1% or (ii)
the Reserve Adjusted London Interbank Offering Rate (LIBOR)
plus 275 basis points per annum (360 day basis) for periods
of one, three or six months (subject to availability) but in
any event not beyond the Line expiration date and for
amounts not less than $500,000. The LIBOR option would be
subject to appropriate yield protection language relating to
changes in reserves, laws, regulations, etc.
Administration Fee: $2,500
Documentation: All loan, guaranty, security and other documents would be
provided by the Bank and would be required to be mutually
acceptable to the Borrower and the Bank. The Borrower would
be required to reimburse the Bank for all out-of-pocket
expenses, including, but not limited to, fees of the Bank's
counsel incurred in connection with the preparation and
execution of the required documentation, whether or not the
Line transaction contemplated herein is ultimately
consummated, up to an amount not to exceed $2,000 in the
aggregate.
Obviously, many terms and conditions of the Line require further negotiation
between us and approval of the Credit Committee of the Bank must be obtained.
However, additional terms and conditions would include, without limitation,
the following:
(i) receipt and satisfactory review by the Bank of a summary
aging of accounts receivable (by account) of the
Borrower for the most recent fiscal month end;
(ii) receipt and satisfactory review by the Bank of UCC
searches in all of the appropriate jurisdictions;
(iii) all legal matters to be satisfactory to the Bank's
counsel;
(iv) satisfactory customer, supplier and bank checkings;
(v) receipt and satisfactory review by the Bank of any
additional information, documentation, reports or
<PAGE>
certifications, not specified above, that the Bank deems
necessary
As previously mentioned, this letter does not represent an agreement to lend by
the Bank, and is subject to the successful negotiation of the terms of the Line,
satisfactory review of all appropriate legal documentation by the Bank and its
counsel and credit approval of the transaction contemplated herein by the Bank.
Should you have any questions concerning our interest in considering the Line,
please do not hesitate to contact me. I look forward to speaking with you at
your earliest convenience to discuss this matter further.
Very truly yours,
THE CHASE MANHATTAN BANK
Carolyn Bhattangi
<PAGE>
Exhibit 10.9
[Letterhead of Chase Manhattan Bank]
September 10, 1996
Mr. Edward D. Seidenberg
Vice President & Chief Financial Officer
Coin Bill Validator, Inc.
425B Oser Avenue
Hauppauge, NY 11788
Dear Ed,
We are pleased to advise you that based upon your annual financial statements
for the fiscal year ending September 30, 1995, The Chase Manhattan Bank (the
"Bank") has approved your request for a secured line of credit for Coin Bill
Validator, Inc. in the aggregate amount of $5,000,000. The line of credit will
be secured by a first priority perfected security interest in all personal
property of Coin Bill Validator, Inc. Our officers may, at their discretion,
make short-term loans to Coin Bill Validator, Inc. on such terms as are mutually
agreed upon between us from time to time.
Borrowings under this line of credit are intended to be used to meet your normal
short-term working capital needs and will bear interest at such a rate as shall
be mutually agreed upon by each of us from time to time. This line of credit has
an associated administration fee of $2,500, payable in advance.
It is a condition that all outstandings under the line be repaid for a
consecutive 30 day period before the expiration date of this line.
As this line is not a commitment, credit availability is, in addition, subject
to your execution and delivery of such documentation as the Bank deems
appropriate and the receipt and continuing satisfaction with current financial
information, which information will be furnished to the Bank as it may from time
to time reasonably request. This line of credit expires on September 30, 1997.
We are pleased to be of service and trust you will call upon us to assist in any
of your banking requirements.
Very truly yours,
/s/ Sallyanne K. Ballweg
[Logo] CHEMICAL Chemical Bank
Exhibit 10.10
SECURITY AGREEMENT
(General Purpose)
This Agreement made this _______ day of _____________,
1996 between CHEMICAL BANK (herein called "Bank") and Coin
Bill Validator, Inc. (herein called "Borrower").
1. DEFINITIONS OF TERMS USED HEREIN. (a) "Borrower"
includes all individuals executing this agreement as parties
hereto and all members of a partnership when Borrower is a
partnership, each of whom shall be jointly and severally
liable individually and as partners hereunder. (b) "Liability"
or "liabilities" includes all liabilities (primary, secondary,
direct, contingent, sole, joint or several) due or to become
due, or that may be hereafter contracted or acquired, of
Borrower (including Borrower and any other person) to Bank,
including without limitation all liabilities arising under or
from any note, loan or credit agreement, letter of credit,
guaranty, draft, acceptance, interest rate or foreign exchange
agreement or any other instrument or agreement of (or the
responsibility of) the Borrower or any loan, advance or other
extension of credit or financial accommodation to Borrower by
Bank. (c) "Proceeds" means whatever is received when
Collateral is sold, exchanged, leased, collected or otherwise
disposed of and includes the account arising when the right to
payment is earned under a contract. (d) "Security interest"
means a lien or other interest in Collateral which secures
payment of a liability or performance of an obligation. (e)
"Collateral" means the property described in Section 2 hereof
and the following described property of the Borrower:
All personal property, whether now or hereafter existing or
now owned or hereafter acquired and wherever located,
including but not limited to: (i) all goods, inventory,
equipment, accounts, furniture, fixtures, instruments
documents, chattel paper and general intangibles and all
additions and accessions thereto; (ii) all products and
proceeds of the foregoing, in any form (including, without
limitation, all claims against third parties for loss or
damage to or destruction of any or all of the foregoing); and
(iii) all books, records and other property relating to any of
the foregoing.
All terms used herein which are also defined in the New York
or any other applicable Uniform Commercial Code shall also
have at least the meanings herein as therein defined.
2. SECURITY INTEREST. As security for the payment of all
loans and other extensions of credit or other financial
accommodations now or in the future made by Bank to Borrower
and all other liabilities of Borrower to Bank, Borrower hereby
grants to Bank a security interest in the above described
Collateral and all and any Proceeds arising therefrom and all
and any products of the Collateral.
DELETE | The proceeds of the loan hereby obtained by the Borrower
IF NOT | will be used to purchase the Collateral.
APPLICABLE |
Borrower represents and warrants that it is the sole
lawful owner of the Collateral, free and clear of any liens,
and encumbrances, and has the right and power to pledge, sell,
assign and transfer absolute title thereto to Bank and that no
financing statement covering the Collateral, other than the
Bank's, is on file in any public office.
To further secure the Liabilities, the Borrower hereby
grants, pledges and assigns to the Bank a continuing lien,
security interest and right of set-off in and to all money,
securities and all other property of the Borrower, and the
proceeds thereof, now or hereafter actually or constructively
held or received by or for the Bank, Chemical Securities, Inc.
or any other affiliate of the Bank for any purpose, including
safekeeping, custody, pledge, transmission and collection, and
in and to all of the Borrower's deposits (general and special)
and credits with the Bank, Chemical Securities, Inc. or any
other affiliate of the Bank. Borrower authorizes Bank to
deliver to others a copy of this Agreement as written
notification of the Borrower's transfer of a security interest
in the foregoing property. The Bank is hereby authorized at
any time and from time to time, without notice, to apply all
or part of such money, securities, property, proceeds,
deposits or credits to any of the Liabilities in such amounts
as the Bank may elect in its sole and absolute discretion,
although the Liabilities may then be contingent or unmatured
and whether or not the collateral security may be deemed
adequate.
3. USE OF COLLATERAL. Until default, Borrower may use
the Collateral in any lawful manner. If the Collateral is or
is about to become affixed to realty, Borrower will, at Bank's
request, furnish the Bank a writing executed by the mortgagee
of the realty whereby the mortgagee subordinates its rights
and priorities to the Bank's security interest in the
Collateral. If the Collateral is or may become subject to a
landlord's lien, the Borrower will at Bank's request, furnish
the Bank with a landlord's waiver satisfactory in form to the
Bank.
COMPLETE | If goods, the Collateral will be used primarily as _____
IF | ______________________________________________________________
APPLICABLE | (Equipment in business, inventory for sale or lease, Farming,
Personal, Family or Household.)
4. INSURANCE. Borrower will have and maintain insurance
on the Collateral until this Agreement is terminated against
all expected risks to which it is exposed, including fire,
theft and collision, and those which the Bank may designate,
such insurance to be payable to Bank and Borrower as their
interest may appear; all policies shall provide for thirty
(30) days' written minimum cancellation notice to the Bank.
Bank may act as attorney for Borrower in obtaining, adjusting,
settling and cancelling such insurance.
<PAGE>
5. DEFAULT. Default shall exist hereunder (1) if the Borrower shall fail
to pay any amount of the Liabilities when due or if the Borrower shall fail to
keep, observe or perform any provision of this Agreement or of any note, or
other instrument or agreement between Borrower and Bank relating to any
Liabilities or if any default or Event of Default specified or defined in any
such note, instrument or agreement shall occur, (2) if the Borrower shall or
shall attempt to (a) remove or allow removal of the Collateral from the county
where the Borrower now resides or change the location of its chief executive
office or principal place of business, (b) sell, encumber or otherwise dispose
of the Collateral or any interest therein or permit any lien or security
interest (other than the Bank's) to exist thereon or therein, (c) conceal, hire
out or let the Collateral, (d) misuse or abuse the Collateral, or (e) use or
allow the use of the Collateral in connection with any undertaking prohibited by
law; (3) if bankruptcy or insolvency proceedings shall be instituted by or
against the Borrower, or (4) if the Collateral shall be attached, levied upon,
seized in any legal proceedings, or held by virtue of any lien or distress, or
(5) if the Borrower shall make any assignment for the benefit of creditors, or
(6) if the Borrower shall fail to pay promptly all taxes and assessments upon
the Collateral or the use thereof, or (7) if the Borrower shall die, or (8) if
the Bank with reasonable cause determines that its interest in the Collateral is
in jeopardy, or (9) if Borrower should fail to keep the collateral suitably
insured. In the event of default or the breach of any undertaking of or
conditions to be performed by the Borrower (1) all liabilities shall become
immediately due and payable, and (2) the Borrower agrees upon demand to deliver
the Collateral to the Bank, or the Bank may, with or without legal process, and
with or without previous notice or demand for performance, enter any premises
wherein the Collateral may be, and take possession of the same, together with
anything therein; and the Bank may make disposition of the Collateral subject to
any and all applicable provisions of the law. If the Collateral is sold at
public sale, Bank may purchase the Collateral at such sale. The Bank, provided
it has sent the statutory notice of default, may retain from the proceeds of
such sale all reasonable costs incurred in the said taking and sale and also,
all sums then owing by the Borrower, and any surplus of any such sale shall be
paid to the Borrower.
6. GENERAL AGREEMENTS. (a) Borrower agrees to pay the costs of filing
financing statements and of conducting searches in connection with this
Agreement. (b) Borrower agrees to allow the Bank through any of its officers or
agents, at all reasonable times, to examine or inspect any of the Collateral and
to examine, inspect and make extracts from the Borrower's books and records
relating to the Collateral. (c) Borrower will promptly pay when due all taxes
and assessments upon the Collateral or for its use of operation or upon the
proceeds thereof or upon this Agreement or upon any note or other instrument or
agreement evidencing any of the liabilities. (d) At its option, the Bank may
discharge taxes, liens or security interests or other encumbrances at any time
levied or placed on the Collateral, and may pay for the maintenance and
preservation of the Collateral, and the Borrower agrees to reimburse the Bank on
demand for any payment made or any expense incurred by the Bank pursuant to the
foregoing authorization, including outside or in-house counsel fees and
disbursements incurred or expended by the Bank in connection with this
Agreement. (e) Borrower hereby authorizes the Bank to file financing statements
and any amendments thereto without the signature of Borrower. Such authorization
is limited to the security interest granted by this Agreement. (f) Borrower
agrees that the Bank has the right to notify (on invoices or otherwise) account
debtors and other obligors or payors on any Collateral of its assignment to the
Bank and that all payments thereon should be made directly to the Bank and that
the Bank has full power and authority to collect, compromise, endorse, sell or
otherwise deal with the Collateral on its own name or that of the Borrower at
any time. (g) The Borrower agrees to pay or reimburse the Bank on demand for all
costs and expenses incurred by it in connection with the administration and
enforcement of this Agreement and the administration, preservation, protection,
collection or realization of any Collateral (including outside or in-house
attorneys' fees and expenses). (h) The Bank shall not be deemed to have waived
any of its rights hereunder or under any other agreement, instrument or paper
signed by the Borrower unless such waiver is in writing and signed by the Bank.
No delay or omission on the part of the Bank in exercising any right shall
operate as a waiver thereof or of any other right. A waiver upon any one
occasion shall not be construed as a bar or a waiver of any right or remedy on
any future occasion. All of the rights and remedies of the Bank, whether
evidenced hereby or by any other Agreement, instrument or paper, shall be
cumulative and may be exercised singly or concurrently. (i) This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York. (j) This Agreement, and the security interests, obligations, rights and
remedies created hereby, shall inure to the benefit of the Bank and its
successors and assigns and be binding upon the Borrower and its heirs,
executors, administrators, legal representatives, successors and assigns.
7. EXECUTION BY BANK. This Agreement shall take effect immediately upon
execution by the Borrower, and the execution hereof by the Bank shall not be
required as a condition to the effectiveness of this Agreement. The provision
for execution of this Agreement by the Bank is only for purposes of filing this
Agreement as a Security Agreement under the Uniform Commercial Code, if
execution hereof by the Bank is required for purposes of such filing.
All reference to Chemical Bank,
The Chase Manhattan Bank, N.A.
or The Chase Manhattan Bank,
(National Association) shall mean
The Chase Manhattan Bank, a
New York State chartered bank.
Coin Bill Validator, Inc.
-------------------------------------------------
(Borrower)
By /s/ Edward D. Seidenberg
-----------------------------------------------
Edward D. Seidenberg VP & CFO
425-B Oser Avenue
-------------------------------------------------
(Number and Street)
Hauppauge, Suffolk, NY 11788
-------------------------------------------------
(City, County, State)
Places of business in counties other than above.
_________________________________________________
_________________________________________________
_________________________________________________
CNEMICAL BANK Nassau Middle Market cc: 1142
---------------------------------
Bank Designation
By______________________________________________
(Name and Title)
Address 395 N. Service Rd., Melville, NY 11747
---------------------------------------
(Number, Street, City)
Exhibit 10.13
COIN BILL VALIDATOR, INC.
LICENSED DISTRIBUTOR PROGRAM
CURRENCY VALIDATOR INTERNATIONAL (CVI, Ltd.)
July 1, 1996
<PAGE>
Agent License Agreement
I. Introduction
This agreement is made as of the 15 day of July, 1996 by and between Coin Bill
Validator, Inc. ("Coin Bill), a New York manufacturing company whose main
products include bank note validators and accessories, and Currency Validator
International, Ltd. ("CVI"), a London based company with know how regarding Coin
Bill's products and world-wide experience in marketing and supporting these
products. This agreement sets for the terms and conditions under which CVI will
distribute product of Coin Bill (the "Products) in the countries outlined in
Article III. Within the context of this Agreement, CVI will be responsible for
providing sales/market development, applications support, service support
(warranty and non-warranty), training and installation support. Coin Bill's
responsibility within the Agreement is to provide factory product support,
applications support and market support to CVI along with participation in
critical market development decisions.
Any changes to the licensing terms and conditions set forth herein must be
mutually confirmed by both parties in writing. The original document will be
maintained as an appendix to any current agreement along with a summary section
outlining the nature of any agreed upon changes. This policy is established so
that an accurate record of modifications can be maintained throughout the
business relationship between the two parties.
Any dispute or controversy arising under or in connection with this Agreement
shall, unless otherwise expressly provided herein, be settled exclusively by
arbitration conducted before a panel of three arbitrators in New York City (or
such other place as may be mutually agreed upon by the parties hereto) in
accordance with the rules of the American Arbitration Association then in
effect. The expense of such arbitration shall be borne by such parties and in
such proportions as the arbitrators shall determine.
This Agreement does not prejudice or forfeit any prior legal rights the parties
may have had as a result of previous dealings.
Unless sooner terminated as hereinafter provided, the term of this Agreement
shall be for the period beginning on July 1, 1996 and ending on June 30, 1999.
II. Licensed Distributor:
For the countries highlighted in Article III, the agent representing Coin Bill
will be:
Currency Validator International, Ltd. (CVI, Ltd.)
Principals: Joseph Danenza, Managing Director
Robert W. Dunn, General Manager/Secretary
Argyll House
All Saints Passage
London, SW18 1EP
Telephone: 011-44-181-871-3566
Facsimile: 011-44-181-871-3858
2
<PAGE>
For the purposes of this agreement, the principals listed above are considered
key individuals for the operation of the agency. Any proposed changes in this
management structure or ownership will be submitted to Coin Bill and this
Agreement's continuation is subject to the written approval of such changes by
Coin Bill. Such approval will not be unreasonably withheld.
Under this agreement, CVI, Ltd. will not represent any competitive currency
validator products and accessories. This exclusion would include sales,
service, marketing and analysis for competitive units.
CVI is an independent contractor. It is not to be deemed an agent of Coin Bill
and has no authority to bind or commit Coin Bill to any term, condition or
agreement unless specifically authorized thereunder.
As part of this Agreement CVI, Ltd. will change its name to reflect a closer
relationship with Coin Bill Validator, Inc. The new company name will be:
Coin Bill Validator (UK) Limited, CBV (UK), Ltd.
Within this agreement, CVI, Ltd. will continue to be referenced by the current
company name. Upon termination of this Agreement for any reason, CVI will change
its name to a name dissimilar to Coin Bill, and Coin Bill will be granted rights
to the CBV (UK), Ltd. title for future use.
III. Market Place Territories:
CVI will have the exclusive rights to distribute Products in the countries
listed below (collectively by "Territory"). These rights will extend to all
markets and industries that can be developed by CVI within the Territory, and
include the right to appoint sub-distributors, service operators and the like,
subject to approval by Coin Bill. Such approval not to be unreasonably withheld.
Any inquiries or contacts made by customers within the Territory directly to
Coin Bill will be referred to CVI.
Except as indicated in this Article III, Coin Bill will not sell directly to
clients who are discovered to be reselling or redistributing Product into the
Territory, unless the Product is incorporated as an integral part of a host
machine.
In the case where CVI has existing customers or develops new customers outside
the Territory (due to example through marketing efforts and contacts), both
parties, when required, will review on a case-by-case the long term support and
compensation to CVI of
these customers.
Coin Bill has the right to make the final determination as to the disposition of
such customers.
The countries which initially are included in the Territory are as follows:
3
<PAGE>
o Austria
o Albania
o Belgium
o Bulgaria
o Czech Republic
o Denmark
o Estonia
o Finland
o France
o Germany
o Hungary
o Iceland
o Irish Republic
o Latvia
o Lithuania
o Luxembourg
o Monaco
o Netherlands
o Norway
o Poland
o Portugal
o Romania
o Slovak Republic
o Spain
o Sweden
o Switzerland
o United Kingdom
o The Former Yugoslavia
The parties will periodically evaluate the sales results under this Agreement
and may, by mutual agreement, restrict or expand the list of countries
comprising the Territory.
Anything to the contrary notwithstanding:
1. While Germany is within the Territory, the company ADP-Gauselmann Group
will continue to be marketed and supported directly by Coin Bill. CVI will
not be entitled to compensation, or credits for any purpose, for any
Product sales made to this company, provided such Products are for fitting
to ADP-Gauselmann group products.
2. While CVI is entitled to special pricing for sales with the Territory, it
will not receive compensation for Units sold to an International company,
through a buying office, located outside the Territory and shipped to one
of its subsidiaries or distributors with the Territory, provided these
Units are for fitting to that Company's products.
3. CVI will not be required to provide free warranty support for Products
sold under the 1. or 2. above. However, CVI will provide technical repair
on such Products, at Coin Bill's request, at prices referred to in Article
VII.
4
<PAGE>
IV. License Agreement Performance Terms:
As CVI begins to service and develop the markets in the Territory, it will have
an established goal for a minimum number of Coin Bill Validator ("Units"). This
goal is set as a measure to be used in assessing CVI's ability to effectively
market, promote and support the Products. The number of Units to be sold by CVI
for each of the next three contract years, i.e. July 1st to June 30th of each
year commencing on July 1, 1996 is:
1st Contract Year: 5,000 Units
2nd Contract Year: 7,500 Units
3rd Contract Year: 10,000 Units
For purposes of determining the minimum number of Units sold each year, a Unit
sale shall be defined as a Unit (Validator) ordered by a customer of CVI and
shipped to such customer. If CVI does not make the minimum number of Unit sales
in any contract year, Coin Bill shall have the option to terminate this
agreement by notice in writing to CVI at any time within 90 days after the end
of such contract year. In the event of such termination, CVI will be allowed,
from receipt of notice, a further period of 120 days trading under this
Agreement, to allow transition of CVI's business, and to enable Coin Bill to
arrange alternative warranty cover on Products sold by CVI.
In addition, Coin Bill shall have the right to terminate this Agreement upon 120
days prior notice, if CVI defaults on any of its obligation hereunder.
In case of termination of the Agreement, CVI shall be responsible for providing
warranty support for Products sold by CVI through the 120 day period of business
transition. To assure that there are sufficient funds to cover any unfunded
warranty repairs for the six months following the business transition, Coin Bill
will have the right to hold back a reserve of up to $5,000 owing to CVI. At the
end of the six months, Coin Bill will provide CVI with a detailed listing of
warranty support costs during the period and refund the remaining balance of the
reserve to CVI.
CVI agrees that for the term of the agreement, and for one year thereafter, it
will not directly or indirectly compete with Coin Bill or with its licensed
distributors in the manufacture or sale of currency validators, equipment or
accessories in the Territory. CVI will also cause its principals by separate
instruments to agree that they will not individually or collectively engage in
such a competitive business during the foregoing period.
It is contemplated that Coin Bill and CVI will meet every six months to discuss
the status of their arrangement under this Agreement, at which time they will
discuss such topics as customer lists, pricing, marketing strategies and
possible amendments to this Agreement.
5
<PAGE>
V. Additional Obligations of the Parties:
1. CVI will perform the following services as a licensed distributor of
Coin Bill:
(a) CVI will actively promote and sell the Products within the
Territory, and provide installation service when and if required in connection
with its sale of the Products.
(b) CVI will support Coin Bill's warranty program (currently one
year for parts and labor), and at a repair and service facility ("Repair
Facility"), designated by CVI and approved by Coin Bill, in the Territory. The
Repair Facility shall provide free repairs and replacements for Products that
fail to perform as warranted within the warranty period.
(c) CVI will also provide repair and parts replacement service at
its Repair Facility for Products no longer covered by the Coin Bill warranty,
and charge for the labor and parts used in accordance with Article VII.
(d) CVI will maintain at its Repair Facility, a stock of spare parts
in amounts recommended by Coin Bill to meet its warranty and non-warranty
service obligations hereunder.
(e) CVI will use reasonable efforts to achieve its goals in
advertising and promoting its Products in the Territory in accordance with an
advertising budget to be agreed to by the parties hereto, and in consideration
of a standard or level recommended by Coin Bill.
(f) CVI will provide training for its customers in the use and
maintenance of the Products.
(g) CVI shall furnish to Coin Bill with 15 days after the expiration
the period ending three months from the date hereof, and within 15 days after
the expiration of each successive three month period, details on the sale by it,
of Products during each such three month period with a separate accounting of
the sales by CVI of Products shipped to it on consignment. Coin Bill shall have
the right, upon reasonable notice to CVI, to review CVI's books and records in
order to verify the sales figures reported by CVI.
2. Coin Bill shall have the following responsibilities:
(a) Coin Bill will sell Products to CVI on the terms and at prices
set forth herein, or in the schedules referred to herein as such terms and
schedules may be amended from time to time.
(b) Coin Bill will supply the Repair Facility, at Coin Bill's
expense, with the necessary tools and equipment to enable such facility to
provide the repair services which CVI is obligated to perform under this
Agreement. Such tools and equipment shall remain the property of Coin Bill. CVI
and the Repair Facility shall maintain such tools and equipment in good order
and repair, and shall return such tools and equipment to Coin Bill on
termination of the Agreement.
(c) Coin Bill will provide CVI, or the Repair Facility, with the
prescribed number of warranty parts for each 100 Units sold to CVI. These parts
will be sold to CVI on a
6
<PAGE>
consignment basis. CVI shall pay for such parts promptly (Net 30 days) upon
their sale or utilization in connection with it repair and replacement
obligations, the price of such parts to be paid Coin Bill to be at the prices
set forth in Coin Bills then current price list. Parts used under warranty
repair obligations by CVI are to be returned for Credit to Coin Bill, if
requested. Coin Bill will then provide CVI with additional parts on consignment
for further repair requirements.
(d) Coin Bill will, at its expense, provide CVI with Exchange Units.
Coin Bill shall provide or have will have provided previously to CVI, each
contract year, with such number of Exchange Units as are equal to 2% of the
total number of Units sold by CVI in the prior contract year. In the first
contract year, Coin Bill will provide such number of Exchange Units as equal 2%
of the number of Units it estimates CVI will sell during such contract year.
3. CVI agrees to execute such documents and take such action as may be
necessary to preserve Coin Bill's interest in the tools and equipment, and in
the Products sold to it on consignment. This protection should be in the form of
an insurance policy which adequately covers the value of such items. The cost of
such an insurance would be borne by CVI.
VI. Product Line Pricing Program:
CVI will be responsible for marketing and servicing the following Coin Bill
production models:
Model IDS (Ivo Down Stack)
Model IVO
Model 125
in addition to all other currency validator modules, variants and accessories
released by Coin Bill during the period of the Agreement.
Pricing structure that is offered to CVI from Coin Bill is provided in the
attached pricing tables. Included in the pricing structure are the recommended
selling prices to CVI, for OEM and Operator levels. While there are customer
situations that might require a minimal deviation (less than 5%) from the listed
pricing, CVI should (but is not required) to follow the recommended retail
pricing structure. CVI acknowledges that all customers have the right to check
suggested retail pricing, ex works Hauppauge, NY.
This policy is established to protect both parties. By following the pricing
list, customers will have no incentive to try and bypass CVI and obtain Products
directly from the factory. Additionally, the pricing structure will protect Coin
Bill's ability to compete within global markets.
Coin Bill and CVI will formulate a policy and procedures for generating formal
quotations to customers.
CVI is a recognized distributor in the Territory and will be responsible for
handling day-to-day customer contact and follow-up. However, this representation
will not preclude any customer from contacting Coin Bill directly to obtain
confirmation of pricing or additionally technical
7
<PAGE>
support. Coin Bill will routinely alert CVI about such contract and at all times
try to let CVI continue the follow-up.
Coin Bill will refer all new business inquiries emanating from the Territory to
CVI. During the term of the Agreement, Coin Bill will not sell directly into the
Territory. However, if such sales, other than those referred to in Article III,
do occur by mutual consent of both parties to retain a customer, CVI will be
entitled to compensation equivalent to the margin normally derived from the sale
which it would otherwise have earned had it made the sales as well as credit for
the sale for purposes of determining whether it has met its minimum annual sales
figures.
VII. Service Support And Service Pricing Structure:
CVI will be responsible for providing warranty support for the Products sold
under the terms of Coin Bill's warranty program currently being 12 months
parts/labor (from date of shipment). If the incidence of failed Units under
warranty exceeds 5% of the total number of Units shipped to CVI, over the
preceding contract or business year, Coin Bill will compensate CVI for the cost
to CVI of the excess warranty work performed, including parts used.
In the case of Units previously sold and shipped into the Territory by Coin
Bill, warranty repairs will be charged to Coin Bill.
While Coin Bill will not set the pricing structure for non-warranty support, CVI
estimates that the cost will be $25.00/hour labor, plus parts and shipping. This
cost is consistent with pricing policies used by Coin Bill.
Spare parts are to be provided by Coin Bill to CVI at a cost of 1.75 times the
cost of such parts to Coin Bill. Suggested selling price to the customer would
be 1.75 times the CVI cost plus the cost of shipping and duties. Overall, the
end costs to the customer of CVI would be consistent in pricing structure if the
customer were to buy directly from the factory, ex works Hauppauge, NY.
As an example of parts pricing for a part costing Coin Bill $1.00, CVI would
pay a price of $1.75. CVI would in turn charge the customer a price of $3.06,
plus the cost of shipping and duties.
VIII. Payment Terms And Schedules:
CVI's payment terms are set at Net 30 days from date of shipment. However, as
the business opportunities grow and potential account balances increase there
will he an established policy to protect Coin Bill's receivable in the
International market. This policy will be as follows:
To secure the accounts receivable balance, binding Letters of Credit (LC's) will
be required for any purchase order exceeding $5,000 which will cause the
outstanding receivable owing by CVI to Coin Bill to exceed $100,000. This LC
will guarantee Coin Bill payment for the shipment within the Net 30 day terms.
8
<PAGE>
Payment schedules for the Products are to remain at a maximum Net 30 days for
any LC. If those terms are to vary for a particular customer or shipment, Coin
Bill and CVI shall agree on such variation before a final commitment is made to
the order.
Invoices settled within a 10 day period will carry a 2% discount.
IX. Shipping:
The standard shipping structure established will be that the goods are Sold To
and Shipped To CVI. At the time of order, CVI will clearly indicate if the Ship
To address will be different from the established policy.
CVI should be responsible for establishing the method of shipment and carrier
based on customer request and pricing shown in the attached schedules reflect,
ex works Hauppauge, NY. Coin Bill will assist in shipping coordination of the
product and with a carrier if a specific company is not established on an order.
Freight charges and method of shipment will be provided to CVI prior to the
delivery of the product for their review in all cases where it is possible,
given the time frame of delivery.
X. Optional Company Acquisition Proposal:
As part of this Agreement, CVI grants Coin Bill the right to acquire the assets
and stock of CVI, at any time during the 12 months from the start of this
Agreement.
If Coin Bill wishes to excersize its right herein, at any time during the first
12 month period, it will make an offer on the following basis:
(i) Coin Bill will nominate an independent assessor.
(ii) CVI will nominate an independent assessor
(iii) The two assessors in parts (i) and (ii) above will nominate a third
assessor
The assets of CVI will be evaluated by taking into account previous trading and
recognition in the market place, existing company staff, goodwill of the
business, number of Units sold in the first year, number of Units on order and
projected sales. If the acquisition offer is prior to the completion of the
first year, then the number of Units sold in the first year will be estimated on
performance to date.
If within the first 12 month period, CVI receives an offer to purchase all, or
substantially all of its assets and stock ("third party offer"), it will so
advise Coin Bill of the details of the third party offer, and give Coin Bill the
right to purchase such assets and stock at the same price, and on the same terms
as contained in the third party offer. If Coin Bill does not accept such an
offer within 60 days after its receipt, CVI shall be free to consummate the sale
pursuant to the third party offer within 60 days after the expiration of Coin
Bill's review period.
9
<PAGE>
XI. Agreement Signature Approval:
Coin Bill Validator, Inc.
/s/ William H. Wood July 18, 1996
- ----------------------------------------------
William H. Wood, President/COO
/s/ Robert W. Nader 7-18-96
- ----------------------------------------------
Robert W. Nader, VP Product/Market Development
Currency Validator International, Ltd.
/s/ Joseph Danenza 18 JULY 1996
- ----------------------------------------------
Joseph Danenza, Managing Director
/s/ Robert W. Dunn 18 JULY 1996
- ----------------------------------------------
Robert W. Dunn, General Manager/Secretary
10
Exhibit 21
Principal Subsidiaries of Coin Bill Validator. Inc.
Jurisdiction Percentage Ownership
Name of Subsidiary Incorporation by the Registrant
- ------------------------------------- ------------- --------------------
Coin Bill Validator South Africa
(Proprietary) Ltd. South Africa 50%
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