U.S. 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
For the Fiscal Year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-25148
GLOBAL PAYMENT TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Delaware 11-2974651
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
20 East Sunrise Highway, Suite 201, Valley Stream, New York 11581
(Address of principal executive office) (Zip Code)
Issuer's telephone number 516-256-1000
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
(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 [_____]
<PAGE>
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. [ ]
For the fiscal year ended September 30, 1998, the net sales of the
registrant were $39.388 million.
The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant, based on the average bid and asked prices on
December 21, 1998, was approximately $31,778,000.
As of December 21, 1998, the registrant had a total of 5,365,100 Common
Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the year ended September 30, 1998 are
incorporated by reference into Part III.
Transitional Small Business Disclosure format (Check one): Yes [___] No [_X_]
2
<PAGE>
PART I
Item 1. Description of Business
General
Global Payment Technologies, Inc. (the "Company") was originally incorporated in
New York in 1988 under the name Coin Bill Validator, Inc. In March 1997, the
Company's shareholders approved a change of the Company's name and state of
incorporation from New York to Delaware, effected through the merger of the
Company into the Company's wholly-owned subsidiary, Global Payment Technologies,
Inc., a Delaware corporation.
The Company designs and manufactures currency validation systems including paper
currency validators and related paper currency stackers, and sells 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. Note stackers are sold with most
validators and are designed to store validated paper currency and, in some
cases, record and store information on contents, usually in secure removable
cassettes. Although the Company knows of no commercially available validator
that is counterfeit-currency-proof, the Company's validators and stackers offer
significant protection against tampering and counterfeit currencies and provide
tamper-evident storage of validated currency. The Company's validators are
adaptable to a wide variety of original equipment manufacturer ("OEM")
applications and have been engineered into the design of most major gaming and
numerous beverage and vending machines sold worldwide. The Company's products
offer a highly competitive level of performance and are designed to provide ease
of maintenance and repair.
In August 1996, the Company acquired a 50% non-controlling interest in a South
African affiliate, Global Payment Technologies South Africa Pty. Ltd.
("GPT-SA"), which on July 3, 1998, changed its name to Global Payment Technology
Holdings (Proprietary) Limited. This entity is responsible for sales and service
of the Company's products in the South African region on an exclusive basis. On
May 29, 1998, Hosken Consolidated Investments ("HCI"), a South African
investment company, purchased a one-third interest in GPT-SA. Terms of the
transaction called for HCI to purchase certain shares from the Company and the
Bevin Trust (GPT-SA's founding shareholders), as well as additional shares
directly from GPT-SA, which reduced the Company's ownership of GPT-SA from 50%
to 33%.
In January 1997, the Company acquired a 50% non-controlling interest in a
China-based affiliate, Hangzhou CBV Plastics Corp. Ltd. This entity manufactures
plastic and metal components, some of which are used by the Company in its
production.
In August 1997, the Company acquired a 50% non-controlling interest in an
Australian affiliate, Global Payment Technologies Australia Pty. Ltd. This
entity is responsible for sales and service of the Company's products in
Australia and New Zealand on an exclusive basis.
3
<PAGE>
In June 1998, the Company formed Global Payment Technologies (Europe) Limited
("GPT-Europe"), which is based in the United Kingdom and is responsible for
sales and service for the Company's products in Europe. GPT-Europe purchased the
assets and assumed the liabilities of Global Payment Technologies (U.K.) Ltd.
("GPT-UK"), the Company's prior independent European distributor, as of February
28, 1998. The Company, through a capital contribution of $76,000, owns 70% of
GPT-Europe, with the remaining 30% owned by GPT-Europe's operations manager, a
former principal of GPT-UK.
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 that offered primarily low-priced items. During the
1990s, subsequent technological improvements in the sensory capabilities of
validators created the ability to process high volumes of larger denomination
notes, which led to the extensive use of validators in many new applications
including casino gaming machines, lottery ticket dispensing devices and postage,
transportation, parking and vending machines. This trend accelerated during the
1990s as a result of the overall growth in the worldwide gaming and beverage and
vending industries.
Since incorporation, the Company's net sales have grown from approximately
$35,000 in fiscal 1989 to $16.7 million in fiscal 1996, to $23.9 million in
fiscal 1997 and to $39.4 million in fiscal 1998. Prior to January 1993, the
Company's marketing efforts were directed primarily toward domestic distribution
and end-users that 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 that dispense beverages, telephone cards and postage
stamps. In addition, since January 1993, the Company has progressively increased
its marketing efforts to the international market for currency validation
systems, in particular targeting the international gaming industry. The
Company's international sales amounted to approximately 84% of net sales in
fiscal 1998 and 73% of net sales in fiscal 1997. Management believes the
international market for currency validation systems may grow at a faster rate
than in the United States and, therefore, may represent the Company's best
long-term growth opportunity. However, the Company has been able to increase its
presence in the domestic gaming market as a result of increased domestic
activity by certain of the Company's international customers.
Marketing Strategy
The Company has continued to focus its marketing efforts on those segments of
the marketplace which require a relatively high degree of security and
substantial custom design work that is not adequately served by larger
competitors, who focus primarily on the broader, higher-volume market using
standardized product configurations. This focus has been effective in the
worldwide gaming market and is the "niche" strategy that allowed the Company to
develop a strong international customer base that originally started with
manufacturers too small to attract the Company's competition. The focus of this
strategy has and continues to be the creation of
4
<PAGE>
an increasing presence in the international gaming industry that continues to
gain momentum as markets and customers grow. In 1997, this strategy led to the
Company's products being designed into most of the major OEMs' gaming machines.
In 1998, this strategy continued to lead to new customers that opted to use the
Company's products based on its growing strength internationally and its
reputation for working closely to adapt to customers' needs. As a result, the
Company now finds itself in the position of gaining additional business based on
its acceptance as the currency validation standard for a number of growing
markets worldwide, specifically the Australian and South African markets.
Additionally, the efforts of establishing a strong international presence have
led to growth in the domestic gaming sector as the domestic market is viewed as
a primary target for expansion by several of the Company's international
customers.
In 1998, the Company expanded its marketing efforts to include the end-users
(i.e., casino operators) who purchase machines from the OEMs to help ensure that
the Company's validator products will be specified as the product of choice in
new orders. The Company also focused on creating business in the retrofit market
for certain important gaming venues such as Nevada, where gaining market
presence would provide improved visibility and credibility in the domestic
market. The expected results of improved recognition were achieved in 1998. In
1999, the Company plans to expand on this strategy by working directly with its
customers who market the gaming machine and bill validator products to both
domestic and international casino operators as part of an integrated package. By
marketing directly to the end-users in conjunction with the OEMs, the Company's
products will gain acceptance as its customers' gaming machines gain entry into
major casinos or regions previously dominated by competitive currency
validators. At the same time, this strategy allows the Company's products to
demonstrate the high performance and quality achieved in other worldwide
markets. This team effort will include the marketing of the product, as well as
on-site training to allow the end-users to quickly become comfortable with the
technology, features and functions of the product.
In 1997, the Company announced the creation of a new division to focus
additional sales and marketing efforts on the beverage and vending industry,
where the Company's market presence has been limited. The Company's strategy in
the large worldwide beverage and vending industry has been and will continue to
be the same "niche" effort that has been successful in the gaming marketplace.
The Company has focused on creating relationships with the major OEMs and
end-user customers in this industry segment in emerging international markets.
By working with both the OEMs and end-users to adapt the products to meet their
needs, the Company is beginning to create a growing presence in the beverage and
vending market with its current product lines. This flexibility to adapt the
Company's products to meet the customers' needs has led to a successful product
launch in Russia during 1998, and this strategy will continue to be used to
develop particular areas such as the emerging markets in Eastern Europe and the
Pacific Rim. Management believes this strategy will assist in providing the
Company with increased visibility and credibility in the overall beverage and
vending industry. The Company has recognized the need to develop a product that
can more effectively compete in terms of price and features with other validator
manufacturers serving these industries. The
5
<PAGE>
Company has placed a high priority on this product development effort and
expects to begin field trials during the fourth quarter of calendar 1999.
The Company's revenue growth is due, in large part, to its focus on the
customer, as well as on the development of products that utilize leading edge
features that add value to the gaming and beverage and vending industries. This
strategy will be further expanded upon with the release and trials of the newest
generation products in calendar 1999. The Company will strive to raise the level
of currency acceptance and counterfeit rejection to new standards, in addition
to redefining the validator as a "universal payment processor." This will
include expanding the ability of the validator to coordinate the processing of
payments or transactions through a variety of media, both paper and
electronically based.
The Company's overall sales and marketing strategy in both the worldwide gaming
and beverage and vending markets is to deliver a high quality product supported
by a local sales and service organization in order to make the Company's
products the market standard for currency validation products. The Company has
successfully pursued this strategy in Australia with its largest customer, with
whom the Company has a supply agreement, and in the South African gaming market
where the Company's products are accepted as the industry standard. Also toward
this end, during fiscal 1996 and fiscal 1997, the Company established joint
ventures that provide local sales and service in both Australia and South Africa
and strengthened its distributor relationship in Italy. In addition, during
fiscal 1998 the Company formed GPT-Europe, a new 70%-owned entity, to provide
local sales and service in Europe. The Company expects to expand its
international sales and service capabilities during 1999.
The continued success of the Company may be dependent upon the use of paper or
simulated paper currency in automated payment systems for gaming and beverage
and vending applications. A substantial diminution of 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 patented technologies and proprietary algorithms, may be
applicable to products and systems for conducting transactions using forms of
currency other than paper. The Company is currently investigating and will
continue to investigate such opportunities and endeavor to develop new product
applications where markets for such 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.
Products
Since inception, the Company has endeavored, through its research and
development and manufacturing efforts, to provide products that meet the
specific performance requirements of its customers. These requirements are
continually evolving as the markets for currency
6
<PAGE>
validators continue to grow and as technological advances are incorporated into
the products' design. The Company spent approximately $350,000 and $245,000
during fiscal 1998 and fiscal 1997, respectively, on research and development.
The Company's research and development consists primarily of efforts to expand
its product lines into new applications and markets. The Company's new product
development efforts are focused on the design of its next generation of
validator products, which the Company anticipates will begin field trials in the
first quarter of calendar 1999 and will be commercially available in the third
quarter of calendar 1999. Later in 1999, the Company plans to introduce a new
product model designed specifically to address the requirements of the highly
competitive beverage and vending marketplace. These products are intended to
allow the Company to increase its overall market penetration and share in the
domestic and international marketplace for both the gaming and beverage and
vending industries.
The Company's principal products include three basic validator models and a wide
range of comprehensive currency databases and note stacker configurations. In
fiscal 1997, the Company planned for a shift in demand towards its Generation II
product line and such sales amounted to 58% of unit sales. During fiscal 1998,
this shift continued and Generation II product line sales accounted for 72% of
unit sales. The Generation III product has been designed to be a drop-in
replacement for Generation II and it is focused towards bringing new
technological features to the marketplace. Once the Generation III product line
is commercially available, the Company expects sales to shift from its
Generation II product line. The Company believes it has adequately reserved for
inventory obsolescence for the anticipated shift in demand from its Generation I
products to its Generation II products and will continually assess the adequacy
of inventory reserves for the anticipated shift in demand towards its Generation
III products.
The Model 125 ("M-125") is the Company's first generation multi-country,
multi-denominational validator model specifically designed for the beverage and
vending industries where its space-saving upstack design makes it popular for
use in machines where space is at a premium. The M-125's note stackers are fully
detachable and available with capacities of 150, 300 and 600 notes. During
fiscal 1998, M-125 sales were primarily in vending applications in Italy,
helping to grow the Company's presence and credibility in that important
European market.
The Model 150 ("M-150") is the Company's first generation multi-country,
multi-denominational validator designed to fit machines where space is available
either to the rear or downward. The M-150 is available with locking removable
cassette bill stackers in 500, 1,000 and 2,000 bill capacities and is United
States Postal Service, Department of Gaming Enforcement ("DGE") and Gaming
Laboratories, Inc. ("GLI") approved. Due to the growth and acceptance of the
Generation II product line, the M-150 product will begin to be phased out in
1999.
The Company's Generation II product line features several technological advances
designed specifically to meet the exacting requirements of the gaming industry.
The Generation II line
7
<PAGE>
includes the Company's "IDS," "IDUS," "IBS," and "IBSi" validators. The IBSi has
been positioned as a replacement for the Company's first generation M-150
validator. Generation II products have been approved by DGE and GLI as well as
by a number of U.S. and international test labs.
Generation II validators are offered in a wide variety of configurations which
can provide solutions for most worldwide gaming markets, as well as for many
beverage and vending markets. Generation II validators can be configured for
down-stack applications which allow the note stacker, a security removable
cassette, to be reached through a separate front entrance in the gaming machine.
Rear stacker configurations are also available. The front section of all
Generation II validator units can be opened easily to allow for maintenance,
repair or clearance of the currency pathway without violating the integrity of
the associated security stacker. Generation II validators 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 and
diagnostics, a user-selectable currency denomination acceptance and an optional
bar-code reader for tickets and coupons. The Generation II line also offers a
"soft drop analyzer" ("SDA") option. This patented SDA feature allows the note
stacker cassette to maintain and track specific information such as currency or
coupons in the cassette 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 the 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.
Product Performance and Warranties
The Company's validator and note 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 or its authorized service
agents will repair or replace any units which require warranty service. The
Company does not warrant that its validators will reject all counterfeit
currencies and believes that there is no commercially available validator that
is counterfeit-currency-proof or warranteed as such. To support its increasing
international market presence, the Company has expanded its warranty and
non-warranty support coverage to provide in-country capability in key worldwide
markets (e.g. Australia, South Africa and Europe). In these markets the local
sales and service joint venture partners provide warranty labor, while the
Company's primary product support in these markets is in the form of warranty
parts. The Company expects to expand its international service capabilities
during 1999.
Marketing and Sales
An "in-house" sales force consisting of sales representatives, sales/product
technicians and customer service support personnel conducts the Company's
primary sales and marketing efforts in both the domestic and international
markets. During the latter part of fiscal 1996 and during fiscal 1997, the
Company established joint ventures providing local sales and service in
8
<PAGE>
the key markets of South Africa and Australia and a Company-owned sales and
service office was opened in the important Las Vegas, Nevada market. During
fiscal 1998, the Company formed GPT-Europe, a new 70%-owned entity, to provide
local sales and service in Europe and acquired the assets and liabilities of its
former independent European distributor. The overall sales and service network
provides effective international coverage for the Company's products and
customers and is an indication of the Company's commitment to providing superior
service worldwide.
During fiscal 1998, the Company expanded its "Technical Services" and "Customer
Service" groups which were formed in 1997 and allowed the Company to become more
customer-focused. During fiscal 1999, the Company anticipates further expansion
of the sales and marketing structure to support additional sales opportunities
worldwide.
Customer Concentration
During fiscal 1998, the Company's largest customer accounted for approximately
46% of net sales. Net sales to the gaming industry accounted for approximately
81% of the Company's revenues, with the remaining 19% primarily from product
applications in the beverage and vending industry. The Company anticipates a
further reduction of its dependence on its largest customer and the gaming
industry by expanding its customer base and by the introduction of its next
generation of validation products for the beverage and vending marketplace.
Manufacturing
Since 1995 the Company's operations have been conducted from a leased facility
of 40,000 square feet, which houses the manufacturing and administrative
functions in Hauppauge, New York. During fiscal 1997, due to the need for
increased production space to meet ongoing and anticipated future sales growth,
the Company leased an additional 4,400 square feet of space located adjacent to
the existing Hauppauge facility.
The Company's manufacturing operations consist primarily of mechanical and
electro-optical assembly and the provision of wiring harnesses between
components and between the validator and the OEM 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 patented and proprietary
technology. During fiscal 1998 the Company significantly improved its overall
manufacturing productivity, as measured by a production capacity increase of
approximately 48% without adding a production shift. This was achieved by a
combination of increased staff as well as improved manufacturing efficiencies.
Management believes additional productivity improvements can be realized and
will continue to focus the Company's efforts on achieving production
efficiencies while maintaining high quality standards for its products and the
work environment for its associates. In an effort to meet future increased
customer demand, the Company is actively pursuing ways to expand its production
capabilities, which could include offshore sub-assembly fabrication.
9
<PAGE>
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 purchase agreements
with selected suppliers to guard against shortages of unique components, thereby
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 and the number of
competitors and their product offerings have increased due to the growing
worldwide marketplace. A number of competitors have significantly greater
financial, technical, sales and marketing resources than the Company.
Additionally, certain of these companies have acquired competitors with
synergistic product lines in an effort to offer a more complete solution. Most
recently, Coin Controls Limited ("Coin Controls") acquired Ardac, Inc.
("Ardac"), a domestic currency validator manufacturer. Coin Controls had
primarily focused on the validation of coins worldwide for the gaming and
amusement industries. With the acquisition of Ardac, Coin Controls now has the
ability to package its coin mechanism with a currency validator for both the
gaming and beverage and vending industries. A similar package concept has been
in place with Mars Electronics International ("MEI"), to serve the beverage and
vending marketplace. 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"). Accordingly, such
validator manufacturers enjoy a competitive advantage in providing for the
significant validator requirements of their affiliates. For validators sold for
use in the beverage, food, snack and lower-priced goods or amusement markets,
Coinco dominates the domestic market. MEI, Ardac, Japan Cash Machines Co., Ltd.
("JCM"), Sanyo, Conlux, Coegis and Cashcode Company, Inc. are recognized
competitors in the growing international beverage and vending market.
The largest supplier of validators used in the domestic gaming and lottery
markets is JCM. Internationally, the Company competes for gaming machine
business with JCM, MEI and Ardac. In the secondary low-value gaming markets
(Award Without Pay), Innovative Technology, Ltd. maintains a significant market
share due to its low-cost approach to this
10
<PAGE>
market. The Company has focused its marketing efforts on the higher-priced
domestic and international gaming validator business and competes on the basis
of quality, durability and performance while maintaining a high level of
protection against tampering and counterfeit currencies, as well as a
competitive price point.
The Company historically 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. Also, the Company has been
willing to adapt its products to a variety of OEMs, which has allowed it to be
flexible to expand when new markets open up to sales. 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 worldwide gaming 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 all of its key employees
having access to this technology.
The Company holds eight U.S. patents as follows: design for "Escrow Box for Coin
Operated Machines," Patent #0283518 issued April 22, 1986; "Paper Currency
Acceptor and Method of Handling Paper Currency for Vending Machines and the
Like," Patent #4884671 issued December 5, 1989; "Anti-fraud Currency Acceptor,"
Patent #5259490 issued November 9, 1993; "Bill Accumulating and Stacking
Device," Patent #5322275 issued June 21, 1994; "Mechanism for Insuring Alignment
of Currency in Currency Validators," Patent #5527031 issued June 18, 1996; "Soft
Count Tracking System," Patent #5630755 issued May 5, 1997; "Paper Currency
Validator (Side-Looking Sensors)," Patent #5806649 issued September 15, 1998 and
"Electrical Switch Connectors," Patent #5842879 issued December 1, 1998. Certain
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. In addition, the Company has also applied for three
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.
In addition to its U.S. patents and pending patent applications, the Company has
also applied for patent protection in a large number of international markets.
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.
11
<PAGE>
Although the Company has not received any claims asserting infringement of 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.
Employees
On December 17, 1998, the Company had 236 employees, including 6 executives; 19
sales, technical support and customer service representatives; 39 engineers and
software developers; 35 materials, quality control and quality assurance
personnel; 22 administrative and clerical personnel; and 115
assembly/manufacturing personnel. The Company believes its relationship with its
employees is good.
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; dependence on a limited base of
customers for a significant portion of sales; the risks that its current and
future products may contain errors or defects that would be difficult and costly
to detect and correct; potential difficulties in manufacturing operations;
possible risks of product inventory obsolescence; potential shortages of key
parts and/or raw materials; potential difficulties in managing growth;
dependence on key personnel; the possible impact of competitive products and
pricing; uncertainties with respect to the Company's business strategy; general
economic conditions in the domestic and international markets; and other risks
described in the Company's Securities and Exchange Commission filings.
Item 2. Description of Property
The Company leases approximately 44,400 square feet which houses the
manufacturing and administrative functions in Hauppauge, New York, for a term
expiring March 31, 2000, at an annual base rental of approximately $290,000 in
fiscal 1998, increasing to approximately $300,000 in the final year of the term.
The Company believes this facility is adequate for its manufacturing needs for
the foreseeable future. The Company leases approximately 6,600 square feet in
Valley Stream, New York, for a term expiring February 28, 2002, at an annual
12
<PAGE>
base rental of $150,000 increasing annually to approximately $170,000 in the
final year of the term. This facility houses the executive, accounting and
certain sales functions of the Company. The Company also leases approximately
2,300 square feet in Las Vegas, Nevada, for a term expiring April 30, 2000, at
an annual base rental of $19,700 increasing annually to approximately $21,700 in
the final year of the term. This facility houses certain sales and service
functions of the Company.
Item 3. Legal Proceedings
The Company is not a defendant in any material legal proceedings. As a part of
the Company's strategy for enforcing its patent portfolio, it has commenced a
lawsuit against one of its competitors whom it believes has infringed on one of
its patents, the outcome of which is not determinable at this time.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
<PAGE>
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 GPTX. The following table sets forth, on a per share
basis, the high and low sale prices for the Company's Common Stock for each
quarter of fiscal 1997 and fiscal 1998.
Common Stock
-----------------
Quarter Ended High* Low*
------------- ----- ----
December 31, 1996 5 3/4 4 7/16
March 31, 1997 6 5/16 4 3/4
June 30, 1997 9 1/2 4 5/16
September 30, 1997 12 1/4 7 1/2
December 31, 1997 11 7/8 8
March 31, 1998 15 1/2 8 1/4
June 30, 1998 14 7/8 7 1/4
September 30, 1998 11 5/8 4 1/2
*All prices give retroactive effect to a two-for-one stock split, in
the form of a stock dividend, distributed on September 4, 1997.
b) Holders
The approximate number of beneficial holders and holders of record of the
Company's Common Stock as of December 21, 1998, were 1,550 and 66, respectively.
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 never in the past
declared or paid any cash dividends and does not expect to declare or pay any
cash dividends in the foreseeable future.
14
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fiscal year ended September 30, 1998 compared with September 30, 1997
Sales
Net sales for fiscal 1998 increased by 65.0% to $39.388 million as compared with
$23.868 million in fiscal 1997. The sales growth in fiscal 1998 is attributable
to increased demand for the Company's bill validator products primarily in the
international gaming industry. Although sales to the international beverage and
vending market represent a relatively small percentage of the Company's overall
sales, such sales increased 83% to $6.413 million in 1998. The revenue growth is
the result of the Company broadening its customer base, and accordingly, sales
to the Company's largest customer, as a percentage of net sales, decreased to
45.7% of net sales in 1998 from 54.0% of net sales in 1997. Net sales to
international customers accounted for 83.9% and 72.8% of net sales in fiscal
1998 and 1997, respectively.
Gross Profit
Gross profit increased to $16.375 million, or 41.6% of net sales, in fiscal 1998
as compared with $8.986 million, or 37.6% of net sales, in the prior year
period. The increase in gross profit as a percentage of net sales was primarily
attributable to increased operating efficiencies due to longer production runs
and reduced product costs resulting from volume purchase arrangements. During
the fourth quarter of fiscal 1998, the Company initiated selling directly to its
Australian affiliate which subsequently sells the Company's products into the
Australian and New Zealand markets. This distribution method will be utilized by
the Company's South African affiliate commencing in fiscal 1999. Under the prior
method, the Company sold directly to the customer, recognizing additional
revenues and the related commission expense. As a result of this change, the
Company expects future operating results to reflect lower gross profit from
these sales and a commensurate reduction in sales commissions within its
operating expenses.
Operating Expenses
Operating expenses in fiscal 1998 increased by 72.2% to $10.983 million, or
27.9% of net sales, as compared with $6.378 million, or 26.7% of net sales, in
fiscal 1997. The primary reason for the increase in operating expenses was due
to increased sales commissions expense in fiscal 1998 of $2.738 million as
compared with $300,000 in fiscal 1997. These commissions were paid to
distributors of the Company's products, including certain affiliates providing
in-country sales and service in Australia, South Africa and Europe. As noted
above, the Company expects a significant reduction in sales commissions in
fiscal 1999 on sales to Australia and South Africa as a result of the shift in
distribution method. Excluding the effect of these commissions, operating
expenses as a percentage of sales were 20.9% in 1998 as compared with 25.5% in
1997. In addition to the increased sales commissions, the Company incurred
increased staffing and related payroll costs necessary to support the sales
growth in fiscal 1998 as well as to support the Company's growth strategy in
fiscal 1999 and beyond.
15
<PAGE>
Net Income
For fiscal 1998, the Company's net income was $3.356 million, or $0.56 per
share, as compared with $1.475 million, or $0.25 per share for fiscal 1997. (Net
income per share figures give retroactive effect in all periods to a two-for-one
stock split, in the form of a stock dividend, distributed on September 4, 1997.)
During fiscal 1998, the Company recognized an after-tax gain of $225,000, or
$0.04 per share, which was the result of the sale of a portion of the Company's
equity interest in its South African affiliate ("GPT-SA"). The Company now owns
a one-third interest in GPT-SA and 50% non-controlling interests in a local
sales and service organization in Australia and a manufacturing firm in China,
all of which are accounted for using the equity method. Included in the results
of operations for fiscal 1998 and 1997 are the Company's share of losses (net of
profits) of these affiliates of $215,000 and $71,000, respectively. In fiscal
1998, equity in income of unconsolidated affiliates has been reduced by
approximately $400,000, which represents the gross profit on the Company's sales
to its affiliates that have not yet been recognized by the affiliates. In
addition, the Company owns 70% of GPT-Europe Limited, a local sales and service
organization in Europe, whose results are consolidated in the Company's
financial statements.
Fiscal year ended September 30, 1997 compared with September 30, 1996
Sales
Net sales for fiscal 1997 increased by 43.0% to $23.868 million as compared with
$16.693 million in fiscal 1996. The sales growth in fiscal 1997 is attributed to
increased demand for the Company's bill validator products primarily in the
international gaming industry and reflects a substantial increase in sales to
the Company's largest customer, which accounted for 54.0% and 37.6% of net sales
in fiscal 1997 and fiscal 1996, respectively. While the Company anticipates
increasing sales to its largest customer, management is working to develop a
broader customer base, which will serve to reduce its dependence on any one
customer. Net sales to international customers accounted for 72.7% of net sales
in both fiscal 1997 and fiscal 1996.
Gross Profit
Gross profit increased to $8.986 million, or 37.6% of net sales, in fiscal 1997
as compared with $5.257 million, or 31.5% of net sales, in the prior-year
period. The prior-year's results were significantly impacted by an inventory
write-down of approximately $1.1 million. Excluding this write-down, the
Company's gross profit as a percentage of net sales was 38.3%. This decrease in
gross profit as a percentage of net sales is due to increased product costs,
manufacturing labor and benefit costs, as well as a reduced gross profit on
sales to a new customer in the beverage and vending division, which was
substantially offset by operational efficiencies.
Operating Expenses
Operating expenses in fiscal 1997 increased by 33.5% to $6.378 million as
compared with $4.777 million in fiscal 1996. This increase was principally due
to increased staffing and related payroll costs necessary to support the sales
growth in fiscal 1997 as well as to support the Company's growth strategy in
fiscal 1998 and beyond. In addition, the Company incurred commission expense in
the fourth quarter of fiscal 1997 of approximately $300,000 as
16
<PAGE>
compared with none in fiscal 1996. These commissions were primarily in the form
of payments to the Company's Australian affiliate, who is responsible for sales
and service in Australia and New Zealand on an exclusive basis. As a percentage
of net sales, the Company has reduced its operating expenses to 26.7% in fiscal
1997 as compared with 28.6% in fiscal 1996, as the infrastructure recently put
in place has been able to efficiently support the Company's growth.
Net Income
For fiscal 1997, the Company's net income was $1.475 million, or $0.25 per
share, as compared with $272,000, or $0.05 per share, for fiscal 1996. Fiscal
1996 net income and net income per share figures reflect a pre-tax inventory
write-down of $1.1 million related to certain early generation products, the
future sales of which management believes have been and will be adversely
impacted by sales of newly released products. Excluding the effect of the
inventory write-down, fiscal 1997 net income increased 62.8% compared with pro
forma net income of $906,000, or $0.16 per share, in fiscal 1996. (Net income
per share figures give retroactive effect in all periods to a two-for-one stock
split, in the form of a stock dividend, distributed on September 4, 1997.) At
the end of fiscal 1996 and during fiscal 1997, the Company purchased 50%
non-controlling interests in local sales and service organizations in South
Africa and Australia and in a plastics manufacturing firm in China. Included in
the results of operations for fiscal 1997 are the Company's share of the profits
and losses of these three unconsolidated affiliates.
Liquidity and Capital Resources
The Company's capital requirements consist primarily of those necessary to
continue to expand and improve manufacturing and product development
capabilities, sales and marketing operations, investments in affiliates and, to
a lesser degree, interest payments on the Company's indebtedness. The Company
believes that its available resources, including its credit facilities, should
be sufficient to meet its obligations as they become due and permit continuation
of its planned expansion throughout fiscal 1999 and beyond.
In February 1998, the Company renewed its $5,000,000 line of credit with The
Chase Manhattan Bank. This facility allows for borrowings on an unsecured basis
and expires on March 31, 1999. Outstanding borrowings bear interest at the
bank's prime rate per annum or, at the Company's option, for borrowings greater
than $500,000, LIBOR plus 175 basis points per annum. As of September 30, 1998,
$3,050,000 was outstanding under this line of credit.
In September 1998, the Company entered into an agreement with The Chase
Manhattan Bank for an additional unsecured line of credit in the aggregate
amount of $3,500,000 for the repurchase of up to 500,000 shares of the Company's
Common Stock. Outstanding borrowings bear interest at the bank's prime rate per
annum or, at the Company's option, for borrowings greater than $500,000, LIBOR
plus 175 basis points per annum. As of September 30, 1998, $1,047,000 was
outstanding under this line of credit which expires on March 31, 1999.
17
<PAGE>
Net cash used in operating activities amounted to $3.857 million in fiscal 1998.
Net income, adjusted for noncash items, was $3.977 million in fiscal 1998. This
amount was augmented by an increase in accrued expenses and other current
liabilities of $1.695 million and an increase in income taxes payable of
$321,000 and was offset by an increase in accounts receivable of $6.034 million,
an increase in inventory of $3.344 million, an increase in prepaid expenses and
other assets of $214,000 and a decrease in accounts payable of $258,000. Net
cash provided by operating activities amounted to $380,000 in fiscal 1997. Net
income, adjusted for noncash items, was $2.105 million in fiscal 1997. This
amount was augmented by an increase in accounts payable of $1.495 million and an
increase in accrued expenses and other current liabilities of $679,000, and was
offset by an increase in accounts receivable of $2.012 million, an increase in
inventory of $1.365 million and a decrease in income taxes payable of $488,000.
Net cash used in investing activities amounted to $633,000 in fiscal 1998 as
compared with $1.217 million in fiscal 1997. The Company provided net fundings
to its joint ventures of approximately $42,000 in fiscal 1998 as compared with
approximately $426,000 during fiscal 1997, predominantly in the form of loans.
In addition, during fiscal 1998 the Company received and recognized a pre-tax
gain of $385,000 from the sale of a portion of the equity in its South African
affiliate which reduced its ownership from 50% to 33%. The remaining investing
activities of $976,000 in 1998 and $791,000 in fiscal 1997 were for the purchase
of property and equipment.
Net cash provided by financing activities amounted to $3.411 million in fiscal
1998, as compared with $23,000 in fiscal 1997. In fiscal 1998 the Company
received proceeds from its two credit facilities of $4.097 million, of which
$1.047 million was used for the repurchase of the Company's common stock. The
remaining cash provided by financing activities of $361,000 in fiscal 1998 and
all financing activities in fiscal 1997 were from the issuance of stock upon the
exercise of stock options and warrants.
Fiscal 1998 saw continued moderation in the level of inflation. In order to
offset the resultant rise in the costs of operations, the Company has and will
continue to assess ways to reduce product manufacturing costs, thereby
increasing profit margins and improve its operations to gain efficiencies and
reduce operating costs.
Year 2000
In July 1996, the Emerging Issues Task Force of the Financial Accounting
Standards Board (FASB) reached a consensus on Issue 96-14, "Accounting for the
Costs Associated with Modifying Computer Software for the Year 2000," which
requires that costs associated with modifying computer software for the Year
2000 be expensed as incurred. The Company has formed a senior management team to
develop a comprehensive plan to address the year 2000 issues. A significant
amount of analysis has been completed and the Company continues to assess and
thus far believes, based upon its internal review and other factors, that future
external and internal costs to be incurred relating to the modification of
internal-use software for the year 2000 will not have a material effect on the
Company's results of operations or financial position.
18
<PAGE>
Item 7. Financial Statements
The financial statements of the Company required by this item are set forth
beginning on page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
19
<PAGE>
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, 1998.
Item 13. Exhibits, List and Reports on Form 8K
(a) Exhibits
Exhibit No.
- -----------
3.1 Certificate of Incorporation (3)
3.2 Certificate of Merger (3)
3.3 By-Laws (3)
10.1 Lease dated September 21, 1994 between the Company and Heartland
Associates (1)
10.2 Amendment dated July 31, 1997 to lease dated September 21, 1994 between
the Company and Heartland Associates (3)
10.3 1994 Stock Option Plan (2)
10.4 1996 Stock Option Plan (2)
10.5 Employment Agreement dated January 1, 1998 between the Company and Robert
W. Nader (5)
10.6 Employment Agreement dated October 1, 1998 between the Company and Edward
Seidenberg (5)
10.7 Supplier agreement dated May 14, 1998 between Global Payment
Technologies, Inc. and Aristrocrat Leisure Industries Pty Ltd. (4)
10.8 Working Capital Credit Agreement dated February 20, 1998 between the
Company and The Chase Manhattan Bank (5)
10.9 Stock Repurchase Credit Agreement dated September 9, 1998 between the
Company and The Chase Manhattan Bank (5)
10.10 Employment Agreement dated September 30, 1997 between the Company and
Stephen Katz (3)
21 List of Subsidiaries (5)
23 Consent of Independent Public Accountants (5)
27 Financial Data Schedule (5)
- ----------
(1) Incorporated by reference to the Company's initial filings of the
Registration Statement on Form SB-2 (File #33-86352-NY).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File #333-30829).
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1997.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1998.
(5) Filed herewith.
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the last quarter covered by this
Report.
20
<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.
Global Payment Technologies, Inc.
By: s/ Stephen Katz
---------------------------------
Stephen Katz
Chairman of the Board and
Chief Executive Officer
Date: December 29, 1998
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 29, 1998 Chairman of the Board
- ------------------------- and Chief Executive Officer
Stephen Katz
s/ Edward Seidenberg December 29, 1998 Director, President and
- ------------------------- Chief Operating Officer
Edward Seidenberg
s/ William H. (Bill) Wood December 29, 1998 Director and Employee
- -------------------------
William H. (Bill) Wood
s/ Henry Ellis December 29, 1998 Director
- -------------------------
Henry Ellis
s/ Richard Gerzof December 29, 1998 Director
- -------------------------
Richard Gerzof
s/ Martin Kern December 29, 1998 Director
- -------------------------
Martin Kern
s/ Thomas McNeill December 29, 1998 Chief Financial Officer and
- ------------------------- Principal Accounting Officer
Thomas McNeill
21
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of September 30, 1998 and 1997 F-2
Consolidated Statements of Income for the years ended
September 30, 1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Payment Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Global Payment
Technologies, Inc. (a Delaware corporation) and Subsidiary as of September 30,
1998 and 1997, and the related consolidated 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 Global Payment Technologies,
Inc. and Subsidiary as of September 30, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Melville, New York
November 24, 1998
F-1
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND 1997
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 834 $ 1,913
Accounts receivable, less allowance for doubtful accounts
of $248 and $225, respectively 5,854 4,755
Accounts receivable from affiliates 4,897 85
Inventory, less allowance for obsolescence of $942 and $742, respectively 8,090 5,120
Prepaid expenses and other current assets 254 110
Deferred income tax benefit 584 421
-------- --------
Total current assets 20,513 12,404
Property and equipment, net 1,758 1,335
Investments in unconsolidated affiliates 182 355
Other assets 130 60
-------- --------
Total assets $ 22,583 $ 14,154
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 4,097 $ --
Accounts payable 2,044 2,302
Accrued expenses and other current liabilities 2,925 1,230
Income taxes payable 430 109
-------- --------
Total current liabilities 9,496 3,641
-------- --------
Deferred income taxes -- 96
-------- --------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, 20,000,000 shares authorized; $.01 par value, 5,570,300 shares
issued in 1998 and 5,506,200 shares issued and outstanding in 1997 56 55
Additional paid-in capital 8,334 7,974
Retained earnings 5,744 2,388
-------- --------
14,134 10,417
Less: Treasury stock, at cost, 165,000 shares in 1998 (1,047) --
-------- --------
Total shareholders' equity 13,087 10,417
-------- --------
Total liabilities and shareholders' equity $ 22,583 $ 14,154
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales:
Non-affiliates $ 34,572 $ 23,649
Affiliates 4,816 219
----------- -----------
39,388 23,868
Cost of sales 23,013 14,882
----------- -----------
Gross profit 16,375 8,986
Operating expenses 10,983 6,378
----------- -----------
Income from operations 5,392 2,608
Other income (expense):
Equity in loss of unconsolidated affiliates (215) (71)
Gain on sale of investment in unconsolidated affiliate 385 --
Interest (expense) income, net (62) 51
----------- -----------
Other income (expense), net 108 (20)
----------- -----------
Income before provision for income taxes 5,500 2,588
Provision for income taxes 2,144 1,113
----------- -----------
Net income $ 3,356 $ 1,475
=========== ===========
Net income per share:
Basic $ .61 $ .27
=========== ===========
Diluted $ .56 $ .25
=========== ===========
Common shares used in computing net income per share amounts:
Basic 5,513,414 5,500,530
=========== ===========
Diluted 5,995,067 5,794,215
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
---------------------- Paid-in Retained -----------------------
Shares Amount Capital Earnings Shares Amount Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 5,500,000 $ 55 $ 7,951 $ 913 -- $ -- $ 8,919
Exercise of common stock options 6,200 -- 23 -- -- -- 23
Net income -- -- -- 1,475 -- -- 1,475
--------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 1997 5,506,200 55 7,974 2,388 -- -- 10,417
Exercise of common stock options
and warrants 64,100 1 360 -- -- -- 361
Purchase of treasury stock -- -- -- -- (165,000) (1,047) (1,047)
Net income -- -- -- 3,356 -- -- 3,356
--------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 1998 5,570,300 $ 56 $ 8,334 $ 5,744 (165,000) $ (1,047) $ 13,087
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,356 $ 1,475
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Equity in loss of unconsolidated affiliates 215 71
Gain on sale of investment in unconsolidated affiliate (385) --
Depreciation and amortization 553 343
Provision for (recovery of) losses on accounts receivable 123 (39)
Provision for inventory obsolescence 374 39
Deferred income taxes (259) 216
Changes in operating assets and liabilities:
Increase in accounts receivable, including affiliates (6,034) (2,012)
Increase in inventory (3,344) (1,365)
Increase in prepaid expenses and other assets (214) (34)
(Decrease) increase in accounts payable (258) 1,495
Increase in accrued expenses and other current liabilities 1,695 679
Increase (decrease) in income taxes payable 321 (488)
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (3,857) 380
------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment, net of proceeds from disposals (976) (791)
Proceeds from sale of investment in unconsolidated affiliate 385 --
Investments in unconsolidated affiliates (42) (426)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (633) (1,217)
------- -------
FINANCING ACTIVITIES:
Proceeds from notes payable to bank 4,097 --
Purchase of treasury stock (1,047) --
Issuance of stock upon exercise of stock options and warrants 361 23
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,411 23
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,079) (814)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,913 2,727
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 834 $ 1,913
======= =======
CASH PAID DURING THE YEAR FOR:
Interest $ 97 $ --
======= =======
Income taxes $ 1,879 $ 1,400
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
1. ORGANIZATION AND NATURE OF BUSINESS:
Global Payment Technologies, Inc. (the "Company") was established in 1988. The
Company designs, manufactures and markets paper currency validating equipment
used in gaming and vending 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 IDS,
IDUS, IBS, M-125 and M-150 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.
Significant Customers
The Company's largest customers for 1998 and 1997 represent the following
percentages of net sales and accounts receivable:
Net Sales 1998 1997
--------- ---- ----
Customer A 46% 54%
Customer B 10% N/A
Accounts Receivable
-------------------
Customer A 45% 62%
Customer B 8% N/A
There were no other customers that represented 10% or more of net sales in
either fiscal year.
Net sales to international customers were 84% and 73% of net sales in fiscal
years 1998 and 1997, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Global Payment
Technologies, Inc. and its majority-owned subsidiary, Global Payment
Technologies (Europe) Limited. All significant intercompany accounts and
transactions have been eliminated in consolidation.
F-6
<PAGE>
Investments in Unconsolidated Affiliates
The Company applies the equity method of accounting to its investments in
entities where the Company has ownership interests of 20% to 50%. The Company's
share of affiliates' earnings or losses is included in the consolidated
statements of income. The Company eliminates its pro rata share of gross profit
on sales to its affiliates for inventory on hand at the affiliates at the end of
the year. See Note 9 for a description of the Company's unconsolidated
affiliates and the related transactions between the Company and these
affiliates.
Cash and Cash Equivalents
Cash equivalents are stated at cost which approximates market value. Highly
liquid investments with maturities of three months or less at the purchase date
are considered cash equivalents for purposes of the consolidated balance sheets
and consolidated statements of cash flows.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or net
realizable value. The Company analyzes the net realizable value of its inventory
on an ongoing basis. In determining whether the net realizable value of its
inventory is impaired, the Company considers historical sales performance and
expected future product sales, market conditions in which the Company
distributes its products, changes in product strategy and the potential for the
introduction of new technology or products by the Company and its competitors.
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 5) 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.
Long-Lived Assets
The Company accounts for long-lived assets pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires
that long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of those assets may
not be recoverable. The Company did not record any impairment adjustments in
fiscal 1998 and 1997.
Research and Development
Research and development costs incurred by the Company are included in operating
expenses in the year incurred. Such costs amounted to $350,000 and $245,000 in
fiscal 1998 and 1997, respectively.
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 and its appointed service centers. Warranty costs beyond one year
from the date of initial purchase are charged to the Company's customers.
F-7
<PAGE>
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes" (Note 8). SFAS No. 109 requires an asset and liability approach for
financial reporting for income taxes. Under SFAS No. 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
In December 1997, the Company adopted SFAS No. 128, "Earnings Per Share". In
accordance with the requirements of SFAS No. 128, net income per common share
amounts ("basic EPS") were computed by dividing net earnings by the weighted
average number of common shares outstanding, excluding any potential dilution.
Net income per common share amounts assuming dilution ("diluted EPS") were
computed by reflecting potential dilution from the exercise of stock options and
warrants. SFAS No. 128 requires the presentation of both basic EPS and diluted
EPS on the face of the statements of income. Net income per share amounts for
fiscal 1997 have been restated to conform with the provisions of SFAS No. 128.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1998 1997
---------- ----------
(In thousands, except
share and per share data)
<S> <C> <C>
Numerator
---------
Net income attributable to common stock $ 3,356 $ 1,475
========== ==========
Denominator
-----------
Weighted average common shares outstanding - Basic 5,513,414 5,500,530
Effect of dilutive securities: Stock options and warrants 481,653 293,685
---------- ----------
Weighted average common shares outstanding - Diluted 5,995,067 5,794,215
========== ==========
Basic EPS $ .61 $ .27
========== ==========
Diluted EPS $ .56 $ .25
========== ==========
</TABLE>
Stock-Based Compensation
In fiscal 1997, the Company adopted the provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation", by continuing to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", while providing the required pro forma disclosures as if the fair
value method had been applied (Note 7).
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.
F-8
<PAGE>
Reclassifications
Certain prior-year financial statement amounts have been reclassified to conform
to the current year's presentation.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters beginning
after June 15, 1999 and will not require retroactive restatement of prior period
financial statements. The Company currently does not use derivative instruments
or engage in hedging activities and, accordingly, does not expect that this
statement will have an impact on its consolidated financial statements when
adopted.
3. ACQUISITION:
In June 1998, the Company formed Global Payment Technologies (Europe) Limited
("GPT-Europe"), which is based in the United Kingdom and is responsible for
sales and service for the Company's products in Europe. GPT-Europe purchased the
assets and assumed the liabilities of Global Payment Technologies (U.K.) Ltd.
("GPT-UK"), the Company's prior independent European distributor as of February
28, 1998. The excess of the cost over the fair market value of the net assets
acquired was not material. The Company, through a capital contribution of
$76,000, owns 70% of GPT-Europe, with the remaining 30% owned by GPT-Europe's
operations manager, a former principal of GPT-UK. GPT-Europe's assets and
liabilities are included in the consolidated balance sheet as of September 30,
1998 and the results of its operations from March 1, 1998 to September 30, 1998
have been included in the consolidated statements of income, net of the related
minority interest in subsidiary earnings, which was not material. Pro forma
results of operations as if the acquisition had been completed as of October 1,
1997 have not been presented, as the impact on the Company's results of
operations would not have been material.
4. INVENTORY:
The following is a summary of the composition of inventory:
September 30,
------------------------
1998 1997
------ ------
(in 000s)
Raw materials $2,775 $1,894
Work-in-process 3,706 2,631
Finished goods 1,609 595
------ ------
$8,090 $5,120
====== ======
F-9
<PAGE>
5. PROPERTY AND EQUIPMENT, NET:
Major classifications of property and equipment are as follows:
September 30,
--------------------
Useful Lives 1998 1997
------------ ------- ------
(in 000s)
Leasehold improvements 5 years $ 243 $ 155
Furniture and fixtures 3 - 7 years 401 310
Machinery and equipment 3 - 10 years 1,140 738
Computer software 5 years 578 459
Computer hardware 3 years 718 443
------- ------
3,080 2,105
Less: Accumulated depreciation
and amortization (1,322) (770)
------- ------
$ 1,758 $1,335
======= ======
6. NOTES PAYABLE TO BANK:
Lines of Credit
In February 1998, the Company renewed its agreement with The Chase Manhattan
Bank for an unsecured line of credit in the aggregate amount of $5,000,000 for
borrowings to be made when necessary to meet short-term working capital needs.
Outstanding borrowings bear interest at the bank's prime rate or LIBOR plus 175
basis points per annum. As of September 30, 1998, $3,050,000 was outstanding
under this line of credit at an interest rate of 8.25%. This line of credit
expires on March 31, 1999.
In September 1998, the Company entered into an agreement with The Chase
Manhattan Bank for an unsecured line of credit in the aggregate amount of
$3,500,000 for borrowings to be made for the repurchase of up to 500,000 shares
of the Company's common stock. Outstanding borrowings bear interest at the
bank's prime rate or LIBOR plus 175 basis points per annum. As of September 30,
1998, $1,047,000 was outstanding under this line of credit at an interest rate
of 7.25%. This line of credit expires on March 31, 1999.
7. SHAREHOLDERS' EQUITY:
Stock Split
In July 1997, the Company's Board of Directors approved a two-for-one stock
split, in the form of a stock dividend, to the Company's common shareholders of
record at August 18, 1997. The new shares were issued to such shareholders of
record on September 4, 1997. Par value remained at $.01 per share. All
information contained in the consolidated financial statements and related
footnotes has been retroactively restated to give effect to this stock split.
Stock Repurchase
In June 1998, the Board of Directors approved a common stock repurchase plan,
providing for the purchase of up to 500,000 shares of the Company's common stock
over a one-year period, using a separately established line of credit (Note 6).
In September 1998, the Company purchased 165,000 shares of its common stock at a
cost of $1,047,000. Subsequent to year-end, in October 1998, the Company
purchased an additional 41,000 shares of its common stock at a cost of $223,000.
F-10
<PAGE>
Stock Option Plans
In October 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan") covering up to 300,000 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"). The purpose and provisions of the 1996 Plan are essentially the same as
the 1994 Plan. The 1996 Plan originally covered 400,000 of the Company's common
shares. The total shares available for grant under the 1996 Plan were increased
to 900,000 by the Board of Directors in September 1996. The 1996 Plan, as so
amended, was approved by the shareholders of the Company.
Both the 1994 Plan, which expires on October 17, 2004, and the 1996 Plan, which
expires on March 18, 2006, are 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 are 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.
During fiscal 1997, a total of 60,000 incentive stock options were granted under
the 1996 Plan. These options will become exercisable over a four-year period in
equal amounts commencing with the first anniversary from the date of grant,
except for 24,000 options, which will vest on the same basis over a five-year
period.
During fiscal 1998, a total of 147,750 incentive stock options and 7,500
non-qualified options were granted under the 1996 Plan. All options granted in
1998 will become exercisable over a four-year period in equal amounts commencing
with the first anniversary of the date of grant.
The Company accounts for option awards granted to employees and directors under
APB Opinion No. 25, under which compensation cost is recognized for stock
options granted at an exercise price less than the market value of the options
on the grant date. No compensation cost has been recorded by the Company
pursuant to APB Opinion No. 25. Had compensation cost for all stock option
grants in fiscal years 1998 and 1997 been determined consistent with SFAS No.
123, the Company's net income and earnings per share would have been:
<TABLE>
<CAPTION>
1998 1997
------- -------
(in 000s, except per share data)
<S> <C> <C> <C>
Net income: As Reported $ 3,356 $ 1,475
Pro Forma 3,227 958
Net income per common share - basic: As Reported $ .61 $ .27
Pro forma .59 .17
Net income per common share - diluted: As Reported $ .56 $ .25
Pro forma .54 .17
</TABLE>
F-11
<PAGE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to option awards
granted prior to fiscal-year 1997, and additional awards in future years are
anticipated.
A summary of the Company's stock option plans as of September 30, 1998 and 1997,
and changes during the years then ended, is presented below.
<TABLE>
<CAPTION>
1998 1997
------------------ -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Outstanding at the beginning of the year 726,400 $4.08 693,500 $3.64
Granted at fair value 155,250 $8.97 60,000 $8.93
Forfeited (20,900) $4.15 (20,900) $3.78
Exercised (47,600) $5.24 (6,200) $3.78
------- -------
Outstanding at end of the year 813,150 $4.94 726,400 $4.08
======= =======
Options exercisable at yearend 526,510 $3.57 501,400 $3.45
======= =======
Weighted-average fair value of options granted
during the year (a) $5.04 N/A $5.08 N/A
</TABLE>
(a) The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
Year ended September 30,
------------------------------
1998 1997
------- -------
Risk-free interest rates 5.22% 6.19%
Expected lives 5 years 5 years
Expected volatility 60% 58%
Expected dividend yields -- --
Summarized information about the Company's stock options outstanding and
exercisable at September 30, 1998 is as follows:
Outstanding Exercisable
--------------------------- -----------------
Average Average Average
Exercise Price Range Options Life Price Options Price
--------------------- ------- ---- ----- ------- -----
$3.00 to $4.50 559,900 7.55 $3.36 481,160 $3.28
$5.00 to $5.50 63,000 7.04 5.32 36,600 5.44
$6.50 to $7.00 103,750 6.96 6.56 -- --
$11.50 to $14.50 86,500 7.53 12.91 8,750 11.56
------- -------
$3.00 to $14.50 813,150 7.43 4.94 526,510 3.57
======= =======
F-12
<PAGE>
Underwriters' Warrants
In connection with the Company's initial public offering of common stock in
February 1995, the Company granted warrants to purchase 150,000 shares of common
stock at $6.60 per share to the underwriters of that public offering. The
exercise price of $6.60 per share represented in excess of 110% of the initial
public offering price. During fiscal 1998, 16,500 of these warrants were
exercised. As of September 30, 1998, all of the remaining 133,500 warrants were
exercisable and expire on February 6, 2000.
8. INCOME TAXES:
The provision for income taxes is comprised of the following:
For the Fiscal Years
Ended September 30,
--------------------
1998 1997
------- -------
(in 000s)
Current:
Federal $ 1,965 $ 670
State and local 438 223
------- -------
2,403 893
------- -------
Deferred:
Federal (179) 153
State and local (80) 67
------- -------
(259) 220
------- -------
Total $ 2,144 $ 1,113
======= =======
Significant components of deferred tax assets and liabilities are as follows:
As of September 30,
--------------------
1998 1997
------- -------
(in 000s)
Non-current deferred tax liability:
Depreciation $ -- $ (96)
------- -------
Current deferred tax assets:
Accounts receivable 80 101
Inventory 306 320
Accrued expenses 68 --
Elimination of gross profit on sales to affiliates 130 --
------- -------
584 421
------- -------
Net deferred tax asset $ 584 $ 325
======= =======
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.
F-13
<PAGE>
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,
-------------------
1998 1997
------ ------
U.S. Federal statutory rate 34.0% 34.0%
State income taxes, net of Federal benefit 4.3 7.5
All other, net .7 1.5
------ ------
Effective income tax rate 39.0% 43.0%
====== ======
9. TRANSACTIONS WITH UNCONSOLIDATED AFFILIATES:
South Africa
In August 1996, the Company acquired a 50% non-controlling interest in a South
African affiliate("GPT-SA"), which on July 3, 1998, changed its name to Global
Payment Technology Holdings (Proprietary) Limited, and in which funding
commenced in June 1997. This entity is responsible for sales and service of the
Company's products in the South African region, on an exclusive basis. The
Company loaned $178,000 to this entity during fiscal 1997, and loaned an
additional $104,000 during fiscal 1998. Repayments totaling $166,000 were
received in fiscal 1998. These amounts are included as part of the Company's
investment in unconsolidated affiliates in the accompanying consolidated balance
sheets as of September 30, 1998 and 1997. On May 29, 1998, Hosken Consolidated
Investments ("HCI"), a South African investment company, purchased a one-third
interest in GPT-SA. Terms of the transaction called for HCI to purchase certain
shares from the Company and the Bevin Trust (GPT-SA's founding shareholders) as
well as additional shares directly from GPT-SA. The Company recognized a pre-tax
gain of $385,000 on the transaction and its ownership of GPT-SA has been reduced
from 50% to 33%. The Company's consolidated results of operations include the
Company's equity in the income of this affiliate in the amounts of $1,400 and
($78,000) in fiscal 1998 and 1997, respectively.
China
In January 1997, the Company acquired a 50% non-controlling interest in a
China-based affiliate. This entity manufactures plastic and metal components,
some of which are used by the Company in its production. In addition, the
Company is obligated to loan up to an aggregate of $299,000 to this entity,
which will bear interest at the rate of 1.5% above the prime rate prevailing
from time to time at the Company's bank, per annum. The Company loaned $219,000
to this entity during fiscal 1997 and loaned an additional $25,000 during fiscal
1998. No repayments have been received by the Company as of September 30, 1998.
These amounts are included as part of the Company's investment in unconsolidated
affiliates in the accompanying consolidated balance sheets as of September 30,
1998 and 1997. The Company's consolidated results of operations include the
Company's equity in the loss of this affiliate in the amounts of $169,000 and
$42,000 in fiscal 1998 and 1997, respectively.
Australia
In August 1997, the Company acquired a 50% non-controlling interest in an
Australian affiliate. This entity is responsible for sales and service of the
Company's products in Australia and New Zealand, on an exclusive basis. The
Company's consolidated results of operations include the Company's equity in the
income of this affiliate in the amounts of ($47,000) and $49,000 in fiscal 1998
and 1997, respectively. For fiscal 1998, the Company reduced its equity in
income of unconsolidated affiliates by $400,000, which represents the gross
profit on sales to this affiliate which have not yet been recognized by the
affiliate.
F-14
<PAGE>
10. COMMITMENTS AND CONTINGENCIES:
Minimum Lease Commitments
The operations of the Company are conducted in leased premises, one of which is
leased from an affiliate owned partially by the Company's Chairman. The Company
also leases various office equipment. At September 30, 1998, the approximate
minimum annual rentals under these leases, which expire through fiscal year
2002, were as follows:
Total (including
For the Fiscal Year Related Party Related Party
Ending September 30, Commitments) Commitments
-------------------- ------------ -----------
(in 000s) (in 000s)
1999 483 150
2000 319 150
2001 150 150
2002 62 62
Total rent expense for all operating leases was $430,000 and $388,000 in fiscal
1998 and 1997, respectively, including $121,000 and $65,000, respectively, paid
to the affiliate. The Company's management believes this lease with the
affiliate is on terms which approximate fair market value.
Employment Agreements
The Company has entered into various employment agreements with three officers
and two other employees of the Company expiring through the end of fiscal 2000,
with minimum compensation requirements as follows:
For the Fiscal Year
Ending September 30, (in 000s)
-------------------- ---------
1999 $631
2000 592
2001 251
Litigation
There is one lawsuit with third parties against the Company incident to the
operation of its business. It is the opinion of management and its counsel that
its ultimate resolution will not have a materially adverse effect on the
Company's financial position or results of operations.
F-15
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), effective as of January 1,
1998, by and between Global Payment Technologies, Inc., a Delaware corporation,
with executive offices at 20 East Sunrise Highway, Suite 201, Valley Stream, NY
11581 (the "Company"), and Robert W. Nader, residing at 17 Soundview Drive,
Huntington, NY 11743, (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to formalize the employment of the Executive
as a senior executive officer of the Company; and
WHEREAS, the Company and Executive desire to enter into an agreement
relating to such employment;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT
1.1 As of the commencement of the Employment Term (as hereinafter defined),
the Company hereby employs Executive in a senior executive capacity (it being
contemplated that he shall be elected and serve as the Vice President
Product/Market Development upon the terms and conditions herein contained, with
responsibility for the performance of such duties as may be from time to time
assigned to him by the Board of Directors of the Company (the "Board of
Directors"), its Chief Operating Officer or its Chief Executive Officer.
Executive hereby accepts employment.
1.2 The term of employment under this Agreement shall commence on the
effective date of this Agreement, and, subject to the terms hereof shall
terminate on December 31, 2000, provided, however, that the term of this
Agreement shall automatically be extended for additional one (1) year terms
beyond the initial term unless and until either the Company or Executive
provides sixty (60) days prior written notice to the other of its desire to
terminate this Agreement as of the end of the then current term of this
Agreement (such term of employment is referred to hereinafter as the "Employment
Term").
<PAGE>
1.3 Throughout the Employment Term, Executive shall devote his best efforts
and all of his business time, attention and skills to the business and affairs
of the Company.
2. SALARY
2.1 During the Employment Term, Executive shall be entitled to receive a
base salary at the rate of $100,000 per year plus an additional non-refundable
draw against commissions (the "Draw"), payable in accordance with the Company's
regular payroll practice for senior executives of the Company; provided that
such base salary and Draw shall be reviewed by the COO, CEO, the Compensation
Committee and/or the Board of Directors as may be required, no less than
annually and may be increased, but not decreased. During the period January 1,
1998 through December 31, 1998, such Draw shall be at the rate of $40,000 per
annum. During the period January 1, 1999 through December 31, 1999, such Draw
shall be at the rate of $50,000 per annum. During the period January 1, 2000
through December 31, 2000, such Draw shall be at the rate of $60,000 per annum.
3. COMMISSIONS
For each year during the term of this Agreement, commencing with the first
year, Executive shall be entitled to receive commissions in an amount to be
determined by the CEO and COO in their sole discretion.
4. INCENTIVE STOCK OPTION PLAN
4.1 The Executive shall be entitled to participate in the Company's Stock
Option plan in a manner equal to that of other senior executives.
4.2 The ISO shall be subject to such other terms and conditions as are set
forth in the grant.
5. TERMINATION UNDER CERTAIN CONDITIONS
Subject to section 7(d), in the event that Executive's employment is
terminated by the Company (other than for "Cause" as hereinafter defined) or
Executive terminates his employment for "Good Reason" (as hereinafter defined)
prior to the end of the Employment Term, Executive shall be entitled to receive
in lieu of any and all other payments a severance payment in an aggregate amount
equal to (1) Executive's yearly base salary and draw against commissions in
effect on the date of his termination of employment hereunder (the "Severance
Payment") plus (2) any outstanding commissions due Executive (the "Outstanding
2
<PAGE>
Commissions"). The Severance Payment shall be payable in six equal monthly
installments, the first installment to be due and payable on the first day of
the month immediately following such termination. The Outstanding Commissions
payment(s) shall be made within a reasonable time period (within 30 days) of
such commissions being earned.
6. CERTAIN EMPLOYEE BENEFITS
6.1 During the Employment Term, Executive shall be entitled to participate,
to the extent he is eligible under the terms and conditions thereof, in any
benefit plan which the Company may from time to time provide to its senior
executives during the Employment Term. Unless otherwise specifically set forth
herein, the Company shall be under no obligation to institute or thereafter
continue the existence of any such benefit plan.
6.2 The Executive shall be entitled to the full time use of an automobile
and shall be reimbursed by the Company at the rate of $7,200 per calendar year.
6.3 During the Employment Term, Executive shall be entitled to the use of a
private office and secretarial assistance, both appropriate for a senior
executive of the Company.
7. CHANGE OF CONTROL
(a) For the purpose of this Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
35% or more (on a fully diluted basis) of either (i) the then outstanding
shares of common stock of the Company, taking into account as outstanding
for this purpose such common stock issuable upon the exercise of options or
warrants, the conversion of convertible stock or debt, and the exercise of
any similar right to acquire such common stock (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (W) any acquisition
by the Company or any "affiliate" of the Company, within the meaning of 17
C.F.R. ss. 230.405 (an
3
<PAGE>
"Affiliate"), (X) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any Affiliate, (Y) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (X), (Y) and (Z) of subsection (iii) of this Section 7(a), and
(Z) any acquisition by an entity in which the Executive has a direct or
indirect equity interest; or
(ii) Individuals who, as of the effective date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to such
effective date whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board of
Directors; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (X) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of
4
<PAGE>
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, and (Y) no Person (excluding (I) any
employee, benefit plan (or related trust) sponsored or maintained by the
Company or any Affiliate of the Company, or such corporation resulting from
such Business Combination or any Affiliate of such corporation, or (II) any
entity in which the Executive has an equity interest, or any Affiliate of
such entity) beneficially owns, directly or indirectly, 20% or more (on a
fully diluted basis) of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination,
taking into account as outstanding for this purpose such common stock
issuable upon the exercise of options or warrants, the conversion of
convertible stock or debt, and the exercise of any similar right to acquire
such common stock, or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (Z) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such Business Combination;
or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) The Company or its successor or purchaser shall notify Executive in
writing, no later than 10 days prior to a Change in Control, whether it desires
Executive to remain employed for a maximum of twelve months following the Change
in Control (the "Transition Period"). If Executive is notified that it is not
desired that he remain employed following the Change in Control, or if no such
notice is given or the notice references a Transition Period of more than twelve
months, Executive shall have the right to voluntarily terminate his employment
for the 60-day period following the Change in Control and, subject to Section
7(d) below, such termination shall be deemed to have occurred for Good Reason
for purposes of this Agreement.
(c) If Executive is properly notified that the Company or its successor or
purchaser desires Executive to remain employed for the Transition Period, and if
5
<PAGE>
Executive remains employed for the Transition Period, then Executive shall have
the right to voluntarily terminate his employment for the 60-day period
following the end of the Transition Period and, subject to Section 7(d) below,
such termination shall be deemed to have occurred for Good Reason for purposes
of this Agreement.
(d) If, following a Change in Control, Executive's employment is terminated
by the Company other than for Cause, or Executive terminates his employment for
Good Reason (including for this purpose under circumstances described in Section
7(b) and (c)), (i) the Severance Payment due to Executive pursuant to Section 5
shall be increased by 50% and (ii) such payment shall be made to Executive in a
single lump sum no later than five days following his termination.
8. TERMINATION FOR GOOD REASON
Executive may terminate his employment hereunder for Good Reason at any
time during the Employment Term, in which event Executive shall resign from all
of his positions with the Company. For purposes of this Agreement, "Good Reason"
shall mean the Executive's good faith determination that any of the following
has occurred (without Executive's express prior written consent):
(i) The assignment to executive by the Company of duties inconsistent
with those of a vice president or those of such other equivalent or more
senior position then held by Executive, if any (including status, titles,
offices and lines of reporting), except in connection with the termination
of Executive's employment for Cause (as described in paragraph 9),
disability (as defined in section 9.2(c) below), or as a result of
Executive's death or termination by Executive other than for Good Reason;
(ii) A reduction by the Company in Executive's base salary;
(iii) The taking of any action by the Company which would deprive
Executive of any material fringe benefit enjoyed by Executive at any time
during the Employment Term as set forth in paragraph 6; or
(iv) Any material breach by the Company of any provision of this
Agreement.
6
<PAGE>
9. DISCHARGE FOR CAUSE
9.1 The Company shall have the right to terminate the employment of
Executive during the Employment Term. If the Company terminates the employment
of Executive other than for Cause, the provisions of paragraph 5 hereof shall
apply. If the Company terminates the employment of Executive for Cause, its
obligation under this Agreement to make any further payments to Executive shall
thereupon cease and terminate except for any obligations accrued but which
remain unpaid.
9.2 As used herein, the term "cause" shall be limited to (a) action by
Executive involving willful malfeasance or gross negligence having an adverse
effect on the Company, or (b) failure to act by Executive involving material
malfeasance or gross negligence having an adverse effect on the Company provided
that any action or failure to act by Executive shall not constitute "Cause" if;
in good faith, Executive believed such action or failure to act to be in or not
opposed to the best interests of the Company, or if Executive shall be entitled,
under applicable law or the Certificate of Incorporation or By-Laws of the
Company, to be indemnified with respect to such action or failure to act, (c) in
the event Employer makes a good faith determination that Executive is so
disabled, for mental or physical reasons, that he is unable to satisfactorily
perform his duties hereunder for an aggregate of 180 days during any period of
12 consecutive months, or (d) the death of Executive.
9.3 Termination of Executive for Cause pursuant to this section 9 shall be
communicated by a notice of termination.
10. EXPENSES
The Company shall reimburse Executive for reasonable expenses incurred in
connection with the performance of his duties hereunder upon presentation to it
by Executive from time to time of an itemized account of such expenditures in
accordance with the Company's procedures as in effect from time to time.
11. NONDISCLOSURE; NONCOMPETE; INVENTIONS
11.1 "Confidential Information" Defined. As used in this paragraph 11, the
term "Confidential Information" shall mean any and all information (verbal and
written) relating to the Company or any of its respective subsidiaries or any of
its respective activities, other than such information which can be shown by
Executive to be in the public domain (such information
7
<PAGE>
not being deemed to be in the public domain merely because it is embraced by
more general information which is in the public domain) other than as the result
of a breach of the provisions of section 11.2 below, including, but not limited
to, information relating to: technology; research; test procedures and results;
machinery and equipment; manufacturing processes; financial information;
products; identity and description of raw materials and services used;
purchasing; costs; pricing; engineering; customers and prospects; marketing; and
selling and servicing.
11.2 Nondisclosure of Confidential Information. Executive shall not, at any
time during the term of his employment by the Company (other than as may be
required in connection with the performance by him of his duties hereunder) or
thereafter directly or indirectly, use, communicate, disclose or disseminate any
Confidential Information in any manner whatsoever.
11.3 Noncompete Covenant. Unless Executive has terminated for Good Reason,
Executive shall not, during the period of his employment by the Company and for
a period of 15 months thereafter, directly or indirectly (a) engage in any
business (whether as owner, manager, operator, lender, partner, shareholder,
licensor, licensee, joint venturer, employee, consultant or otherwise) in which
the Company is engaged (or is actively considering engaging) during the term of
Executive's employment by the Company in any geographic area in which the
Company or any of its respective subsidiaries is so engaged or is actively
considering engaging, or (b) take any other action which constitutes an
interference with or a disruption of the activities of the Company or any of its
subsidiaries.
In addition, the Executive acknowledges the Company has equity investments in
certain subsidiaries and affiliates (hereinafter referred to as the
"Subsidiaries"). In the event either of the conditions in (i) or (ii) below are
satisfied, the Executive agrees to be bound by this noncompete covenant, as it
relates to the specific business.
(i) if the revenue across all Subsidiaries and the Company, from a
specific product line, service offering or single customer exceeds 5%
of the
8
<PAGE>
Company's revenue for its most recently completed fiscal year, or
(ii) if the revenue from any individual Subsidiary's specific product line,
service offering or single customer exceeds 15% of that Subsidiary's
total revenue for its most recently completed fiscal year.
Notwithstanding the foregoing, Executive shall be permitted to own (as a passive
investment) not more than 1% of any class of securities which is registered
under the Securities Exchange Act of 1934 as amended; provided, however, that
said 1% limitation shall apply to the aggregate holdings of Executive and those
of all other persons and entities with whom Executive has agreed to act for the
purpose of acquiring, holding, voting or disposing of such securities.
11.4 Certain Activities. For purposes of clarification, but not of
limitation, Executive hereby acknowledges and agrees that the provisions of
section 11.3 above shall serve as a prohibition against him, during the period
referred to therein, directly or indirectly, hiring, offering to hire, enticing
away or in any other manner persuading or attempting to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee, customer, prospective
customer or supplier of the Company or any of its subsidiaries to discontinue or
alter his or its relationship with the Company or any of its subsidiaries;
provided, however, that in the event Executive has terminated for Good Reason,
the 15 months period referred to in section 11.3 shall be reduced to 9 months
for purposes of this section 11.4.
11.5 Inventions. Executive shall assign, transfer, convey and deliver to
the Company, and hereby does assign, transfer and convey to the Company, all
right, title and interest in and to all ideas, concepts, inventions, devices and
improvements which pertain to methods, apparatus, designs, products, processes,
devices or services sold, leased, used under consideration or development by the
Company or any of subsidiaries, or which otherwise relate or pertain to the
business, functions or operations of the Company or any of its subsidiaries,
whether or not patentable or copyrightable (collectively called "Inventions"),
and in and to any
9
<PAGE>
and all patents, copyrights, trademarks and other protection with respect
thereto and applications therefor (including continuations,
continuations-in-part, divisions, reissues, renewals and extensions) for all
countries relating to such Inventions, which Executive, either alone or with
others, may make, conceive or reduce to practice during the term of his
employment by the Company (it being agreed that any Invention disclosed by
Executive within one year following the termination of his employment by the
Company shall be deemed to fall within the provisions of this section 11.5
unless proved by him to have been first conceived, made and reduced to practice
following the termination of his employment by the Company). Executive shall (i)
promptly communicate and disclose to the Company all information, data and
details concerning all Inventions, and (ii) during the term of his employment by
the Company and at any time thereafter, execute all papers and perform all acts,
and cooperate with the Company and its counsel in any other way which, in the
sole view of the Company, is necessary and proper to more fully effectuate the
provisions of this section 11.5. All expenses in connection with the obligations
of Executive under this section 11.5 shall be borne by the Company or its
nominee.
11.6 Records. During the period of his employment by the Company, Executive
shall make and maintain adequate and current written records of all Inventions,
in the form of notes, sketches, drawings and/or reports relating thereto, which
records shall be and shall remain the property of the Company and shall be
available to the Company at all times. Upon the termination of Executive's
employment for any reason whatsoever, all documents, records, notebooks and
other materials which refer or relate to any aspect of the business of the which
are in the possession of Executive, including all copies thereof, shall be
promptly returned to Employer.
11.7 Injunctive Relief. etc. The parties hereto hereby acknowledge and
agree that (i) the Company would be irreparably injured in the event of a breach
by Executive of any of his obligations under this paragraph 11, (ii) monetary
damages would not be an adequate remedy for any such breach, and (iii) the
Company shall be entitled to injunctive relief, in addition to any other remedy
which it may have, in the event of any such breach. It is hereby also agreed
that the existence of any claims which Executive may have against the Company or
its subsidiaries, whether under this Agreement or otherwise, shall not be a
defense to the enforcement by the Company of any of its rights under this
paragraph 11.
10
<PAGE>
11.8 Scope of Restriction. It is the intent of the parties hereto that the
covenants contained in this paragraph 11 shall be enforced to the fullest extent
permissible under the laws and public policies of each jurisdiction in which
enforcement is sought (Executive hereby acknowledging that said restrictions are
reasonably necessary for the protection of the Company). Accordingly, it is
hereby agreed that if any of the provisions of this paragraph 11 shall be
adjudicated to be invalid or unenforceable for any reason whatsoever, said
provision shall be (only with respect to the operation thereof in the particular
jurisdiction in which such adjudication is made) construed by limiting and
reducing it so as to be enforceable to the extent permissible, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of said provision in any other jurisdiction.
11.9 Nonexclusivity. The undertakings of Executive contained in this
paragraph 11 shall be in addition to, and not in lieu of, any obligations which
he may have with respect to the subject matter hereof, whether by contract, as a
matter of law or otherwise.
12. CAPACITY, ETC.
Employee hereby represents and warrants to Employer that: (a) he has full
power, authority and capacity to execute and deliver this Agreement, and to
perform his obligations hereunder, (b) said execution, delivery and performance
will not (and with the giving of notice or lapse of time or both would not)
result in the breach of any agreements or other obligations to
11
<PAGE>
which he is a party or otherwise bound, and (c) this Agreement is his valid and
binding obligation in accordance with its terms.
13. NOTICES
All notices or communications hereunder shall be in writing, addressed as
follows:
To the Company:
20 East Sunrise Highway
Suite 201
Valley Stream, New York 11581
To Executive:
Robert W. Nader
17 Soundview Drive
Huntington, NY 11743
Any such notice or communication shall be sent certified or registered
mail, return receipt requested, postage prepaid, addressed as above (or to such
other address as such party may designate in writing from time to time), and the
actual date of receipt, as shown by the receipt therefor, shall determine the
time at which notice was given.
14. SEPARABILITY, LEGAL FEES
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the remaining provisions hereof which shall remain in full force and
effect. The Company shall pay all legal fees and other fees and expenses which
Executive may incur in entering into this Agreement, if executed (provided the
amount of such legal fees shall not exceed $2,500) or in obtaining, or
attempting to obtain compensation or other benefits under this Agreement.
15. INDEMNIFICATION
The Company shall indemnify and hold harmless the Executive from and
against any and all damage, loss, liability or expense (including reasonable
attorneys' fees which shall be advanced by the Company) arising out of or with
respect to the performance of his duties
12
<PAGE>
hereunder in his capacity as an officer and employee of the Company (or any
subsidiary or affiliate thereof) to the maximum extent permitted by law. The
Executive shall notify the Company of any claim by any third party coming to his
attention which could result in any liability on the Company's part. The Company
shall have the right to conduct the defense against any such claim with counsel
of its selection. The obligations of the Company under this Section 16 shall
continue following the termination of this Agreement and/or the termination of
employment of the Executive with the Company.
16. BINDING EFFECT, ASSIGNMENT
(a) This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the
Company, but neither this Agreement nor any rights hereunder shall be assignable
or otherwise subject to hypothecation by Executive or by the Company. The
Company shall not assign this Agreement to any successor or assign of the
Company without the written consent of Executive.
(b) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
17. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed in accordance
with the laws of the State of New York.
18. ARBITRATION
Any controversy or claim arising out of or relating to this agreement, or
the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in New
York, New York, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
13
<PAGE>
19. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties and shall
supersede any and all previous contracts, arrangements or understandings between
the Company and Executive with respect to the subject matter hereof. The
Agreement may be amended at any time by mutual written agreement of the parties
hereto.
20. HEADINGS
The headings contained herein are for the sole purpose of convenience of
reference, and shall not in any way limit or affect the meaning or
interpretation of any of the terms or provisions of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and Executive has hereunto set his hand effective as of the date set
forth above.
GLOBAL PAYMENT TECHNOLOGIES, INC.
By: /s/ Stephen Katz
---------------------------
Stephen Katz
Chairman of the Board
/s/ Robert W. Nader
---------------------------
Robert W. Nader
14
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective as of October 1,
1998, by and between Global Payment Technologies, Inc., a Delaware corporation,
with executive offices at 20 East Sunrise Highway, Valley Stream, New York 11581
(the "Company"), and Edward Seidenberg, residing at 759 Kearny Drive, North
Woodmere, NY 11581, (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to formalize the employment of the Executive
as a senior executive officer of the Company; and
WHEREAS, the Company and Executive desire to enter into an agreement
relating to such employment;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT
1.1 As of the commencement of the Employment Term (as hereinafter defined),
the Company hereby employs Executive in a senior executive capacity (it being
contemplated that he shall be elected and serve as the President and Chief
Operating Officer upon the terms and conditions herein contained, with
responsibility for the performance of such duties as may be from time to time be
assigned to him by the Board of Directors of the Company (the "Board of
Directors") or its Chief Executive Officer. Executive hereby accepts employment.
The Company shall use its best efforts to cause Executive to be elected and/or
appointed to (a) the Board of Directors, and (b) any executive operating
committee established to oversee and set general strategy for the Company
1.2 The term of employment under this Agreement shall commence on the
effective date of this Agreement, and, subject to the terms hereof, shall
terminate on September 30, 2001; provided, however, that the term of this
Agreement
<PAGE>
shall automatically be extended for additional one (1) year terms beyond the
initial term unless and until either the Company or Executive provides sixty
(60) days prior written notice to the other of its desire to terminate this
Agreement as of the end of the then current term of this Agreement (such term of
employment is referred to hereinafter as the "Employment Term"). For purposes
hereof, the term "year" shall mean October 1 through September 30.
1.3 Throughout the Employment Term, Executive shall devote his best efforts
and all of his business time, attention and skills to the business and affairs
of the Company.
2. SALARY
2.1 During the Employment Term, Executive shall be entitled to receive a
base salary at the rate of $192,500 per year, payable in accordance with the
Company's regular payroll practice for senior executives of the Company;
provided that such base salary shall be reviewed by the Board of Directors no
less than annually and may be increased, but not decreased.
3. ANNUAL BONUSES
For each year during the term of this Agreement, commencing with the first
year, Executive shall be entitled to receive a bonus in an amount to be
determined by the Board of Directors in its sole discretion. Anything contained
herein to the contrary notwithstanding, Executive shall be entitled to receive a
bonus at the end of the first year hereof consistent with those received by
other senior executives of the Company.
4. INCENTIVE STOCK OPTION PLAN
4.1 The Executive shall be entitled to participate in the Company's Stock
Option plan in a manner equal to that of other senior executives.
4.2 The ISO shall be subject to such other terms and conditions as are set
forth in the grant.
5. TERMINATION UNDER CERTAIN CONDITIONS
Subject to section 7(d), in the event that Executive's employment is
terminated by the Company (other than for "Cause" as hereinafter defined) or
Executive
2
<PAGE>
terminates his employment for "Good Reason" (as hereinafter defined) prior to
the end of the Employment Term, Executive shall be entitled to receive in lieu
of any and all other payments a severance payment in an aggregate amount equal
to (1) Executive's yearly base salary in effect on the date of his termination
of employment hereunder plus (2) an amount equal to the higher of (i) the bonus
received pursuant to paragraph 3 for the most recently ended fiscal year or (ii)
the bonus projected by the Board of Directors for the fiscal year in which
termination occurred (subject to the terms and conditions of paragraph 3) and,
in each case, pro rated by a fraction, the numerator of which shall be the
actual number of days elapsed in the current fiscal year and denominator of
which shall be 365 (the "Severance Payment"). The Severance Payment shall be
payable in six equal monthly installments, the first installment to be due and
payable on the first day of the month immediately following such termination. In
addition to the Severance Payment, Executive shall be entitled to receive all
benefits set forth in sections 6.1, 6.2 and 6.3 for the twelve months following
such termination, on terms and conditions no less favorable than those in effect
immediately prior to the Executive's termination.
6. CERTAIN EMPLOYEE BENEFITS
6.1 During the Employment Term, Executive shall be entitled to participate,
to the extent he is eligible under the terms and conditions thereof, in any
benefit plans which the Company may from time to time provide to its senior
executives during the Employment Term. Unless otherwise specifically set forth
herein, the Company shall be under no obligation to institute or thereafter
continue the existence of any such benefit plan.
6.2 Upon presentation of appropriate documentation, the Company shall
reimburse Executive in an amount not to exceed seven thousand ($7,000) dollars
per year for the premiums on any life insurance or individual long term
disability insurance policies for Executive. The foregoing amounts received
shall be in lieu of any other obligations the Company may have with respect to
such insurances other than with respect to similar insurances provided to
employees on a Company-wide basis.
6.3 The Executive shall be entitled to the full time use of an automobile
and shall be reimbursed by the Company for all related insurance expenses in an
amount not to exceed the aggregate of nine thousand six hundred dollars $9,600
per
3
<PAGE>
calendar year, such amount to be pro-rated in any year hereunder if less than a
full calendar year.
6.4 During the Employment Term, Executive shall be entitled to the use of a
private office and secretarial assistance, both appropriate for a senior
executive of the Company.
6.5 The Company currently has directors and officers liability insurance.
The Company covenants that Executive shall be covered under such policy through
the Employment Term, and thereafter with respect to matters occurring during the
Employment Term.
7. CHANGE OF CONTROL
(a) For the purpose of this Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
22.5% or more (on a fully diluted basis) of either (i) the then outstanding
shares of common stock of the Company, taking into account as outstanding
for this purpose such common stock issuable upon the exercise of options or
warrants, the conversion of convertible stock or debt, and the exercise of
any similar right to acquire such common stock (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (W) any acquisition
by the Company or any "affiliate" of the Company, within the meaning of 17
C.F.R. ss. 230.405 (an "Affiliate"), (X) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any Affiliate, (Y) any acquisition by any corporation pursuant to a
transaction which complies with clauses (X), (Y) and (Z) of subsection
(iii) of this Section 7(a), and (Z) any acquisition by any entity in which
the Executive has a direct or
4
<PAGE>
indirect equity interest; or
(ii) Individuals who, as of the effective date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to such
effective date whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board of
Directors; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (X) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, and (Y) no
Person (excluding (I) any employee, benefit plan (or related trust)
sponsored or maintained by the Company or any Affiliate of the Company, or
such corporation
5
<PAGE>
resulting from such Business Combination or any Affiliate of such
corporation, or (II) any entity in which the Executive has an equity
interest, or any Affiliate of such entity) beneficially owns, directly or
indirectly, 20% or more (on a fully diluted basis) of, respectively, the
then outstanding shares of common stock of the corporation resulting from
such Business Combination, taking into account as outstanding for this
purpose such common stock issuable upon the exercise of options or
warrants, the conversion of convertible stock or debt, and the exercise of
any similar right to acquire such common stock, or the combined voting
power of the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business Combination
and (Z) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
of the action of the Board of Directors, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) The Company or its successor or purchaser shall notify Executive in
writing, no later than 10 days prior to a Change in Control, whether it desires
Executive to remain employed for a maximum of five months following the Change
in Control (the "Transition Period"). If Executive is notified that it is not
desired that he remain employed following the Change in Control, or if no such
notice is given or the notice references a Transition Period of more than five
months, Executive shall have the right to voluntarily terminate his employment
for the 60-day period following the Change in Control and, subject to Section
7(d) below, such termination shall be deemed to have occurred for Good Reason
for purposes of this Agreement.
(c) If Executive is properly notified that the Company or its successor or
purchaser desires Executive to remain employed for a Transition Period, and if
Executive remains employed for the Transition Period, then Executive shall have
the right to voluntarily terminate his employment for the 60-day period
following the end of the Transition Period and, subject to Section 7(d) below,
such termination shall be deemed to have occurred for Good Reason for purposes
of this Agreement.
6
<PAGE>
(d) If, following a Change in Control, Executive's employment is terminated
by the Company other than for Cause, or Executive terminates his employment for
Good Reason (including for this purpose under circumstances described in Section
7(b) and (c)), (i) the Severance Payment due to Executive pursuant to Section 5
shall be increased by 50% and (ii) such payment shall be made to Executive in a
single lump sum no later than five days following his termination.
8. TERMINATION FOR GOOD REASON
Executive may terminate his employment hereunder for Good Reason at any
time during the Employment Term, in which event Executive shall resign from all
of his positions with the Company. For purposes of this Agreement, "Good Reason"
shall mean the Executive's good faith determination that any of the following
has occurred (without Executive's express prior written consent):
(i) The assignment to executive by the Company of duties inconsistent
with those of a President or those of such other equivalent or more senior
position then held by Executive, if any (including status, titles, offices
and lines of reporting), except in connection with the termination of
Executive's employment for Cause (as described in paragraph 9), disability
(as defined in section 9.2(c) below), or as a result of Executive's death
or termination by Executive other than for Good Reason;
(ii) A reduction by the Company in Executive's base salary;
(iii) The taking of any action by the Company which would deprive
Executive of any material fringe benefit enjoyed by Executive at any time
during the Employment Term as set forth in paragraph 6;
(iv) Any material breach by the Company of any provision of this
Agreement; or
(v) The relocation of Executive's principal place of employment to a
location which is both (X) at least 50 miles from Executive's then-current
principal place of employment and (Y) at least 50 miles further from
Executive's residence than such residence is from Executive's then-current
principal place of employment.
7
<PAGE>
9. DISCHARGE FOR CAUSE
9.1 The Company shall have the right to terminate the employment of
Executive during the Employment Term. If the Company terminates the employment
of Executive other than for Cause, the provisions of paragraph 5 hereof shall
apply. If the Company terminates the employment of Executive for Cause, its
obligation under this Agreement to make any further payments to Executive shall
thereupon cease and terminate except for any obligations accrued but which
remain unpaid.
9.2 As used herein, the term "cause" shall be limited to (a) action by
Executive involving willful malfeasance or gross negligence having an adverse
effect on the Company, or (b) failure to act by Executive involving material
malfeasance or gross negligence having an adverse effect on the Company provided
that any action or failure to act by Executive shall not constitute "Cause" if,
in good faith, Executive believed such action or failure to act to be in or not
opposed to the best interests of the Company, or if Executive shall be entitled,
under applicable law or the Certificate of Incorporation or By-Laws of the
Company, to be indemnified with respect to such action or failure to act, (c) in
the event Employer makes a good faith determination that Executive is so
disabled, for mental or physical reasons, that he is unable to satisfactorily
perform his duties hereunder for an aggregate of 180 days during any period of
12 consecutive months, or (d) the death of Executive.
9.3 Termination of Executive for Cause pursuant to this section 9 shall be
communicated by a notice of termination.
10. EXPENSES
The Company shall reimburse Executive for reasonable expenses incurred in
connection with the performance of his duties hereunder upon presentation to it
by Executive from time to time of an itemized account of such expenditures in
accordance with the Company's procedures as in effect from time to time.
11. NONDISCLOSURE; NONCOMPETE; INVENTIONS
11 .1 "Confidential Information" Defined. As used in this paragraph 11, the
term "Confidential Information" shall mean any and all information (verbal and
written) relating to the Company or any of its respective subsidiaries or any of
its respective activities, other than such information which can be shown by
Executive
8
<PAGE>
to be in the public domain (such information not being deemed to be in the
public domain merely because it is embraced by more general information which is
in the public domain) other than as the result of a breach of the provisions of
section 11.2 below, including, but not limited to, information relating to:
technology; research; test procedures and results; machinery and equipment;
manufacturing processes; financial information; products; identity and
description of raw materials and services used; purchasing; costs; pricing;
engineering; customers and prospects; marketing; and selling and servicing.
11.2 Nondisclosure of Confidential Information. Executive shall not, at any
time during the term of his employment by the Company (other than as may be
required in connection with the performance by him of his duties hereunder) or
thereafter directly or indirectly, use, communicate, disclose or disseminate any
Confidential Information in any manner whatsoever.
11.3 NONCOMPETE COVENANT
(a) Unless Executive has terminated for Good Reason, Executive shall not,
during the period of his employment by the Company and for a period of 24 months
thereafter, directly or indirectly (a) engage in any business (whether as owner,
manager, operator, lender, partner, shareholder, licensor, licensee, joint
venturer, employee, consultant or otherwise) in which the Company or any of its
then subsidiaries is engaged (or is actively considering engaging) during the
term of Executive's employment by the Company in any geographic area in which
the Company or any of its respective subsidiaries is so engaged or is actively
considering engaging, or (b) take any other action which constitutes an
interference with or a disruption of the activities of the company or any of its
subsidiaries. Notwithstanding the foregoing, Executive shall be permitted to own
(as a passive investment) not more than 1% of any class of securities which is
registered under the Securities Exchange Act of 1934, as amended; provided,
however, that said 1% limitation shall apply to the aggregate holdings of
Executive and those of all other persons and entities with whom Executive has
agreed to act for the purpose of acquiring, holding, voting or disposing of such
securities.
(b) The parties hereto acknowledge that, prior to a
9
<PAGE>
"Change in Control" (as defined in Section 7(a)), the consideration to Executive
for the covenant in Section 11.3(a) is the salary, bonuses and benefits provided
pursuant to this Agreement. Such parties further acknowledge that such
consideration is not sufficient to adequately compensate Executive for such
covenant in the event (i) there occurs a Change in Control and (ii) Executive
either (X) has not been given notice by the Company that it desires Executive to
continue his employment for a Transition Period as described in Section 7(b) or
(Y) Executive has worked for the entire Transition period in accordance with
Section 7(c), and thereafter Executive's employment is terminated by the Company
without Cause, or by Executive with Good Reason (including for this purpose
under circumstances described in Section 7(b) and (c)). In that case, the
Company shall pay executive a single, lump sum payment of $250,000, within five
days following his termination, as additional consideration for the covenant in
Section 11.3(a),
11.4 Certain Activities. For purposes of clarification, but not of
limitation, Executive hereby acknowledges and agrees that the provisions of
section 11.3 above shall serve as a prohibition against him, during the period
referred to therein, directly or indirectly, hiring, offering to hire, enticing
away or in any other manner persuading or attempting to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee, customer, prospective
customer or supplier of the Company or any of its subsidiaries to discontinue or
alter his or its relationship with the Company or any of its subsidiaries;
provided, however, that in the event Executive has terminated for Good Reason,
the 24 months period referred to in section 11.3 shall be reduced to 12 months
for purposes of this section 11.4.
11.5 Inventions. Executive shall assign, transfer, convey and deliver to
the Company, and hereby does assign, transfer and convey to the Company, all
right, title and interest in and to all ideas, concepts, inventions, devices and
improvements which pertain to methods, apparatus, designs, products, processes,
devices or services sold, leased, used under consideration or development by the
Company or any of subsidiaries, or which otherwise relate or pertain to the
business, functions or operations of the Company or any of its subsidiaries,
whether or not patentable or copyrightable (collectively called "Inventions"),
and in and to any and all patents, copyrights, trademarks and other protection
with respect thereto and applications therefor (including
10
<PAGE>
continuations, continuations-in-part, divisions, reissues, renewals and
extensions) for all countries relating to such Inventions, which Executive,
either alone or with others, may make, conceive or reduce to practice during the
term of his employment by the Company (it being agreed that any Invention
disclosed by Executive within one year following the termination of his
employment by the Company shall be deemed to fall within the provisions of this
section 11.5 unless proved by him to have been first conceived, made and reduced
to practice following the termination of his employment by the Company).
Executive shall (i) promptly communicate and disclose to the Company all
information, data and details concerning all Inventions, and (ii) during the
term of his employment by the Company and at any time thereafter, execute all
papers and perform all acts, and cooperate with the Company and its counsel in
any other way which, in the sole view of the Company, is necessary and proper to
more fully effectuate the provisions of this section 11.5. All expenses in
connection with the obligations of Executive under this section 11.5 shall be
borne by the Company or its nominee.
11.6 Records. During the period of his employment by the Company, Executive
shall make and maintain adequate and current written records of all Inventions,
in the form of notes, sketches, drawings and/or reports relating thereto, which
records shall be and shall remain the property of the Company and shall be
available to the Company at all times. Upon the termination of Executive's
employment for any reason whatsoever, all documents, records, notebooks and
other materials which refer or relate to any aspect of the business of the which
are in the possession of Executive, including all copies thereof, shall be
promptly returned to Employer.
11.7 Injunctive Relief, etc. The parties hereto hereby acknowledge and
agree that (i) the Company would be irreparably injured in the event of a breach
by Executive of any of his obligations under this paragraph 11, (ii) monetary
damages would not be an adequate remedy for any such breach, and (iii) the
Company shall be entitled to injunctive relief, in addition to any other remedy
which it may have, in the event of any such breach. It is hereby also agreed
that the existence of any claims which Executive may have against the Company or
its subsidiaries, whether under this Agreement or otherwise, shall not be a
defense to the enforcement by the Company of any of its rights under this
paragraph 11.
11
<PAGE>
11.8 Scope of Restriction. It is the intent of the parties hereto that the
covenants contained in this paragraph 11 shall be enforced to the fullest extent
permissible under the laws and public policies of each jurisdiction in which
enforcement is sought (Executive hereby acknowledging that said restrictions are
reasonably necessary for the protection of the Company). Accordingly, it is
hereby agreed that if any of the provisions of this paragraph 11 shall be
adjudicated to be invalid or unenforceable for any reason whatsoever, said
provision shall be (only with respect to the operation thereof in the particular
jurisdiction in which such adjudication is made) construed by limiting and
reducing it so as to be enforceable to the extent permissible, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of said provision in any other jurisdiction.
11.9 Nonexclusivity. The undertakings of Executive contained in this
paragraph 11 shall be in addition to, and not in lieu of, any obligations which
he may have with respect to the subject matter hereof, whether by contract, as a
matter of law or otherwise.
12. CAPACITY, ETC.
Employee hereby represents and warrants to Employer that: (a) he has full
power, authority and capacity to execute and deliver this Agreement, and to
perform his obligations hereunder, (b) said execution, delivery and performance
will not (and with the giving of notice or lapse of time or both would not)
result in the breach of any agreements or other obligations to which he is a
party or otherwise bound, and (c) this Agreement is his valid and binding
obligation in accordance with its terms.
13. NO OBLIGATION TO MITIGATE DAMAGES
Executive shall not be required to mitigate damages or the amount of any
payment specifically provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by Executive as the result
of employment by another employer after the termination of his employment
hereunder or otherwise.
14. NOTICES
All notices or communications hereunder shall be in writing,
12
<PAGE>
addressed as follows:
To the Company:
20 East Sunrise Highway
Suite 201
Valley Stream, New York 11581
To Executive:
759 Kearny Drive
North Woodmere, NY 11581
Any such notice or communication shall be sent certified or registered
mail, return receipt requested, postage prepaid, addressed as above (or to such
other address as such party may designate in writing from time to time), and the
actual date of receipt, as shown by the receipt therefor, shall determine the
time at which notice was given.
15. SEPARABILITY, LEGAL FEES
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the remaining provisions hereof which shall remain in full force and
effect. The Company shall pay all legal fees and other fees and expenses which
Executive may incur in entering into this Agreement, if executed (provided the
amount of such legal fees shall not exceed $2,500) or in obtaining, or
attempting to obtain compensation or other benefits under this Agreement.
16. INDEMNIFICATION
The Company shall indemnify and hold harmless the Executive from and
against any and all damage, loss, liability or expense (including reasonable
attorneys' fees which shall be advanced by the Company) arising out of or with
respect to the performance of his duties hereunder in his capacity as an officer
and employee of the Company (or any subsidiary or affiliate thereof) to the
maximum extent permitted by law. The Executive shall notify the Company of any
claim by any third party coming to his attention which could result in any
liability on the Company's part. The Company shall have the right to conduct the
defense against any such claim with counsel of its selection. The obligations of
the Company under this Section 16 shall continue following the
13
<PAGE>
termination of this Agreement and/or the termination of employment of the
Executive with the Company.
17. BINDING EFFECT, ASSIGNMENT
(a) This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the
Company, but neither this Agreement nor any rights hereunder shall be assignable
or otherwise subject to hypothecation by Executive or by the Company. The
Company shall not assign this Agreement to any successor or assign of the
Company without the written consent of Executive.
(b) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
18. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed in accordance
with the laws of the State of New York.
19. ARBITRATION
Any controversy or claim arising out of or relating to this agreement, or
the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in New
York, New York, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
20. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties and shall
supersede any and all previous contracts, arrangements or understandings between
the Company and Executive with respect to the subject matter hereof. The
Agreement may be amended at any time by mutual written agreement of the parties
hereto
14
<PAGE>
21. HEADINGS
The headings contained herein are for the sole purpose of convenience of
reference, and shall not in any way limit or affect the meaning or
interpretation of any of the terms or provisions of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and Executive has hereunto set his hand effective as of the date set
forth above.
GLOBAL PAYMENT TECHNOLOGIES, INC.
By: /s/ Stephen Katz
-----------------------------
Stephen Katz
Chairman of the Board
/s/ Edward Seidenberg
-----------------------------
Edward Seidenberg
15
PROMISSORY NOTE
$5,000,000.00 Melville, New York
February 20, 1998
FOR VALUE RECEIVED, GLOBAL PAYMENT TECHNOLOGIES, INC. (the "Borrower"),
HEREBY PROMISES TO PAY to the order of THE CHASE MANHATTAN BANK (the "Bank"), at
its offices located at 395 North Service Road, Melville, NY 11747, or at such
other place as the Bank or any holder hereof may from time to time designate,
the principal sum of FIVE MILLION DOLLARS ($5,000,000.00), or such lesser amount
as may constitute the outstanding balance hereof, in lawful money of the United
States, on the earlier of (i) March 31, 1999 ("Termination Date") or (ii) the
date set forth in Grid Schedule hereto as the maturity date for each Loan (as
hereinafter defined) made hereunder ("Maturity Date"), (or earlier as
hereinafter referred to), and to pay interest in like money at such office or
place from the date hereof on the unpaid principal balance of each Loan (as
hereinafter defined) made hereunder at a rate equal to the Applicable Interest
Rate (as hereinafter defined) for such Loan, which shall be payable on the last
day of the Interest Period relating to such Loan and, if such Interest Period is
greater than three (3) months, at three (3) month intervals after such Loan is
made, until such Loan shall be due and payable (whether at maturity, by
acceleration or otherwise) and thereafter, on demand. Interest after maturity
shall be payable at a rate two percent (2%) per annum above the Bank's Prime
Rate which rate shall be computed for actual number of days elapsed on the basis
of a 360-day year and shall be adjusted as of the date of each such change, but
in no event higher than the maximum permitted under applicable law. "Prime Rate"
shall mean the rate of interest as is publicly announced at the Bank's principal
office from time to time as its Prime Rate.
Interest/Grid Schedule
The Bank is authorized to enter on the Grid Schedule attached hereto (i)
the amount of each Loan made from time to time hereunder, (ii) the date on which
each Loan is made, (iii) the date on which each Loan shall be due and payable to
the Bank which in no event shall be later than the Termination Date, (iv) the
interest rate agreed between the Borrower and the Bank as the interest rate to
be paid to the Bank on each Loan (each such rate, the "Applicable Interest
Rate"), which rate, at the Borrower's option in accordance herewith, shall be at
(a) the Prime Rate (the "Prime Rate Loan(s)"), or (b) the Adjusted Eurodollar
Rate (as hereafter defined) plus 1.75% (the "Eurodollar Loan"), (v) the amount
of each payment made hereunder, and (vi) the outstanding principal balance of
the Loans hereunder from time to time, all of which entries, in the absence of
manifest error, shall be rebuttably presumed correct and binding on the
Borrower; provided however, that the failure of the Bank to make any such
entries shall not relieve the Borrower from its obligation to pay any amount due
hereunder.
Prepayment
The Borrower shall not have the right to prepay any Loan, other than Loans
based on the Prime Rate, prior to the Maturity Date of such Loan. In the event
the Borrower does prepay a Eurodollar Loan prior to the Maturity Date, the
Borrower shall reimburse the Bank on demand for any loss incurred or to be
incurred by it in the reemployment of the funds released by any prepayment.
<PAGE>
Discretionary Loans by the Bank
The Bank may lend, in its sole discretion in each instance, such amounts
(each a "Loan" and collectively the "Loans") as may be requested by the Borrower
hereunder, which Loans shall in no event exceed $5,000,000.00 in aggregate
principal amount outstanding at any time. Any Eurodollar Loan shall be in a
minimum principal amount of $500,000 and in increments of $100,000. Each such
request for a Loan shall be made by any officer of the Borrower or any person
designated in writing by any such officer, all of which are hereby designated
and authorized by the Borrower to request Loans and agree to the terms thereof
(including without limitation the Applicable Interest Rate and Maturity Date
with respect thereto). The Borrower shall give the Bank notice at least three
(3) Business Days prior to the date hereof and the end of each Interest Period
(as hereafter defined) specifying whether the Loan shall bear interest at the
Prime Rate or the Eurodollar Rate and the Interest Period applicable thereto. In
the event the Borrower shall fail to provide such notice, the Loan shall be
deemed to bear interest at the applicable Prime Rate and shall have an Interest
Period of one month. The principal amount of each Loan shall be prepaid on the
earlier to occur of the Maturity Date applicable thereto, or the date upon which
the entire unpaid balance hereof shall otherwise become due and payable.
Increased Cost
If at any time after the date hereof, the Board of Governors of the Federal
Reserve System or any political subdivision of the United States of America or
any other government, governmental agency or central bank shall impose or modify
any reserve or capital requirement on or in respect of loans made by or deposits
with the Bank or shall impose on the Bank or the Eurodollar market any other
conditions affecting Eurodollar Loans, and the result of the foregoing is to
increase the cost to (or, in the case of Regulation D, to impose a cost on) the
Bank of making or maintaining any Eurodollar Loans or to reduce the amount of
any sum receivable by the Bank in respect thereof, by an amount deemed by the
Bank to be material, then, within 30 days after notice and demand by the Bank,
the Borrower shall pay to the Bank such additional amounts as will compensate
the Bank for such increased cost or reduction; provided, that the Borrower shall
not be obligated to compensate the Bank for any increased cost resulting from
the application of Regulation D as required by the definition of Adjusted
Eurodollar Rate. Any such obligation by the Borrower to the Bank shall not be
due and owing until the Bank has delivered written notice to the Borrower.
Failure by the Bank to provide such notice shall not be deemed a waiver of any
of its rights hereunder. A certificate of the Bank claiming compensation
hereunder and setting forth the additional amounts to be paid to it hereunder
and the method by which such amounts were calculated shall be conclusive in the
absence of manifest error.
Capital Adequacy
If the Bank shall have determined that the applicability of any law, rule,
regulation or guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and Supervisory Practices
entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or any
lending office of the Bank) or the Bank's holding company with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of
-2-
<PAGE>
reducing the rate of return on the Bank's capital or on the capital of the
Bank's holding company, if any, as a consequence of its obligations hereunder to
a level below that which the Bank or the Bank's holding company could have
achieved but for such adoption, change or compliance (taking into consideration
the Bank's policies and the policies of such Bank's holding company with respect
to capital adequacy) by an amount deemed by the Bank to be material, then from
time to time the Borrower shall pay to the Bank such additional amount or
amounts as will compensate the Bank or the Bank's holding company for any such
reduction suffered.
Indemnity
The Borrower shall indemnify the Bank against any loss or expense which the
Bank may sustain or incur as a consequence of the occurrence of any Event of
Default or any loss or reasonable expense sustained or incurred in liquidating
or employing deposits from third parties acquired to effect or maintain any
Eurodollar Loan or any part thereof which the Bank may sustain or incur as a
consequence of any default in payment of the principal amount of the Loan or any
part thereof or interest accrued thereon. The Bank shall provide to the Borrower
a statement, supported where applicable by documentary evidence, explaining the
amount of any such loss or expense, which statement shall be conclusive absent
manifest error.
Change In Legality
(a) Notwithstanding anything to the contrary contained elsewhere in this
Note, if any change after the date hereof in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful (based on the opinion of any
counsel, whether in-house, special or general, for the Bank) for the Bank to
make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower by the Bank, the Bank may require that all outstanding
Eurodollar Loans made hereunder be converted to Prime Loans, whereupon all such
Eurodollar Loans shall be automatically converted to Prime Loans as of the
effective date of such notice as provided in paragraph (b) below.
(b) For purposes of this Section, a notice to the Borrower by the Bank
pursuant to paragraph (a) above shall be effective, if lawful and if any
Eurodollar Loans shall then be outstanding, on the last day of the then current
Interest Period; otherwise, such notice shall be effective on the date of
receipt by the Borrower.
Events of Default
If the Borrower shall default in the punctual payment of any sum payable
with respect to, or in the observance or performance of any of the terms and
conditions of, this Note, or any other agreement with or in favor of the Bank,
or if a default or event of default that is accelerated shall occur for any
reason under any such agreement, or in the event of default in any other
indebtedness of the Borrower, or if the Bank shall, in its sole discretion,
consider any of the obligations of the Borrower hereunder insecure, or if any
warranty, representation or statement of fact made in writing to the Bank at any
time by an officer, agent or employee of the Borrower is false or misleading in
any material respect when made, or if the Borrower shall be dissolved or shall
fail to maintain its existence in good standing, or if the usual business of the
Borrower shall be suspended or terminated, or if any levy, execution, seizure,
attachment or
-3-
<PAGE>
garnishment shall be issued, made or filed on or against any material portion of
the property of the Borrower, or if the Borrower shall become insolvent (however
defined or evidenced), make an assignment for the benefit of creditors or make
or send a notice of intended bulk transfer, or if a committee of creditors is
appointed for, or any petition or proceeding for any relief under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute now or hereafter in
affect (whether at law or in equity) is filed or commenced by or against the
Borrower or any material portion of its property, or if any trustee or receiver
is appointed for the Borrower or any such property - then and in any such event,
in addition to all rights and remedies of the Bank under applicable law and
otherwise, all such rights and remedies cumulative, not exclusive and
enforceable alternatively, successively and concurrently, the Bank may, at its
option, declare any and all of the amounts owing under this Note to be due and
payable, whereupon the maturity of the then unpaid balance hereof shall be
accelerated and the same, together with all interest accrued hereon, shall
forthwith become due and payable.
Definitions
A. Adjusted Eurodollar Rate
"Adjusted Eurodollar Rate" shall mean, with respect to any Eurodollar
Loan for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/8 of 1%) equal to the product of
(i) the Eurodollar Rate in effect for such Interest Period and (ii)
Statutory Reserves.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for
any Interest Period, the rate (rounded upwards, if necessary, to the
next 1/8 of 1% at which dollar deposits approximately equal in
principal amount to the Bank's Eurodollar Loan and for the maturity
equal to the applicable Interest Period are offered by the Bank in
immediately available funds in an Interbank Market for Eurodollars at
approximately 11:00 a.m., New York City time, two Business Days prior
to the commencement of such Interest Period.
B. Business Day
A Business Day shall mean any day other than a Saturday, Sunday or
other day on which the Bank is authorized or required by law or
regulation to close, and which is a day on which transactions in
dollar deposits are being carried out in London, England for
Eurodollar Loans and New York City for Prime Loans.
C. Interest Period
(i) For Eurodollar Loans, Interest Period shall mean the period
commencing on the date of such Loan and ending 1, 2, 3 or 6 months (as
selected by the Borrower and recorded on the grid attached hereto)
after the date of such Loan.
(ii) For Prime Loans, Interest Period shall mean the period agreed to
by the parties hereto, however, the Interest Period shall not extend
past the Termination Date.
-4-
<PAGE>
If any Interest Period would end on a day which shall not be a
Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, with respect to Eurodollar Loans, such
next succeeding Business Day would fall in the next calendar month, in
which case (x) such Interest Period shall end on the first preceding
Business Day and (y) the Interest Period for any continuation of such
Eurodollar Loan shall end on the last Business Day of a calendar
month. Furthermore, no Interest Period may extend beyond the
Termination Date.
D. Statutory Reserves
Statutory Reserves shall mean a fraction (expressed as a decimal, the
numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special emergency or
supplemental reserves) expressed as a decimal established by the Board
of Governors of the Federal Reserve System and any other banking
authority to which the Bank is subject, (a) with respect to the
Adjusted Certificate of Deposit Rate, for new negotiable time deposits
in dollars of over $100,000 with maturities approximately equal to the
applicable Interest Period, and (b) with respect to the Adjusted
Eurodollar Rate, for Eurocurrency Liabilities as defined in Regulation
D. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to the Bank under
such Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve
percentage.
Set-off
The Borrower hereby gives to the Bank a lien on, security interest in and
right of set-off against all moneys, securities and other property of the
Borrower and the proceeds thereof, now or hereafter delivered to, remaining with
or in transit in any manner to the Bank, its correspondents, affiliates
(including Chase Securities Inc.) or its agents from or for the Borrower,
whether for safekeeping, custody, pledge, transmission, collection or otherwise
or coming into possession, control or custody of the Bank in any way, and also,
any balance of any deposit accounts and credits of the Borrower with, and any
and all claims of the Borrower against the Bank at any time existing, as
collateral security for the payment of this Note and of all other liabilities
and obligations now or hereafter owed by the Borrower to the Bank, contracted
with or acquired by the Bank, whether joint, several, absolute, contingent,
secured, unsecured, matured or unmatured (all of which are hereafter
collectively called "Liabilities"), hereby authorizing the Bank at any time or
times, without prior notice, to apply such balances, credits or claims, or any
part thereof, to such Liabilities in such amounts as it may select, whether
contingent, unmatured or otherwise and whether any collateral security therefor
is deemed adequate or not. The collateral security described herein shall be in
addition to any collateral security described in any separate agreement executed
by the Borrower in favor of the Bank.
-5-
<PAGE>
Miscellaneous
The Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the party to be charged and consented to in
writing by the party hereof.
In the event the Bank or any holder hereof shall refer this Note to an
attorney for collection, the Borrower agrees to pay, in addition to unpaid
principal and interest, all the reasonable costs and expenses incurred in
attempting or effecting collection hereunder, including reasonable attorney's
fees of internal or external counsel, whether or not suit is instituted.
The Bank reserves the right to assign or sell participations in the Loans
or the Note, including, without limitation, to any Federal Reserve Bank, in
accordance with applicable law and the Borrower's consent thereto is hereby
deemed granted. In connection with such sale or participation the Bank may
provide any assignee or participant or prospective assignee or participant with
information of the Borrower previously received by the Bank, subject to
confidentiality requirements.
In the event of any litigation with respect to this Note, THE BORROWER
WAIVES THE RIGHT TO A TRIAL BY JURY and all rights of setoff and rights to
interpose counter-claims and cross-claims. The Borrower hereby irrevocably
consents to the jurisdiction of the courts of the State of New York and of any
Federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note. The execution and delivery of this Note
has been authorized by the Board of Directors and by any necessary vote or
consent of the stockholders of the Borrower. The Borrower hereby authorizes the
Bank to complete this Note in any particulars according to the terms of the loan
evidenced hereby. This Note shall be governed by and construed in accordance
with the laws of the State of New York applicable to contract made and to be
performed in such State, and shall be binding upon the successors and assigns of
the Borrower and inure to the benefit of the Bank, its successors, endorsees and
assigns.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable the validity of all other terms and provisions hereof shall in no
way be affected thereby.
GLOBAL PAYMENT TECHNOLOGIES, INC.
By: /s/ THOMAS MCNEILL
---------------------------
Name: Thomas McNeill
Title: VP-CFO
By: /s/ EDWARD SEIDENBERG, VP
---------------------------
Name: Edward Seidenberg
Title: VP & COO
-6-
<PAGE>
GRID SCHEDULE
APPLICABLE APPLICABLE AMOUNT OF
INTEREST INTEREST PRINCIPAL MATURITY
DATE RATE PERIOD REPAID DATE
- ---- ---- ------ ------ ----
-7-
The Chase Manhattan Bank Carolyn B. Lattanzi
395 North Service Road, Suite 302 Vice President
Melville, NY 11747 Nassau Middle Market
Tel 516-755-5163
Fax 516-755-0152
September 9, 1998
Mr. Edward Seidenberg
President & Chief Operating Officer
Global Payment Technologies, Inc.
20 East Sunrise Highway, Suite 201
Valley Stream, NY 11581-1252
Dear Ed,
We are pleased to advise you that based upon your annual financial statements
for the fiscal year ending September 30, 1997, The Chase Manhattan Bank (the
"Bank") has approved your request for an unsecured line of credit for Global
Payment Technologies, Inc. in the amount of $5,000,000 and an unsecured line of
credit in the amount of $3,500,000. Our officers may, at their discretion, make
short-term loans to Global Payment Technologies, Inc. on such terms as are
mutually agreed upon between us from time to time.
Borrowings under the $5,000,000 line of credit are intended to be used to meet
your normal short-term working capital needs and borrowings under the $3,500,000
line of credit are intended to be used to repurchase up to 500,000 shares of
Global Payment Technologies, Inc. common stock. Borrowings under both lines of
credit will bear interest at our prime rate or Libor + 175bp. Each line of
credit has an associated administration fee of $2,500, payable in advance. The
administration fee for the $5,000,000 line of credit was paid in March, 1998.
It is a condition that all outstandings under the line be repaid for a
consecutive 30 day period within the year preceding 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. These lines of credit expire on March 31, 1999. This
letter supersedes and replaces our prior line letter to you dated June 17, 1998.
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/ Carolyn B. Lattanzi
<PAGE>
PROMISSORY NOTE
$ 3,500,000.00 Melville, New York
September 9, 1998
FOR VALUE RECEIVED, GLOBAL PAYMENT TECHNOLOGIES, INC. (the "Borrower"),
HEREBY PROMISES TO PAY to the order of THE CHASE MANHATTAN BANK (the "Bank"), at
its offices located at 395 North Service Road, Melville, NY 11747, or at such
other place as the Bank or any holder hereof may from time to time designate,
the principal sum of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS
($3,500,000.00), or such lesser amount as may constitute the outstanding balance
hereof, in lawful money of the United States, on the earlier of (i) March 31,
1999 ("Termination Date") or (ii) the date set forth in Grid Schedule hereto as
the maturity date for each Loan (as hereinafter defined) made hereunder
("Maturity Date"), (or earlier as hereinafter referred to), and to pay interest
in like money at such office or place from the date hereof on the unpaid
principal balance of each Loan (as hereinafter defined) made hereunder at a rate
equal to the Applicable Interest Rate (as hereinafter defined) for such Loan,
which shall be payable on the last day of the Interest Period relating to such
Loan and, if such Interest Period is greater than three (3) months, at three (3)
month intervals after such Loan is made, until such Loan shall be due and
payable (whether at maturity, by acceleration or otherwise) and thereafter, on
demand. Interest after maturity shall be payable at a rate two percent (2%) per
annum above the Banks Prime Rate which rate shall be computed for actual number
of days elapsed on the basis of a 360-day year and shall be adjusted as of the
date of each such change, but in no event higher than the maximum permitted
under applicable law. "Prime Rate" shall mean the rate of interest as is
publicly announced at the Bank's principal office from time to time as its Prime
Rate.
Interest/Grid Schedule
The Bank is authorized to enter on the Grid Schedule attached hereto (i)
the amount of each Loan made from time to time hereunder, (ii) the date on which
each Loan is made, (iii) the date on which each Loan shall be due and payable to
the Bank which in no event shall be later than the Termination Date, (iv) the
interest rate agreed between the Borrower and the Bank as the interest rate to
be paid to the Bank on each Loan (each such rate, the "Applicable Interest
Rate"), which rate, at the Borrower's option in accordance herewith, shall be at
(a) the Prime Rate (the "Prime Rate Loan(s)"), or (b) the Adjusted Eurodollar
Rate (as hereafter defined) plus 1.75% (the "Eurodollar Loan"), (v) the amount
of each payment made hereunder, and (vi) the outstanding principal balance of
the Loans hereunder from time to time, all of which entries, in the absence of
manifest error, shall be rebuttably presumed correct and binding on the
Borrower; provided, however, that the failure of the Bank to make any such
entries shall not relieve the Borrower from its obligation to pay any amount due
hereunder.
Prepayment
The Borrower shall not have the right to prepay any Loan, other than Loans
based on the Prime Rate, prior to the Maturity Date of such Loan. In the event
the Borrower does prepay a Eurodollar Loan prior to the Maturity Date, the
Borrower shall reimburse the Bank on demand for any loss incurred or to be
incurred by it in the reemployment of the funds released by any prepayment.
<PAGE>
Discretionary Loans by the Bank
The Bank may lend, in its sole discretion in each instance, such amounts
(each a "Loan" and collectively the "Loans") as may be requested by the Borrower
hereunder, which Loans shall in no event exceed $3,500,000.00 in aggregate
principal amount outstanding at any time. Any Eurodollar Loan shall be in a
minimum principal amount of $500,000 and in increments of $100,000. Each such
request for a Loan shall be made by any officer of the Borrower or any person
designated in writing by any such officer, all of which are hereby designated
and authorized by the Borrower to request Loans and agree to the terms thereof
(including without limitation the Applicable Interest Rate and Maturity Date
with respect thereto). The Borrower shall give the Bank notice at least three
(3) Business Days prior to the date hereof and the end of each Interest Period
(as hereafter defined) specifying whether the Loan shall bear interest at the
Prime Rate or the Eurodollar Rate and the Interest Period applicable thereto. In
the event the Borrower shall fail to provide such notice, the Loan shall be
deemed to bear interest at the applicable Prime Rate and shall have an Interest
Period of one month. The principal amount of each Loan shall be prepaid on the
earlier to occur of the Maturity Date applicable thereto, or the date upon which
the entire unpaid balance hereof shall otherwise become due and payable.
Increased Cost
If at any time after the date hereof, the Board of Governors of the Federal
Reserve System or any political subdivision of the United States of America or
any other government, governmental agency or central bank shall impose or modify
any reserve or capital requirement on or in respect of loans made by or deposits
with the Bank or shall impose on the Bank or the Eurodollar market any other
conditions affecting Eurodollar Loans, and the result of the foregoing is to
increase the cost to (or, in the case of Regulation D, to impose a cost on) the
Bank of making or maintaining any Eurodollar Loans or to reduce the amount of
any sum receivable by the Bank in respect thereof, by an amount deemed by the
Bank to be material, then, within 30 days after notice and demand by the Bank,
the Borrower shall pay to the Bank such additional amounts as will compensate
the Bank for such increased cost or reduction; provided, that the Borrower shall
not be obligated to compensate the Bank for any increased cost resulting from
the application of Regulation D as required by the definition of Adjusted
Eurodollar Rate. Any such obligation by the Borrower to the Bank shall not be
due and owing until the Bank has delivered written notice to the Borrower.
Failure by the Bank to provide such notice shall not be deemed a waiver of any
of its rights hereunder. A certificate of the Bank claiming compensation
hereunder and setting forth the additional amounts to be paid to it hereunder
and the method by which such amounts were calculated shall be conclusive in the
absence of manifest error.
Capital Adequacy
If the Bank shall have determined that the applicability of any law, rule,
regulation or guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and Supervisory Practices
entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or any
lending office of the Bank) or the Bank's holding company with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of
-2-
<PAGE>
reducing the rate of return on the Bank's capital or on the capital of the
Bank's holding company, if any, as a consequence of its obligations hereunder to
a level below that which the Bank or the Bank's holding company could have
achieved but for such adoption, change or compliance (taking into consideration
the Bank's policies and the policies of such Bank's holding company with respect
to capital adequacy) by an amount deemed by the Bank to be material, then from
time to time the Borrower shall pay to the Bank such additional amount or
amounts as will compensate the Bank or the Bank's holding company for any such
reduction suffered.
Indemnity
The Borrower shall indemnify the Bank against any loss or expense which the
Bank may sustain or incur as a consequence of the occurrence of any Event of
Default or any loss or reasonable expense sustained or incurred in liquidating
or employing deposits from third parties acquired to effect or maintain any
Eurodollar Loan or any part thereof which the Bank may sustain or incur as a
consequence of any default in payment of the principal amount of the Loan or any
part thereof or interest accrued thereon. The Bank shall provide to the Borrower
a statement, supported where applicable by documentary evidence, explaining the
amount of any such loss or expense, which statement shall be conclusive absent
manifest error.
Change In Legality
(a) Notwithstanding anything to the contrary contained elsewhere in this
Note, if any change after the date hereof in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful (based on the opinion of any
counsel, whether in-house, special or general, for the Bank) for the Bank to
make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower by the Bank, the Bank may require that all outstanding
Eurodollar Loans made hereunder be converted to Prime Loans, whereupon all such
Eurodollar Loans shall be automatically converted to Prime Loans as of the
effective date of such notice as provided in paragraph (b) below.
(b) For purposes of this Section, a notice to the Borrower by the Bank
pursuant to paragraph (a) above shall be effective, if lawful and if any
Eurodollar Loans shall then be outstanding, on the last day of the then current
Interest Period; otherwise, such notice shall be effective on the date of
receipt by the Borrower.
Events of Default
If the Borrower shall default in the punctual payment of any sum payable
with respect to, or in the observance or performance of any of the terms and
conditions of, this Note, or any other agreement with or in favor of the Bank,
or if a default or event of default that is accelerated shall occur for any
reason under any such agreement, or in the event of default in any other
indebtedness of the Borrower, or if the Bank shall, in its sole discretion,
consider any of the obligations of the Borrower hereunder insecure, or if any
warranty, representation or statement of fact made in writing to the Bank at any
time by an officer, agent or employee of the Borrower is false or misleading in
any material respect when made, or if the Borrower shall be dissolved or shall
fail to maintain its existence in good standing, or if the usual business of the
Borrower shall be suspended or terminated, or if any levy, execution, seizure,
attachment or
-3-
<PAGE>
garnishment shall be issued, made or filed on or against any material portion of
the property of the Borrower, or if the Borrower shall become insolvent (however
defined or evidenced), make an assignment for the benefit of creditors or make
or send a notice of intended bulk transfer, or if a committee of creditors is
appointed for, or any petition or proceeding for any relief under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute now or hereafter in
affect (whether at law or in equity) is filed or commenced by or against the
Borrower or any material portion of its property, or if any trustee or receiver
is appointed for the Borrower or any such property - then and in any such event,
in addition to all rights and remedies of the Bank under applicable law and
otherwise, all such rights and remedies cumulative, not exclusive and
enforceable alternatively, successively and concurrently, the Bank may, at its
option, declare any and all of the amounts owing under this Note to be due and
payable, whereupon the maturity of the then unpaid balance hereof shall be
accelerated and the same, together with all interest accrued hereon, shall
forthwith become due and payable.
Definitions
A. Adjusted Eurodollar Rate
"Adjusted Eurodollar Rate" shall mean, with respect to any Eurodollar
Loan for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/8 of 1%) equal to the product of
(i) the Eurodollar Rate in effect for such Interest Period and (ii)
Statutory Reserves.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for
any Interest Period, the rate (rounded upwards, if necessary, to the
next 1/8 of 1% at which dollar deposits approximately equal in
principal amount to the Bank's Eurodollar Loan and for the maturity
equal to the applicable Interest Period are offered by the Bank in
immediately available funds in an Interbank Market for Eurodollars at
approximately - 11:00 a.m., New York City time, two Business Days
prior to the commencement of such Interest Period.
B. Business Day
A Business Day shall mean any day other than a Saturday, Sunday or
other day on which the Bank is authorized or required by law or
regulation to close, and which is a day on which transactions in
dollar deposits are being carried out in London, England for
Eurodollar Loans and New York City for Prime Loans.
C. Interest Period
(i) For Eurodollar Loans, Interest Period shall mean the period
commencing on the date of such Loan and ending 1, 2, 3 or 6 months (as
selected by the Borrower and recorded on the grid attached hereto)
after the date of such Loan.
(ii) For Prime Loans, Interest Period shall mean the period agreed to
by the parties hereto, however, the Interest Period shall not extend
past the Termination Date.
-4-
<PAGE>
If any Interest Period would end on a day which shall not be a
Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, with respect to Eurodollar Loans, such
next succeeding Business Day would fall in the next calendar month, in
which case (x) such Interest Period shall end on the first preceding
Business Day and (y) the Interest Period for any continuation of such
Eurodollar Loan shall end on the last Business Day of a calendar
month. Furthermore, no Interest Period may extend beyond the
Termination Date.
D. Statutory Reserves
Statutory Reserves shall mean a fraction (expressed as a decimal, the
numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special emergency or
supplemental reserves) expressed as a decimal established by the Board
of Governors of the Federal Reserve System and any other banking
authority to which the Bank is subject, (a) with respect to the
Adjusted Certificate of Deposit Rate, for new negotiable time deposits
in dollars of over $100,000 with maturities approximately equal to the
applicable Interest Period, and (b) with respect to the Adjusted
Eurodollar Rate, for Eurocurrency Liabilities as defined in Regulation
D. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to the Bank under
such Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve
percentage.
Set-Off
The Borrower hereby gives to the Bank a lien on, security interest in and
right of set-off against all moneys, securities and other property of the
Borrower and the proceeds thereof, now or hereafter delivered to, remaining with
or in transit in any manner to the Bank, its correspondents, affiliates
(including Chase Securities Inc.) or its agents from or for the Borrower,
whether for safekeeping, custody, pledge, transmission, collection or otherwise
or coming into possession, control or custody of the Bank in any way, and also,
any balance of any deposit accounts and credits of the Borrower with, and any
and all claims of the Borrower against the Bank at any time existing, as
collateral security for the payment of this Note and of all other liabilities
and obligations now or hereafter owed by the Borrower to the Bank, contracted
with or acquired by the Bank, whether joint, several, absolute, contingent,
secured, unsecured, matured or unmatured (all of which are hereafter
collectively called "Liabilities"), hereby authorizing the Bank at any time or
times, without prior notice, to apply such balances, credits or claims, or any
part thereof, to such Liabilities in such amounts as it may select, whether
contingent, unmatured or otherwise and whether any collateral security therefor
is deemed adequate or not. The collateral security described herein shall be in
addition to any collateral security described in any separate agreement executed
by the Borrower in favor of the Bank.
-5-
<PAGE>
Miscellaneous
The Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the party to be charged and consented to in
writing by the party hereof.
In the event the Bank or any holder hereof shall refer this Note to an
attorney for collection, the Borrower agrees to pay, in addition to unpaid
principal and interest, all the reasonable costs and expenses incurred in
attempting or effecting collection hereunder, including reasonable attorney's
fees of internal or external counsel, whether or not suit is instituted.
The Bank reserves the right to assign or sell participations in the Loans
or the Note, including, without limitation, to any Federal Reserve Bank, in
accordance with applicable law and the Borrower's consent thereto is hereby
deemed granted. In connection with such sale or participation the Bank may
provide any assignee or participant or prospective assignee or participant with
information of the Borrower previously received by the Bank, subject to
confidentiality requirements.
In the event of any litigation with respect to this Note, THE BORROWER
WAIVES THE RIGHT TO A TRIAL BY JURY and all rights of setoff and rights to
interpose counter-claims and cross-claims. The Borrower hereby irrevocably
consents to the jurisdiction of the courts of the State of New York and of any
Federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note. The execution and delivery of this Note
has been authorized by the Board of Directors and by any necessary vote or
consent of the stockholders of the Borrower. The Borrower hereby authorizes the
Bank to complete this Note in any particulars according to the terms of the loan
evidenced hereby. This Note shall be governed by and construed in accordance
with the laws of the State of New York applicable to contract made and to be
performed in such State, and shall be binding upon the successors and assigns of
the Borrower and inure to the benefit of the Bank, its successors, endorsees and
assigns.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable the validity of all other terms and provisions hereof shall in no
way be affected thereby.
GLOBAL PAYMENT TECHNOLOGIES. INC.
By: /s/ Edward Seidenberg
--------------------------------------
Name: Edward Seidenberg
Title: President & Chief Operating Officer
By: /s/ Thomas McNeill
--------------------------------------
Name: Thomas McNeill
Title: Vice President &
Chief Financial Officer
-6-
<PAGE>
GRID SCHEDULE
APPLICABLE APPLICABLE AMOUNT OF MATURITY
INTEREST INTEREST PRINCIPAL DATE
DATE RATE PERIOD REPAID
- ---- ---------- ---------- --------- --------
-7-
Exhibit 21
Principal Subsidiaries of Global Payment Technologies, Inc.
<TABLE>
<CAPTION>
Jurisdiction Percentage Ownership
Name of Subsidiary Incorporation by the Registrant
------------------ ------------- -----------------
<S> <C> <C>
Global Payment Technology Holdings (Proprietary) Limited South Africa 33.3%
Global Payment Technologies Australia Pty. Ltd. Australia 50%
Global Payment Technologies (Europe) Limited United Kingdom 70%
CBV China Venture Limited Delaware 50%
- Hangzhou CBV Plastics Corp. Ltd. China 100%
</TABLE>
EXHIBIT 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-KSB, into the Company's previously filed
Registration Statement File Nos. 333-30829 and 33-86352-NY.
/s/ Arthur Andersen LLP
Melville, New York
December 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 834
<SECURITIES> 0
<RECEIVABLES> 10,999
<ALLOWANCES> 248
<INVENTORY> 8,090
<CURRENT-ASSETS> 20,513
<PP&E> 3,080
<DEPRECIATION> 1,322
<TOTAL-ASSETS> 22,583
<CURRENT-LIABILITIES> 9,496
<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 13,031
<TOTAL-LIABILITY-AND-EQUITY> 22,583
<SALES> 39,388
<TOTAL-REVENUES> 39,388
<CGS> 23,013
<TOTAL-COSTS> 33,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 123
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 5,500
<INCOME-TAX> 2,144
<INCOME-CONTINUING> 3,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,356
<EPS-PRIMARY> .61
<EPS-DILUTED> .56
</TABLE>
