-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SkfeEmR/3K1h7nRboW6R5fyjKspd9zB4zBW+GsbEvmOGFhJ7nK5on86dgZcdbOAB gkV+VQx53o3SSyEFrLwcxw== 0001047469-98-018833.txt : 19980511 0001047469-98-018833.hdr.sgml : 19980511 ACCESSION NUMBER: 0001047469-98-018833 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 40 FILED AS OF DATE: 19980508 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CARD TECHNOLOGY INC CENTRAL INDEX KEY: 0001029916 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 061403123 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-52169 FILM NUMBER: 98613623 BUSINESS ADDRESS: STREET 1: 1355 TERRELL MILL ROAD STREET 2: BUILDING 1462, SUITE 200 CITY: MARIETTA STATE: GA ZIP: 30067 BUSINESS PHONE: 7709512284 SB-2 1 SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- AMERICAN CARD TECHNOLOGY, INC. (Name of Small Business Issuer as specified in its charter) DELAWARE 7379 06-1403123 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification Incorporation or Organization) Number)
AMERICAN CARD TECHNOLOGY, INC. 1355 TERRELL MILL ROAD. BUILDING 1462, SUITE 200 MARIETTA, GEORGIA 30067 (612)929-5249 (Address and Telephone Number of Principal Executive Offices and Address of Principal Place of Business or Intended Principal Place of Business.) RAYMOND FINDLEY, JR. 1355 TERRELL MILL ROAD. BUILDING 1462, SUITE 200 MARIETTA, GEORGIA 30067 (612)929-5249 (Name, Address and Telephone Number of Agent for Service) -------------------------- COPIES TO: R. JOHN BARTZ, ESQ. Bartz & Bartz Southdale Office Centre 6750 France Avenue South, Suite 350 Edina, MN. 55435 (612) 920-3959 (612) 920 6494 (Fax) -------------------------- APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. -------------------------- If any of the Securities being registered in this form are to be offered, on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act Registration Statement number of the earlier effective registration statement for the same offering. / / If this form is a post effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE Common Stock $.001 par value................ 420,000 $17.00 $7,140,000 $2,107 Total....................................... $7,140,000 $2,107
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as amended, solely for purposes of computing the registration fee. -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MAY 4, 1998 AMERICAN CARD TECHNOLOGY, INC. 1355 TERRELL MILL ROAD, BUILDING 1462, SUITE 200, MARIETTA, GEORGIA 30067 (612) 929-5249 420,000 SHARES (MAXIMUM OFFERING) 294,200 SHARES (MINIMUM OFFERING) COMMON STOCK (PAR VALUE $.001) $17.00 PER SHARE ------------------ All of the shares of Common Stock, par value $.001 (the "Common Stock"), offered hereby are being sold by American Card Technology, Inc. ("the Company"). Prior to this Offering there has been no public market for the Common Stock. See "Underwriting" for a discussion of factors considered in determining the initial public offering price. This Offering is being made by the Company's Underwriter, Rockcrest Securities L.L.C. of Dallas, Texas (the "Underwriter") on a "best efforts" basis. There can be no assurance that the minimum number of shares will be sold. If 294,200 shares (the minimum offering) are not sold within one hundred eighty (180) days following commencement of the public offering, the offering will terminate automatically and all funds paid for shares will be returned to the purchasers without deductions and without interest. See "Introductory Statement," "Risk Factors" and "Underwriting". THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 9 AND "DILUTION" ON PAGE 20. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING DISCOUNTS & PROCEEDS TO PRICE TO PUBLIC COMMISSIONS(1) THE COMPANY(2) Per Share................................................ $17.00 $1.70 $15.30 Total Minimum(294,200 shares)............................ $5,001,400 $500,140 $4,501,260 Total Maximum(3)(420,000 shares)......................... $7,140,000 $714,000 $6,426,000
(1) The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) The Company will have prepaid costs and expenses of the Offering totaling $400,000, which sum represents estimated legal, accounting, copying, advertising, underwriting and other miscellaneous items. (3) The Company has granted to the Underwriter an option, exercisable within 210 days after the effective date of this Prospectus, to purchase up to 42,000 additional shares of Common Stock solely to cover over-allotments, if any. If the Underwriter exercises this option in full, the Price to Public will total $7,854,000, the Underwriting Discount will total $785,400 and the Proceeds to Company will total $7,068,600. See "Underwriting." ------------------------ The shares of Common Stock are offered by the Underwriter subject to prior sale, when, as and if delivered to and accepted by the Underwriter, and subject to the right of the Underwriter to reject any order in whole or in part and to withdraw, cancel or modify this offer without notice. It is expected that delivery of the shares of Common Stock will be made at the offices of Rockcrest Securities L.L.C. in Dallas, Texas on or about 1998, subject to the minimum offering being attained ($5,001,400) or thereafter against payment therefor in immediately available funds. ------------------------ ROCKCREST SECURITIES L.L.C. THE DATE OF THIS PROSPECTUS IS , 1998 AVAILABLE INFORMATION INVESTORS SHOULD CAREFULLY REVIEW THE FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THIS PROSPECTUS. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Company is not currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of this Offering, the Company will become subject to such requirements and, in accordance therewith, will file periodic reports, proxy materials and other information with the Securities and Exchange Commission (the "Commission"). In addition, the Company will furnish its stockholders with annual reports containing audited financial statements certified by its independent accountants and such interim reports containing unaudited financial information as it may determine to be necessary or desirable. The Company will provide without charge to each person who receives a copy of this Prospectus, upon written or oral request, a copy of any of the information that is incorporated by reference in this Prospectus (not including exhibits to the information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Such request should be directed to American Card Technology, Inc., 1355 Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia 30067. No person is authorized in connection with any offering made hereby to give any information or to make any representation other than as contained in this Prospectus, and if given or made, such information or representation must not be relied upon as having been authorized by the Company or by any Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the shares of Common Stock offered hereby, nor does it constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which it is unlawful to make such an offer or solicitation to such person. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstance create any implication that the information contained herein is correct as of any date subsequent to the date hereof. In this Prospectus, references to "dollars" and "$" are to United States dollars, and the terms "United States" and "U.S." mean the United States of America, its states, its territories, its possessions and all areas subject to its jurisdiction. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. THE STATEMENTS CONTAINED IN THIS PROSPECTUS WHICH ARE NOT HISTORICAL FACTS ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THOSE DESCRIBED UNDER "RISK FACTORS." THERE CAN BE NO ASSURANCE THAT THE MINIMUM NUMBER OF SHARES WILL BE SOLD. IF THE MINIMUM OFFERING IS NOT SOLD WITHIN ONE HUNDRED EIGHTY (180) DAYS FOLLOWING THE COMMENCEMENT OF THIS OFFERING, THE OFFERING WILL TERMINATE AUTOMATICALLY AND ALL FUNDS PAID FOR SHARES WILL BE RETURNED TO THE PURCHASERS WITHOUT DEDUCTIONS AND WITHOUT INTEREST. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING ALL SHARE AND PER SHARE DATA AND INFORMATION RELATING TO THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION TO PURCHASE 42,000 ADDITIONAL SHARES OF COMMON STOCK. SEE "UNDERWRITING." THE COMPANY American Card Technology, Inc. (the "Company"), a development stage company incorporated in June 1994, was organized to design, develop and market high security, flexible, multiple application smart card systems. A smart card is a credit card-sized plastic card containing a microchip that provides the card with memory storage capabilities in a secure environment and, in advanced versions such as the Company's, enables the card to perform data processing functions. Smart card systems are typically used by government agencies or commercial enterprises (the "System Sponsor") to store, access and modify participant or customer (the "User") information. The Company has received United States Patent Number 5629508 with respect to its dual card access technology and methods. The Company's proprietary smart card technology and software enable System Sponsors to store data on a User's smart card, and enable the System Sponsor, or a service provider authorized by the System Sponsor (the "Authorized Service Provider") to access User information and read, input, delete, modify and process such data. The Company designs its smart card systems to perform functions for various target markets, such as employee licensing, animal health and registration, frequent patron tracking, health care and various government applications, and can design each system to perform various functions in virtually any industry, depending on the System Sponsors' needs. The dual card access technology incorporated in the Company's smart card systems requires the simultaneous use of both a card issued to a User (a "User Card") and a card issued to an Authorized Service Provider (an "Access Card") to access the system. The information on the User's smart card cannot be accessed or modified unless used in tandem with the Authorized Service Provider's card. For example, a health maintenance organization ("HMO") could sponsor a system whereby each User patient enrolled in the HMO would receive a smart card with his or her medical records and insurance information stored on the card's microprocessor chip. The HMO would issue Access Cards to its member physicians as Authorized Service Providers and, when a patient visits any of these HMO-affiliated physicians, the physician would be able to review and update the patient's medical record and history. The Authorized Service Provider could be issued separate Access Cards from the HMO allowing different functions for different security levels. For example, the receptionist's Access Card may allow access only to insurance information; the nurse's Access Card may allow the nurse to view but not modify patient records; and the doctor's Access Card may allow the doctor to access and update patient medical records. The dual card access technology provides enhanced security for the information on the User Card by preventing unauthorized persons from accessing or modifying such data without the proper Access Card and allowing each Access Card to view or manipulate only the information on the User Card which corresponds to that Access Card's authorization level. Each System Sponsor determines how much security it desires at each level, and the Company designs the smart card system for that System Sponsor around those parameters. The Company believes that its smart card systems, which offer the capability to perform multiple functions on a single card, provide enhanced security and privacy protection not offered by existing smart cards and 3 position the Company to capitalize on perceived market opportunities for information systems incorporating smart card technology. Smart card technology is currently in wide use in Europe, the Pacific Rim, Latin America and the Middle East. According to the market researcher Dataquest, the microprocessor and memory based smart card market will grow from 544 million cards in 1995 to 3.4 billion cards by 2001. Most smart cards currently in use are low capacity memory-only phone cards that provide only data storage, reading and deletion capabilities. More sophisticated smart cards, including the Company's smart cards, are microprocessor-based and therefore have the ability not only to store, read and delete data but also to add, modify and process data. The Company believes that most microprocessor-based smart cards currently in use were designed to perform functions for single purpose applications only, such as pay television access control, medical or academic recordkeeping or insurance claim processing. The Company believes that these smart cards generally utilize multiple, alternative technologies, such as microchips, bar codes and magnetic stripes simultaneously, or allow access by any Authorized Service Provider to all the information included within the card. To the best of the Company's knowledge there are no other cards in use or under development that meet the same dual card access and multiple application specifications as the Company's proprietary system. However there is no guarantee that such cards which function in a similar or superior fashion to the Company's proprietary system are not under development at this time. See "Competition" under "Risk Factors." Although the use of smart cards is increasing, most cards currently used in electronic transactions are magnetic stripe cards, such as ordinary credit cards. Such cards contain only limited information such as account numbers and identification information, but cannot store or update additional information such as current account balances. The Company believes that its proprietary smart card systems, comprised of smart cards, read/write devices, other related hardware and system software offer certain advantages over magnetic stripe cards and existing smart card systems, including enhanced security features and multiple function capabilities through the use of dual card access technology and multiple application layering. The Company's smart cards are uniquely designed to include multiple application layers, with each layer enabling the performance of numerous functions when activated by the proper Access Card. The Company's smart card systems can provide different System Sponsors or Authorized Service Providers with access to different application layers on one User's smart card. Therefore, an HMO could store, on the same card that contains a User's medical records, insurance claim records for access only by the HMO's benefits administrators. Each application layer contains its own security feature and can only be accessed or altered by the Authorized Service Provider holding the Access Card programmed for that layer. By providing a System Sponsor the ability to add applications over time, as well as allowing multiple System Sponsors to utilize different layers of the same smart card for different purposes, the Company's smart card systems will enable the cost per smart card to be allocated among separate System Sponsors or different departments within a single System Sponsor. The Company believes that these features position its smart card systems as secure, cost-effective solutions for electronic transaction and information processing. To date, the Company has executed two contracts with the North American Pari-Mutuel Regulators Association ("NAPRA") to provide and maintain an internet-based regulatory tracking system that includes a database with licensing information, infraction records and digital photographs of the licensees in its jurisdictions. NAPRA is an organization comprised of eighteen pari-mutuel wagering jurisdictions located in North America, including horse and dog racing, jai alai and card rooms. In addition to the contracts with NAPRA, the Company has developed and installed smart card based employee identification and licensing systems in four NAPRA jurisdictions, the Birmingham Racing Commission and the Macon County Race Course, both in Alabama, the Oregon Racing Commission and the Idaho Racing Commission. These smart card systems control on-site access and maintain state licensing information. The Company recently submitted a proposal to an additional NAPRA jurisdiction, the Florida Department of Pari-Mutuel Wagering, pursuant to its request, to provide a similar smart card licensing system. 4 The Company has completed a pilot program in New Jersey and Pennsylvania for the issuance of "equine medical passport" smart cards for monitoring the identity, interstate and intrastate movement and medical records of thoroughbred horses. The Florida Department of Agriculture and Consumer Services Bureau of Disease Control has proposed a similar pilot project anticipated to begin as soon as possible. The Bureau of Disease Control is responsible for ensuring the health and marketability of livestock in the state of Florida. To prevent the spread of a deadly disease, the federal government requires any horse crossing state lines to have a negative Coggins Report which evidences a negative test result for Equine Infectious Anemia. A Coggins Report is valid for one year from the issue date. Further, each state requires a valid health certificate for any horse entering the state. The states of Florida, Georgia and Alabama have formed an alliance whereby a special ninety (90) day pass authorized by any of the three states can be used to cross state lines between these states. The proposed Florida pilot program will involve a test "livestock medical passport" program in which each of 100 animals will be implanted with an "electronic identification transponder" used in conjunction with smart cards to verify each animal's identity and federal and state medical certifications. This pilot program will replace the required paper passports for horses crossing between these states. Although completed programs in New Jersey and Pennsylvania successfully tested the equine medical passport smart card system and similar electronic transponder implants are in use which are not coordinated with smart card technology, such equine medical passport pilot programs have not resulted in any system sales to date. There can be no assurance that any of the Company's pilot programs will result in system purchases by any potential System Sponsor. The Company has entered into a Memorandum of Understanding with Traquer Systems, Inc. ("Traquer") to market the Company's smart card systems to Indian gaming and wagering facilities in North America. Traquer has significant expertise with the rules and regulations for Indian gaming environments. In February 1998, the Company received its first order from Traquer to provide a smart card based employee licensing system to an Indian tribe in Arizona. The Company expects this system to be installed by August 1998. The Company received a request from Foundation Health, a Florida based HMO, to structure a smart card system to assist and expedite the verification of patient insurance coverage by hospital employees. The pilot program involves Palmetto Hospital, one of the largest hospitals in Miami, Florida, and the Company anticipates the initial phase will be installed by July 1998. Other phases of this proposed project may include expanding the smart card based verification capability to all Foundation Health member hospitals and Authorized Service Providers in south Florida. The final phase may provide all Foundation Health members with enhanced smart card member identification capabilities. The Company has also been selected as a subcontractor to Paradigm 4 for the proposed New York City Time Project. The City of New York has significant problems tracking city employees and verifying the accuracy of actual hours worked. This project will pilot a number of technologies, including the use of smart cards, for time and attendance management and tracking of city employees. The Company is negotiating an exclusive distributorship agreement with AVID Identification Devices, Inc. ("AVID"). AVID uses PETtrac, a worldwide computerized tracking system for companion animals. Under the terms of the agreement, AVID will have the right to sell a unique smart card based system developed by the Company exclusively for AVID and to be used in conjunction with AVID's radio frequency identification devices currently being sold worldwide to veterinarians and other customers. Owners of animals will carry with them the Company's smart card containing animal tracking information related to the existing PETtrac identification system as well as other AVID related applications, including animal records. There can be no assurance that the Company will be successful in negotiating this agreement. The Company's objective is to become a leading provider of smart card systems to government and commercial System Sponsors requiring increasingly complex, secure and cost-effective information processing systems. Although the Company expects to continue to market smart card systems directly 5 through its management and employees, including a recently appointed Director of Sales, the Company intends to establish strategic marketing alliances and licensing or other arrangements with systems integrators, value-added resellers and other smart card vendors and may also retain the services of sales representatives and marketing and other consultants. The Company anticipates that, under certain circumstances, its smart card products will be bundled with its strategic partners' products and services to create a complete integrated system that can be marketed to potential System Sponsors. The Company will also seek to provide complete integrated smart card solutions, on a turnkey basis, to System Sponsors by providing all hardware and software elements required to implement the system. Since inception, the Company has been engaged principally in organizational activities, including developing a business plan, hiring personnel and developing and enhancing its smart card technology and software, and has only recently commenced the limited marketing of its smart card systems. The Company has generated limited revenues and incurred significant operating losses. Therefore, the Company has a limited operating history upon which an evaluation of its prospects can be made. The Company's prospects must be considered in light of the risks, uncertainties, expenses, delays and difficulties associated with the establishment of a new business in the evolving smart card industry, as well as those risks encountered in the shift from development to commercialization of new products based on innovative technologies. There can be no assurance that the Company's smart card systems will ever gain market acceptance, or that the Company will be able to successfully implement its marketing strategies, generate meaningful revenues or ever achieve profitable operations. The Company was incorporated under the laws of the State of Delaware in June 1994. Unless otherwise indicated, all references to the Company include Canadian Smart Card Technology Inc., its majority-owned subsidiary incorporated under the laws of Ontario, Canada (the "Subsidiary"), which was created to exploit the Company's technology in Canada. The Company's principal executive offices are located at 1355 Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia 30067 and its telephone number is (770) 951-2284. RECENT FINANCING From July 1997 through January 1998, three directors, Raymond A. Roncari, Harold Rothstein and Lawrence O. Perl, have provided loans to the Company in the amounts of $320,000, $460,000 and $15,000, respectively (the "Stockholder Loans"). These loans provided the Company with working capital and covered some costs associated with this Offering. The Stockholder Loans are expected to be repaid upon the closing of subsequent debt financing, but in no event later than January 1, 2001. In February and March 1998, the Company sold investment units to investors for an aggregate of $1,500,000 in a private placement offering (the "1998 Private Placement"). Each unit consisted of (i) an unsecured, nonnegotiable promissory note in the principal amount of $50,000 (the "Bridge Notes"), (A) bearing interest at the rate of ten percent (10%) per annum, payable annually in arrears, and (B) providing for a loan fee payable upon payoff of the Bridge Note in an amount equal to $5,000 less interest accrued under the Bridge Note during the first year through the date of payoff; (ii) 2,500 shares of Common Stock (the "Bridge Shares"); and (iii) 2,500 bridge warrants, each bridge warrant representing the right to purchase one share of Common Stock at a price of eighty percent (80%) of the per share market price of the Common Stock on the exercise date (the "Bridge Warrants"). In addition, Messrs. Roncari and Rothstein entered into certain loan agreements (the "Director Loan Agreements") committing each of them to loan $450,000 (for a total of $900,000) to the Company to be used for working capital and certain costs of this Offering (the "Director Loans"). In consideration for this commitment, Messrs. Rothstein and Roncari were each granted 12,500 shares of Common Stock of the Company and warrants to purchase 12,500 shares of Common Stock at an exercise price of eighty percent (80%) of the market price of the Common Stock on the exercise date (the "Commitment Warrants"). The Company intends to use a portion of the proceeds from this Offering to repay certain loans and other indebtedness. The Bridge Notes are to be repaid from the proceeds of the minimum offering, but in no event later than 6 March 3, 2001. The accrued interest due on the Bridge Notes is to be repaid in two parts, $67,157 from the proceeds of the minimum offering and $109,589 from the proceeds of the maximum offering, but in no event later than March 3, 2001. The Director Loans are to be repaid upon closing of subsequent debt financing, but in no event later than January 1, 2001. See "Use of Proceeds," "Plan of Operation" and "Certain Transactions." THE OFFERING Common Stock offered by the Company Minimum.................................... 294,200 Maximum(1)................................. 420,000 Common Stock to be outstanding after Offering(2) Minimum.................................... 2,819,200 Maximum(1)................................. 2,945,000 Use of Proceeds.............................. The Company intends to use the net proceeds of this Offering for repayment of the Bridge Notes; research and development; sales and marketing; repayment of certain outstanding obligations; and working capital and general corporate purposes. See "Use of Proceeds." Risk Factors................................. The securities offered hereby are speculative and involve a high degree of risk and immediate substantial dilution and should not be purchased by investors who cannot afford the loss of their entire investment. See "Risk Factors" and "Dilution." Proposed Nasdaq symbol....................... Common Stock--"ACRD."
- ------------------------ (1) Assumes the Underwriter does not execute any of its available 42,000 over-allotment shares. (2) Does not include (i) 270,000 shares of Common Stock reserved for issuance upon exercise of options granted or available for future grant under the Stock Option Plan, as defined herein; (ii) 30,000 shares of Common Stock reserved for issuance upon exercise of options granted or available for future grant under the Directors' Plan, as defined herein; (iii) 100,000 shares of Common Stock reserved for issuance upon exercise of the Shreveport Option, as defined herein; (iv) 50,000 shares of Common Stock reserved for issuance upon exercise of the Chapman Option, as defined herein; (v) 25,000 shares of Common Stock reserved for issuance upon exercise of the Commitment Warrants; (vi) 75,000 shares of Common Stock reserved for issuance upon exercise of the Bridge Warrants; (vii) 100,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Option, as defined herein, to be granted at and conditioned upon the minimum offering; or (viii) 100,000 shares of Common Stock reserved for issuance upon exercise of the Beter Option, as defined herein, to be granted in the event of subsequent debt financing negotiated by Lilly Beter Capital Group, Ltd. 7 SUMMARY FINANCIAL INFORMATION The summary financial information set forth below is derived from and should be read in conjunction with the financial statements of the Company, including the notes thereto, appearing elsewhere in this Prospectus.
JUNE 21, 1994 YEAR ENDED DEC 31, THREE MOS ENDED MAR 31, (INCEPTION) ---------------------------- --------------------------- TO MAR 31, 1996 1997 1997 1998 1998 ------------- ------------- ------------ ------------- ------------- STATEMENT OF OPERATIONS DATA Revenues............................... $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007 Cost of sales.......................... 16,279 86,995 -- 74,507 246,402 Research and development expense....... 167,000 260,000 55,000 174,000 781,000 General and administrative expense..... 919,546 1,176,885 331,311 554,587 3,739,792 Write-off of license fee............... 20,000 -- -- -- 168,000 Interest and financing costs, net...... 129,126 1,065,240 100,070 283,727 1,522,325 Net loss............................... (1,224,917) (2,512,208) (486,381) (1,027,232) (6,220,512) Net loss per share--basic and diluted.............................. (.54) (.96) (.19) (.40) Weighted average number of shares outstanding.......................... 2,269,671 2,615,343 2,585,833 2,562,167
MARCH 31, 1998 ------------------------------------------- AS ADJUSTED FOR DECEMBER 31, ---------------------------- 1997 ACTUAL MINIMUM(1) MAXIMUM(2) ------------- ------------- ------------- ------------- BALANCE SHEET DATA Working capital (deficit)............................. $ (2,881,624) $ (1,764,588) $ 1,073,047 $ 2,918,620 Total assets.......................................... 594,536 890,440 3,356,118 4,571,269 Total liabilities..................................... 4,144,316 4,867,452 3,596,128 2,965,706 Total stockholders' equity (deficit).................. (3,549,780) (3,977,012) (240,010) 1,605,563
- ------------------------ (1) Gives effect to the sale of the 294,200 shares of Common Stock being offered hereby and the anticipated application of the estimated net proceeds therefrom, including $1,500,000 representing the repayment of the Bridge Notes plus $67,157 representing partial payment of accrued interest, including a non-recurring charge of $45,833, plus a non-recurring charge of $250,000 representing the unamortized loan discount, $68,425 representing unamortized deferred financing costs associated with the 1998 Private Placement and $400,000 representing prepaid costs of this Offering. See "Use of Proceeds." (2) Gives effect to the sale of the 420,000 shares of Common Stock being offered hereby and the anticipated application of the estimated net proceeds therefrom, $1,500,000 representing the repayment of the Bridge Notes plus $176,746 representing payment of accrued interest, including a non-recurring charge of $125,000, plus a non-recurring charge of $250,000 representing the unamortized loan discount, $68,425 representing unamortized deferred financing costs associated with the 1998 Private Placement, $600,000 representing repayment of all outstanding bank debt and $400,000 representing prepaid costs of this Offering. See "Use of Proceeds." 8 RISK FACTORS THE SECURITIES BEING OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK, INCLUDING, BUT NOT LIMITED TO, THOSE RISK FACTORS SET FORTH BELOW, AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT IN THE COMPANY, SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND THIS OFFERING. THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "PLAN OF OPERATION" AND "BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY. The Company was organized in June 1994 and is in the development stage. Since inception, the Company has been engaged principally in organizational activities, including developing a business plan, hiring personnel and developing and enhancing its proprietary smart card technology and software, and it has only recently commenced the limited marketing of its smart card systems. Therefore, the Company has a limited operating history upon which an evaluation of its prospects can be made. The Company's prospects must be considered in light of the risks, uncertainties, expenses, delays and difficulties associated with the establishment of a new business in the evolving smart card industry, as well as those risks encountered in the shift from development to commercialization of new products based on innovative technologies. See "Plan of Operation." LIMITED REVENUES; SIGNIFICANT AND CONTINUING LOSSES; ACCUMULATED DEFICIT; EXPLANATORY PARAGRAPH IN INDEPENDENT AUDITORS' REPORT. The Company has generated limited revenues to date and does not expect to generate meaningful revenues in the near future until such time, if ever, as its smart card systems are successfully commercialized. The Company has incurred significant losses in each operating period since its inception resulting in an accumulated deficit at March 31, 1998 of $6,220,512 and losses are continuing through the date of this Prospectus. Inasmuch as the Company will continue to have a high level of operating expenses and will be required to make significant up-front expenditures in connection with both the development of its business and the commercialization of its smart card systems (including, without limitation, salaries of executive, technical, marketing and other personnel), the Company anticipates that it will continue to incur significant and increasing losses for the foreseeable future until such time, if ever, as the Company is able to generate sufficient revenues to finance its operations. The Company will also incur non-recurring charges relating to the 1998 Private Placement of approximately $364,258 upon closing of the minimum offering. The Company's independent certified public accountants have included an explanatory paragraph in their report stating that the Company's dependence on outside financing, lack of existing commitments from lenders to provide necessary financing, lack of sufficient working capital and losses since inception raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company's smart card systems will gain market acceptance, or that the Company will be able to successfully implement its business strategy, generate meaningful revenues or achieve profitable operations. See "Plan of Operation" and Financial Statements. UNCERTAINTY OF PROPOSED PLAN OF OPERATION. The success of the Company's proposed plan of operation will be largely dependent upon market acceptance of smart cards generally, as well as on the Company's ability to successfully market its smart card systems by persuading potential System Sponsors of the perceived benefits of its dual card access and multiple application layering concepts (including the benefits to be derived from allocating total card program costs among individual application layers within a card) and to develop and commercialize further applications of its proprietary technology. In addition, the Company's proposed plan of operation and prospects will be dependent upon, among other things, the Company's ability to enter into strategic marketing and licensing or other arrangements on a timely basis and on favorable terms; establish satisfactory arrangements with sales representatives and marketing consultants; hire and retain skilled management as well as financial, technical, marketing and other personnel; successfully manage growth (including monitoring operations, controlling costs and maintaining 9 effective quality, inventory and service controls); and obtain adequate financing when and as needed. The Company has limited experience in developing new products based on innovative technology and there is limited information available concerning the performance of the Company's technologies or market acceptance of the Company's products. There can be no assurance that the Company will be able to successfully implement its plan or that unanticipated expenses or problems or technical difficulties will not occur which would result in material delays in its implementation. Moreover, there can be no assurance that the Company will have sufficient capacity to satisfy any increased demand for its smart card products and technologies resulting from the Company's implementation of its plan of operation. See "Plan of Operation" and "Business." NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE. The smart card industry in the United States is an emerging business characterized by an increasing and substantial number of new market entrants that have introduced or are developing an array of new products and services relating to electronic transactions and information processing. Each of these entrants is or may be seeking to position its products and services as the preferred method of effectuating highly individualized, easy-to-use electronic transaction and information processing. The success of the smart card industry depends, in large part, on the ability of market participants to convince governmental authorities, commercial enterprises and other potential System Sponsors to adopt a smart card system in lieu of existing or alternative systems such as magnetic stripe card and paper-based systems, thereby changing the way certain transaction and information processing tasks are accomplished. In addition, due to the large capital and infrastructure investment made by debit and credit card issuers and significantly lower costs associated with the use of magnetic stripe cards, many potential System Sponsors may be reluctant to convert to smart card technology in the near future. Accordingly, there can be no assurance that there will be significant market opportunities for smart card systems in the United States or that the acceptance of smart card based systems in other countries will be sustained. The Company's dual card access and multiple application layering technologies are new concepts. As such, demand for and market acceptance of the Company's smart card systems are subject to a high level of uncertainty. The Company has limited marketing experience and limited financial, personnel and other resources to undertake extensive marketing activities. Potential System Sponsors of the Company's smart card systems, as well as the Company's potential strategic partners, must be persuaded that the costs of adopting and implementing smart card systems, in general, and, in particular, of adopting and implementing the Company's smart card systems, which incorporate dual card access technology and multiple application layering, are justified by the benefits to be derived therefrom. Achieving market acceptance for the Company's products and services will require significant efforts and expenditures by the Company to create awareness, demand and interest by potential System Sponsors, strategic partners and others regarding the perceived benefits of the Company's technologies, including the possible allocation of costs among different System Sponsors and/or departments of one or more System Sponsors. There can be no assurance that the Company's smart card technology will prove to be economically viable for a sufficient number of System Sponsors, that substantial markets will develop, in the United States or elsewhere, for the Company's smart card systems or that the Company will be able to meet its current marketing objectives, succeed in positioning its cards and services as a preferred method of delivering electronic transaction and information processing or achieve significant market acceptance of its products. See "Business--Marketing and Sales." SIGNIFICANT CAPITAL REQUIREMENTS; WORKING CAPITAL DEFICIT; DEPENDENCE ON PROCEEDS OF THIS OFFERING; POSSIBLE FUTURE FINANCING. The Company's capital requirements have been and will continue to be significant. At March 31, 1998, the Company had a working capital deficit of $1,764,588 due to, among other things, costs associated with the development, commercialization and market testing of the Company's smart card systems, including the development of the Company's initial pilot programs. The Company has been dependent on the sales of its securities to private investors (including the 1998 Private Placement), as well as on capital contributions and loans from affiliates and certain financial institutions guaranteed by certain stockholders of the Company. During the period from inception through the date of this Prospectus, the Company has raised capital in the estimated aggregate amount of $5,600,000 10 (including approximately $5,000,000 through March 31, 1998) through such means. The Company is dependent on and intends to use the proceeds of this Offering to continue the implementation of its proposed plan of operation. The Company anticipates, based on assumptions relating to its operations (including assumptions regarding the Company's ability to meet its current marketing objectives and the timing and costs associated therewith), that the net proceeds of this Offering, together with projected cash flow from operations, will be sufficient to fund the Company's operations and capital requirements for at least twelve months following the consummation of this Offering. In the event the Company's plans change, its assumptions change or prove to be inaccurate or if the proceeds of this Offering prove to be insufficient to fund operations (due to unanticipated expenses, technical difficulties, problems or otherwise), the Company would be required to seek additional financing sooner than currently anticipated. There can be no assurance that the proceeds of the minimum offering will be sufficient to permit the Company to successfully further develop and commercialize the Company's smart card technology or that any assumptions relating to the Company's operations will prove to be accurate. In addition, any implementation of the Company's business plans subsequent to the twelve month period following this Offering may require proceeds greater than the proceeds of this Offering or otherwise currently available to the Company. Further, if the minimum closing of this Offering is delayed, the Company may not have sufficient capital to fund operations and the anticipated expenses of this Offering. There can be no assurance that additional financing will be available to the Company on commercially reasonable terms, or at all. Although the Company believes it may be able to raise at least a portion of its future financing requirements for such period among its officers, directors and/or stockholders, no officer, director or stockholder of the Company has made any further commitment to the Company to provide any portion of the Company's future financing requirements and there are no assurances that any officer, director or stockholder will do so. At some future date, the Company intends to offer up to approximately $30 million in debt financing, to be negotiated by Lilly Beter Capital Group, Ltd. ("Beter"). Upon closing of such debt financing, Beter would receive warrants for 100,000 shares of Common Stock, at an exercise price equal to eighty percent (80%) of the per share market price of Common Stock at the time of exercise (the "Beter Option"). There can be no assurance that such additional financing, or any other additional financing, will be available to the Company on reasonable terms, or at all. Further, if such additional financing is attempted, there can be no assurance that such additional financing, or any other additional financing, will be successful. Any inability to obtain additional financing when needed may have a material adverse effect on the Company, including requiring the Company to curtail its activities and possibly causing the Company to cease its operations. To the extent that the Company finances its operations through the issuance of additional equity securities, any such issuance may involve substantial dilution to the Company's then-existing stockholders. Additionally, to the extent that the Company incurs indebtedness or issues debt securities, the Company will be subject to all of the risks associated with incurring substantial indebtedness, including the risks that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on any such indebtedness. See "Use of Proceeds," "Plan of Operation" and "Certain Transactions." LIMITED MARKETING CAPABILITIES AND EXPERIENCE; DEPENDENCE ON THIRD-PARTY MARKETING ARRANGEMENTS. The Company has limited marketing capabilities, experience and resources. To date, the Company has conducted only limited marketing activities and has relied primarily on the efforts of its executive officers in connection with such activities. It will be the role of the Company's management and its Director of Sales to guide the Company from the research and development phase to a company with full marketing and sales strategies for direct and indirect sales. Although the Company expects to continue to market smart card systems directly through the Company's management and employees, the Company intends to establish strategic marketing alliances and licensing or other arrangements with systems integrators, value-added resellers and other smart card vendors and may also retain the services of sales representatives and marketing and other consultants. The Company's success will depend in part on its ability to enter into agreements with such third parties, and on the ability and efforts of such third parties to successfully market the Company's smart card systems. Moreover, marketing arrangements with third 11 parties may require financial or other commitments by the Company. There can be no assurance that the Company will be able, for financial or other reasons, to enter into third-party marketing arrangements on commercially acceptable terms, or at all. The failure of the Company to complete its third-party marketing strategy or the failure of any such party to develop and sustain a market for the Company's smart cards could have a material adverse effect on the Company. Although the Company views third party marketing arrangements as a major factor in the commercialization of its smart card systems, there can be no assurance that any strategic partners, licensees or others would view an arrangement with the Company as significant to their businesses. See "Business--Marketing and Sales" and "Management." COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The market for the Company's smart card systems is characterized by intense competition. The market is currently dominated by cards utilizing magnetic stripes, and is expected to be dominated by magnetic stripe cards for the foreseeable future due to the lower costs of production of such cards and the substantial capital and infrastructure investments made by debit and credit card issuers in such cards. The Company also competes with numerous well-established companies, including Gemplus, Bull PTS (a unit of Groupe Bull), Schlumberger Electronic Transactions (a business segment of Schlumberger Limited), Orga Kartensysteme GMBH, Giesecke & Devrient and Mondex International, which design, manufacture and/or market smart card systems. Although the Company believes its proprietary dual card access and multiple application layering technologies will allow the Company to compete on the basis of enhanced security, flexibility, scalability, cost-effectiveness and quality, the Company's smart card systems incorporate new concepts and may be unsuccessful even if they are superior to those of its competitors. In addition, certain companies may be developing technologies or products of which the Company may be unaware which may be functionally similar or superior to those developed by the Company. Most of the Company's competitors and potential competitors possess substantially greater financial, marketing, personnel and other resources than the Company and have established reputations relating to the design, development, manufacture, marketing and service of smart card systems. As the market for smart card systems grows, new competitors are likely to emerge. Additional competition could adversely affect the Company's operations. There can be no assurance that the Company will be able to compete successfully, that competitors will not develop technologies or products that render the Company's systems obsolete or less marketable or that the Company will be able to successfully enhance its products or develop new products when necessary. See "Business-- Competition." TECHNOLOGICAL FACTORS. The Company's research and development efforts are subject to all of the risks inherent in the development of new products and technology (including unanticipated delays, expenses and difficulties). There can be no assurance that the Company's products will satisfactorily perform the functions for which they are designed, that they will meet applicable price or performance objectives or that unanticipated technical or other problems will not occur which would result in increased costs or material delays in the development thereof. Furthermore, software products as complex as those developed by the Company and incorporated into its smart card products may contain errors or failures when installed, updated or enhanced. There can be no assurance that, despite testing by the Company and by current and potential end users, errors will not be found in new products after the delivery by the Company, resulting in loss of or delay in market acceptance. See "Business--Technology Overview" and "--Products." The Company has entered into an agreement with SoftChip Israel Ltd. of Jerusalem, Israel and its affiliate, SoftChip Technologies (3000) Ltd. (collectively, "SoftChip"), to purchase the DVK-1 Chip Mask Operating System and architecture ("DVK-1 System") for a purchase price of $100,000 and for SoftChip to provide technical support and development to the Company for at least a two-year period for an additional $450,000 plus royalties ranging from $.125 to $.25 for each smart card sold by the Company that incorporates the DVK-1 System. Upon its closing, which is scheduled to occur after the minimum closing of this Offering, this agreement will provide the Company ownership of its own chip mask and access to the technical resources needed to develop a completely new and proprietary chip mask and operating system. 12 The chip mask provides the basic instructions to the microchip and its internal components and facilitates the orderly utilization of all of the microchip's components and allows the device to be utilized. The Company has also executed a purchase order with SoftChip for technical services for a monthly fee of $18,000, which commenced December 1, 1997. The Company is obligated to pay the amount payable under the purchase order, the purchase price and the fees for technical support, no later than September 15, 1998, which will reduce the amount of working capital available to the Company. Under the agreement, ownership of the DVK-1 System will be transferred to the Company at closing upon payment in full of the purchase price and technical support fees. If the closing of the minimum offering is delayed beyond September 15, 1998, the Company believes it may be able to reach a mutual agreement with SoftChip to extend the closing date of the agreement, but there can be no assurance that the Company will be able to reach such agreement with SoftChip, or that the Company will ultimately secure ownership of the DVK-1 System if the closing of the minimum offering is delayed beyond September 15, 1998. Additionally there can be no assurance that ownership of the DVK-1 System will result in the successful development of new technology. See "Plan of Operation" and "Business--Intellectual Property." PROPRIETARY RIGHTS. The Company's success will depend in part on its ability to enforce its patents, protect trade secrets and operate without infringing on the proprietary rights of others. The Company has received United States patent number 5629508 with respect to its dual card access technology and methods. The Company contemplates filing patent applications in selected foreign jurisdictions where such filings would, in the Company's opinion, provide it with a competitive advantage. The patent laws of other countries may differ from those of the United States as to the patentability of the Company's products or technology and the degree of protection afforded by foreign patents may be different from that in the United States. The failure by the Company to obtain any foreign patents could have a material adverse effect on the Company's ability to successfully commercialize its smart card systems outside the U.S. Even though the Company has been able to obtain a U.S. patent, there can be no assurance that this patent will afford the Company commercially significant protection for its technology. Other companies may independently develop equivalent or superior technologies or products and may obtain patent or similar rights with respect to them. The Company is not aware of any infringement by its technology on the proprietary rights of others and has not received any notice of claimed infringement. However, the Company has not conducted any investigation as to possible infringement and there can be no assurance that third parties will not assert infringement claims against the Company in connection with its products, that any such assertion of infringement will not result in litigation, or that the Company would prevail in such litigation. Moreover, in the event that the Company's technology or proposed products were deemed to infringe upon the rights of others, the Company would be required to obtain licenses to utilize such technology. There can be no assurance that the Company would be able to obtain such licenses in a timely manner on acceptable terms and conditions, and the failure to do so could have a material adverse effect on the Company. If the Company were unable to obtain such licenses, it could encounter significant delays in product market introductions while it attempted to design around the infringed upon patents or rights, or could find the development, manufacture or sale of products requiring such license to be foreclosed. In addition, patent disputes occur in the smart card and computer industries and there can be no assurance that the Company will have the financial resources to enforce or defend a patent infringement or proprietary rights action. The Company has received a federal trademark registration for its SMART-ID-Registered Trademark- mark and design and has applied for a federal trademark registration for its Cheeze! mark. SMART-ID-Registered Trademark- is a smart card based system that provides positive identification, transaction tracking and the ability to layer multiple applications on a single smart card. Cheeze! is a program currently used by eighteen pari-mutuel licensing jurisdictions to photograph licensees and transmit the photograph and license data to a central database, which is currently housed at the Company's offices. The Company's use of its software, name and mark may be subject to challenge by others, which, if successful, could have a material adverse effect on the Company. The Company also relies on trade secrets and proprietary know-how and employs various methods to protect the concepts, ideas and documentation relating to its proprietary technology. However, such 13 methods may not afford the Company complete protection and there can be no assurance that others will not independently obtain access to the Company's trade secrets and know-how or independently develop products or technologies similar to those of the Company. Furthermore, although the Company has and expects to have confidentiality and non-competition agreements with its employees and appropriate suppliers and manufacturers, there can be no assurance that such arrangements will adequately protect the Company's trade secrets. See "Business--Intellectual Property." LENGTHY SALES CYCLE; POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The Company's sales cycle is expected to commence at the time a prospective System Sponsor demonstrates an interest in purchasing a smart card system from the Company or issues a request for a proposal or information or takes similar action and ends upon the installation of a smart card system for the System Sponsor. The sales cycle will vary by System Sponsor and could extend for periods of up to twelve months or more, depending upon, among other things, the time required by the System Sponsor to complete a pilot test of the Company's smart card system, make a determination regarding an acquisition thereof and negotiate payment terms with the Company. The Company's operating results could vary from period to period as a result of this fluctuation in the length of the Company's sales cycle and as a result of fluctuations in the purchasing patterns of potential System Sponsors, technological factors, variations in marketing strategies for different target markets and non-recurring smart card system sales. See "Plan of Operation--Possible Fluctuations in Operating Results." POSSIBLE DEPENDENCE ON GOVERNMENT CONTRACTS. As part of its strategy, the Company intends to market its smart card systems to government agencies in the United States and Canada. If successful, the Company will become subject to the special risks involving government contracts, including delays in funding, lengthy review processes for awarding contracts, non-renewal, delay, termination at the convenience of the government, reduction or modification of contracts in the event of changes in the government's policies or as a result of budgetary constraints and increased or unexpected costs resulting in losses, any or all of which could have a material adverse effect on the Company. The Company will also be required to obtain most potential government contracts through the competitive bidding process. There can be no assurance that the Company will be successful in having its bids accepted or, if accepted, that awarded contracts will generate sufficient revenues to result in profitable operations. The competitive bidding process is typically lengthy and often results in the expenditure of financial and other resources in connection with bids that are not accepted. Additionally, inherent in the competitive bidding process is the risk that actual performance costs may exceed projected costs upon which a submitted bid or contract price is based. To the extent that actual costs exceed projected costs, the Company could incur losses, which could adversely affect the Company's operating margins and results of operations. Moreover, in most instances, the Company may be required to post bid and/or performance bonds in connection with contracts with government agencies. Any inability by the Company to obtain bonding coverage in sufficient amounts could have a material adverse effect on the Company. See "Business--Government Regulation and Industry Standards." BROAD DISCRETION IN APPLICATION OF PROCEEDS; ALLOCATION OF PROCEEDS TO PAY CERTAIN OBLIGATIONS, INCLUDING INDEBTEDNESS TO PRINCIPAL STOCKHOLDERS; BENEFIT TO RELATED PARTIES. Approximately $1,170,260 (26.0%) of the estimated net proceeds of the minimum offering or $2,058,000 (32.1%) of the estimated net proceeds of the maximum offering has been allocated to working capital and general corporate purposes. Accordingly, the Company's management will have broad discretion as to the application of such proceeds. In addition, the Company intends to use approximately $1,567,000 (34.8%) of the estimated net proceeds of the minimum offering or $2,277,000 (35.4%) of the estimated net proceeds of the maximum offering to repay indebtedness (including all the Bridge Notes to be repaid from the proceeds of the minimum offering and the accrued interest due on the Bridge Notes, to be repaid in two parts, $67,157 from the proceeds of the minimum offering and $109,589 from the proceeds of the maximum offering; both the Notes and the interest are to be repaid no later than March 3, 2001) and satisfy pre-existing obligations and, therefore, such funds will be unavailable to fund future growth. Included in the indebtedness to be 14 repaid from the proceeds of the minimum offering are the Bridge Notes payable to Lawrence O. Perl, the Company's Chairman of the Board, Chief Executive Officer and Chief Financial Officer, in the principal amount of $25,000, together with accrued interest thereon, and Bridge Notes payable to Harold Rothstein and Raymond A. Roncari, each a director of the Company, in the principal amounts of $475,000 and $475,000, respectively. Included in the indebtedness to be repaid from the proceeds of the maximum offering are the interest due on the Bridge Notes payable to Messrs. Rothstein and Roncari. Included in certain outstanding obligations to be repaid from the proceeds of the maximum offering is approximately $42,000 payable to Lawrence Owen Associates, a corporation wholly-owned by Mr. Perl, for use of office space and related services. In addition, Mr. Rothstein has personally guaranteed and/or pledged personal assets to secure the Company's indebtedness to Fleet National Bank, The Chase Manhattan Bank and First Southern Bank, and Mr. Roncari has personally guaranteed all of the Company's indebtedness to The First National Bank of Suffield. The Company intends to use approximately $600,000 of the proceeds from the closing of the maximum offering to repay this indebtedness; repayment of such indebtedness will, in effect, release such guarantees or pledges. The Company will also use a portion of the proceeds of the minimum and maximum offerings allocated to working capital to pay compensation (including accrued compensation) of its executive officers (for a total anticipated to be approximately $625,000 if the minimum offering is reached and $1,400,000 if the maximum offering is reached, during the twelve months following the date of this Prospectus). See "Use of Proceeds," "Plan of Operation," "Management" and "Certain Transactions." DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The success of the Company will be largely dependent on the personal efforts of Lawrence O. Perl, its Chairman of the Board, Chief Executive Officer and Chief Financial Officer, Raymond Findley, Jr., its President and Chief Operating Officer, Robert H. Dixon, its Vice President of Technical Operations, Robert Cartagine, its recently appointed Director of Sales, and other key personnel. Although the Company has entered into an employment agreement with each of the above gentlemen, the loss of services of any of these key personnel would have a material adverse effect on the Company's business and prospects. The Company has obtained "key man" insurance on the lives of Messrs. Perl and Findley in the amount of $2,000,000 each. In order to successfully implement and manage its proposed expansion, the Company will be dependent upon, among other things, its ability to attract and retain qualified managerial, technical and marketing personnel with experience in business activities such as those contemplated by the Company. Competition for qualified personnel is intense and there can be no assurance that the Company will be able to hire or retain additional personnel. Any inability to attract and retain qualified personnel would have a material adverse effect on the Company. See "Management." CONTROL BY MANAGEMENT. After the closing of this Offering, the Company's directors and executive officers (or trusts created by or for such individuals or their families) will beneficially own, in the aggregate, no less than approximately 78.8 percent (if the minimum offering amount represents the final closing amount) and no more than approximately 75.4 percent (if the maximum offering amount represents the final closing amount) of the outstanding shares of Common Stock (assuming no exercise of any warrants or other options). Accordingly, such persons, acting together, will be in a position to elect the directors, adopt amendments to the Company's Certificate of Incorporation (the "Certificate") and By-Laws (the "By-Laws"), approve mergers and other significant corporate transactions, including a sale of substantially all of the Company's assets, and otherwise control the Company's affairs. Purchasers of the shares of Common Stock offered hereby will be minority stockholders, and, although entitled to vote on matters submitted for a vote of the stockholders, will not control the outcome of such a vote. See "Management" and "Principal Stockholders." POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The Certificate, as amended, authorizes the Company's Board of Directors (the "Board") to issue up to 1,000,000 shares of a class of preferred stock, par value $.001 per share (the "Preferred Stock"). The Certificate authorizes the Board to establish and issue, out of the authorized but unissued shares of Preferred Stock, "blank check" preferred stock in 15 one or more series. One or more of such series may be issued at any time or times upon authorization of the Board. Without further approval of the stockholders, the Board is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges and restrictions applicable to each new series of the Preferred Stock. The issuance of new series of Preferred Stock could, among other results, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, could make it more difficult for a third party to gain control of the Company, prevent or substantially delay such a change of control, discourage bids for the Common Stock at a premium, or otherwise adversely affect the market price of the Common Stock. Preferred Stock could, for example, be issued quickly by the Board with terms that are expressly designed to prevent or substantially delay a change of control of the Company that could otherwise benefit stockholders or to make removal of management more difficult. Although the Company has no current plans to issue any Preferred Stock, there can be no assurance that the Board will not decide to do so in the future. See "Description of Securities." IMMEDIATE AND SUBSTANTIAL DILUTION. Investors in this Offering will incur immediate and substantial dilution of $17.15 per share (101%), if the minimum offering is reached, or $16.51 per share (97%), if the maximum offering is reached, between the adjusted net tangible book value per share after this Offering and the initial public offering price of $17.00 per share. See "Dilution." ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF MARKET PRICE OF COMMON STOCK; LIMITED STATE REGISTRATION. Prior to this Offering, there has been no public trading market for the Common Stock. Consequently, the initial public offering price of the Common Stock has been determined by negotiations between the Company and the Underwriter and is not necessarily related to the Company's asset value, net worth or other criteria of value. There can be no assurance that a regular trading market for the Common Stock will develop after this Offering or that, if developed, it will be sustained. The market price for the Company's securities following this Offering may be highly volatile, as has been the case with the securities of other small capitalization companies. The factors considered in determining the offering price included an evaluation by management of the history of and prospects for the industry in which the Company competes and the prospects for earnings of the Company. Factors such as the Company's financial results, announcements of developments related to the Company's business and the introduction of products and product enhancements by the Company or its competitors may have a significant impact on the market price of the Company's securities. Additionally, in recent years, the stock market in general, and the market for securities of small capitalization stocks in particular, have experienced wide price fluctuations which have often been unrelated to the operating performance of such companies. The Underwriter will register this Offering in a limited number of states, which may limit or prohibit possible resale of the Common Stock in certain states in which the Offering is not registered. See "Underwriting." NO DIVIDENDS. The Company has never paid any cash or other dividends on its Common Stock. Payment of dividends on the Common Stock is within the discretion of the Board of Directors of the Company and will depend upon the Company's earnings, capital requirements and financial condition, and on any other relevant factors. For the foreseeable future, the Board of Directors intends to retain future earnings, if any, to finance its business operations and does not anticipate paying any cash dividends with respect to the Common Stock. In addition, the payment of cash dividends may be limited or prohibited by the terms of any future loan agreements or any Preferred Stock that may be issued by the Company. See "Dividend Policy," "Plan of Operation--Liquidity and Capital Resources" and "Description of Securities--Preferred Stock." LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS. The Certificate includes provisions to eliminate, to the full extent permitted by the Delaware General Corporation Law (the "DGCL") as in effect from time to time, the personal liability of directors of the Company for monetary damages under certain circumstances. The Certificate and By-Laws also include provisions to the effect that (subject to certain exceptions) the Company shall, to the maximum extent permitted from time to time under the law of the 16 State of Delaware, indemnify, and upon request shall advance expenses to, any director or officer to the extent that such indemnification and advancement of expenses is permitted under such law, as it may from time to time be in effect. As a result of such provisions, stockholders may be unable to recover damages against the directors and officers of the Company for actions taken by them that constitute negligence, gross negligence or a violation of their fiduciary duties. In anticipation of this Offering, the Board has authorized and directed the Company to enter into indemnification agreements with each director of the Company, pursuant to which the Company would, in general, (i) agree to indemnify and hold harmless each director to the full extent permitted or authorized by the DGCL as in effect from time to time and (ii) specify the various terms and conditions relating to the advancement of expenses in connection with indemnifiable claims. Each of the provisions described above may reduce the likelihood of stockholders instituting derivative litigation against directors and may discourage or deter stockholders from suing directors, officers, employees and agents of the Company for (among other things) breaches of their duty of care, even though such an action, if successful, might otherwise benefit the Company and its stockholders. See "Management--Limitation of Liability and Indemnification." ADOPTION OF CERTAIN CHARTER AND BY-LAW PROVISIONS HAVING ANTI-TAKEOVER EFFECTS. The Certificate and By-Laws contain various provisions which, under certain circumstances, could make it more difficult for a third party to gain control of the Company (e.g., by means of a tender offer), prevent or substantially delay such a change of control, discourage bids for the Common Stock at a premium, or otherwise adversely affect the market price of the Common Stock. The Certificate provides that the Board will be classified into three classes of directors, with each class serving a staggered three-year term. This provision, together with the provision authorizing the Board to issue one or more series of Preferred Stock, could make it more difficult for stockholders to effect certain corporate actions that might facilitate a proposed acquisition of the Company and could have the effect of delaying or preventing a change of control of the Company. See "Description of Securities--Antitakeover Provisions." OUTSTANDING OPTIONS. As of the date of this Prospectus, the Company has outstanding options to purchase 252,500 shares of Common Stock at an exercise price of $12.00 per share. Further, the Company has granted warrants to purchase (i) 50,000 shares of Common Stock at an exercise price equal to eighty percent (80%) of the per share market price of Common Stock at the time of exercise to Chapman Group, LLC (the "Chapman Option"); (ii) 25,000 shares to Messrs. Rothstein and Roncari, in consideration for entering into their respective Director Loan Agreements, at an exercise price equal to eighty percent (80%) of the per share market price of Common Stock at the time of exercise, represented by 12,500 warrants to purchase 12,500 shares of Common Stock to each of Messrs. Rothstein and Roncari (collectively, the "Commitment Warrants"); and (iii) 75,000 shares to investors in a March 1998 private placement offering ("the 1998 Private Placement") at an exercise price equal to eighty percent (80%) of the per share market price of Common Stock at the time of exercise (the "Bridge Warrants"). At and conditioned upon the minimum offering, the Company will grant warrants to purchase 100,000 shares of Common Stock to the Underwriter at an exercise price equal to eighty percent (80%) of the per share market price of Common Stock at the time of exercise (the "Underwriter's Option"). The Company may, in the event of subsequent debt financing negotiated by Beter, grant to Beter the Beter Option. Such option would be issued upon the closing of any such debt financing. In addition, the Company plans to issue additional options to acquire shares of Common Stock to employees and directors in the future. Exercise of the foregoing options will have a dilutive effect on the Company's stockholders. Furthermore, the terms upon which the Company may be able to obtain additional equity financing may be adversely affected, since the holders of the options, if they choose to exercise the options, can be expected to exercise them at a time when the Company would likely be able to obtain any needed capital on terms more favorable to the Company than those provided in the options. See "Certain Transactions" and "Management--1996 Stock Option Plan" and "--Nonemployee Directors' Stock Option Plan" and "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. The Company will have between 2,819,200 shares, if the minimum is attained, and 2,945,000 shares, if the maximum is attained, of Common Stock 17 outstanding, of which the shares of Common Stock offered hereby (a minimum of 294,200 shares and a maximum of 420,000 shares) will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"). All of the remaining 2,525,000 shares of Common Stock outstanding are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, and in the future may only be sold pursuant to an effective registration statement under the Securities Act, in compliance with the exemption provisions of Rule 144 or pursuant to another exemption under the Securities Act. The 2,525,000 restricted shares of Common Stock will become eligible for sale under Rule 144, subject to certain volume limitations prescribed by Rule 144 and to the contractual restrictions described below, at various times commencing 90 days from the date of this Prospectus. The Company has granted certain "piggyback" registration rights to the holders of 100,000 shares of Common Stock and the 100,000 shares of Common Stock underlying the Bridge Warrants and the Commitment Warrants. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or even the availability of such shares for sale will have on the market prices prevailing from time to time. All of the Company's officers, directors and stockholders have agreed not to sell or otherwise dispose of (other than in a private transfer) any of their shares of Common Stock for a period of 12 months from the date of this Prospectus without the prior written consent of the Underwriter (other than in the case of the Bridge Shares, as defined herein, and Bridge Warrant Shares, as defined herein, which cannot be transferred during such period even with the consent of the Underwriter). However, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Certain Transactions," "Description of Securities," "Shares Eligible for Future Sale" and "Underwriting." POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; DISCLOSURE RELATING TO LOW-PRICED STOCKS. The Company has submitted an application for listing on the Nasdaq SmallCap Market ("Nasdaq") and it is currently anticipated that the Company's Common Stock will be quoted on Nasdaq upon the completion of this Offering. In order to continue to be listed on Nasdaq, however, the Company must maintain $2,000,000 in net tangible assets, $35,000,000 in market capitalization or $500,000 net income. In addition the Company must maintain 50,000 shares of public float (shares not held directly or indirectly by any officer or director of the Company or by any other person who is the beneficial owner of more than ten percent (10%) of the total shares outstanding) with a minimum market value of $4,000,000. In addition, continued inclusion requires two market makers, a minimum bid price of $1.00 per share and at least 300 round lot shareholders (holders of 100 shares or more). The failure to meet these maintenance criteria in the future may result in the delisting of the Company's securities from Nasdaq, and trading, if any, in the Company's securities would thereafter be conducted in the non-Nasdaq over-the-counter market. As a result of such delisting, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. In addition, if the Common Stock were to become delisted from trading on Nasdaq and the trading price of the Common Stock was less than $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could severely limit the market liquidity of the Common Stock and the ability of purchasers in this Offering to sell the Common Stock in the secondary market. 18 LACK OF PUBLIC MARKET; MINIMUM/MAXIMUM. Prior to this Offering, there has been no public market for the Company's securities. Although the Common Stock has applied for listing on the Nasdaq SmallCap Market, there can be no assurance that an active public market will develop or be sustained. In addition, the SmallCap Market may be significantly less liquid than the Nasdaq National Market. If the Company fails to maintain the standards for quotation, the Company's securities could be removed from the market and traded in the over the counter market. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations as to the price of, the securities. There can be no assurance that the minimum number of shares will be sold. If the minimum offering is not sold within one hundred eighty (180) days following commencement of this Offering, the Offering will terminate automatically and all funds paid for shares will be returned to the purchasers without deductions and without interest. Even if the minimum number of shares is sold, there can be no assurance that the maximum number of shares will be sold. If the minimum number of shares is sold but the maximum number of shares is not sold, the Company would be able to continue its operations for at least twelve months but the proceeds from this Offering would be less than anticipated and could have a material adverse effect on the Company's future operations. USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby are estimated to be approximately $4,501,260 if the minimum offering is attained and $6,426,000 if the maximum offering is attained ($7,068,600 if the Underwriter's over-allotment option is exercised in full). The expenses of this Offering will have been prepaid by the Company to the extent of $400,000 ($350,633 was prepaid as of March 31, 1998). The Company expects to use the net proceeds (assuming no exercise of the Underwriter's over-allotment option) approximately as follows: APPLICATION OF PROCEEDS
MINIMUM OFFERING MAXIMUM OFFERING ------------------------- ------------------------- AMOUNT PERCENT AMOUNT PERCENT ------------ ----------- ------------ ----------- Repayment of indebtedness(1)....................................... $ 1,567,000 34.8% $ 2,277,000 35.4% Sales and marketing(2)............................................. 315,000 7.0% 315,000 4.9% Research and development(3)........................................ 1,124,000 25.0% 1,124,000 17.5% Repayment of certain outstanding obligations(4).................... 325,000 7.2% 652,000 10.1% Working capital and general corporate purposes(5).................. 1,170,260 26.0% 2,058,000 32.1% ------------ ----- ------------ ----- Total.............................................................. $ 4,501,260 100.0% $ 6,426,000 100.0% ------------ ----- ------------ ----- ------------ ----- ------------ -----
- ------------------------ (1) The minimum offering figure represents the payment of the Bridge Notes, together with partial payment of accrued interest in the aggregate amount of $67,157. Included in the Bridge Notes to be repaid are $25,000, plus accrued interest, payable to Lawrence O. Perl, the Company's Chairman of the Board, Chief Executive Officer and Chief Financial Officer, $475,000 payable to Harold Rothstein, a director of the Company, and $475,000 payable to Raymond A. Roncari, a director of the Company. The maximum offering figure represents all items paid in the minimum offering plus the payment of accrued interest related to the Bridge Notes payable to Messrs. Rothstein and Roncari, in the aggregate amount of $109,589, plus the repayment of bank debt, in the aggregate amount of $600,000, which has been personally guaranteed or secured with the private assets of Messrs. Roncari and Rothstein. See "Plan of Operation" and "Certain Transactions." (2) Consists of salaries of sales and marketing personnel, fees paid to marketing consultants and anticipated costs and expenses associated with sales presentations, preparation of marketing materials and attendance at industry trade shows. See "Business--Marketing and Sales." 19 (3) Represents a $712,000 payable to SoftChip in connection with the purchase of the DVK-1 System and portion of anticipated costs associated with further enhancement of the Company's proprietary technology as well as development of system applications and pilot programs for potential System Sponsors. See "Business--Research and Development." (4) Consists of payment of certain past due obligations of the Company to accountants, attorneys and consultants. Of the payments to attorneys, $150,000 of the minimum offering and an estimated $250,000 of the maximum offering represent partial payment of fees due to Cohn & Birnbaum P.C., the firm's general corporate counsel. In addition, the Company intends to use $42,000 of the proceeds from the maximum offering to repay a payable due to Lawrence Owen Associates, a Company wholly owned by Mr. Perl. See "Management." (5) Includes amounts for the payment of compensation (including accrued compensation) to executive officers, which is anticipated to be approximately $1,400,000 during the twelve months following the date of this Prospectus, as well as relocation expenses, rent, professional fees and other operating expenses. Such payment for compensation is to paid in two parts, $625,000 from the proceeds of the minimum offering and $775,000 from the proceeds of the maximum offering, including accrued compensation in the amount of $50,000 from the proceeds of the minimum offering and $500,000 from the proceeds of the maximum offering. See "Management." DIVIDEND POLICY The Company has never paid any cash or other dividends on its Common Stock. Payment of dividends on the Common Stock is within the discretion of the Board and will depend upon the Company's earnings, capital requirements and financial condition, and on any other relevant factors. For the foreseeable future, the Board of Directors intends to retain future earnings, if any, to finance its business operations and does not anticipate paying any cash dividends with respect to the Common Stock. In addition, the payment of cash dividends may be limited or prohibited by the terms of any future loan agreements or any Preferred Stock that may be issued by the Company. See "Plan of Operation--Liquidity and Capital Resources" and "Description of Securities--Preferred Stock." DILUTION The net tangible book value of the Company at March 31, 1998 was a deficit of $4,566,092 (excludes intangible assets of $68,425 in deferred financing costs, $170,022 in software development and $350,633 in deferred registration costs), or $(1.81) per share of Common Stock. The difference between the initial public offering price per share of Common Stock and the adjusted net tangible book value per share of Common Stock after this Offering constitutes the dilution to investors in this Offering. Net tangible book value per share on any given date is determined by dividing the net tangible book value (total tangible assets less total liabilities) of the Company on such date by the number of shares of Common Stock outstanding on such date. MINIMUM OFFERING After giving effect to the sale by the Company of the 294,200 shares offered hereby in the minimum offering, at an assumed initial public offering price of $17.00 per share and after deducting the estimated underwriting discounts and commissions and offering expenses, the net tangible book value, as adjusted, of the Company at March 31, 1998 would have been a deficit of approximately $410,032, or $(0.15) per share, representing an immediate increase in such net tangible book value of $1.66 per share to existing stockholders and an immediate dilution in net tangible book value of $17.15 per share to purchasers of 20 Common Stock in the minimum offering. The following table illustrates this per share dilution applicable the minimum offering: Initial public offering price....................... $ 17.00 Net tangible book value (deficit) before minimum offering........................................ $ (1.81) Increase attributable to new investors............ 1.66 --------- Adjusted pro-forma net tangible book value after minimum offering.................................. (0.15) --------- Dilution per share to new investors................. $ 17.15 --------- ---------
MAXIMUM OFFERING After giving effect to the sale by the Company of the 420,000 shares offered hereby in the maximum offering, at an assumed initial public offering price of $17.00 per share and after deducting the estimated underwriting discounts and commissions and offering expenses, the net tangible book value as adjusted of the Company at March 31, 1998 would have been approximately $1,435,541, or $0.49 per share, representing an immediate increase in such net tangible book value of $2.30 per share to existing stockholders and an immediate dilution in net tangible book value of $16.51 per share to purchasers of Common Stock in the maximum offering. The following table illustrates this per share dilution applicable the maximum offering:
Initial public offering price....................... $ 17.00 Net tangible book value (deficit) before maximum offering........................................ $ (1.81) Increase attributable to new investors............ 2.30 --------- Adjusted pro-forma net tangible book value after maximum offering.................................. 0.49 --------- Dilution per share to new investors................. $ 16.51 --------- ---------
The following tables set forth as of March 31, 1998 a comparison between the existing stockholders and the new investors in this Offering with respect to the number of shares of Common Stock acquired from the Company, the percentage ownership of such shares, the total consideration paid, the percentage of total consideration paid and the average price per share: MINIMUM OFFERING
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- ------------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ----------- ------------ ----------- ----------- Existing stockholders................ 2,525,000 89.6% $ 2,243,500 31.0% $ 0.89 New Investors........................ 294,200 10.4 5,001,400 69.0 17.00 ---------- ----- ------------ ----- Total.............................. 2,819,200 100.0% $ 7,244,900 100.0% ---------- ----- ------------ ----- ---------- ----- ------------ -----
21 MAXIMUM OFFERING
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- ------------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ----------- ------------ ----------- ----------- Existing stockholders................ 2,525,000 85.7% $ 2,243,500 23.9% $ 0.89 New Investors........................ 420,000 14.3 7,140,000 76.1 17.00 ---------- ----- ------------ ----- Total.............................. 2,945,000 100.0% $ 9,383,500 100.0% ---------- ----- ------------ ----- ---------- ----- ------------ -----
The above tables assume no exercise of the Underwriter's over-allotment option. If the Underwriter's over-allotment option is exercised in full, the new investors will have paid $7,854,000 for 462,000 shares of Common Stock, representing approximately 77.8 percent of the total consideration, for 15.5 percent of the total number of shares of Common Stock outstanding. The foregoing table also assumes no exercise of any outstanding options. See "Management--1996 Stock Option Plan," "--Nonemployee Directors' Stock Option Plan," "Certain Transactions" and "Underwriting." 22 CAPITALIZATION The following table sets forth the capitalization of the Company (i) on an actual basis, (ii) as adjusted to give effect to the sale of the minimum offering of shares of Common Stock offered hereby and the application of the estimated net proceeds therefrom, and (iii) as adjusted to give effect to the sale of the maximum offering of shares of Common Stock offered hereby and the application of the estimated net proceeds therefrom.
MARCH 31, 1998 ------------------------------------------- AS ADJUSTED FOR ---------------------------- ACTUAL MINIMUM(1) MAXIMUM(2) ------------- ------------- ------------- Notes Payable........................................................ $ 2,179,956 $ 2,179,956 $ 1,579,956 Bridge Note.......................................................... 1,250,000(3) -- -- Stockholders' Equity (Deficit) Preferred Stock, $.001 par value--1,000,000 shares authorized; no shares issued and outstanding.................................... -- -- -- Common Stock, $.001 par value--20,000,000 shares authorized; 2,525,000 shares issued and outstanding, actual; 2,819,200, as adjusted for the minimum offering; 2,945,000, as adjusted for the maximum offering(4).............................................. 2,525 2,819 2,945 Additional paid-in capital......................................... 2,245,975 6,346,941 8,271,555 Stock subscriptions receivable..................................... (5,000) (5,000) (5,000) Accumulated deficit during the development stage................... (6,220,512) (6,584,770) (6,663,937) ------------- ------------- ------------- Total stockholders' equity (deficit)............................. (3,977,012) (240,010) 1,605,563 ------------- ------------- ------------- Total capitalization........................................... $ (547,056) $ 1,939,946 $ 3,185,519 ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------ (1) Gives effect to the sale of the 294,200 shares of Common Stock being offered hereby and the anticipated application of the estimated net proceeds therefrom, including $1,500,000 representing the repayment of the Bridge Notes plus $67,157 representing partial payment of accrued interest, including a non-recurring charge of $45,833, plus a non-recurring charge of $250,000 representing the unamortized loan discount, $68,425 representing unamortized deferred financing costs associated with the 1998 Private Placement and $400,000 representing prepaid costs of this Offering. See "Use of Proceeds." (2) Gives effect to the sale of the 420,000 shares of Common Stock being offered hereby and the anticipated application of the estimated net proceeds therefrom, $1,500,000 representing the repayment of the Bridge Notes plus $176,746 representing payment of accrued interest, including a non-recurring charge of $125,000, plus a non-recurring charge of $250,000 representing the unamortized loan discount, $68,425 representing unamortized deferred financing costs associated with the 1998 Private Placement, $600,000 representing repayment of all outstanding bank debt and $400,000 representing prepaid costs of this Offering. See "Use of Proceeds." (3) Net of $250,000 loan discount. (4) Does not include (i) 270,000 shares of Common Stock reserved for issuance upon exercise of options granted or available for future grant under the Stock Option Plan; (ii) 30,000 shares of Common Stock reserved for issuance upon exercise of options granted or available for future grant under the Directors' Plan; (iii) 100,000 shares of Common Stock reserved for issuance upon exercise of the Shreveport Option; (iv) 50,000 shares of Common Stock reserved for issuance upon exercise of the Chapman Option; (v) 25,000 shares of Common Stock reserved for issuance upon exercise of the Commitment Warrants; (vi) 75,000 shares of Common Stock reserved for issuance upon exercise of the Bridge Warrants; (vii) 100,000 shares of Common Stock reserved for issuance upon exercise of the 23 Underwriter's Option, which warrants will be granted at and conditioned upon the closing of the minimum offering; or (viii) 100,000 shares of Common Stock reserved for issuance upon exercise of the Beter Option, which warrants may be issued in the event of subsequent debt financing negotiated by Beter. See "Management--1996 Stock Option Plan," "--Nonemployee Directors' Stock Option Plan," "Certain Transactions," "Description of Securities" and "Underwriting." 24 SELECTED FINANCIAL DATA The following selected financial data for the years ended December 31, 1996 and 1997 and the balance sheet data at December 31, 1997 are derived from, and are qualified by reference to, the Company's financial statements audited by BDO Seidman, LLP included elsewhere in this Prospectus. The statement of operations data for the three-month periods ended March 31, 1997 and 1998 and the period from inception to March 31, 1998 and the balance sheet data at March 31, 1998 are derived from unaudited financial statements of the Company included elsewhere in this Prospectus, which, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's results of operations for such periods and financial condition at such date. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year or future periods. The following data should be read in conjunction with the financial statements of the Company, including the notes thereto, appearing elsewhere in this Prospectus. STATEMENT OF OPERATIONS DATA
INCEPTION(1) YEAR ENDED DEC 31, THREE MOS ENDED MAR 31, TO MAR 31, ---------------------------- ---------------------------- ------------- 1996 1997 1997 1998 1998 ------------- ------------- ------------- ------------- ------------- Revenues.............................. $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007 Cost of sales......................... 16,279 86,995 -- 74,507 246,402 Research and development expense...... 167,000 260,000 55,000 174,000 781,000 General and administrative expense.... 919,546 1,176,885 331,311 554,587 3,739,792 Write-off of license fee.............. 20,000 -- -- -- 168,000 Interest and financing costs, net..... 129,126 1,065,240 100,070 283,727 1,522,325 Net loss(2)........................... (1,224,917) (2,512,208) (486,381) (1,027,232) (6,220,512) Net loss per share--basic and diluted............................. (.54) (.96) (.19) (.40) Weighted average number of shares outstanding......................... 2,269,671 2,615,343 2,585,833 2,562,167
- ------------------------ (1) The Company's date of inception is June 21, 1994. (2) During the periods presented through June 30, 1996, the Company elected to be treated as an S corporation for federal income tax purposes and, accordingly, no provision for income taxes during such periods is reflected in the Company's financial statements. The Company terminated its status as an S corporation effective July 1, 1996. See Notes to Financial Statements. BALANCE SHEET DATA
DECEMBER 31, 1997 MARCH 31, 1998 ----------------- -------------- Working capital deficit................................... $ (2,881,624) $ (1,764,588) Total assets.............................................. 594,536 890,440 Total liabilities......................................... 4,144,316 4,867,452 Total stockholders' deficit............................... (3,549,780) (3,977,012)
25 PLAN OF OPERATION The Company was organized in June 1994 and is in the development stage. Since inception, the Company has been engaged principally in organizational activities, including developing a business plan, hiring personnel and developing and enhancing its proprietary smart card technology and software, and has only recently commenced the limited marketing of its smart card systems. To date, the Company has developed and installed, on a limited basis, employee identification and licensing smart card systems for the thoroughbred racing industry. To date, the Company has executed two contracts with the North American Pari-Mutuel Regulators Association ("NAPRA") to provide and maintain an internet-based regulatory tracking system that includes a database with licensing information, infractions records and digital photographs of the licensees in its jurisdictions. NAPRA is an organization comprised of eighteen pari-mutuel wagering jurisdictions located in North America, including horse and dog racing, jai alai and card rooms. In addition to the contracts with NAPRA, the Company has developed and installed smart card based employee identification and licensing systems in four NAPRA jurisdictions, the Birmingham Racing Commission and the Macon County Race Course, both in Alabama, the Oregon Racing Commission and the Idaho Racing Commission. These smart card systems control on-site access and maintain state licensing information. The Company recently submitted a proposal to an additional NAPRA jurisdiction, the Florida Department of Pari-Mutuel Wagering, pursuant to its request, to provide a similar smart card licensing system. In addition, the Company has completed a pilot program in New Jersey and Pennsylvania for the issuance of "equine medical passport" smart cards for monitoring the identity, interstate and intrastate movement and medical records of thoroughbred horses. The Florida Department of Agriculture and Consumer Services Bureau of Disease Control has proposed a similar pilot project anticipated to begin as soon as possible. The Bureau of Disease Control is responsible for ensuring the health and marketability of livestock in the state of Florida. To prevent the spread of a deadly disease, the federal government requires any horse crossing state lines to have a negative Coggins Report which evidences a negative test result for Equine Infectious Anemia. A Coggins Report is valid for one year from the issue date. Further, each state requires a valid health certificate for any horse entering the state. The states of Florida, Georgia and Alabama have formed an alliance whereby a special ninety (90) day pass authorized by any of the three states can be used to cross state lines between these states. The proposed Florida pilot program will involve a test "livestock medical passport" program in which each of 100 animals will be implanted with an "electronic identification transponder" used in conjunction with smart cards to verify each animal's identity and federal and state medical certifications. This pilot program will replace the required paper passports for horses crossing between these states. Although completed programs in New Jersey and Pennsylvania successfully tested the equine medical passport smart card system and similar electronic transponder implants are in use which are not coordinated with smart card technology, such equine medical passport pilot programs have not resulted in any system sales to date. There can be no assurance that any of the Company's pilot programs will result in system purchases by any potential System Sponsor. The Company has entered into a Memorandum of Understanding with Traquer Systems, Inc. ("Traquer") to market the Company's smart card systems to Indian gaming and wagering facilities in North America. Traquer has significant expertise with the rules and regulations for Indian gaming environments. In February 1998, the Company received its first order from Traquer to provide a smart card based employee licensing system to an Indian tribe in Arizona. This system is expected to be installed by August 1998. The Company received a request from Foundation Health, a Florida based HMO, to structure a smart card system to assist and expedite the verification of patient insurance coverage by hospital employees. The pilot program involves Palmetto Hospital, one of the largest hospitals in Miami, Florida, and the Company anticipates the initial phase will be installed by July 1998. Other phases of this proposed project may include expanding the smart card based verification capability to all Foundation Health member hospitals 26 and Authorized Service Providers in south Florida. The final phase may provide all Foundation Health members with enhanced smart card member identification capabilities. The Company has also been selected as a subcontractor to Paradigm 4 for the proposed New York City Time Project. The City of New York has significant problems tracking city employees and verifying the accuracy of actual hours worked. This project will pilot a number of technologies, including the use of smart cards, for time and attendance management and tracking of city employees. The Company is negotiating an exclusive distributorship agreement with AVID Identification Devices, Inc. ("AVID"). AVID uses PETtrac, a worldwide computerized tracking system for companion animals. Under the terms of the agreement, AVID will have the right to sell a unique smart card based system developed by the Company exclusively for AVID and to be used in conjunction with AVID's radio frequency identification devices currently being sold worldwide to veterinarians and other customers. Owners of animals will carry with them the Company's smart card containing animal tracking information related to the existing PETtrac identification system as well as other AVID related applications, including animal records. There can be no assurance that the Company will be successful in negotiating this agreement. The Company's objective is to become a leading provider of smart card systems to government and commercial System Sponsors requiring increasingly complex, secure and cost-effective information processing systems. The Company intends to market its products through strategic marketing alliances and licensing or other arrangements with systems integrators, value added resellers and other smart card vendors. The Company anticipates that, under certain circumstances, its smart card products will be bundled with its strategic partners' products and services to create a complete integrated system that can be marketed to potential System Sponsors. The Company will also seek to provide complete smart card solutions, on a turnkey basis, to System Sponsors by providing all of the hardware and software elements required to implement the system. The Company has generated limited revenues to date and does not expect to generate meaningful revenues in the near future until such time, if ever, as its smart card systems are successfully commercialized. The Company has incurred significant losses in each operating period since its inception, resulting in an accumulated deficit at March 31, 1998 of $6,220,512, and losses are continuing through the date of this Prospectus. Inasmuch as the Company will continue to have a high level of operating expenses and will be required to make significant up-front expenditures in connection with both the development of its business and the commercialization of its smart card systems (including, without limitation, salaries of executive, technical, marketing and other personnel), the Company anticipates that it will continue to incur significant and increasing losses for the foreseeable future until such time, if ever, as the Company is able to generate sufficient revenues to finance its operations. The Company will also incur non-recurring charges relating to the 1998 Private Placement of approximately $364,258 upon closing of the minimum offering. The Company's independent certified public accountants have included an explanatory paragraph in their report stating that the Company's dependence on outside financing, lack of existing commitments from lenders to provide necessary financing, lack of sufficient working capital and losses since inception raise substantial doubt about the Company's ability to continue as a going concern. The success of the Company's proposed plan of operation will be largely dependent upon market acceptance of smart cards generally, as well as on the Company's ability to successfully market its smart card systems by persuading potential System Sponsors of the perceived benefits of its dual card access and multiple application layering concepts (including the benefits to be derived from allocating total card program costs among individual application layers within a card) and to develop and commercialize further applications of its proprietary technology. In addition, the Company's proposed plan of operation and prospects will be dependent upon, among other things, the Company's ability to enter into strategic marketing and licensing or other arrangements on a timely basis and on favorable terms; establish satisfactory arrangements with sales representatives and marketing consultants; hire and retain skilled 27 management as well as financial, technical, marketing and other personnel; successfully manage growth (including monitoring operations, controlling costs and maintaining effective quality, inventory and service controls); and obtain adequate financing when and as needed. The Company has limited experience in developing new products based on innovative technology and there is limited information available concerning the performance of the Company's technologies or market acceptance of the Company's products. There can be no assurance that the Company will be able to successfully implement its plan or that unanticipated expenses or problems or technical difficulties will not occur which would result in material delays in its implementation. Moreover, there can be no assurance that the Company will have sufficient capacity to satisfy any increased demand for its smart card products and technologies resulting from the Company's implementation of its plan of operation. As of the date of this Prospectus, the Company has ten full-time employees, consisting of four executive officers and six employees engaged in engineering, technical support, product development, marketing and sales, and administration, including the Company's recently appointed Director of Sales. See "Management." The Company also uses the resources of independent programmers and consultants from time to time on an as needed basis. The Company anticipates that it will hire additional sales and technical personnel to continue to implement the Company's marketing and product development efforts and may engage independent sales representatives and industry-specific marketing consultants to assist the Company in marketing the Company's smart card systems to potential System Sponsors. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company had cash on hand of $155,437, a working capital deficit of $1,764,588 and a stockholders' deficit of $3,977,012. The Company's primary capital requirements will be to fund the Company's continuing smart card system development and enhancement efforts, its sales and marketing activities and the Company's working capital. The Company has historically financed its capital requirements through the issuance of equity and debt securities, contributions to capital and bank borrowings. Since the inception of the Company, Lawrence O. Perl, the Chairman of the Board, Chief Executive Officer and Chief Financial Officer of the Company, (both individually and through The 1994 Perl Trust Indenture, a trust for the benefit of the family of Lawrence O. Perl (the "Perl Trust")), Raymond Findley, the Chief Operating Officer of the Company, Raymond A. Roncari, a director of the Company, and Harold Rothstein, a director of the Company, (both individually and through The Rothstein Family Trust, a trust for the benefit of the family of Harold Rothstein (the "Rothstein Trust")), (each of the foregoing being referred to individually as an "Original Stockholder"), have made the loans to the Company in amounts aggregating $30,177, $15,177, $1,008,854 and $1,300,747, respectively (the "Stockholder Loans"). The Stockholder Loans bear interest at ten percent (10%) per annum and are to be repaid with the proceeds of subsequent debt financing, but in no event later than January 1, 2001. These loans were to provide the Company working capital and cover costs associated with this Offering. See "Use of Proceeds," "Plan of Operation" and "Certain Transactions." In March 1995, $250,000 of the then-outstanding principal amount of the Stockholder Loans of each of Messrs. Rothstein and Roncari was recharacterized as paid-in capital of the Company (the "Capital Contribution"). Pursuant to an agreement among the Original Stockholders, the Capital Contribution was allocated equally among the Original Stockholders, in consideration for which Mr. Findley issued to Mr. Roncari and the Perl Trust issued to the Rothstein Trust a promissory note in the amount of $125,000 (each, a "Capital Contribution Note"). Mr. Findley and the Perl Trust subsequently transferred 25,000 shares of Common Stock to Mr. Roncari and the Rothstein Trust, respectively, in satisfaction of the indebtedness represented by the Capital Contribution Notes. Upon the consummation of a January, 1997 private placement offering (the "1997 Private Placement"), $12,675 of the Perl Trust's Stockholder Loans, $12,675 of Mr. Findley's Stockholder Loans, $223,260 of Mr. Roncari's Stockholder Loans and $301,390 of Mr. Rothstein's Stockholder Loans were converted into 2,535, 2,535, 44,652 and 60,278 shares of Common Stock, respectively. See "Certain Transactions." 28 From March through June of 1995, Joseph D. Basch, the President, Chief Executive Officer and sole director of the Subsidiary, loaned the Company an aggregate of $300,000. The loans accrued interest at ten percent (10%) per annum and were payable on demand. In July 1996, the Company and Mr. Basch entered into an agreement pursuant to which the then-outstanding principal amount of the loans, together with accrued interest thereon of approximately $30,000, was converted into an aggregate of 240,000 shares of Common Stock. In July, September and November 1996, the Company borrowed an aggregate of $300,000 from The First National Bank of Suffield ("First Suffield"). Interest accrues on such borrowings at the prime lending rate established by First Suffield from time to time and is payable monthly. The aggregate outstanding principal amount owed by the Company to First Suffield, together with accrued interest thereon, is payable on September 1, 1998. Mr. Roncari has personally guaranteed all of the Company's indebtedness to First Suffield. The loan agreements prohibit the Company, except with the prior consent of First Suffield, from paying dividends on its stock (other than dividends payable in stock), merging or consolidating with another company or purchasing or retiring any of its outstanding stock. The loan agreements also provide that it shall constitute an event of default thereunder if, among other events, either the Company or Mr. Roncari shall become insolvent or if First Suffield, in good faith, deems that it has insufficient security with respect to the loans. This debt is to be repaid from the proceeds of the maximum offering. See "Certain Transactions." From July through October 1996, the Company borrowed $150,000 from Fleet National Bank ("Fleet"). Such amount is payable on demand. Interest accrues on such borrowings at the prime lending rate established by Fleet from time to time and is payable monthly. The Company's indebtedness to Fleet (the "Fleet Loan") is personally guaranteed by Mr. Rothstein, and is secured by personal assets pledged by Mr. Rothstein in the form of a certificate of deposit in the amount of $150,000. This debt is to be repaid from the proceeds of the maximum offering. See "Certain Transactions." In October 1996, the Company borrowed $100,000 from The Chase Manhattan Bank ("Chase"). Such amount is payable on August 11, 1998. Interest accrues at the prime lending rate established by Chase from time to time and is payable monthly. The Company's indebtedness to Chase (the "Chase Loan") is secured by personal assets pledged by Mr. Rothstein in the form of a certificate of deposit in the amount of $105,000. This debt is to be repaid from the proceeds of the maximum offering. See "Certain Transactions." Mr. Rothstein has agreed with the Company that, in the event a demand is made by Fleet with respect to the Fleet Loan and/or a demand is made by Chase with respect to the Chase Loan prior to the earlier of the closing of the maximum offering, subsequent debt financing or March 3, 2001, he shall either (i) secure replacement financing to pay the amount so demanded or (ii) personally satisfy the amount demanded, either through surrender of the collateral previously pledged by him or through other means satisfactory to Fleet and/or Chase, as the case may be. In the event Mr. Rothstein elects to personally satisfy the demanded amount, the Company has agreed to reimburse Mr. Rothstein for the full amount of such payment on the earlier of the closing of the maximum offering, subsequent debt financing or March 3, 2001. See "Certain Transactions." In December 1996, the Company borrowed $50,000 from First Southern Bank ("FSB"). Such amount is payable on December 9, 1998 and bears interest at a rate of 8.5% payable monthly. The Company's indebtedness to FSB is secured by personal assets pledged by Mr. Rothstein in the form of a certificate of deposit in the amount of $50,000. This debt is to be repaid from the proceeds of the maximum offering. See "Certain Transactions." In January 1997, pursuant to the 1997 Private Placement, the Company completed the sale to 23 private investors (including certain officers and directors of the Company) of 25 units (the "1997 Units"); each 1997 Unit consisted of (i) an unsecured 9% non-negotiable bridge note in the principal amount of $50,000 due on the earlier of the consummation of an initial public offering or January 16, 1998 (the "1997 29 Bridge Notes"); (ii) 5,000 bridge shares (the "1997 Bridge Shares"); and (iii) 25,000 bridge warrants, each bridge warrant representing the right to purchase one share of Common Stock at an exercise price of $4.00 per share, subject to adjustment in certain circumstances (the "1997 Bridge Warrants"). The purchase price per 1997 Unit was $50,000. The Company received gross proceeds of $1,250,000 from the sale of the 1997 Private Placement. After payment of $125,000 in placement fees to the underwriting firm (not the Underwriter in this Offering), which acted as placement agent for the Company with respect to the 1997 Private Placement, and other offering expenses of approximately $105,000, the Company received net proceeds of approximately $1,020,000 in connection with the 1997 Private Placement. The net proceeds from the 1997 Private Placement were used in connection with the Company's operations, including to fund the Company's research and development efforts, to fund its sales and marketing activities, to repay certain outstanding obligations, and for working capital and general corporate purposes. From July 1997 through January 1998, three directors, Raymond A. Roncari, Harold Rothstein and Lawrence O. Perl, provided the Stockholder Loans to the Company in the amounts of $320,000, $460,000 and $15,000, respectively. These Loans provided the Company working capital and covered some costs associated with this Offering and are to be repaid with the proceeds of subsequent debt financing, but in no event later than January 1, 2001. In March 1998, the Company entered into the 1998 Private Placement, through which the Company completed the sale to fourteen private investors (including certain officers and directors of the Company) of 30 Units, each Unit consisting of (i) an unsecured non-negotiable promissory note in the principal amount of $50,000 (the "Bridge Notes"), (A) bearing interest at the rate of ten percent (10%) per annum, payable annually in arrears, and (B) providing for a loan fee payable upon payoff of the Bridge Note in an amount equal to $5,000 less interest accrued under the Bridge Note during the first year through the date of payoff; (ii) 2,500 shares of Common Stock (the "Bridge Shares"); and (iii) 2,500 Bridge Warrants. The purchase price per Unit was $50,000. The Company received gross proceeds of $1,500,000 from the sale of such Units. After payment of approximately $10,000 in costs associated with the 1998 Private Placement, the Company received net proceeds of approximately $1,490,000 in connection with the 1998 Private Placement. Approximately $1,345,000 of the net proceeds was used to exercise certain options to repurchase securities sold in the 1997 Private Placement. Some holders of the 1997 Units chose to invest in the 1998 Private Placement and defer all interest due them from the 1997 Units. The balance of the net proceeds are being used for working capital and general corporate purposes, as well as to fund some expenses of this Offering. The Bridge Notes, together with accrued interest thereon, are due on the earlier of March 3, 2001 or the closing of an IPO by the Company. The Bridge Notes are to be repaid from the proceeds of the minimum offering. The accrued interest due on the Bridge Notes is to be repaid in two parts, $67,157 from the proceeds of the minimum offering and $109,589 from the proceeds of the maximum offering, but in no event later than March 3, 2001. In conjunction with the closing of the 1998 Private Placement, the Company entered into Director Loan Agreements with each of Harold Rothstein and Raymond A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to loan $450,000 (for a total of $900,000) to the Company to be used for working capital and certain costs of this Offering. These amounts, together with approximately $157,000 of the proceeds of the 1998 Private Placement, were used to fund certain costs of this Offering and provide required working capital. In consideration for this commitment, Messrs. Rothstein and Roncari were each granted 12,500 shares of Common Stock of the Company and 12,500 Commitment Warrants. Pursuant to each Director Loan Agreement, the Company has the right to draw down advances from each of Messrs. Rothstein and Roncari (each a "Director Lender") as funds are required and the Director Lender is obligated to so advance funds within three (3) business days of any such request. Any amounts advanced will bear interest at a rate of ten percent (10%) per annum. All amounts so advanced, together with accrued interest thereon will be due and payable in full on the earlier of (i) January 1, 2001, or (ii) the closing of subsequent debt financing. 30 The Company's capital requirements have been and will continue to be significant. The Company has been dependent on the sales of its securities to private investors, as well as on capital contributions and loans from affiliates and certain financial institutions guaranteed by certain stockholders of the Company. During the period from inception through the date of this Prospectus, the Company has raised capital through such means in the estimated aggregate amount of $5,600,000 (including approximately $5,000,000 through March 31, 1998). The Company is dependent on and intends to use the proceeds of this Offering to continue the implementation of its proposed plan of operation. The Company anticipates, based on assumptions relating to its current operations (including assumptions regarding the Company's ability to meet its current marketing objectives and the timing and costs associated therewith), that the proceeds of this Offering, together with projected cash flow from operations, will be sufficient to fund the Company's operations and capital requirements for at least twelve months following the closing of the minimum offering. In the event that the Company's plans change, its assumptions change or prove to be inaccurate or if the proceeds of this Offering prove to be insufficient to fund operations (due to unanticipated expenses, technical difficulties, problems or otherwise), the Company would be required to seek additional financing sooner than currently anticipated. There can be no assurance that the proceeds of this Offering will be sufficient to permit the Company to successfully further develop and commercialize the Company's smart card technology or that any assumptions relating to the Company's operations will prove to be accurate. In addition, any implementation of the Company's business plans subsequent to the twelve month period following this Offering may require proceeds greater than the proceeds of this Offering or otherwise currently available to the Company. There can be no assurance that additional financing will be available to the Company on commercially reasonable terms, or at all. Further, if the closing of this Offering is delayed, the Company may not have sufficient capital to fund operations and the anticipated expenses of this Offering. Although the Company believes it may be able to raise at least a portion of the Company's future financing requirements for such period among the officers, directors and/or stockholders of the Company, no officer, director or stockholder of the Company has made any further commitment to the Company to provide any portion of the Company's future financing requirements and there are no assurances that any officer, director or stockholder will do so. Any inability to obtain additional financing when needed may have a material adverse effect on the Company, including requiring the Company to curtail its activities and possibly causing the Company to cease its operations. To the extent that the Company finances its operations through the issuance of additional equity securities, any such issuance would result in dilution of the interests of the Company's then-existing stockholders. At some future date, the Company intends to offer up to approximately $30 million in debt financing, to be negotiated by Beter. Upon closing of such debt financing, Beter would receive the Beter Option. There can be no assurance that such additional financing, or any other additional financing, will be available to the Company on commercially reasonable terms, or at all. Further, if such additional financing is attempted, there can be no assurance that such additional financing, or any other additional financing, will be successful. To the extent that the Company incurs indebtedness or issues debt securities, the Company will be subject to all of the risks associated with incurring substantial indebtedness, including the risks that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on any such indebtedness. POSSIBLE FLUCTUATIONS IN OPERATING RESULTS The sales cycle for a prospective System Sponsor is expected to commence at the time the prospective System Sponsor demonstrates an interest in purchasing a smart card system from the Company or issues a request for a proposal or information or takes similar action and ends upon the installation of a smart card system for the System Sponsor. The sales cycle will vary by System Sponsor and could extend for periods of up to twelve months or more, depending upon, among other things, the time required by the System Sponsor to complete a pilot test of the Company's smart card system, make a determination regarding an acquisition thereof and negotiate payment terms with the Company. The Company's operating results could vary from period to period as a result of this fluctuation in the length of the Company's sales cycle and as a result of fluctuations in the purchasing patterns of potential System Sponsors, technological factors, variations in marketing strategies for different target markets and non-recurring smart card system sales. 31 BUSINESS GENERAL The Company, a development stage company, was organized to design, develop and market high security, flexible, multiple application smart card systems. A smart card is a credit card-sized plastic card containing a microchip that provides the card with memory storage capabilities in a secure environment and, in advanced versions such as the Company's, enables the card to perform data processing functions. Smart card systems are typically used by government agencies or commercial enterprises (the "System Sponsor") to store, access and modify participant or customer (the "User") information. The Company's proprietary smart card technology and software enable System Sponsors to store data on a User's smart card, and enable the System Sponsor, or a service provider authorized by the System Sponsor (the "Authorized Service Provider"), to access User information and read, input, delete, modify and process such data. The Company designs its smart card systems to perform functions for various target markets, such as employee licensing, animal health and registration, frequent patron tracking, health care and various government agency applications and can design each system to perform various functions in virtually any industry, depending on the System Sponsor's needs. The Company believes that its smart card systems, which offer the capability to perform multiple functions on a single card, provide enhanced security and privacy protection not offered by existing smart cards and position the Company to capitalize on perceived market opportunities for information systems incorporating smart card technology. INDUSTRY BACKGROUND Smart card technology was developed in France in the mid 1970s and is currently in wide use in Europe, the Pacific Rim, Latin America and the Middle East. According to the market researcher Dataquest, the microprocessor and memory based smart card market will grow from 544 million cards in 1995 to 3.4 billion cards by 2001. Most smart cards currently in use are low capacity memory-only phone cards which provide only data storage, reading and deletion capabilities. More sophisticated smart cards, including the Company's smart cards, are microprocessor-based and therefore have the ability not only to store, read and delete data but also to add, modify and process data. However, the Company believes that most microprocessor-based smart cards currently in use were designed to perform functions for single purpose applications only, such as pay television access control, medical or academic recordkeeping or insurance claim processing. The Company believes that these smart cards also generally utilize multiple, alternative technologies such as microchips, bar codes and magnetic stripes simultaneously, or allow access by any Authorized Service Provider to all the information included within the card. Most cards currently used in electronic transactions are magnetic stripe cards, such as ordinary credit cards. Such cards contain only limited information such as account numbers and identification information, but cannot store or update additional information such as current account balances. The Company believes that the market for smart cards in North America remains relatively unexploited due to the large capital and infrastructure investments made by debit and credit card issuers and the significantly lower costs associated with the use of magnetic stripe cards. However, smart cards have recently been introduced in the United States in a number of venues. For example, a stored value card program designed to facilitate purchases from participating vendors was used during the 1996 Summer Olympics. In addition, the National Football League's Jacksonville Jaguars and the National Hockey League's St. Louis Blues have each installed smart card systems to be used for the purchase of concession items at their respective sports games. Government Technology Magazine stated in a February 1996 issue that U.S. welfare reform legislation mandates that every state replace its paper food stamp system with an Electronic Benefit Transfer (EBT) scheme by the year 2002, consistent with the government's push towards a paperless society. Pursuant to this mandate, many states use magnetic stripe cards for their food stamp programs, and the States of Mississippi, Ohio and Wyoming have each proposed plans to replace food stamps with a card-based system to improve convenience and efficiency, as well as to decrease fraud. A joint pilot program in Manhattan's Upper West Side between MasterCard, Chase Manhattan Bank, VISA and 32 Citibank brings the idea of electronic cash to New York consumers and merchants, with almost 700 merchants participating in the program. The Company's smart cards are based on concepts similar to these applications, but the Company's cards can contain more information due to the Company's patented method of multiple application layering. In addition, only the Company can utilize its patented dual card access technology. The Company believes the enhanced security features and multiple function capabilities of its cards take existing smart card technology several steps further. The Company believes that smart cards offer certain advantages over magnetic stripe cards including the ability to store pages of information and update or otherwise utilize data as circumstances require. In addition, while the data contained on magnetic stripe cards is difficult to secure, smart cards can be programmed to prevent manipulation of data stored in the card. A smart card can also be programmed with an unalterable memory, prohibiting the writing of new data on top of old data, and can be programmed to utilize public and private key encryption algorithms to lower the risk of theft of sensitive data. Furthermore, unlike magnetic stripe cards, most smart cards are extremely difficult and expensive to alter, duplicate or reproduce. The Company believes that the limitations of magnetic stripe cards will present significant market opportunities in North America for smart card systems featuring enhanced security and multiple application layering as electronic transactions, including government benefits transfers, licensing and frequent patron tracking, become more complex. TECHNOLOGY OVERVIEW The Company's proprietary smart card systems incorporate dual card access technology and multiple application layering. The Company believes that these components result in certain advantages over magnetic stripe cards and existing smart card systems, including enhanced security features and multiple function capabilities. The Company's patented dual card access technology (analogous to a dual key system for access to a safe deposit box) requires the simultaneous use of both a "User Card" and an "Access Card" to activate the system. User Cards are issued by a System Sponsor (such as an HMO, welfare agency, state motor vehicle department or retail store) to Users such as patients, benefits recipients, drivers or customers. Access Cards are issued by the System Sponsor to Authorized Service Providers affiliated with the particular System Sponsor (such as HMO participating physicians, welfare administrators, police officers and cashiers). Each User Card issued by the System Sponsor has stored within it an individualized database containing User-specific information, which is stored in a "common pool." By virtue of the dual card access and multiple application layering features of the Company's technology, a basic set of data carried on a single smart card can be processed and configured according to the specific requirements of each application layer of the card. As a result, a vast array of information and electronic documents and reports can be generated for various categories of System Sponsors and Authorized Service Providers, thereby substantially increasing the potential number of uses for each card. For example, one User's smart card provided by the Company could generate a medical history when activated by an HMO's participating physician's Access Card, an insurance claim record when activated by the HMO's benefits administrator's Access Card, a welfare benefits record when activated by a welfare administrator's Access Card, and a driver's license when activated by a police officer's Access Card. By providing a System Sponsor with the ability to add applications over time and allowing multiple System Sponsors to utilize different layers of the same smart card, the Company's smart card systems will enable the cost per smart card to be allocated among separate System Sponsors or different departments within a single System Sponsor. The Company's patented method of multiple application layering technology allows an Access Card to retrieve from this common pool of information only the data that the Access Card in use is programmed to access. The data stored on the User Card is then displayed and processed in accordance with the requirements of the application layer activated by the particular Access Card in use. This process increases the potential number of uses of the User Card and enables a single User Card to serve multiple System Sponsors as well as multiple Authorized Service Providers within a single System Sponsor. The Company 33 believes that these features position its smart card systems as secure, cost-effective solutions for electronic transaction and information processing. Generally, smart cards can incorporate advanced security features, ranging in sophistication from a password, photograph or personal identification number system to a fingerprint, retinal scan or facial geometry recognition system, which are not found in magnetic stripe cards. The Company believes that the multiple application layering feature of its smart card systems provide enhanced security and privacy protection. Each application layer is separate, with "firewall"-type safeguards to prevent unauthorized access to data in another application layer. Moreover, each layer can be programmed with the level of security appropriate to the sensitivity of the data contained in such layer. In addition, the Company's systems establish an "audit trail" which will record specific information regarding each instance in which data is accessed, including the time, the date and the identity of the person accessing information. The Company's technology also permits easy adaptation and customization, allowing the Company to provide a smart card system tailored to the System Sponsor's needs. The Company's technology provides system scalability by allowing a System Sponsor, over time, to increase the number of applications performed by its smart cards, provide additional services or add other System Sponsors. Furthermore, the Company's technology can support a communication system in which messages and data updates can be sent between the System Sponsor and the Authorized Service Provider and/or User, including messages that render a card inoperable if no longer valid. PRODUCTS The Company was organized to design, develop and market high security, flexible, multiple application smart card systems, which are comprised of the following products: SMART CARDS. The Company currently uses commercially available microchips with varying amounts of memory, depending upon each System Sponsor's requirements. The Company arranges for initial entry of database information on the User Cards and authorized access codes on the Access Cards to the System Sponsor's specifications. READ/WRITE DEVICES. A read/write device is hardware that provides the data interface between a smart card and the host computer, allowing data to be transferred between a database and a smart card. Information can be uploaded and downloaded between the Access Card and the User Card at any read/ write device within the system. The Company's smart card systems utilize basic, relatively inexpensive read/ write devices because certain functions that would otherwise be performed by the read/write devices are performed by the software within the Company's smart cards. In addition, because the Company's smart cards conform to applicable industry standards, the cards are compatible with various types of read/write devices currently in use. PRINTERS. The Company utilizes smart card printers for printing images and other information required to be displayed on the face of the smart cards. These printers may also include a chip encoder that can write information to the chip at the same time as the smart card is printed. Numerous such printers are available in the industry. CUSTOMIZED APPLICATION SOFTWARE. Each smart card system developed by the Company, in order to perform the various applications included in that system, requires customized application software to be written relating to the specific tasks to be accomplished. Typically, such customized application software includes software that performs certain basic functions, as well as software that performs the specific functions required by the particular system. The Company has developed software that performs the basic functions required to be performed by all of the Company's smart card systems. By virtue of having developed such software, the Company is able to create the customized applications required for a particular system more quickly than if all of the software necessary to implement the system were required to be developed for each particular application. The Company's proprietary software has been developed 34 for use on a workstation personal computer. In addition, the Company is a member of the Microsoft development team and participates in alpha and beta testing of new Microsoft products. The Company's proprietary software is compatible with Windows 3.x-TM-, Windows 95-TM-, Windows NT-TM-. and Windows 98-TM-. The Company intends to provide each System Sponsor with a customized configuration of its products based upon the System Sponsor's specific needs and constraints, ranging from subsystems comprised of selected components which may be integrated with products or systems provided by third parties, to complete "turnkey" systems. Each System Sponsor will utilize system stations to facilitate initial and ongoing operation of each system installed by the Company. An issue station will issue personalized smart cards, and will be comprised of one or more personal computers, video cameras for systems requiring photographs on User Cards, read/write devices, card printers and system software. An update station will implement necessary changes to the Company's smart cards, such as updating of information or modification of an Authorized Service Provider's ability to access particular User information, and will be comprised of a personal computer, one or more read/write devices and system software. One or more display stations will permit a User or Authorized Service Provider to view information stored on a User Card, and will be comprised of a personal computer, notebook computer and/or hand-held display device, read/write devices and system software. One personal computer may in some cases function as issue station, update station and display station, depending on the rights encoded in the Access Card used. The Company anticipates that a System Sponsor may, under certain circumstances, seek to utilize, or otherwise procure, its own system station hardware. In such cases, the Company would expect to aid the System Sponsor in integrating such hardware with the smart card system products provided by the Company. PRICING. The prices of the Company's products will depend on the System Sponsor's specifications and requirements relating thereto (including the number and type of application layers per card) and any applicable volume discounts. The price of the Company's customized application software will depend upon various factors, including the nature and complexity of the smart card products and required system interfaces. The off-the-shelf products comprising the balance of the components of the smart card systems offered by the Company (including personal computers, notebook computers and hand-held display devices) will be offered at then-prevailing market prices. WARRANTY AND SERVICE. The Company offers a limited warranty covering both parts and labor, pursuant to which the Company or its authorized service representatives will make repairs and replace parts that become defective due to normal use. The Company does not anticipate that the cost of servicing its smart card systems will be material. Furthermore, substantially all component parts of the Company's smart card systems will be covered by warranties from the suppliers thereof. However, there can be no assurance that future warranty expenses will not have an adverse effect on the Company. TECHNICAL SUPPORT. The Company offers technical support to its System Sponsors at no charge on a limited basis, as described in each individual System Sponsor contract. Beyond the specified level, the Company charges an hourly rate for additional technical support. The Company does not anticipate that the cost of offering such technical support services will be material. SMART CARD PRODUCT DEVELOPMENT The Company believes there are numerous potential applications for its smart card systems, including but not limited to the following: EMPLOYEE LICENSING--Licensing and identifying employees in certain regulated industries, including photo identification, time and attendance records, specific database information required by the employer and access control to secure areas. ANIMAL HEALTH AND REGISTRATION--Tracking of lineage history, medical information, identification, breed information, nutritional information, performance data and history of interstate and intrastate movement of thoroughbred horses and various other racing and show animals and domestic pets. 35 GOVERNMENT APPLICATIONS--Issuing citizen photo identification and government licenses (such as motor vehicle, professional and weapons licenses) and maintaining and processing government entitlement information (including Medicare, Medicaid and welfare information). FREQUENT PATRON PROGRAMS AND TRACKING--Awarding of points, miles or other credits for retail purchases and tracking of customer purchases to facilitate more focused target marketing. GAMING--Controlling and monitoring loss limits, employee licensing and frequent player tracking. HEALTH CARE--Simplifying and expediting the verification of patient insurance coverage and maintaining paperless medical records by medical service providers. SOFT TRADING DESK--Reconfiguring the hardware and software of a securities trading desk through the use of information embedded in each individual trader's smart card to accommodate each trader's individual screen and information preferences. The Company has installed an employee licensing system for the Birmingham Racing Commission. The agreement provides for the Company to deliver smart cards and hardware in connection with the licensing and monitoring of racetrack personnel and others. Pursuant to the agreement, the Company has developed a licensing database containing more than 30 categories of information for each licensee, including name, address, date and place of birth, height, weight, employer's name, fines, rulings, suspensions and revocations. To date, the Company has provided the Birmingham Racing Commission with over 15,000 smart cards, a smart card printer and chip encoder and two (2) read/write devices. The term of the agreement is five years, subject to early termination upon 30 days notice to the Company. The Company may not terminate the license before expiration of the five-year term of the agreement. The Company has installed a similar system at the Macon County Race Course in Alabama under a separate contract. See "Certain Transactions." The Company has also installed an employee licensing system at the Oregon Racing Commission and, to date, the Company has sold approximately 9,500 smart cards and four (4) read/write devices to the Oregon Racing Commission. The Company also has two contracts with NAPRA for a national licensing system that includes a database for eighteen racing jurisdictions, including information on licensing data, infractions and digital photographs. In March 1998, the Company installed an employee licensing system at the Idaho Racing Commission. The system utilizes approximately 1,500 processor cards for mobile employees who travel between racing facilities, such as jockeys, owners and trainers, plus over 2,000 memory only cards for stationary employees, such as food vendors and ticket takers. From June 1 to September 1, 1995, the Company conducted a pilot program at Atlantic City Raceway and Monmouth Park in New Jersey and Philadelphia Park in Pennsylvania involving the issuance of equine medical passport smart cards to track the identity, movement and medical records of thoroughbred racehorses. To prevent the spread of a deadly disease, the federal government requires any horse crossing state lines to have a negative Coggins Report which evidences a negative test result for Equine Infectious Anemia. A Coggins Report is valid for one year from the issue date. Further, each state requires a valid health certificate for any horse entering the state. Under the New Jersey and Pennsylvania program, data on approximately 500 thoroughbred racehorses that would otherwise have been provided in paper documents was entered into smart cards provided by the Company and each track gatekeeper in the program utilized a reader terminal that interfaced with the cards to determine whether particular horses were eligible for entry on racetrack grounds. The pilot was co-sponsored by The Jockey Club Racing Services, Inc. During the pilot program, the Company issued approximately 500 equine medical passport smart cards. The Company is currently developing enhancements to the smart card system utilized in the pilot program in order to address certain operational issues that arose during the program. Although the completed program successfully tested the equine medical passport smart card system, such pilot program 36 has not resulted in any system sales to date. There can be no assurances that any of the Company's pilot programs will result in system purchases by any potential System Sponsor. The Florida Department of Agriculture and Consumer Services Bureau of Disease Control has proposed a similar pilot project anticipated to begin as soon as possible. The Bureau of Disease Control is responsible for ensuring the health and marketability of livestock in the state of Florida The states of Florida, Georgia and Alabama have formed an alliance whereby a special ninety (90) day pass authorized by any of the three states can be used to cross state lines between these states. The proposed Florida pilot program will involve a test "livestock medical passport" program in which each of 100 animals will be implanted with an "electronic identification transponder" used in conjunction with smart cards to verify each animal's identity and federal and state medical certifications. This pilot program will replace the required paper passports for horses crossing between these states. Although completed programs in New Jersey and Pennsylvania successfully tested the equine medical passport smart card system and similar electronic transponder implants are in use which are not coordinated with smart card technology, such equine medical passport pilot programs have not resulted in any system sales to date. The Company has entered into a Memorandum of Understanding with Traquer to market the Company's smart card systems to Indian gaming and wagering facilities in North America. Traquer has significant expertise with the rules and regulations for Indian gaming environments. In February 1998, the Company received its first order from Traquer to provide a smart card based employee licensing system to an Indian tribe in Arizona. This system is expected to be installed by August 1998. The Company received a request from Foundation Health, a Florida based HMO, to structure a smart card system to assist and expedite the verification of patient insurance coverage by hospital employees. The pilot program involves Palmetto Hospital, one of the largest hospitals in Miami, Florida, and the Company anticipates the initial phase will be installed by July 1998. Other phases of this proposed project may include expanding the smart card based verification capability to all Foundation Health member hospitals and Authorized Service Providers in south Florida. The final phase may provide all Foundation Health members with enhanced smart card member identification capabilities. The Company has also been selected as a subcontractor to Paradigm 4 for the proposed New York City Time Project. The City of New York has significant problems tracking city employees and verifying the accuracy of actual hours worked. This project will pilot a number of technologies, including the use of smart cards, for time and attendance management and tracking of city employees. The Company is negotiating an exclusive distributorship agreement with AVID Identification Devices, Inc. ("AVID"). AVID uses PETtrac, a worldwide computerized tracking system for companion animals. Under the terms of the agreement, AVID will have the right to sell a unique smart card based system developed by the Company exclusively for AVID and to be used in conjunction with AVID's radio frequency identification devices currently being sold worldwide to veterinarians and other customers. Owners of animals will carry with them the Company's smart card containing animal tracking information related to the existing PETtrac identification system as well as other AVID related applications, including animal records. There can be no assurance that the Company will be successful in negotiating this agreement. The Company, either alone or in conjunction with strategic partners, is currently in discussions and negotiations with certain potential System Sponsors regarding possible future smart card projects. The Company, through the Subsidiary, has entered into a Memorandum of Understanding with SHL Systemhouse, an international systems integrator owned by MCI, to form a joint venture for the purpose of attempting to secure a project to develop a smart card system for the Province of Ontario, Canada. There can be no assurance that any such projects will be implemented or, if implemented, generate meaningful revenues. 37 MARKETING AND SALES The Company's objective is to become a leading provider of smart card systems to government and commercial System Sponsors requiring increasingly complex, secure and cost-effective information processing systems. Because the Company believes there are numerous potential target markets for the Company's smart card systems, the Company intends to market its products through multiple channels, including through strategic marketing alliances and licensing or other arrangements with systems integrators, value added resellers and other smart card vendors. The Company believes that such arrangements will enable it to have access to substantial numbers of potential smart card System Sponsors, and that third-party partners can provide knowledge, experience and/or financial resources appropriate to a specific market opportunity and may enhance the Company's ability to achieve significant penetration in select markets, especially in those involving government services. The Company anticipates that, under certain circumstances, its smart card products will be bundled with its strategic partners' products and services to create a complete integrated system that can be marketed to potential System Sponsors. The Company will also seek to provide complete smart card solutions, on a turnkey basis, to System Sponsors by providing all of the hardware and software elements required to implement the system. The Company will seek to identify potential System Sponsors and strategic partners and attempt to increase the visibility of the Company. It will be the role of the Director of Sales, under the direction of management, to guide the Company from the research and development phase to a company with full marketing and sales strategies for direct and indirect sales. The Company intends to market its smart card systems directly through its management and employees and may also retain the services of third parties such as independent sales representatives and marketing and other consultants. The Company utilizes independent sales representatives in the United States and abroad, whose relationships with the Company are generally governed by a written contract for a specified term, subject to renewal under certain circumstances, and provides for a limited exclusive territorial or industry representation, specified fees or commissions and specified sales targets. The Company may, in the case of potential System Sponsors within certain target industries, sell its systems through marketing and other consultants with relationships in such industries. The Company also plans to market its systems through sales brochures, direct mailings, advertisements in trade publications and participation in industry trade shows. The Company intends to utilize a portion of the proceeds of this Offering to expand its marketing and sales activities. RESEARCH AND DEVELOPMENT AND TECHNOLOGY PURCHASE For the years ended December 31, 1996 and December 31, 1997, the Company incurred costs relating to research and development activities in the approximate amounts of $167,000 and $260,000, respectively. The Company intends to utilize a portion of the proceeds of this Offering for research and development, including $712,000 (of which $72,000 has been expensed through March 31, 1998, $100,000 is expected to be capitalized and $540,000 is expected to be expensed ratably over approximately a 2.5 year period) payable to SoftChip in connection with the purchase of the DVK-1 System and the further enhancement of the Company's proprietary technology as well as the development of system applications and pilot programs for potential System Sponsors. The Company further intends to pursue additional patents on various aspects of its technology. MANUFACTURING The Company does not manufacture its own microprocessor chips or associated hardware or assemble its own smart cards. Components for the Company's smart cards, such as microprocessor chips and plastic cards as well as associated hardware, may be purchased from a number of qualified electronic parts manufacturers and distributors. The Company is under no obligation to purchase any such components from any one particular manufacturer and therefore may obtain quality components at the best possible prices the Company can find. 38 COMPETITION The market for the Company's smart card systems is characterized by intense competition. The market is currently dominated by cards utilizing magnetic stripes, and is expected to be dominated by magnetic stripe cards for the foreseeable future due to the lower costs of production of such cards and the substantial capital and infrastructure investments made by debit and credit card issuers in such cards. The Company also competes with numerous well-established companies, including Gemplus, Bull PTS (a unit of Groupe Bull), Schlumberger Electronic Transactions (a business segment of Schlumberger Limited), Orga Kartensysteme GMBH, Giesecke & Devrient and Mondex International, which design, manufacture and/or market smart card systems. Although the Company believes that its dual card access and multiple application layering technologies will allow the Company to compete on the basis of enhanced security, flexibility, scalability, cost-effectiveness and quality, the Company's smart card systems incorporate new concepts and may be unsuccessful even if they are superior to those of its competitors. In addition, certain companies may be developing technologies or products of which the Company is unaware which may be functionally similar or superior to those developed by the Company. Most of the Company's competitors and potential competitors possess substantially greater financial, marketing, personnel and other resources than the Company and have established reputations relating to the design, development, manufacture, marketing and service of smart card systems. As the market for smart card systems grows, new competitors are likely to emerge. Additional competition could adversely affect the Company's operations. Smart card technology competes with other electronic transaction and information processing technologies, including magnetic stripe cards, bar code cards, laser optical cards and radio frequency contactless cards, as well as traditional methods of transaction and information processing, whether effected or recorded on paper or otherwise. GOVERNMENT REGULATION AND INDUSTRY STANDARDS In the United States, the Company is not currently subject to direct regulation other than federal and state regulations applicable to businesses generally. However, changes in the regulatory environment relating to the smart card industry could have an adverse effect on the Company's business. Legislative proposals from federal and state government bodies in the area of privacy rights could impose additional regulations and obligations upon all smart card providers. The Company cannot predict the likelihood that any such legislation will pass, nor the financial impact, if any, that any such legislation may have. Moreover, the applicability to smart card System Sponsors and Authorized Service Providers of existing laws governing issues such as personal privacy is uncertain. The Company believes that its smart card systems are currently in compliance with the quality assurance standards of ISO-7816, an international standard promulgated by the International Organization for Standardization, a worldwide federation of standards bodies from approximately 100 countries. The European Community and others have adopted these standards as their preferred quality standards. However, as technological advances occur in the smart card industry, other emerging standards may gain widespread acceptance. While compliance with applicable and emerging standards is the responsibility of the Company's suppliers, any failure on the part of the Company's suppliers to comply with such standards could materially and adversely affect the Company's sales to various System Sponsors and prevent the Company's expansion into certain markets. As part of its strategy, the Company intends to market its smart card systems to government agencies in the United States and Canada. If successful, the Company will become subject to the special risks involving government contracts, including delays in funding, lengthy review processes for awarding contracts, non-renewal, delay, termination at the convenience of the government, reduction or modification of contracts in the event of changes in the government's policies or as a result of budgetary constraints and increased or unexpected costs resulting in losses. The Company will also be required to obtain most potential government contracts through the competitive bidding process. The competitive bidding process is typically lengthy and often results in the 39 expenditure of financial and other resources in connection with bids that are not accepted. Additionally, inherent in the competitive bidding process is the risk that actual performance costs may exceed projected costs upon which a submitted bid or contract price is based. Moreover, in some instances, the Company would be required to post bid and/or performance bonds in connection with contracts with government agencies. To the extent that the Company is able to successfully expand its operations into foreign markets, the Company may become subject to trade restrictions (including restrictions on the export of critical technology), export duties and tariffs and international political and regulatory developments. INTELLECTUAL PROPERTY The Company's success will depend in part on its ability to enforce its patents, protect trade secrets and operate without infringing on the proprietary rights of others. The Company has received United States patent number 5629508 with respect to its dual card access technology and methods. In addition, the Company has filed a continuation-in-part on its patent. If granted, this will significantly expand the Company's intellectual property rights pertaining to dual card-based data retrieval and access control. The Company contemplates filing patent applications in selected foreign jurisdictions where such filings would, in the Company's opinion, provide it with a competitive advantage. The patent laws of other countries may differ from those of the United States as to the patentability of the Company's products or technology and the degree of protection afforded by foreign patents may be different from that in the United States. The failure by the Company to obtain any foreign patents could have a material adverse effect on the Company's ability to successfully commercialize its smart card systems outside the U.S. Even though the Company has been able to obtain a patent, there can be no assurance that this patent will afford the Company commercially significant protection for its technology. Other companies may independently develop equivalent or superior technologies or products and may obtain patent or similar rights with respect to them. The Company is not aware of any infringement by its technology on the proprietary rights of others and has not received any notice of claimed infringement. However, the Company has not conducted any investigation as to possible infringement and there can be no assurance that third parties will not assert infringement claims against the Company in connection with its products, that any such assertion of infringement will not result in litigation, or that the Company would prevail in such litigation. Moreover, in the event that the Company's technology or proposed products were deemed to infringe upon the rights of others, the Company would be required to obtain licenses to utilize such technology. There can be no assurance that the Company would be able to obtain such licenses in a timely manner on acceptable terms and conditions, or at all, and the failure to do so could have a material adverse effect on the Company. If the Company were unable to obtain such licenses, it could encounter significant delays in product market introductions while it attempted to design around the infringed upon patents or rights, or could find the development, manufacture or sale of products requiring such license to be foreclosed. In addition, patent disputes occur in the smart card and computer industries and there can be no assurance that the Company will have the financial resources to enforce or defend a patent infringement or proprietary rights action. In addition, the Company has received a federal trademark registration for its SMART-ID-Registered Trademark- mark and design and has applied for a federal trademark registration for its Cheeze! mark. SMART-ID-Registered Trademark- is a smart card based system that provides positive identification, transaction tracking and the ability to layer multiple applications on a single smart card. Cheeze! is a program currently used by eighteen pari-mutuel licensing jurisdictions to photograph licensees and transmit the photograph and license data to a central database, which is currently housed at the Company's offices. The Company's use of its software, name and marks may be subject to challenge by others, which, if successful, could have a material adverse effect on the Company. The Company has entered into an agreement with SoftChip Israel Ltd. of Jerusalem, Israel and its affiliate, SoftChip Technologies (3000) Ltd. (collectively, "SoftChip"), to purchase the DVK-1 Chip Mask Operating System and architecture ("DVK-1 System") for a purchase price of $100,000 and for SoftChip to 40 provide technical support and development to the Company for at least a two-year period for an additional $450,000 plus royalties ranging from $.125 to $.25 for each smart card sold by the Company that incorporates the DVK-1 System. Upon its closing, which is scheduled to occur after the minimum closing of this Offering, this agreement will provide the Company ownership of its own chip mask and access to the technical resources needed to develop a completely new and proprietary chip mask and operating system. The chip mask provides the basic instructions to the microchip and its internal components and facilitates the orderly utilization of all of the microchip's components and allows the device to be utilized. The Company has also executed a purchase order with SoftChip for technical services for a monthly fee of $18,000, which commenced December 1, 1997. The Company is obligated to pay the amount payable under the purchase order, the purchase price and the fees for technical support, no later than September 15, 1998, which will reduce the amount of working capital available to the Company. Under the agreement, ownership of the DVK-1 System will be transferred to the Company at closing upon payment in full of the purchase price and technical support fees. If the closing of the minimum offering is delayed beyond September 15, 1998, the Company believes it may be able to reach a mutual agreement with SoftChip to extend the closing date of the agreement, but there can be no assurance that the Company will be able to reach such agreement with SoftChip, or that the Company will ultimately secure ownership of the DVK-1 System if the closing of the minimum offering is delayed beyond September 15, 1998. Additionally there can be no assurance that ownership of the DVK-1 System will result in the successful development of new technology. See "Plan of Operation" and "Business--Intellectual Property." The Company also relies on trade secrets and proprietary know-how and employs various methods to protect the concepts, ideas and documentation relating to its proprietary technology. However, such methods may not afford the Company complete protection and there can be no assurance that others will not independently obtain access to the Company's trade secrets and know-how or independently develop products or technologies similar to those of the Company. Furthermore, although the Company has and expects to have confidentiality and non-competition agreements with its employees and appropriate suppliers and manufacturers, there can be no assurance that such arrangements will adequately protect the Company's trade secrets. The Company purchases many of the hardware and non-proprietary software components of its smart card systems through normal electronic and computer distribution channels. Typically, such components are sold with standardized license agreements containing non-negotiated terms, conditions and restrictions established by the manufacturer. EMPLOYEES As of the date of this Prospectus, the Company had ten full-time employees, consisting of four executive officers and six employees engaged in engineering, technical support, product development, marketing and sales, including the Company's recently appointed Director and Sales. See "Management." The Company also uses the resources of independent programmers and consultants from time to time on an as needed basis. The Company anticipates that it will hire additional sales and technical personnel to continue to implement the Company's marketing and product development efforts and may engage independent sales representatives and industry-specific marketing consultants to assist the Company in marketing the Company's smart card systems to potential System Sponsors. FACILITIES The Company leases, pursuant to a sublease, approximately 2,750 square feet of office space at 1355 Terrell Mill Road, Marietta, Georgia. The sublease commenced on January 1, 1997 and will continue through January 31, 2000. Pursuant to the sublease, the Company is required to pay rent of approximately $3,005 per month, increasing through the term of the sublease to approximately $3,100 per month. The Company currently leases furniture and fixtures for such facility at a rate of approximately $481 per month. 41 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The current directors and executive officers of the Company are as follows:
NAME AGE POSITION - -------------------------- ---- ----------------------------------------------------------- Lawrence O. Perl.......... 55 Chief Executive Officer, Chief Financial Officer, Chairman of the Board & Director Raymond Findley, Jr....... 49 President, Chief Operating Officer & Director Robert H. Dixon........... 37 Vice President of Technical Operations Lilly Beter............... 64 Secretary & Director Harold Rothstein.......... 75 Director Raymond A. Roncari........ 73 Director Bruce R. Bonadies......... 55 Director Gordon W. Walker.......... 56 Director
LAWRENCE O. PERL, a co-founder of the Company, has served as Chairman of the Board, Chief Executive Officer and a director of the Company since its inception and currently serves as the Company's Chief Financial Officer. From April 1993 to June 1994, Mr. Perl served as Chief Executive Officer and a director of McKinnie Systems, Inc. ("McKinnie"), a privately held supplier of computerized management information systems to the pari-mutuel industry. From September 1984 through March 1993, Mr. Perl served as a financial consultant for Roncari Industries, Inc., a privately held producer of quarry, asphalt and concrete products. In addition, since August 1977, Mr. Perl has served as President of Lawrence Owen Associates, Inc., a privately held hotel and financial consulting firm, and, since 1978, has been affiliated with other privately held entities engaged in hotel ownership and management. RAYMOND FINDLEY, JR., a co-founder of the Company, has been President, Chief Operating Officer and a director of the Company since its inception. From June 1990 to May 1994, Mr. Findley served as President and Chief Executive Officer of Phoenix DataCrypt Systems, Inc., a privately held designer and developer of smart card-based technology and business applications. From September 1988 to April 1990, Mr. Findley was President and Chief Executive Officer of British Telecom CBP, Inc., a developer and marketer of financial telecommunications and trading systems. ROBERT H. DIXON has been Vice President of Technical Operations of the Company since July 1994. From September 1987 to July 1994, Mr. Dixon was employed as software manager of McKinnie and from April 1984 to August 1987 Mr. Dixon was employed as computer programmer by Tri-State Lighting, Inc., a privately held lighting fixture manufacturer. HAROLD ROTHSTEIN, a co-founder of the Company, has been a director of the Company since January 1996. In 1967, Mr. Rothstein founded Utility Development Corporation, a Connecticut-based privately held general contracting firm which is primarily engaged in building federally insured multi-family and low-income housing. Mr. Rothstein has served as the Chief Executive Officer of Utility Development Corporation since its inception. RAYMOND A. RONCARI, a co-founder of the Company, has been a director of the Company since January 1996. From 1979 to July 1995, Mr. Roncari served as the President and Chief Executive Officer of Roncari Industries, Inc., thereafter serving as President and Chief Executive Officer of Tilcon-Roncari, Inc., a partial successor-in-interest to Roncari Industries, Inc. until January 1997, at which time he retired. Mr. Roncari continues to serve as President and Chief Executive Officer of Roncari Industries, Inc. Mr. Roncari has also served as Chairman, President and Chief Executive Officer of Roncari Development Co., a real estate development company, since 1970 and of Roncari Associates, Inc., a cargo facilities company, since 1980. In addition, from 1965 to 1985, Mr. Roncari served as a director and Chairman of the Executive Committee of the Northern Connecticut National Bank--Windsor Locks. 42 LILLY BETER, newly appointed Secretary and member of the Board, is President of Lilly Beter Capital Group, Ltd., with offices in Washington, D.C., Minneapolis, Minnesota and Century City, California. She co-founded the firm over thirty years ago with her late husband, with whom she was also associated in his law practice, providing government representation to clients. Ms. Beter represents companies doing business in the Pacific Rim, South America, Europe and the Caribbean. She is a member of the American League of Lobbyists and the American Arbitration Association. BRUCE R. BONADIES, a newly appointed member of the Board, retired in March 1998 from his position as Vice President, Business Development of Marriott Health Care Services, a division of Marriott International. Mr. Bonadies has held numerous positions with various Marriott companies since 1977, including Senior Vice President of National Food Services and Facilities, Vice President of Sales and Vice President of Area Sales, and Director of Sales, and is currently president of Brandon Scott Associates, LLC, a recently formed sales training and consulting company. GORDON W. WALKER became a director of the Company in February 1997. Mr. Walker serves as counsel to Miller Thomson, a Toronto, Ontario law firm. From 1978 to 1985, Mr. Walker held various government cabinet positions for the Province of Ontario, including Minister of Correctional Services, Provincial Secretary for Justice, Minister of Industry and Trade, and Minster of Consumer and Commercial Relations. Between 1971 and 1985, Mr. Walker served three terms as a member of the Ontario legislature. Executive officers serve at the discretion of the Board. Directors of the Company hold office until the expiration of the term for which they are elected and until their respective successors have been elected and qualified, or until their prior death, resignation or removal. The Board is classified into three classes of directors, with each class serving a staggered three-year term. Messrs. Bonadies and Findley and Ms. Beter are Class I directors, Messrs. Roncari and Walker are Class II directors, and Messrs. Perl and Rothstein are Class III directors. The terms of the Class I, Class II and Class III directors will expire at the annual meetings of stockholders to be held in 2000, 1998, and 1999, respectively. The Company reimburses the directors for reasonable travel expenses incurred in connection with their activities on behalf of the Company, but does not pay its directors any fees for Board participation (although it may do so in the future). Pursuant to the Nonemployee Directors' Stock Option Plan, non-employee directors will automatically be granted each year, on the date of the Company's annual meeting of stockholders, Non-incentive Options (as hereinafter defined) to purchase 2,500 shares of Common Stock of the Company at an exercise price equal to the fair market value thereof on the date of grant. See "--Nonemployee Directors' Stock Option Plan." COMMITTEES OF THE BOARD AUDIT COMMITTEE. Upon the consummation of this Offering, the Company will establish an Audit Committee of the Board (the "Audit Committee") consisting of at least two directors who are not employees of the Company. Audit Committee members will meet regularly with the Company's financial management and independent auditors to review the results of their examination, the scope of audits and their opinions on the adequacy of internal controls and quality of financial reporting. COMPENSATION COMMITTEE. Upon the consummation of this Offering, the Company will establish a Compensation Committee of the Board (the "Compensation Committee") consisting of at least two directors who are not employees of the Company. The Committee will make recommendations to the Board of Directors concerning the salaries of all elected officers. In addition, the Compensation Committee will administer the Company's Stock Option Plan and determine the amounts of, and the individuals to whom, awards shall be made thereunder. See "1996 Stock Option Plan." EXECUTIVE COMMITTEE. Upon the consummation of this Offering, the Company will establish an Executive Committee of the Board (the "Executive Committee"). The Executive Committee will have all the powers of the Board (except those specifically reserved under the DGCL to the full Board of Directors) in the management and direction of the business of the Company. 43 ADVISOR TO THE BOARD The Company has secured the services of Dr. Mary Mundinger as advisor to the Board. Dr. Mundinger currently holds the position of Dean and Professor at the School of Nursing, as well as an Associate Dean in the Faculty of Medicine, at Columbia University in New York. She sits as a consultant and advisor to various state and federal commissions including: The Federally Commissioned Committee to advise the Department of Veteran Affairs on Innovations in Nursing, 1997; The White House Steering Committee on Health, 1996; Co-Chair of the International Society of Technology Assessment in Health Care, Nursing and Technology Assessment Panel, 1993; and the Health Professions Review Group, appointed by President Clinton to review proposals of the Health Reform Task Force, 1993. She has authored two books on nursing and healthcare, as well as numerous articles in various nursing journals and magazines. Dr. Mundinger is also on the Boards of Directors of Cell Therapeutics, Inc. and United Healthcare. Her contacts and experience are expected to be instrumental in promoting smart card technology in the healthcare industry. KEY EMPLOYEE INSURANCE The Company has obtained "key man" insurance on the lives of Messrs. Perl and Findley in the amount of two million dollars each. OTHER KEY EMPLOYEE ROBERT J. CARTAGINE, a 1984 graduate of New York University with a Business Administration degree and a 1985 graduate of the New York Institute of Technology with a Sales Management degree, brings several years of sales experience to the Company as its newly appointed Director of Sales. He has developed training syllabuses for the Regional Bell Operating Companies and was employed for several years with Nynex, New York Telephone, Bell Atlantic and New Jersey Bell as Northeast Regional Sales Director. Mr. Cartagine performed sales services for the Company on a contract basis beginning in February 1998 and became a regular employee in April 1998. Mr. Cartagine will enter into a one-year employment agreement no later than the closing of the minimum offering. EXECUTIVE COMPENSATION The following table sets forth certain information regarding the compensation in each of the last three fiscal years paid to the person who served as the Company's Chief Executive Officer and to the other officers of the Company who earned $100,000 or more during such periods (collectively, the "Named Officers"). SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR ANNUAL SALARY($) ALL OTHER COMPENSATION($) - ------------------------------------------------------------- --------- ---------------- ----------------------------- Lawrence O. Perl, ........................................... 1997 156,000(1) -- Chief Executive Officer 1996 200,000(2) 1995 192,308 Raymond Findley, Jr., ....................................... 1997 189,955(1) -- President and Chief Operating Officer 1996 200,000(2) 1995 192,308
- ------------------------ (1) Does not include $94,000 and $60,045 in accrued but unpaid salary payable to each of Messrs. Perl and Findley, respectively. (2) Does not include $50,000 in accrued but unpaid salary payable to each of Messrs. Perl and Findley. 44 EMPLOYMENT AGREEMENTS Each of the Company's officers, with the exception of Ms. Beter, has executed a five-year employment agreement to be effective upon closing of the minimum offering. 1996 STOCK OPTION PLAN In order to attract, retain and motivate employees (including officers), directors, consultants and other persons who perform substantial services for or on behalf of the Company, the Company has adopted the 1996 Stock Option Plan (the "Stock Option Plan"). Pursuant to the Stock Option Plan, stock options covering an aggregate of 270,000 shares of the Company's Common Stock may be granted to the foregoing persons. Under the Stock Option Plan, "incentive stock options" ("Incentive Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), may be granted to employees (including officers), and non-incentive stock options ("Non-incentive Options") may be granted to any such employee and to other persons (including directors) who perform substantial services for or on behalf of the Company. Incentive Options and Non-incentive Options are collectively referred to herein as "1996 Options." The Stock Option Plan is administered by the Board or, at its discretion, by the Compensation Committee. The Board or the Compensation Committee have complete authority to administer and interpret the Stock Option Plan, to determine the terms upon which 1996 Options may be granted, to prescribe, amend and rescind such interpretations and determinations and to grant 1996 Options. The Board or the Compensation Committee has the power to terminate or amend the Stock Option Plan from time to time in such respects as it deems advisable, except that no termination or amendment shall materially adversely affect any outstanding Option without the consent of the grantee, and the approval of the Company's stockholders will be required in respect of any amendment which would (i) change the total number of shares subject to the Stock Option Plan or (ii) change the designation or class of employees or other persons eligible to receive Incentive Options or Non-incentive Options. The price at which shares covered by a 1996 Option may be purchased pursuant thereto shall be no less than the par value of such shares and no less than the fair market value of such shares on the date of grant (the "Fair Market Value"); provided, however, that in the case of Incentive Options, if the optionee directly or indirectly beneficially owns more than ten percent (10%) of the total combined voting power of all of the outstanding voting stock of the Company (a "10% Holder"), the purchase price shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant. The Fair Market Value will generally be equal to the last sale price quoted for shares of Common Stock on Nasdaq on the date of grant. The purchase price of shares issuable upon exercise of an option may be paid in cash or by delivery of shares with a value equal to the exercise price of the option. The Company may also loan the purchase price to the optionee, or guarantee third-party loans to the optionee, on terms and conditions acceptable to the Board or the Compensation Committee. In the event the aggregate fair market value of the shares of Common Stock (determined at the time the option is granted) with respect to which Incentive Options are exercisable for the first time by the optionee during any calendar year (under all such option plans maintained by the Company) exceeds $100,000, then only the first $100,000 of such shares so purchased will be treated as Incentive Options and any excess over $100,000 so purchased shall be treated as Non-incentive Options. This rule shall be applied by taking 1996 Options into account in the order or sequence in which they were granted. The number of shares covered by an option is subject to adjustment for stock splits, mergers, consolidations, combinations of shares, reorganizations and recapitalizations. The 1996 Options are generally non-transferable except by will or by the laws of descent and distribution, and in the case of employees, with certain exceptions, may be exercised only so long as the optionee continues to be employed by the Company. If the employee dies or becomes disabled, the right to exercise the Option, to the extent then vested, continues for specified periods. 1996 Options may be exercised within a period not 45 exceeding ten years from the date of grant, except that the term of any Incentive Options granted to a 10% Holder may not exceed five years from the date of grant. The terms of Incentive Options are subject to additional restrictions provided by the Stock Option Plan. On February 2, 1998, Incentive Options to purchase an aggregate of 141,000 shares of Common Stock were granted under the Stock Option Plan, including 50,000 shares to Robert Dixon, an officer of the Company. All of such Incentive Options, excluding an option to purchase 1,000 shares, which was canceled on March 20, 1998, will be exercisable at a per share price equal to $12.00 and will vest in annual installments of twenty-five percent (25%) beginning on March 15, 1998. No Non-incentive Options have been granted under the Stock Option Plan. NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN In order to attract and retain the services of non-employee members of the Board of Directors and to provide them with increased motivation and incentive to exert their best efforts on behalf of the Company by enlarging their personal stake in the Company, the Company has adopted the Nonemployee Directors' Stock Option Plan (the "Directors' Plan"). Pursuant to the Directors' Plan, stock options covering an aggregate of 30,000 shares of the Company's Common Stock may be granted to such non-employee directors. Pursuant to the Directors' Plan, each member of the Board of Directors of the Company who is not an employee of the Company (or a subsidiary) (a "Nonemployee Director") and who is elected or re-elected as a director of the Company by the stockholders at any annual meeting of stockholders commencing with the first annual meeting in 1999 will receive, as of the date of each such election or re-election, options to purchase 2,500 shares of the Company's Common Stock at the fair market value thereof on the date of grant. In addition, each Nonemployee Director shall be granted options to purchase 2,500 shares of Common Stock at each annual meeting of the Board during the term of such Nonemployee Director's directorship. All options granted under the Directors' Plan are to be Non-incentive Options. On February 2, 1998, each Nonemployee Director was issued an option to purchase 2,500 shares of Common Stock (aggregating 12,500 shares) at an exercise price of $12.00 per share, pursuant to the Directors' Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION Section 145 of the DGCL contains provisions entitling the Company's directors and officers to indemnification from judgments, fines, amounts paid in settlement, and reasonable expenses (including attorney's fees) as the result of an action or proceeding in which they may be involved by reason of having been a director or officer of the Company. In the Certificate, the Company has included a provision that limits, to the fullest extent now or hereafter permitted by the DGCL, the personal liability of its directors to the Company or its stockholders for monetary damages arising from a breach of their fiduciary duties as directors. Under the DGCL as currently in effect, this provision limits a director's liability except where such director (i) breaches his duty of loyalty to the Company or its stockholders, (ii) fails to act in good faith or engages in intentional misconduct or a knowing violation of law, (iii) authorizes payment of an unlawful dividend or stock purchase or redemption as provided in Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This provision does not prevent the Company or its stockholders from seeking equitable remedies, such as injunctive relief or rescission. If equitable remedies are found not be to available to stockholders in any particular case, stockholders may not have any effective remedy against actions taken by directors that constitute negligence or gross negligence. The Certificate and By-Laws also include provisions to the effect that (subject to certain exceptions) the Company shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify, and upon request shall advance expenses to, any director or officer to the extent that such indemnification and advancement of expenses is permitted under such law, as it may from time to 46 time be in effect. At present, the DGCL provides that, in order to be entitled to indemnification, an individual must have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the Company's best interests. PRINCIPAL STOCKHOLDERS The following table sets forth information as of the date of this Prospectus and as adjusted to reflect the sale by the Company of a minimum of 294,200 and a maximum of 420,000 shares of Common Stock offered hereby and the exercise of the options, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of Common Stock by (i) each person who is known by the Company to beneficially own more than five percent (5%) of the outstanding shares of Common Stock, (ii) each director of the Company and (iii) all of the Company's officers and directors as a group.
SHARES BENEFICIALLY SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE OWNED AFTER MINIMUM OWNED AFTER MAXIMUM OFFERING(2) OFFERING OFFERING ----------------------- ----------------------- ----------------------- NUMBER OF NUMBER OF NUMBER OF NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT SHARES PERCENT SHARES PERCENT - ----------------------------------------------- ---------- ----------- ---------- ----------- ---------- ----------- Lawrence O. Perl(3)............................ 481,285 19.1% 481,285 17.1% 481,285 16.3% Raymond Findley................................ 480,035 19.0% 480,035 17.0% 480,035 16.3% Harold Rothstein(4)............................ 626,528 24.8% 626,528 22.2% 626,528 21.3% Raymond A. Roncari(5).......................... 610,902 24.2% 610,902 21.7% 610,902 20.7% Lilly Beter(6)................................. 2,500 0.1% 2,500 0.1% 2,500 0.1% Bruce Bonadies(7).............................. 3,750 0.1% 3,750 0.1% 3,750 0.1% Gordon Walker(8)............................... 2,500 0.1% 2,500 0.1% 2,500 0.1% Joseph Basch................................... 240,000 9.5% 240,000 8.5% 240,000 8.1% All officers and directors as a group (eight persons)..................................... 2,240,000 87.8% 2,240,000 78.8% 2,240,000 75.4%
- ------------------------ Lawrence O. Perl, Raymond Findley, Harold Rothstein and Raymond A. Roncari may be deemed "promoters" of the Company, as such term is defined under the federal securities laws. (1) The address for each such person is c/o American Card Technology, Inc., 1355 Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia 30067. (2) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date of this Prospectus have been exercised. Assumes 2,525,000 shares of Common Stock outstanding prior to this Offering, 2,819,200 shares of Common Stock outstanding immediately after the minimum offering and 2,945,000 shares of Common Stock outstanding immediately after the maximum offering, before any consideration is given to outstanding options, warrants or convertible securities. (3) Includes 480,035 shares held by the Perl Trust, a family trust for the benefit of the family of Lawrence O. Perl, of which Mr. Perl is a beneficiary. As of May 1, 1998, the Perl Trust entered into a voting trust agreement pursuant to which Bruce R. Bonadies was appointed the voting trustee with 47 respect to the 480,035 shares held by the Perl Trust; such appointment shall expire April 30, 1999. Does not include 1,250 shares issuable upon exercise of warrants received in connection with the 1998 Private Placement. (4) Includes 587,778 shares held by the Rothstein Trust, a family trust for the benefit of the family of Harold Rothstein, and 2,500 shares issuable upon exercise of the option issued pursuant to the Directors' Plan. As of May 1, 1998, the Rothstein Trust entered into a voting trust agreement with Lilly Beter pursuant to which Ms. Beter was appointed the voting trustee with respect to the 587,778 shares held by the Rothstein Trust; such appointment shall expire April 30, 1999. Does not include 23,750 shares issuable upon exercise of warrants received in connection with the 1998 Private Placement or the 12,500 shares issuable upon exercise of his Commitment Warrants. (5) Includes 2,500 shares issuable upon exercise of the option issued pursuant to the Directors' Plan. Does not include 23,750 shares issuable upon exercise of warrants received in connection with the 1998 Private Placement or 12,500 shares issuable upon exercise of his Commitment Warrants. Does not include shares issuable upon exercise of an option to purchase 100,000 shares granted to Shreveport, pursuant to the Shreveport Option, which has since been assigned to Mr. Roncari. (6) Includes 2,500 shares issuable upon exercise of the option issued pursuant to the Directors' Plan. Does not include 100,000 shares issuable to Lilly Beter Capital Group, Ltd., a firm owned and controlled by Ms. Beter, upon exercise of the Beter Option to be granted upon the closing of subsequent debt financing. (7) Includes 2,500 shares issuable upon exercise of the option issued pursuant to the Directors' Plan. Does not include 1,250 shares issuable upon exercise of warrants received in connection with the 1998 Private Placement. (8) Includes 2,500 shares issuable upon exercise of the option issued pursuant to the Directors' Plan. CERTAIN TRANSACTIONS Pursuant to an agreement dated as of January 1, 1993, Shreveport Acquisition Corp. ("Shreveport"), a corporation which was founded by Lawrence O. Perl, the Chairman of the Board, Chief Executive Officer and Chief Financial Officer of the Company, and Raymond A. Roncari, a director of the Company, and which was owned by Mr. Perl, Mr. Roncari and Harold Rothstein, a director of the Company, but was dissolved on December 31, 1997, acquired all of the outstanding stock of McKinnie, a supplier of computerized management information systems to the pari-mutuel industry, for a purchase price of $2 million, which was paid $75,000 in cash and $1,925,000 by delivery of a one-year promissory note which was guaranteed by Mr. Roncari. Concurrently with such acquisition, McKinnie entered into an agreement (the "McKinnie License Agreement") with Amazing Controls!, Inc. and Phoenix DataCrypt Systems, Inc. ("Phoenix"), a company of which Raymond Findley, Jr., the Company's President, Chief Operating Officer and a director, was co-founder, President and Chief Executive Officer. Pursuant to the McKinnie License Agreement, Phoenix granted to McKinnie an exclusive license to use, in connection with McKinnie's management information systems, the smart card technology and computer software owned or licensed by Phoenix (including technology then licensed by Phoenix) for use in the pari-mutuel industry and McKinnie agreed to purchase all of its smart card requirements from Phoenix, a distributor of Amazing Controls!, Inc.'s smart cards. In May 1994, Mr. Findley severed his relationship with Phoenix in order to pursue smart card-related business opportunities with Messrs. Perl, Roncari and Rothstein. In June 1994, Messrs. Findley, Perl, Roncari and Rothstein formed the Company to develop and market smart card technology and applications. In order to pursue their business plan, Messrs. Perl, Roncari and Rothstein elected to divest themselves of control of McKinnie. In July 1994, Shreveport sold a 51% equity interest in McKinnie to The Jockey Club Racing Services, Inc. ("The Jockey Club"). In connection therewith, The Jockey Club agreed 48 to cause McKinnie to transfer to the Company all of McKinnie's rights to any smart card technology, including certain software technology and all rights under the McKinnie License Agreement. The Jockey Club purchased the balance of the McKinnie stock from Shreveport effective December 31, 1997. In December 1996, the Company issued to Shreveport the Shreveport Option to purchase 100,000 shares of Common Stock at an exercise price of $5.00 per share, which has since been increased to $12.00 per share and assigned to Mr. Roncari. The Shreveport Option is exercisable at any time during the five-year period commencing the earlier of January 1, 1999 or 90 days following the closing of the minimum offering. The Shreveport Option provides that upon exercise, in lieu of a cash payment, the option may be exchanged for a number of shares of Common Stock equal to (a) the total number of shares issuable upon exercise of such option for cash, minus (b) a number of shares equal to the quotient of (i) the aggregate exercise price of the exercised portion of the option, divided by (ii) the then current market price of a share of Common Stock. In connection with the formation of the Company in June 1994, each of the Perl Trust, Mr. Roncari, the Rothstein Trust and Mr. Findley (collectively, the "Original Stockholders") purchased 507,500 shares of Common Stock for a purchase price of $250. In January 1995, each of the Original Stockholders sold to Robert Dixon, the Company's Vice President of Technical Operations, 5,000 shares of Common Stock for a purchase price of $1,250. Since the inception of the Company, the Perl Trust and Messrs. Findley, Roncari and Rothstein (either individually or through the Rothstein Trust) have made the Stockholder Loans to the Company in amounts aggregating $30,177, $15,177, $1,008,854 and $1,300,747, respectively. The Stockholder Loans bear interest at ten percent (10%) per annum and are to be repaid from the proceeds of subsequent debt financing, but in no event later than January 1, 2001. In March 1995, $250,000 of the then-outstanding principal amount of the Stockholder Loans of each of Messrs. Rothstein and Roncari was recharacterized as paid-in capital of the Company. Pursuant to an agreement among the Original Stockholders, the aggregate $500,000 Capital Contribution was allocated equally among the Original Stockholders, in consideration for which Mr. Findley issued to Mr. Roncari, and the Perl Trust issued to the Rothstein Trust, Capital Contribution Notes, each in the amount of $125,000. Pursuant to the Debt Conversion which occurred upon the consummation of the 1997 Private Placement in January 1997, $12,675 of the Perl Trust's Stockholder Loans, $12,675 of Mr. Findley's Stockholder Loans, $223,260 of Mr. Roncari's Stockholder Loans and $301,390 of Mr. Rothstein's Stockholder Loans were converted into 2,535, 2,535, 44,652 and 60,278 shares of Common Stock, respectively. Mr. Findley and the Perl Trust subsequently transferred 25,000 shares of Common Stock to Mr. Roncari and the Rothstein Trust, respectively, in satisfaction of the indebtedness represented by the Capital Contribution Notes. Pursuant to an agreement dated as of July 1, 1994, the Company agreed to pay Lawrence Owen Associates, a corporation wholly owned by Mr. Perl, a monthly fee of $1,000 in consideration for the use of office space in West Hartford, Connecticut and for accounting and other general and administrative services. The Company extended this arrangement until December 31, 1997, after which time the agreement expired. Upon expiration $42,000 was due to Lawrence Owen Associates from the Company. From March through June 1995, Joseph D. Basch, the President, Chief Executive Officer and sole director of the Subsidiary, loaned the Company an aggregate of $300,000. The loans accrued interest at ten percent (10%) per annum and were payable on demand. In July 1996, the Company and Mr. Basch entered into an agreement pursuant to which the then-outstanding principal amount of the loans, together with accrued interest thereon of approximately $30,000, was converted into an aggregate of 240,000 shares of Common Stock. In January 1996, the Company sold 100,000 shares of Common Stock to Stephen S. Weisglass at a price of $.25 per share. Mr. Weisglass became a director of the Company in November 1996. In July 1997, Mr. Weisglass resigned from the Board. His shares were subsequently transferred to Beter at the direction of the Company, and then distributed as part of the 1998 Private Placement. 49 Mr. Rothstein has personally guaranteed all of the Company's indebtedness to Fleet and has pledged personal assets in the form of a certificate of deposit in the amount of $150,000 to secure such indebtedness; Mr. Roncari has personally guaranteed all of the Company's indebtedness to First Suffield; and Mr. Rothstein has pledged to Chase a certificate of deposit in the amount of $105,000 to secure the Company's indebtedness to Chase. In addition, Mr. Rothstein has agreed with the Company that, in the event a demand is made by Fleet with respect to the Fleet Loan and/or a demand is made by Chase with respect to the Chase Loan prior to the earlier of the closing of the maximum offering, subsequent debt financing or March 3, 2001, he shall either (i) secure replacement financing to pay the amount so demanded or (ii) personally satisfy the amount demanded, either through surrender of the collateral previously pledged by him or through other means satisfactory to Fleet and/or Chase, as the case may be. In the event Mr. Rothstein elects to personally satisfy the demanded amount, the Company has agreed to reimburse Mr. Rothstein for the full amount of such payment on the earlier of the closing of the maximum offering, subsequent debt financing or March 3, 2001. See "Plan of Operation--Liquidity and Capital Resources." In January 1997, pursuant to the 1997 Private Placement, the Company completed the sale to 23 private investors (including certain officers and directors of the Company) of 25 1997 Units. Each 1997 Unit consisted of (i) one 1997 Bridge Note; (ii) 5,000 1997 Bridge Shares; and (iii) 25,000 1997 Bridge Warrants. The purchase price per 1997 Unit was $50,000. The Company received gross proceeds of $1,250,000 from the sale of the 1997 Private Placement. After payment of $125,000 in placement fees to Whale Securities, LP, the underwriting firm ("Whale"), which acted as placement agent for the Company with respect to the 1997 Private Placement, and other offering expenses of approximately $105,000, the Company received net proceeds of approximately $1,020,000 in connection with the 1997 Private Placement. The net proceeds from the 1997 Private Placement were used in connection with the Company's operations, including to fund the Company's research and development efforts, to fund its sales and marketing activities, to repay certain outstanding obligations, and for working capital and general corporate purposes. It was anticipated that the Company would shortly thereafter undertake an initial public offering underwritten by Whale pursuant to a letter of intent between the Company and Whale. However, Whale eventually declined to underwrite the initial public offering, and in July of 1997, the Company commenced exploration of alternative financing arrangements. In connection with that initiative, the Company retained Beter as a consultant to work with the Company to obtain new financing. During the course of the Company's discussions with Beter and a number of the prospective underwriters, it became evident that the structure of the 1997 Private Placement was an impediment to additional financing. In order to meet the requirements for the Company to undertake a best efforts initial public offering to be underwritten by the Underwriter, it was necessary for the Company to redeem the 1997 Units. The Company entered into a series of option agreements dated November 19, 1997 to purchase the 1997 Units sold to investors for an aggregate of $1,250,000 in the 1997 Private Placement. The 1997 Units were redeemed with a portion of the net proceeds from the 1998 Private Placement. In January 1997, in connection with the 1997 Private Placement, the Company borrowed from Messrs. Perl, Rothstein and Roncari $175,000 and issued to them 1997 Bridge Notes in such aggregate principal amount, an aggregate of 17,500 1997 Bridge Shares and 87,500 1997 Bridge Warrants. Such 1997 Bridge Notes, 1997 Bridge Shares and 1997 Bridge Warrants were repurchased by the Company as part of the 1998 Private Placement. In July 1997, the Company entered into a letter agreement with Beter to arrange alternative financing for the Company, including an initial public offering of approximately $5.0 million, which was modified to a minimum/maximum offering of $5.0 million minimum and $7.14 million maximum. Under the agreement, the Company may offer subsequent debt financing of up to $30 million negotiated by Beter. At the closing of such debt financing, Beter would be granted a warrant to acquire 100,000 shares of Common Stock at an exercise price equal to eighty percent (80%) of the fair market value of the Common Stock at the date of exercise. Such warrant shall have a term of five years. Also pursuant to the agreement, Beter 50 has the right to designate one member of the Company's Board of Directors. Ms. Beter presently fills such position. Upon fulfillment of its obligations, Beter shall have a right of first refusal with respect to future debt placements by the Company in excess of $6.0 million until July 2002. Between July 1997 and Janaury 1998, Messrs. Rothstein, Roncari, and Perl provided a portion of the Stockholder Loans to the Company in the amounts of $460,000, $320,000, and $15,000, respectively. These loans were to provide the Company working capital and cover costs associated with this Offering, and are to be repaid from the proceeds of subsequent debt financing, but in no event later than January 1, 2001. In addition, various employees of the Company have deferred salary totaling approximately $440,000 as of March 31, 1998. Such employees continue to defer salaries and such deferred salary amounts are to be paid, together with interest at ten percent (10%), in two parts, $50,000 at the closing of the minimum offering and the remainder, estimated to be $550,000 as of July 31, 1998, from the proceeds of the maximum offering, but in no event later than January 1, 2001. In March 1998, the Company entered into the 1998 Private Placement, through which the Company completed the sale to fourteen private investors (including certain officers and directors of the Company) of 30 Units, each Unit consisting of (i) one Bridge Note; (ii) 2,500 Bridge Shares; and (iii) 2,500 Bridge Warrants. The purchase price per Unit was $50,000. The Company received gross proceeds of $1,500,000 from the sale of such Units. After payment of approximately $10,000 in costs associated with the 1998 Private Placement, the Company received net proceeds of approximately $1,490,000 in connection with the 1998 Private Placement. Approximately $1,345,000 of the net proceeds was used to exercise certain options to repurchase securities sold in the 1997 Private Placement. Some holders of the 1997 Units chose to invest in the 1998 Private Placement and defer all interest due them from the 1997 Units; such holders included Lawrence O. Perl, the Company's Chairman of the Board, Chief Executive Officer and Chief Financial Officer, Raymond A. Roncari, a director of the Company, Harold Rothstein, a director of the Company and Bruce R. Bonadies, a director of the Company. The balance of the net proceeds are being used for working capital and general corporate purposes, as well as to fund some expenses of this Offering. In conjunction with the closing of the 1998 Private Placement, the Company issued 25,000 shares of Common Stock and the Chapman Option to Chapman Group LLC, a company affiliated with Cohn & Birnbaum P.C., general counsel to the Company. These shares and options were issued in partial consideration for services rendered by Cohn & Birnbaum P.C. from the date of the Company's inception through the closing of an IPO by the Company and in consideration for the deferral of fees at different times during such same time period. In conjunction with the closing of the 1998 Private Placement, the Company entered into Director Loan Agreements with each of Harold Rothstein and Raymond A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to loan $450,000 (for a total of $900,000) to the Company to be used for working capital and certain costs of the anticipated IPO. These amounts, together with approximately $155,000 of the proceeds of the 1998 Private Placement, were used to fund certain costs of this Offering, and provide required working capital. In consideration for this commitment, Messrs. Rothstein and Roncari were each granted 12,500 shares of Common Stock of the Company and 12,500 Commitment Warrants. Pursuant to each Director Loan Agreement, the Company has the right to draw down advances from each of Messrs. Rothstein and Roncari (each a "Director Lender") as funds are required and the Director Lender is obligated to so advance funds within three (3) business days of any such request. Any amounts advanced will bear interest at a rate of ten percent (10%) per annum. All amounts so advanced, together with accrued interest thereon, will be due and payable in full on the earlier of (i) January 1, 2001, or (ii) the closing of subsequent debt financing. In May 1998, the Company entered into an Underwriting Agreement with the Underwriter pursuant to which the Underwriter will be granted the Underwriter's Option upon closing of the minimum offering. As of May 1, 1998, the Perl Trust and the Rothstein Trust each entered into a voting trust agremeent with Bruce R. Bonadies and Lilly Beter, respectively, pursuant to which Mr. Bonadies and Ms. Beter were 51 appointed voting trustees with respect to the 480,035 shares held by the Perl Trust and the 587,778 shares held by the Rothstein Trust, respectively. Pursuant to the voting trust agreement, Mr. Bonadies and Ms. Beter are empowered to vote these shares as voting trustees until April 30, 1999. Although the Company believes that the foregoing transactions were on terms no less favorable to the Company than would have been available from unaffiliated third parties in arm's length transactions, there can be no assurance that this is the case. All future transactions and loans between the Company and its officers, directors and 5% stockholders will be on terms no less favorable to the Company than could be obtained from independent third parties. There can be no assurance, however, that future transactions or arrangements between the Company and its affiliates will be advantageous, that conflicts of interest will not arise with respect thereto or that if conflicts do arise, they will be resolved in favor of the Company. DESCRIPTION OF SECURITIES GENERAL Upon completion of this Offering, the authorized capital stock of the Company will consist of (i) if the minimum offering is reached, 20,000,000 shares of Common Stock, $.001 par value per share, of which 2,819,200 shares will be outstanding and 1,000,000 shares of Preferred Stock, $.001 par value per share, of which no shares will be outstanding, or (ii) if the maximum offering is reached, 20,000,000 shares of Common Stock, $.001 par value per share, of which 2,945,000 shares will be outstanding and 1,000,000 shares of Preferred Stock, $.001 par value per share, of which no shares will be outstanding. The following description of the securities of the Company and certain provisions of the Certificate and By-Laws is a summary and, while all material provisions are included, the following description is qualified in its entirety by the provisions of the Certificate and By-Laws as currently in effect. COMMON STOCK Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election if they choose to do so. The Certificate does not provide for cumulative voting for the election of directors. Holders of Common Stock will be entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board out of funds legally available therefor, and will be entitled to receive, pro rata, all assets of the Company available for distribution to such holders upon liquidation. Holders of Common Stock have no preemptive, subscription or redemption rights. The rights of the holders of the Common Stock are subject to any rights that may be fixed for holders of Preferred Stock, when and if any Preferred Stock is issued. All of the outstanding shares of Common Stock are fully paid and non-assessable. Upon issuance, all of the shares of Common Stock offered hereby will be fully paid and nonassessable. PREFERRED STOCK The Company is authorized to issue 1,000,000 shares of Preferred Stock from time to time in one or more series, which may rank senior to the Common Stock with respect to payment of dividends and in the event of the liquidation, dissolution or winding up of the Company. The Board has the power, without stockholder approval, to issue shares of one or more series of Preferred Stock, at any time, for such consideration and with such relative rights, privileges, preferences and other terms as the Board may determine (including, but not limited to, terms relating to dividend rates, redemption rates, liquidation preferences and voting, sinking fund and conversion or other rights). The rights and terms relating to any new series of Preferred Stock could adversely affect the voting power or other rights of the holders of the Common Stock or could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. 52 WARRANTS ISSUED IN 1998 PRIVATE PLACEMENT The Bridge Warrants and Commitment Warrants issued in connection with the 1998 Private Placement (collectively, the "Warrants") will be exercisable at any time commencing on March 3, 1999 through and including March 3, 2003 at a price per share of eighty percent (80%) of the per share market price of the Common Stock on the exercise date, subject to adjustment. The Warrants provide that, upon exercise, in lieu of a cash payment, the Warrants to be exercised may be exchanged for a number of the warrant shares underlying the warrants (the "Warrant Shares") equal to (a) the total number of Warrant Shares issuable upon exercise of such Warrants for cash minus (b) a number of Warrant Shares equal to the quotient of (i) the aggregate exercise price of the exercised Warrants, divided by (ii) the then current market price of a share of the Company's Common Stock. The Warrants are redeemable by the Company at any time commencing on March 3, 2000, upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third day prior to the date on which the Company gives notice has been at least $18.00. The Warrants will be exercisable until the close of business on the date fixed for redemption. REGISTRATION RIGHTS In connection with the 1998 Private Placement, the Company has agreed to grant certain "piggyback" registration rights in connection with the Bridge Shares and the Bridge Warrants and the Commitment Shares and Commitment Warrants. The Company has also agreed to include the Bridge Shares and the shares underlying the Bridge Warrants (the "Bridge Warrant Shares") in any registration statement (the "Post-IPO Registration Statement") which the Company prepares and files with the Commission on a date following the one-year anniversary of the closing of this Offering so as to permit the public trading of the Bridge Shares and Bridge Warrant Shares pursuant thereto, subject to customary underwriter cutbacks. Notwithstanding the foregoing, the holders of the Bridge Shares and the Bridge Warrant Shares must agree not to sell any of such securities at least until the expiration of any applicable holding period established by the NASD and/ or any of the various state securities commissions in those states where the anticipated IPO will be effected. The Company shall bear all fees and expenses incurred in the preparation and filing of the Post-IPO Registration Statement. ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW The Company is a Delaware corporation and thus subject to Section 203 of the DGCL ("Section 203"), which is generally viewed as an anti-takeover statute. In general, Section 203 prohibits a publicly traded Delaware corporation from engaging in any "business combination" (as defined) with any "interested stockholder" (as defined) for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such time, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least eighty-five percent (85%) of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, 53 by the affirmative vote of at least 66% of the outstanding voting stock which is not owned by the interested stockholder. In general, Section 203 defines a "business combination" to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition involving the interested stockholder of ten percent (10%) or more of the assets of the corporation; (iii) (subject to certain exceptions) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an "interested stockholder" as (a) any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation or (b) any entity or person affiliated with or controlling or controlled by such entity or person. The existence of Section 203 would be expected to have the effect of discouraging takeover attempts involving the Company, including attempts that might result in a premium over the market price of the Common Stock (if it is then publicly traded). TRANSFER AGENT AND REGISTRAR The Company's Transfer Agent and Registrar is The Bank of New York. REPORTS TO STOCKHOLDERS The Company intends to file, prior to the date of this Prospectus, an application with the Commission to register the Common Stock under the provisions of Section 12(g) of the Exchange Act. The Company has agreed with the Underwriter that the Company will use its best efforts to continue to maintain such registration. Such registration will require the Company to comply with periodic reporting, proxy solicitation and certain other requirements of the Exchange Act. SHARES ELIGIBLE FOR FUTURE SALE From the proceeds of this Offering, assuming no exercise of the Underwriter's over-allotment option, the Company will have 2,819,200 shares of Common Stock outstanding if the minimum offering is reached and 2,945,000 shares of Common Stock outstanding if the maximum offering is reached, of which the minimum 294,200 and maximum 420,000 shares of Common Stock offered herein by the Company will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by an affiliate of the Company (in general, a person who has a control relationship with the Company), which shares will be subject to the resale limitations of Rule 144 under the Securities Act. All of the remaining 2,525,000 shares of Common Stock are deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, and in the future may only be sold pursuant to a registration statement under the Securities Act, in compliance with the exemption provisions of Rule 144 or pursuant to another exemption under the Securities Act. The 2,525,000 restricted shares of Common Stock will become eligible for sale under Rule 144, subject to the volume limitations prescribed by Rule 144 and to the contractual restrictions described below, at various times commencing 90 days from the date of this Prospectus. 54 In general, under Rule 144 as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated), who has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class or, if the shares of Common Stock are quoted on Nasdaq, the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least the three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least one year is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. The Company shall grant the Underwriter "piggyback" registration rights with respect to the Underwriter's Option and the shares of Common Stock and Warrants underlying the Underwriter's Option. The Company has also granted certain "piggyback" registration rights to the holders of 125,000 shares of Common Stock and the 150,000 shares of Common Stock underlying the Warrants and the Chapman Option. Under Rule 701 of the Securities Act, persons who purchase shares upon exercise of options granted prior to the date of this Prospectus are entitled to sell such shares after the 90th day following the date of this Prospectus in reliance on Rule 144, without having to comply with the holding period requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice provisions of Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day period, but without a holding period. Prior to this Offering, there has been no market for the shares of Common Stock and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of such securities for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of shares of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. UNDERWRITING In May 1998, the Company entered into an Underwriting Agreement with the Underwriter to underwrite this Offering on a best efforts basis. The Underwriter has agreed, subject to the terms and conditions of the Underwriting Agreement, to use its best efforts to sell the shares as the Company's agent. The Underwriter will offer the shares on a "best efforts" basis, and has made no firm commitment to purchase any of the shares. The maximum number of shares to be offered, excluding over-allotment shares, will be 420,000 shares, which if sold at the offering price will generate proceeds to the Company, net of sales commissions, in the approximate amount of $6,426,000. The minimum number of shares to be sold is 294,200, which if sold at the offering price, would generate proceeds to the Company, net of sales commissions, in the approximate amount of $4,501,260. All funds received by the Underwriter with respect to the first 294,200 shares will be deposited with The Bank of New York as Escrow Agent. In the event 294,200 shares are not sold within 180 days from the commencement of this Offering the funds in escrow will be refunded to the subscribers in full without deductions and without interest. The shares are to be sold fully paid only. Stock certificates will be issued to purchasers only if the proceeds from the sale of 294,200 shares are released to the Company. Until such time as the funds have been released from escrow and the certificates delivered to the purchasers thereof, the purchasers will be deemed subscribers only and not shareholders. The Underwriter is to receive a cash commission of $1.70 per share sold. In addition, the Company has deposited with the Underwriter $25,000 to fund all anticipated expenses of this Offering. In addition, 55 pursuant to the Underwriting Agreement, the Underwriter will be granted, upon closing of this Offering, the Underwriter's Option, a five year option to purchase 100,000 shares of Common Stock of the Company at a per share price equal to eighty percent (80%) of the market price of the Common Stock at the time of exercise. The Company shall grant the Underwriter "piggyback" registration rights with respect to the Underwriter's Option and the shares of Common Stock and Warrants underlying the Underwriter's Option. The Company has granted to the Underwriter an option to purchase up to an additional 42,000 shares of Common Stock at the same price per share as the Company is receiving for the shares offered hereby. The Underwriter may exercise this option only to cover over-allotments in the sale of the shares offered hereby. To the extent the Underwriter exercises its option, these shares will be offered to the public at the same per share price to the public set forth on the cover page of this Prospectus, and the total price to the public, underwriting discounts and commissions and proceeds to the Company will be increased accordingly. The obligations of the Underwriter are subject to certain terms and conditions set forth in the Underwriting Agreement, including the right of the Underwriter to terminate the Underwriting Agreement under the conditions and circumstances set forth therein. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933. Prior to the Offering made hereby, there has been no public market for the Common Stock. Accordingly, the initial public offering price has been determined by negotiation between the Company and the Underwriter and is not necessarily related to the Company's asset value, net worth or other criteria of value. There can be no assurance that a regular trading market for the Common Stock will develop after this Offering or that, if developed, it will be sustained. The market price for the Company's securities following this Offering may be highly volatile, as has been the case with the securities of other small capitalization companies. The factors considered in determining the offering price included an evaluation by management of the history of and prospects for the industry in which the Company competes and the prospects for earnings of the Company. Factors such as the Company's financial results, announcements of developments related to the Company's business and the introduction of products and product enhancements by the Company or its competitors may have a significant impact on the market price of the Company's securities. Additionally, in recent years, the stock market in general, and the market for securities of small capitalization stocks in particular, have experienced wide price fluctuations which have often been unrelated to the operating performance of such companies. The Underwriter expects to register this Offering in a limited number of states, which action may limit or prohibit possible resale of the Common Stock in certain states in which the Offering is not registered. Under the terms of the Underwriting Agreement, the Company may not enter into any securities offering for a period of one year without the prior written consent of the Underwriter. The Underwriter has granted the Company written consent to pursue up to $30 million in any subsequent debt financing negotiated by Beter. The foregoing is a brief summary of the provisions of the Underwriting Agreement and does not purport to be a complete statement of its terms and conditions. The Underwriting Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by the Law Offices of Bartz & Bartz, Southdale Office Centre, 6750 France Avenue South, Suite 350, Edina, Minnesota 55435. The validity of the Common Stock offered hereby will be passed upon by the Underwriter by its internal counsel. 56 The Company is represented in general corporate matters by Cohn & Birnbaum P.C., 100 Pearl Street, Hartford, Connecticut 06103-4500. EXPERTS The financial statements included in this Prospectus have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report (which contains an explanatory paragraph regarding uncertainties about the Company continuing as a going concern) appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission, Washington, D.C. 20549, a Registration Statement on Form SB-2, including amendments thereto, under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules filed therewith. For further information with respect to the Company and the Common Stock offered hereby, reference is made to such Registration Statement, exhibits and schedules. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which this Prospectus forms a part, each such statement being qualified in all respects by such reference. The Registration Statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices of the Commission: 13th Floor, Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained form the Public Reference Section of the Commission, Washington, D.C. at prescribed rates. The Commission also maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements. Such reports and other information may also be inspected at NASDAQ, 1735 K Street, N.W., Washington, D.C. 20006. 57 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS YEARS ENDED YEARS ENDED DECEMBER 31, 1996 AND 1997 PERIODS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED) AND PERIOD FROM JUNE 21, 1994 (INCEPTION) TO MARCH 31, 1998 (UNAUDITED) F-1 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY)
CONTENTS ------------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................................. F-3 FINANCIAL STATEMENTS: Balance sheets................................................................................... F-4 Statements of operations......................................................................... F-5 Statements of stockholders' deficit.............................................................. F-6 Statements of cash flows......................................................................... F-7 - F-8 Summary of significant accounting policies....................................................... F-9 - F-11 Notes to financial statements.................................................................... F-12 - F-16
F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors American Card Technology, Inc. We have audited the accompanying balance sheet of American Card Technology, Inc. (a development stage company) as of December 31, 1997, and the related statements of operations and cash flows for the years ended December 31, 1996 and 1997 and the statements of stockholders' deficit for each of the years (period) from June 21, 1994 (inception) to December 31, 1997. 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 American Card Technology, Inc. as of December 31, 1997, and the results of its operations and its cash flows for the years ended December 31, 1996 and 1997 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's dependence on outside financing, lack of existing commitments from lenders to provide necessary financing, lack of sufficient working capital, and losses since inception raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP New York, New York March 10, 1998 F-3 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
DECEMBER 31, MARCH 31, 1997 1998 ------------- ------------- (UNAUDITED) ASSETS CURRENT: Cash.............................................................................. $ 27,203 $ 155,437 Accounts receivable............................................................... 6,730 26,603 Inventory......................................................................... 3,918 1,735 Prepaid expenses and other current assets......................................... 11,657 20,708 Deferred financing costs.......................................................... 28,228 68,425 ------------- ------------- TOTAL CURRENT ASSETS............................................................ 77,736 272,908 EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $69,692 AND $78,538................... 91,405 89,306 OTHER ASSETS: Software development costs, net................................................... 188,913 170,022 Deferred registration and debt costs.............................................. 228,911 350,633 Other............................................................................. 7,571 7,571 ------------- ------------- $ 594,536 $ 890,440 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT: Accounts payable.................................................................. $ 398,397 $ 583,833 Accrued interest expense.......................................................... 310,154 293,933 Accrued salary and benefits....................................................... 369,126 503,393 Other accrued expenses............................................................ 42,620 56,337 Notes payable to banks (Note 2)................................................... 600,000 600,000 Bridge financing notes payable (Note 4(a))........................................ 1,239,063 -- ------------- ------------- TOTAL CURRENT LIABILITIES....................................................... 2,959,360 2,037,496 NOTES PAYABLE TO STOCKHOLDERS (NOTE 3).............................................. 1,184,956 1,579,956 BRIDGE FINANCING NOTES PAYABLE (NOTE 4(B)).......................................... -- 1,250,000 ------------- ------------- TOTAL LIABILITIES............................................................... 4,144,316 4,867,452 ------------- ------------- COMMITMENTS AND CONTINGENCIES (NOTES 1, 5 AND 7) STOCKHOLDERS' DEFICIT (NOTE 8): Preferred stock, $.001 par value--shares authorized 1,000,000; none issued Common stock, $.001 par value--shares authorized 20,000,000; issued and outstanding 2,625,000 and 2,525,000............................................. 2,625 2,525 Additional paid-in capital........................................................ 1,670,875 2,245,975 Stock subscriptions receivable.................................................... (30,000) (5,000) Accumulated deficit during the development stage.................................. (5,193,280) (6,220,512) ------------- ------------- TOTAL STOCKHOLDERS' DEFICIT..................................................... (3,549,780) (3,977,012) ------------- ------------- $ 594,536 $ 890,440 ------------- ------------- ------------- -------------
See accompanying summary of significant accounting policies and notes to financial statements. F-4 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
PERIOD FROM JUNE 21, 1994 YEAR ENDED THREE MONTHS ENDED (INCEPTION) DECEMBER 31, MARCH 31, TO ---------------------------- ---------------------------- MARCH 31, 1996 1997 1997 1998 1998 ------------- ------------- ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) REVENUES.............................. $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007 COST OF SALES......................... 16,279 86,995 -- 74,507 246,402 ------------- ------------- ------------- ------------- ------------- GROSS PROFIT (LOSS)................. 10,755 (10,083) -- (14,918) (9,395) ------------- ------------- ------------- ------------- ------------- EXPENSES: General and administrative.......... 919,546 1,176,885 331,311 554,587 3,739,792 Research development................ 167,000 260,000 55,000 174,000 781,000 Write-off of license fee (Note 5)... 20,000 -- -- -- 168,000 Interest and financing costs, net (Notes 2 and 3)................... 129,126 1,065,240 100,070 283,727 1,522,325 ------------- ------------- ------------- ------------- ------------- 1,235,672 2,502,125 486,381 1,012,314 6,211,117 ------------- ------------- ------------- ------------- ------------- NET LOSS.............................. $ (1,224,917) $ (2,512,208) $ (486,381) $ (1,027,232) $ (6,220,512) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- BASIC LOSS PER SHARE.................. $ (.54) $ (.96) $ (.19) $ (.40) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING......................... 2,269,671 2,615,343 2,585,833 2,562,167 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
See accompanying summary of significant accounting policies and notes to financial statements. F-5 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' DEFICIT
PERIOD FROM JUNE 21, 1994 (INCEPTION) TO MARCH 31, 1998 ---------------------------------------------------------------------------------- ACCUMULATED COMMON STOCK ADDITIONAL STOCK DEFICIT DURING --------------------- PAID-IN SUBSCRIPTIONS THE DEVELOPMENT SHARES AMOUNT CAPITAL RECEIVABLE STAGE TOTAL ---------- --------- ------------- ------------ --------------- ------------- Issuance of shares to founders............... 2,030,000 $ 2,030 $ (1,030) $ (250) $ -- $ 750 Net loss..................................... -- -- -- -- (434,545) (434,545) ---------- --------- ------------- ------------ --------------- ------------- BALANCE, DECEMBER 31, 1994................... 2,030,000 2,030 (1,030) (250) (434,545) (433,795) Capital contribution (conversion of loan).... -- -- 500,000 -- -- 500,000 Net loss..................................... -- -- -- -- (1,021,610) (1,021,610) ---------- --------- ------------- ------------ --------------- ------------- BALANCE, DECEMBER 31, 1995................... 2,030,000 2,030 498,970 (250) (1,456,155) (955,405) Issuance of shares........................... 120,000 120 29,880 (30,000) -- -- Issuance of shares for debt.................. 240,000 240 329,760 -- -- 330,000 Net loss..................................... -- -- -- -- (1,224,917) (1,224,917) Receipt of stock subscriptions............... -- -- -- 250 -- 250 ---------- --------- ------------- ------------ --------------- ------------- BALANCE, DECEMBER 31, 1996................... 2,390,000 2,390 858,610 (30,000) (2,681,072) (1,850,072) Shares and warrants issued in connection with the first bridge financing (Note 4(a))..... 125,000 125 262,375 -- -- 262,500 Issuance of shares for debt.................. 110,000 110 549,890 -- -- 550,000 Net loss..................................... -- -- -- -- (2,512,208) (2,512,208) ---------- --------- ------------- ------------ --------------- ------------- BALANCE, DECEMBER 31, 1997................... 2,625,000 2,625 1,670,875 (30,000) (5,193,280) (3,549,780) Period ended March 31, 1998 (unaudited) Forfeiture of shares......................... (100,000) (100) (24,900) 25,000 -- -- Shares and warrants redeemed in connection with the first bridge financing (Note 4(a))...................................... (125,000) (125) 125 -- -- -- Shares and warrants issued in connection with second bridge financing (Note 4(b))........ 75,000 75 299,925 -- -- 300,000 Issuance of shares for services rendered..... 25,000 25 199,975 -- -- 200,000 Issuance of shares for loan commitment....... 25,000 25 99,975 -- -- 100,000 Net loss..................................... -- -- -- -- (1,027,232) (1,027,232) ---------- --------- ------------- ------------ --------------- ------------- BALANCE, MARCH 31, 1998 (UNAUDITED).......... 2,525,000 $ 2,525 $ 2,245,975 $ (5,000) $ (6,220,512) $ (3,977,012) ---------- --------- ------------- ------------ --------------- ------------- ---------- --------- ------------- ------------ --------------- -------------
See accompanying summary of significant accounting policies and notes to financial statements. F-6 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
PERIOD FROM THREE MONTHS ENDED JUNE 21, 1994 YEAR ENDED DECEMBER 31, MARCH 31, (INCEPTION) ------------------------ ---------------------- TO MARCH 31, 1996 1997 1997 1998 1998 ----------- ----------- --------- ----------- ------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss......................... $(1,224,917) $(2,512,208) $(486,381) $(1,027,232) $ (6,220,512) ----------- ----------- --------- ----------- ------------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................. 23,541 71,726 6,077 28,136 135,211 Amortization of deferred financing costs.............. -- 220,417 95,833 23,278 243,695 Issuance of debt for services rendered..................... -- -- -- -- 72,774 Issuance of stock for services rendered..................... -- -- -- 200,000 200,000 Issuance of stock for loan commitment................... -- -- -- 100,000 100,000 Deferred registration costs written off.................. -- 352,966 -- -- 352,966 Amortization of bridge financing discount........... -- 251,563 54,688 60,937 312,500 Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable........ -- (6,730) -- (19,873) (26,603) Inventory.................. (1,813) (855) (12,539) 2,183 (1,735) Prepaid expenses and other current assets........... 5,676 (6,558) (20,236) (9,051) (20,708) Other assets............... (6,991) 1,390 -- -- (7,571) Increase (decrease) in liabilities: Accounts payable........... 320,810 942 (173,966) 185,436 583,833 Accrued expenses........... 219,391 458,850 53,505 131,763 883,663 ----------- ----------- --------- ----------- ------------- TOTAL ADJUSTMENTS........ 560,614 1,343,711 3,362 702,809 2,828,025 ----------- ----------- --------- ----------- ------------- NET CASH USED IN OPERATING ACTIVITIES... (664,303) (1,168,497) (483,019) (324,423) (3,392,487) ----------- ----------- --------- ----------- -------------
See accompanying summary of significant accounting policies and notes to financial statements. F-7 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER THREE MONTHS ENDED PERIOD FROM 31, MARCH 31, JUNE 21, 1994 --------------------- ----------------------- (INCEPTION) TO 1996 1997 1997 1998 MARCH 31, 1998 --------- ---------- ---------- ----------- -------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures............. $ (23,980) $ (78,231) $ (30,048) $ (7,146) $ (167,842) Software development costs....... (110,152) (21,936) (10,968) -- (226,696) --------- ---------- ---------- ----------- -------------- NET CASH USED IN INVESTING ACTIVITIES................... (134,132) (100,167) (41,016) (7,146) (394,538) --------- ---------- ---------- ----------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock......... 250 -- -- -- 1,000 Deferred registration costs--original................ (200,711) (152,255) (29,289) -- (352,966) Deferred registration costs--current................. -- (228,912) (249,720) (121,721) (350,633) Deferred financing costs......... -- (248,644) -- (63,476) (312,120) Borrowings on line of credit..... 600,000 -- -- -- 600,000 Proceeds from the issuance of notes to stockholders.......... 388,931 685,000 -- 417,500 2,889,681 Payments on notes to stockholders................... -- (10,000) -- (22,500) (32,500) Payments on bridge financing..... -- -- -- (1,250,000) (1,250,000) Proceeds from the issuance of bridge financing............... -- 1,250,000 1,250,000 1,500,000 2,750,000 --------- ---------- ---------- ----------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES................... 788,470 1,295,189 970,991 459,803 3,942,462 --------- ---------- ---------- ----------- -------------- NET INCREASE (DECREASE) IN CASH.... (9,965) 26,525 446,956 128,234 155,437 CASH, BEGINNING OF PERIOD.......... 10,643 678 678 27,203 -- --------- ---------- ---------- ----------- -------------- CASH, END OF PERIOD................ $ 678 $ 27,203 $ 447,634 $ 155,437 $ 155,437 --------- ---------- ---------- ----------- -------------- --------- ---------- ---------- ----------- -------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest....................... $ 12,578 $ 53,076 $ 11,890 $ 105,570 $ 183,114 --------- ---------- ---------- ----------- -------------- --------- ---------- ---------- ----------- -------------- Income taxes................... $ -- $ -- $ -- $ -- $ -- --------- ---------- ---------- ----------- -------------- --------- ---------- ---------- ----------- -------------- SUPPLEMENTAL NONCASH INVESTING AND FINANCING INFORMATION: Loans totaling $500,000 were converted into capital contributions in 1995. Notes receivable for $30,000 were obtained in 1996 in connection with the issuance of common stock. Loans payable of $300,000 and accrued interest of $30,000 were extinguished in 1996 with the issuance of common stock. Loans payable of $550,000 were extinguished in 1997 with the issuance of common stock. Notes receivable of $25,000 were cancelled in 1998 upon forfeiture of common stock.
See accompanying summary of significant accounting policies and notes to financial statements. F-8 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) ORGANIZATION AND BUSINESS The financial statements include the accounts of American Card Technology, Inc. (a development stage company) (the "Company") and its majority-owned Canadian subsidiary, which was formed in June 1996 and whose results of operations have been immaterial through March 31, 1998. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company, a Delaware corporation, was incorporated on June 21, 1994 to design, develop and market high security, flexible multiple application smart card systems. The Company is in the development stage and its activities to date have been limited to organizational activities including developing a business plan, hiring personnel and developing and enhancing its proprietary smart card technology and software, and it has only recently commenced the limited marketing of its smart card systems. Revenues to date, which have been received from few customers, have been immaterial. Certain stock splits were effected in 1996 (see Note 8) and reflected retroactively in these financial statements. REVENUE RECOGNITION The Company recognizes revenue upon the shipment of products or the performance of services. USE OF ESTIMATES In preparing the financial statements in conformity with generally accepted accounting principles, management is required 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 reported period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts payable, accrued expenses, short-term notes payable to banks and the bridge financings approximate fair value because of the short-term nature of these items. It was not considered practical to determine the current fair value of the notes payable to stockholders and affiliates. EQUIPMENT Equipment is stated at cost, less accumulated depreciation. Depreciation is computed over the estimated useful lives (3 to 5 years) of the assets using declining balance methods. INCOME TAXES The Company was an S corporation and, accordingly, income or losses were not subject to corporate income taxes, rather the amounts of taxable income or loss were passed through to its stockholders. F-9 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) INCOME TAXES (CONTINUED) In connection with the formation of a Canadian subsidiary in June 1996, the Company became a C corporation. No taxes resulted from this change in tax status. Deferred tax assets and/or liabilities are recorded for the expected future tax consequences of temporary differences between the tax basis and financial reporting basis of assets and liabilities. At December 31, 1997, deferred tax assets of approximately $1,200,000 relating primarily to net operating losses of approximately $2,741,000 (and which expire through 2012), have been offset by a valuation reserve since the utilization of this asset cannot be determined. SOFTWARE DEVELOPMENT COSTS Software development costs for products and certain product enhancements are capitalized subsequent to the establishment of their technological feasibility (as defined in Statement of Financial Accounting Standards ("SFAS") No. 86) based upon the existence of working models of the products which are ready for initial customer testing. Costs incurred prior to such technological feasibility or subsequent to a product's general release to customers are expensed as incurred. During 1995, the technological feasibility of the Company's basic products was established and the Company incurred and capitalized costs totaling $226,696 through June 30, 1997. Amortization of these costs commenced on July 1, 1997 and these costs are being amortized over 3 years. Amortization expense is included in cost of sales and for the year ended December 31, 1997 and the three months ended March 31, 1998 totalled $38,000 and $19,000, respectively. DEFERRED COSTS Costs associated with the first bridge financing described in Note 4(a) were deferred and are being amortized, commencing in January 1997, over the life of the debt (one year). Costs associated with the second bridge financing described in Note 4(b) have been deferred and are being amortized, commencing in February 1998, over the anticipated life of the debt (six months). Costs associated with an earlier planned initial public offering (totaling $352,996) were written off in 1997 when the offering did not occur and are included in interest and financing costs, net. Costs associated with the Company's currently planned initial public offering have been deferred and will be charged to equity upon the successful closing of the offering or written off to expense if the offering is not successful. Costs associated with the Company's planned debt offering have been deferred and will be amortized over the life of the debt upon closing or written-off to expense if the offering is not successful. LOSS PER COMMON SHARE Effective for the year ended December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per Share" ("SFAS 128"). In accordance with SFAS 128, the Company is required to provide basic and dilutive loss per common share information. The basic loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding. F-10 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) LOSS PER COMMON SHARE (CONTINUED) Diluted loss per common share is computed by dividing the net loss available to common shareholders, adjusted on an as-if-converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998, potential dilutive securities had an anti-dilutive effect and, accordingly, were not included in the calculation of diluted loss per common share. The assumed exercise of options and warrants may impact diluted earnings per common share in future periods. The adoption of SFAS 128 had no effect on net loss per common share for the year ended December 31, 1996, accordingly, no restatement was necessary. LONG-LIVED ASSETS Long-lived assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to their fair value. This policy is in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", which became effective for fiscal 1996. No write-downs have been necessary through March 31, 1998. UNAUDITED INTERIM FINANCIAL STATEMENTS In the opinion of the Company's management, the balance sheet as of March 31, 1998, the statements of operations and cash flows for the three months ended March 31, 1997 and 1998 (and the period from inception to March 31, 1998), and the statement of stockholders' deficit for the three months ended March 31, 1998 contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results for the year ending December 31, 1998. F-11 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 1. BASIS OF PRESENTATION The accompanying financial statements have been prepared assuming the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of operations. Since inception, the Company has been involved in organizational activities. The Company's ultimate ability to attain profitable operations is dependent upon obtaining additional financing adequate to complete its development activities, and to achieve a level of sales adequate to support its cost structure. Through December 31, 1997, the Company has incurred losses totaling $5,193,280 and, at December 31, 1997, has deficiencies in working capital and equity of $2,881,624 and $3,549,780, respectively. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In 1996, the Company entered into a letter of intent with an underwriter for a private placement of debt and equity securities and a subsequent initial public offering of equity securities. In January 1997, a private placement was consummated (see Note 4(a)) and the Company received gross proceeds of $1,250,000. Certain debt was converted to equity upon consummation of this private placement (see Note 8). The initial public offering did not occur as originally planned, and all costs previously deferred in connection with that offering were written off. In February 1998, a second private placement was consummated (see Note 4(b)) and the Company utilized substantially all of the gross proceeds of $1,500,000 to redeem the debt incurred and accrued interest thereon from the January 1997 private placement. The Company is currently attempting to raise capital from various sources including an anticipated initial public offering ("IPO") and a debt offering. In 1997, the Company entered into a letter of intent with another underwriter for an initial public offering of equity securities. However, there can be no assurance that the Company will be successful in consummating its plans, or that such plans, if consummated, will enable the Company to attain profitable operations or continue as a going concern. 2. NOTES PAYABLE TO BANKS At December 31, 1997 and March 31, 1998, the Company had lines of credit with banks. The loans bear interest at the respective banks' prime interest rates and are due on demand or through December 1998. Borrowings of $300,000 under the lines of credit are secured by certificates of deposit of one of the Company's stockholders held by the banks. Another stockholder has guaranteed the balance of the loans. 3. NOTES PAYABLE TO STOCKHOLDERS Notes payable to stockholders totaling $1,184,956 at December 31, 1997 and $1,579,956 at March 31, 1998, bear interest at 10% per annum and were payable on demand. Subsequent to December 31, 1997, the terms of the notes were changed to be due upon the earlier of January 1, 2001 or the closing of a debt offering by the Company. Accordingly these notes have been classified as long-term debt. These notes have been used to finance operations. Notes totaling $500,000 were converted to equity in 1995 and notes totaling $550,000 were converted to equity in January 1997. F-12 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 3. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED) In February 1998, in connection with the bridge financing (see Note 4(b)), the Company entered into Director Loan Agreements with two shareholders pursuant to which each of the shareholders committed to loan $450,000 ($900,000 in total) to the Company to be used for working capital and certain costs of the anticipated IPO. In consideration for this commitment, each of the shareholders were granted 12,500 shares of common stock of the Company and warrants to purchase 12,500 shares of common stock at an exercise price of 80% of the market price of the common stock on the exercise date. Pursuant to each Director Loan Agreement, the Company shall have the right to draw down advances from each of the shareholders as funds are required. Any amounts advanced will bear interest at a rate of ten percent (10%) per annum and will be due and payable in full on the earlier of (i) January 1, 2001, and (ii) the closing of a debt offering by the Company. Interest expense to stockholders totaled approximately $114,000, $74,000, $27,000 and $37,000 for the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. 4. BRIDGE FINANCING (a) In January 1997, the Company received $1,020,000, net of costs of $230,000, through a private placement of 25 units (the "1997 Units"), at a cost of $50,000 per 1997 Unit. Each 1997 Unit consisted off: (i) an unsecured nonnegotiable promissory note in the principal amount of $50,000, bearing interest at the rate of 9% per annum, payable semi-annually in arrears, and maturing on the earlier date to occur of: (a) the first anniversary of the initial closing (the "Initial Bridge Closing") of such bridge financing; and (b) the consummation of an IPO of the Company's securities registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended; (ii) 5,000 shares of common stock of the Company, and (iii) warrants exercisable until the fifth anniversary of the Initial Bridge Closing to purchase 25,000 shares of common stock (the "Bridge Warrant Shares") at an exercise price of $4.00 per Bridge Warrant Share, subject to adjustment in certain circumstances. A total of $262,500 of the private placement funds was assigned to the value of the common stock and warrants, which resulted in an effective interest rate of 30% on the notes. In February 1998, the Company repurchased all of the 1997 Units and paid related accrued interest with proceeds obtained from a second private placement bridge financing (see Note 4(b)). (b) In February 1998 the Company received $1,490,000, net of costs of $10,000, through a private placement of 30 units (the "1998 Units"), at a cost of $50,000 per 1998 Unit (each a "Bridge Note"). Substantially all of the proceeds were utilized to repurchase the 1997 Units and related accrued interest (see Note 4(a)). Each 1998 Unit consists of: (i) an unsecured nonnegotiable promissory note in the principal amount of $50,000, bearing interest at the rate of 10% per annum, payable annually in arrears, and providing for a loan fee payable upon payoff of the Bridge Note in an amount equal to $5,000 less interest accrued through the date of payoff. The Bridge Note shall mature on the earlier date to occur of: (a) the third anniversary of the final closing (the "Bridge Closing") of such bridge financing; and (b) the consummation of an IPO of the Company's securities registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended; (ii) 2,500 shares of common stock of the Company and (iii) warrants exercisable until the sixth anniversary of the Bridge Closing to purchase 2,500 F-13 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 4. BRIDGE FINANCING (CONTINUED) shares of common stock (the "Bridge Warrant Shares") at an exercise price of 80% of the market price of the Company's common stock on the exercise date per Bridge Warrant Share. A total of $300,000 of the private placement funds was assigned to the value of the common stock and warrants. 5. LICENSE AGREEMENTS (a) In 1995, the Company acquired a license for certain technology rights. The total cost was $296,000; $148,000 of which was paid upon signing the agreement and $148,000 which was payable in various amounts through December 31, 1996. Subsequent to June 30, 1996, the Company paid $20,000 under the agreement. The recoverability of this fee was in question and, in 1996, the Company determined that it would not utilize the technology acquired in this license and terminated the agreement and future obligations thereunder. The licensor agreed on December 2, 1996 to waive all future obligations, including the $128,000 remaining balance of the license fee. In 1995, the Company wrote off the portion of the license fee paid in cash ($148,000) and recorded an asset and liability for the remaining balance due under the agreement. In 1996, the asset was written off and the liability was reduced by $128,000. The balance ($20,000) was expensed. (b) In March 1998, the Company entered into an agreement with a company located in Israel to purchase an operating system to be utilized with its smart card systems. The operating system will cost $100,000 and provides for two years of technical support and development costs of an additional $450,000 plus royalties ranging from $.125 to $.25 for each smart card sold by the Company that incorporates the operating system. In connection with the agreement, which is contingent upon completing the transaction upon the earlier of (i) September 15, 1998 and (ii) the Company completing an anticipated IPO, the Company will pay $18,000 per month for technical services related to the development of the operating system. The monthly fees will be due, regardless of the completion of an anticipated IPO, by September 1998. Through March 31, 1998, the Company has incurred $72,000 relating to this agreement which are included in research and development expense. 6. RELATED PARTY TRANSACTIONS In addition to the notes payable to stockholders (see Note 3), the Company has an agreement to pay a fee of $1,000 per month to a company owned by the Company's chief executive officer (who is a major stockholder). The agreement commenced July 1, 1994 and concluded December 31, 1997, and covered accounting and various other general and administrative services performed for the Company. At December 31, 1997 and March 31, 1998, $42,000 and $42,000, respectively, are payable to this affiliate for these services. 7. COMMITMENTS LEASE The Company rents office space in Atlanta, Georgia. Commencing December 1996, the Company entered into a new lease which provides for annual rent of approximately $36,000 through January 31, 2000. F-14 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 7. COMMITMENTS (CONTINUED) Rent charged to operations was approximately $17,000, $36,000, $9,000 and $9,000 for the years ended December 31, 1996 and 1997, and the three months ended March 31, 1997 and 1998, respectively. EMPLOYMENT CONTRACTS In 1998, the Company entered into employment agreements with three of its executive officers. The agreements become effective upon the closing of the Company's IPO and provide for aggregate salaries up to $700,000 per year for a term of five years. 8. STOCKHOLDERS' DEFICIT The Company's founders capitalized the Company in 1994 with $1,000. Certain stockholders either individually or through trusts have loaned funds to the Company since its incorporation. In 1995, loans totaling $500,000 were converted to capital. In connection with the consummation in January 1997 of the private placement for the financing, loans totaling $550,000 were converted to 110,000 shares of common stock ($5 per share) (see Note 3). In January 1996, the Company sold 120,000 shares of stock for notes totaling $30,000. The notes bear interest at 8% per annum and were payable on July 1, 1997. In 1998, 100,000 shares of stock were returned to the Company and the related note, totaling $25,000, was forgiven. In July 1996, the Company issued 240,000 shares of common stock to retire the $300,000 note payable to an affiliate and related accrued interest of $30,000 ($1.375 per share) (see Note 3). On January 2, 1996, the Company effected a split of its common stock of 4.06-for-1. On December 11, 1996, the Company (i) increased its authorized shares of common stock from 1,500 to 20,000,000, (ii) authorized 1,000,000 shares of preferred stock to be issued at the discretion of the Board of Directors, (iii) changed the common stock from no par value to $.001 par value, and (iv) effected a split of its common stock of 2,500-for-1. All share amounts have been retroactively adjusted to reflect the stock splits. In December 1996, the Company granted options to acquire 100,000 shares of its common stock to an affiliate. The options have an exercise price of $5 per share (subsequently increased to $12 per share), are immediately exercisable and have a term of 10 years. The estimated fair value of these options at their date of grant was immaterial. In December 1996, the Company adopted the 1996 Stock Option Plan, pursuant to which 270,000 shares of the Company's common stock may be granted to its employees, directors and consultants. The option exercise price will be no less than the fair value of the common stock at the date of grant. The options will include vesting provisions and generally have ten year maturity periods. The Company also adopted the 1996 Non-employee Director Stock Option Plan for its non-employee directors pursuant to which 30,000 shares of common stock may be granted. Through December 31, 1997, no options under either of these plans have been granted. In 1998, the Company issued 140,000 options under the 1996 Stock Option Plan at an exercise price of $12.00 per share, which will vest over four years and 12,500 options under the 1996 Non-employee Director F-15 AMERICAN CARD TECHNOLOGY, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 8. STOCKHOLDERS' DEFICIT (CONTINUED) Stock Option Plan at an exercise price of $12.00, which vested upon issuance. The fair value of the non-employee director options were immaterial. In February 1998, the Company issued 25,000 shares of common stock and warrants to purchase 50,000 shares of common stock, at an exercise price of 80% of the market price of the common stock on the date of exercise, to an affiliated company of the Company's general counsel in consideration for services rendered. The Company expensed $200,000 in connection with this transaction which has been included in general and administrative expenses. F-16 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 9 Use of Proceeds........................................................... 19 Dividend Policy........................................................... 20 Dilution.................................................................. 20 Capitalization............................................................ 23 Selected Financial Data................................................... 25 Plan of Operation......................................................... 26 Business.................................................................. 32 Management................................................................ 42 Principal Stockholders.................................................... 48 Certain Transactions...................................................... 48 Description of Securities................................................. 52 Shares Eligible for Future Sale........................................... 54 Underwriting.............................................................. 55 Legal Matters............................................................. 56 Experts................................................................... 57 Additional Information.................................................... 57 Index to Financial Statements............................................. F-2
------------------------ UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. AMERICAN CARD TECHNOLOGY, INC. MINIMUM OFFERING: 294,200 SHARES OF COMMON STOCK MAXIMUM OFFERING: 420,000 SHARES OF COMMON STOCK --------------------- PROSPECTUS --------------------- , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102(b) of the Delaware General Corporation Law ("Delaware Law") permits a provision in the certificate of incorporation of each corporation organized thereunder eliminating or limiting, with certain exceptions, the personal liability of a director to the corporation or its stockholders for monetary damages for certain breaches of fiduciary duty as a director. The Certificate of Incorporation of the Registrant eliminates the personal liability of directors to the fullest extent permitted by Delaware Law. Section 145 of Delaware Law ("Section 145"), in summary, empowers a Delaware corporation, within certain limitations, to indemnify its officers, directors, employees and agents against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any nonderivative suit or proceeding, if they acted in good faith and in a manner they reasonably believe to be in or not opposed to the best interest of the corporation, and, with respect to a criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. With respect to derivative actions, Section 145 permits a corporation to indemnify its officers, directors, employees and agents against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense of settlement of such action or suit, provided such person meets the standard of conduct described in the preceding paragraph, except that no indemnification is permitted in respect of any claim where such person has been found liable to the corporation, unless the Court of Chancery or the court in which such action or suit was brought approves such indemnification and determines that such person is fairly and reasonably entitled to be indemnified. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. The Company's Bylaws provide that the Company shall indemnify officers and directors, and to the extent authorized by the Board of Directors, employees and agents of the Company, to the fullest extent permitted by and in the manner permissible under the laws of the State of Delaware. The Bylaws also permit the Board of Directors to authorize the Company to purchase and maintain insurance against any liability asserted against any director, officer, employee or agent of the Company arising out of his capacity as such. The Company has entered into and executed indemnity agreements with present directors for indemnification to the fullest extent permitted by law. II-1 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses in connection with the sale of the Common Stock. All amounts are estimated. The Company has prepaid all such fees. SEC Filing Fee.................................................... $ 2,107 Blue Sky Expenses................................................. 21,340 Accounting Fees and Expenses...................................... 40,000 Legal Fees and Expenses........................................... 75,000 Legal Writing (outsourced)........................................ 55,000 Postage........................................................... 34,000 Printing Fees..................................................... 50,000 Escrow Agent Fees................................................. 10,000 Transfer Agent Fees............................................... 10,000 Due Diligence Fees................................................ 52,000 Miscellaneous Fees................................................ 25,553 Underwriting Fees................................................. 25,000 TOTAL............................................................. $ 400,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES The Registrant has issued securities without registration under the Securities Act of 1933, as amended (the "Securities Act"), in the following transactions: In July 1996, loans to the registrant in the aggregate principal amount of $300,000 (plus interest) made by the President, Chief Executive Officer and sole director of a subsidiary of the Registrant were converted, pursuant to an agreement between the Company and such individual, into an aggregate of 240,000 shares of Common Stock. In December 1996, the Registrant issued to an entity owned by certain affiliates and directors of the Registrant an option to purchase 100,000 shares of Common Stock at an exercise price of $5.00 per share which has since been increased to $12.00 per share and assigned to Mr. Roncari. In connection with the Bridge Financing, in January 1997, loans in an aggregate principal amount of $550,000 by the founders of the Registrant were converted into an aggregate of 110,000 shares of Common Stock. In January 1996, the Company sold 100,000 shares of Common Stock to Stephen S. Weisglass at a price of $.25 per share. Mr. Weisglass became a director of the Company in November 1996. In July 1997, Mr. Weisglass resigned from the Board. His shares were subsequently transferred to Beter at the direction of the Company, and then distributed as part of the 1998 Private Placement. In January 1996 the Registrant sold 20,000 shares to Richard Shelton at a price of $0.25 per share. The registrant received a note in the amount of $5,000 from Dr. Shelton. In January 1997, pursuant to the 1997 Private Placement, the Company completed the sale to 23 private investors (including certain officers and directors of the Company) of 25 1997 Units. Each 1997 Unit consisted of (i) one 1997 Bridge Note; (ii) 5,000 1997 Bridge Shares; and (iii) 25,000 1997 Bridge Warrants. The purchase price per 1997 Unit was $50,000. Such 1997 Bridge Notes, 1997 Bridge Shares and 1997 Bridge Warrants were repurchased by the Company as part of the 1998 Private Placement. In January 1997, in connection with the 1997 Private Placement, the Company borrowed from Messrs. Perl, Rothstein and Roncari $175,000 and issued to them 1997 Bridge Notes in such aggregate principal amount, an aggregate of 17,500 1997 Bridge Shares and 87,500 1997 Bridge Warrants. Such 1997 II-2 Bridge Notes, 1997 Bridge Shares and 1997 Bridge Warrants were repurchased by the Company as part of the 1998 Private Placement. In March 1998, the Company entered into the 1998 Private Placement, through which the Company completed the sale to fourteen private investors (including certain officers and directors of the Company) of 30 Units, each Unit consisting of (i) one Bridge Note; (ii) 2,500 Bridge Shares; and (iii) 2,500 Bridge Warrants. The purchase price per Unit was $50,000 On March 15, 1995 Messrs. Roncari and Rothstein recharacterized $500,000 of loans to the Registrant as paid in capital. This capital contribution was allocated equally among the Original Stockholders in consideration for which Messrs. Findley and Perl subsequently transferred 25,000 shares of common stock to Mr. Roncari and the Rothstein Trust. In conjunction with the closing of the 1998 Private Placement, the Company issued 25,000 shares of Common Stock and the Chapman Option to Chapman Group LLC, a company affiliated with Cohn & Birnbaum P.C., general counsel to the Company. These shares and options were issued in partial consideration for services rendered by Cohn & Birnbaum P.C. from the date of the Company's inception through the closing of an IPO by the Company and in consideration for the deferral of fees at different times during such same time period. In conjunction with the closing of the 1998 Private Placement, the Company entered into Director Loan Agreements with each of Harold Rothstein and Raymond A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to loan $450,000 (for a total of $900,000) to the Company to be used for working capital and certain costs of the anticipated IPO. These amounts, together with approximately $155,000 of the proceeds of the 1998 Private Placement, were used to fund certain costs of this Offering, and provide required working capital. In consideration for this commitment, Messrs. Rothstein and Roncari were each granted 12,500 shares of Common Stock of the Company and 12,500 Commitment Warrants. ITEM 27. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ----------- --------------------------------------------------------------------------------------------------- 1.1 Underwriting Agreement between Registrant and Rockcrest Securities, L. L. C. 3.1 Articles of Incorporation of Registrant. 3.2 By-Laws of Registrant. 4.1 Sample Certificate for Common Stock. 5.1 Opinion of Counsel regarding Legality. 8.1 Opinion of BDO Seidman, LLP. 9.1 Voting Trust Agreement for Lawrence O. Perl. 9.2 Voting Trust Agreement for Harold Rothstein. 10.1 Employment Agreement between the Registrant and Lawrence O. Perl. 10.2 Employment Agreement between the Registrant and Raymond Findley, Jr. 10.3 Employment Agreement between the Registrant and Robert H. Dixon. 10.4 Escrow Agreement, Bank of New York. 10.7.1 Subscription Agreement for American Card Technology, Inc. 10.7.2 Stock Option Agreement (warrant), Chapman Group, LLC. 10.7.3 Stock Option Agreement (warrant), Harold Rothstein.
II-3
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ----------- --------------------------------------------------------------------------------------------------- 10.7.4 Stock Option Agreement (warrant), Raymond Roncari. 10.8.1 Stock Option Agreement for non-employees and Amendment, Lilly Beter. 10.8.2 Stock Option Agreement for non-employees and Amendment, Harold Rothstein. 10.8.3 Stock Option Agreement for non-employees and Amendment, Raymond Roncari. 10.8.4 Stock Option Agreement for non-employees and Amendment, Bruce Bonadies. 10.8.5 Stock Option Agreement for non-employees and Amendment, Gordon Walker. 10.8.6 1996 Nonemployee Director's Stock Option Plan. 10.8.7 1996 Stock Option Plan for Employees. 10.8.8 Director Loan Agreement, Harold Rothstein. 10.8.9 Director Loan Agreement, Raymond Roncari 10.9.1 Agreement with Softchip Israel and Registrant. 10.9.2 Agreement with Softchip Technology (3000) Ltd. and Registrant. 10.9.3 Stock Option Agreement and Amendment, Shreveport Acquisition Corp. 10.9.4 Stock Option Agreement for employee, Robert Dixon. 10.9.5 Stock Option Agreement for employee, Michael Pate. 10.9.6 Stock Option Agreement for employee, Robert Patten. 10.9.7 Stock Option Agreement for employee, Shawn Nixon. 10.9.8 Stock Option Agreement for employee, Jeremy Zela. 23.1 Consent of Independent Accountant, BDO Seidman, LLP. 23.2 Consent of Legal Counsel, Bartz & Bartz (Opinion is filed as Exhibit 5.1). 23.3 Consent of Underwriter, Rockcrest Securities L. L. C. 27.0 Financial Data Schedule. 99.1 Dual Smart Card Access, Patent Number # TX 3-639-032 for American Card Tech., Inc. 99.2 Rothstein personal guarantee.
ITEM 28. UNDERTAKINGS The undersigned Registrant hereby undertakes to: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by section 10(a)(3) of the Act, (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the Registration Statement, and (iii) Include any additional or changed material information on the plan of distribution; (2) For determining liability under the Act, treat such post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. II-4 Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the forgoing provisions , or otherwise, the small business issuer has been advised that in the opinion of the Securities and exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submitted to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in Miami, Florida, on April, 30, 1998. AMERICAN CARD TECHNOLOGY, INC. By: /s/ LAWRENCE O. PERL ----------------------------------------- Lawrence O. Perl, CHIEF EXECUTIVE OFFICER In accordance with the requirements of the Securities Act of 1933, this Registration Statement on Form SB-2 was signed by the following persons in the capacities and on the dates stated. NAME TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ LAWRENCE O. PERL Chief Executive Officer, - ------------------------------ Chief Financial Officer, April 30, 1998 Lawrence O. Perl Chairman of Board /s/ RAYMOND FINDLEY, JR. - ------------------------------ President, Chief Operating April 30, 1998 Raymond Findley, Jr. Officer, Director /s/ HAROLD ROTHSTEIN - ------------------------------ Director April 30, 1998 Harold Rothstein /s/ RAYMOND RONCARI - ------------------------------ Director April 30, 1998 Raymond Roncari /s/ LILLY BETER - ------------------------------ Corporate Secretary, April 30, 1998 Lilly Beter Director /s/ BRUCE R. BONADIES - ------------------------------ Director April 30, 1998 Bruce R. Bonadies /s/ GORDON W.WALKER - ------------------------------ Director April 30, 1998 Gordon W. Walker II-6 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ----------- ------------------------------------------------------------------------------------------------ 1.1 Underwriting Agreement between Registrant and Rockcrest Securities, L. L. C. 3.1 Articles of Incorporation of Registrant. 3.2 By-Laws of Registrant. 4.1 Sample Certificate for Common Stock. 5.1 Opinion of Counsel regarding Legality. 8.1 Opinion of BDO Seidman, LLP. 9.1 Voting Trust Agreement for Lawrence O. Perl. 9.2 Voting Trust Agreement for Harold Rothstein. 10.1 Employment Agreement between the Registrant and Lawrence O. Perl. 10.2 Employment Agreement between the Registrant and Raymond Findley, Jr. 10.3 Employment Agreement between the Registrant and Robert H. Dixon. 10.4 Escrow Agreement, Bank of New York. 10.7.1 Subscription Agreement for American Card Technology, Inc. 10.7.2 Stock Option Agreement (warrant), Chapman Group, LLC. 10.7.3 Stock Option Agreement (warrant), Harold Rothstein. 10.7.4 Stock Option Agreement (warrant), Raymond Roncari. 10.8.1 Stock Option Agreement for non-employees and Amendment, Lilly Beter. 10.8.2 Stock Option Agreement for non-employees and Amendment, Harold Rothstein. 10.8.3 Stock Option Agreement for non-employees and Amendment, Raymond Roncari. 10.8.4 Stock Option Agreement for non-employees and Amendment, Bruce Bonadies. 10.8.5 Stock Option Agreement for non-employees and Amendment, Gordon Walker. 10.8.6 1996 Nonemployee Director's Stock Option Plan. 10.8.7 1996 Stock Option Plan for Employees. 10.8.8 Director Loan Agreement, Harold Rothstein. 10.8.9 Director Loan Agreement, Raymond Roncari 10.9.1 Agreement with Softchip Israel and Registrant. 10.9.2 Agreement with Softchip Technology (3000) Ltd. and Registrant. 10.9.3 Stock Option Agreement and Amendment, Shreveport Acquisition Corp. 10.9.4 Stock Option Agreement for employee, Robert Dixon. 10.9.5 Stock Option Agreement for employee, Michael Pate. 10.9.6 Stock Option Agreement for employee, Robert Patten. 10.9.7 Stock Option Agreement for employee, Shawn Nixon. 10.9.8 Stock Option Agreement for employee, Jeremy Zela. 23.1 Consent of Independent Accountant, BDO Seidman, LLP. 23.2 Consent of Legal Counsel, Bartz & Bartz (Opinion is filed as Exhibit 5.1). 23.3 Consent of Underwriter, Rockcrest Securities L. L. C. 27.0 Financial Data Schedule. 99.1 Dual Smart Card Access, Patent Number # TX 3-639-032 for American Card Technology, Inc. 99.2 Rothstein personal guarantee.
EX-1.1 2 EXHIBIT 1.1 EXHIBIT 1.1 UNDERWRITING AGREEMENT ACTI Page 1 of 24 ROCKCREST SECURITIES L.L.C. 3626 NORTH HALL STREET, SUITE 920 DALLAS, TEXAS 75219 James S. Harris member NASD Principal and SIPC AMERICAN CARD TECHNOLOGY, INC. UNDERWRITING AGREEMENT FOR REGULATION SB-2 OFFERING "PUBLIC OFFERING" May 1, 1998 American Card Technology, Inc. 1355 Terrell Mill Road Building 1462, Suite 200 Marietta, GA. 30067 Ladies and Gentlemen: American Card Technology, Inc a Delaware corporation, including all of its subsidiaries, (the "Company"), of Marietta, GA. hereby confirms its agreement with Rockcrest Securities, L.L.C. and/or other members of the Underwriting Group (the "Underwriter") as follows: I. Description Of Securities The Company's authorized and outstanding capitalization when the offering of the securities contemplated hereby (the "Offering") is permitted to commence and at the date of breaking of escrow and distribution of funds raised by the Underwriter to the Company pursuant to the terms and conditions stated in the prospectus prepared in connection with this Offering (the "Prospectus"), which is the date of closing the offering, (the "Closing Date"), will be set forth in the Prospectus included therein. The Company proposes to issue and sell to qualified investors an aggregate of up to 420,000 shares of its authorized $.001 U.S. par value common stock (the "Stock") at a price of $17.00 U.S. per unit on the terms as set forth in the Prospectus. The total aggregate shares shall not exceed 20% of the equity of the Company at the time of the effective date. UNDERWRITING AGREEMENT ACTI Page 2 of 24 II. Representations And Warrants of the Company In order to induce the Underwriter to enter into this Agreement, the Company hereby represents and warrants to and agrees with the Underwriter as follows: 2.01. Registration Statement/Prospectus. A registration statement on Form SB-2, (File No. ___________) (the "Registration Statement") as amended, with respect to the shares, including the related Prospectus, copies of which have heretofore been delivered by the Company to the Underwriter, has been prepared by the Company in conformity with (i) the requirements of the Securities Act of 1933, as amended (the "Act"); (ii) the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "SEC"); and (iii) the laws and regulations of any other state or jurisdiction in which such Registration Statement or Prospectus is filed; said Registration Statement will be filed with the Commission under the Act; one or more amendments to said Registration Statement, copies of which have heretofore been delivered to the Underwriter, has or have heretofore been filed; and the Company may file on or prior to the effective date additional amendments to said Registration Statement, including the final Prospectus, with copies delivered promptly to the Underwriter. As used in this Agreement, the term Registration Statement refers to and means said Registration Statement on Form SB-2, and all amendments thereto, including the Prospectus with all exhibits and financial statements, as it becomes effective; the term "Prospectus" refers to and means the Prospectus included in the Registration Statement when it becomes effective; and the term "Preliminary Prospectus" refers to and means any Prospectus included in said Registration Statement before it becomes effective. The terms "effective date" and "effective" refer to the date the SEC declares the Registration Statement effective pursuant to Section 8 of the Act. 2.02. Accuracy Of Offering Documents and Prospectus. The SEC has not issued any order preventing or suspending the use of any Prospectus with respect to the Stock, and each Preliminary Prospectus has conformed in all material respects with the requirements of the Act and the applicable Rules and Regulations thereunder and to the best of the Company's knowledge has not included at the time of filing or at the time of submission to the Underwriter any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading. When the Registration Statement becomes effective and on the Closing Date, the Registration Statement and Prospectus and any further amendments or supplements thereto will contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations for the purposes of the proposed SB-2 Offering, and all statements of material fact contained in the Registration Statement and Prospectus will be true and correct, and neither the Registration Statement nor the Prospectus will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, the Company does not make any representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon written information furnished on behalf of the Underwriter specifically for use therein. UNDERWRITING AGREEMENT ACTI Page 3 of 24 2.03. Financial Statements. The financial statements of the Company together with related schedules and notes as set forth in the Registration Statement and Prospectus will present fairly the financial position of the Company and, where applicable, the results of its operations and cash flows at the respective dates and for the respective periods for which they apply; such financial statements have been prepared in accordance with generally accepted principles of accounting consistently applied throughout the periods concerned except as otherwise stated therein. 2.04. Independent Public Accountant. The Public Accountant, which has, if required, certified or shall certify all financial statements as part of the Registration Statement and Prospectus is an independent certified public accountant within the meaning of the Act and the Rules and Regulations. 2.05. No Material Adverse Change. Except as may be reflected in or contemplated by the Registration Statement or Prospectus, as the same may be amended, subsequent to the dates as of which information is given in the Prospectus, and prior to the Closing Date, (i) there shall not be any material adverse change in the condition, financial or otherwise, of the Company or in its business taken as a whole; (ii) there shall not have been any material transaction entered into by the Company other than transactions in the ordinary course of business; (iii) the Company shall not have incurred any material obligations, contingent or otherwise, which are not disclosed in the Prospectus; (iv) there shall not have been nor will there be any change in the capital stock or long term debt (except current payments) of the Company; and (v) the Company has not and will not have paid or declared any dividends or other distributions on its common stock. 2.06. No Defaults. The Company is not in any material default which has not been waived in the performance of any obligation, agreement or condition contained in any debenture, note or other evidence of indebtedness or any indenture or loan agreement of the Company. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated, and compliance with the terms of this Agreement will not conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, the articles of incorporation, as amended, or bylaws of the Company, any note, indenture, mortgage, deed of trust, or other agreement or instrument to which the Company is a party or by which it or any of its property is bound, or any existing law, order, rule, regulation, writ, injunction, or decree of any government, governmental instrumentality, agency or body, arbitration tribunal or court, domestic or foreign, having jurisdiction over the Company or its property. The consent, approval, authorization, or order of any court or governmental instrumentality, agency or body is not required for the consummation of the transactions herein contemplated except such as may be required under the Act or under the blue sky or securities laws of any state or jurisdiction. 2.07. Incorporation And Standing. The Company is and at the Effective Date will be duly incorporated and validly existing in good standing as a corporation, under the laws of the State of Delaware with authorized and outstanding capital stock as set forth in the Registration Statement and Prospectus, and with full power and authority to own its property and conduct its business, present and proposed, as UNDERWRITING AGREEMENT ACTI Page 4 of 24 described in the Registration Statement and Prospectus; the Company has full power and authority to enter into this Agreement; and the Company is duly qualified and in good standing as a foreign corporation in each jurisdiction in which it owns or leases real property or transacts business requiring such qualification. The Company has no subsidiaries other than as disclosed in the Registration Statement and Prospectus. 2.08. Legality Of Outstanding Stock. The outstanding common stock of the Company has been duly and validly authorized, issued and is fully paid and nonassessable and will confirm to all statements with regard thereto contained in the Registration Statement and Prospectus. No sales of securities have been made by the Company in violation of the registration provisions of the Securities Act of 1933. 2.09. Legality Of Stock. The Stock has been duly and validly authorized and, when issued and delivered against payment therefor as provided in this Agreement, will be validly issued, fully paid and nonassessable. The Stock, upon issuance, will not be subject to the preemptive rights of any shareholders of the Company. The Stock will conform to all statements with regard thereto in the Registration Statement and Prospectus. 2.10. Prior Sales. No securities of the Company, or of a predecessor of the Company, have been sold except as set forth in the Prospectus. 2.11. Litigation. Except as set forth in the Registration Statement and Prospectus, there is no action, suit or proceeding before any court or governmental agency, authority or body pending or to the knowledge of the company threatened which might result in judgments against the Company not adequately covered by insurance or which collectively might result in any material adverse change in the condition (financial or otherwise), the business or the prospects of the Company, or would materially affect the properties or assets of the Company. 2.12. Finder. The Company knows of no outstanding claim for services in the nature of a finder's fee or origination fee with respect to the sale of the Stock hereunder resulting from its acts for which the Underwriter may be responsible. 2.13. Exhibits. There will be no contracts or other documents which are required to be filed as exhibits to the Registration Statement or Prospectus by the Act or by the Rules and Regulations which will not be so filed and each contract to which the Company is a party and to which reference is made in the Prospectus has been duly and validly executed, is in full force and effect in all material respects in accordance with their respective terms, and none of such contracts have been assigned by the Company, and the Company knows of no present situation or condition or fact which would prevent compliance with the terms of such contracts, as annexed to date. Except for amendments or modifications of such contracts in the ordinary course of business, the Company has no intention of exercising any right which it may have to cancel any of its obligations under UNDERWRITING AGREEMENT ACTI Page 5 of 24 any of such contracts, and has no knowledge that any other party to any of such contracts has any intention not to render full performance under such contracts. 2.14. Tax Returns. The Company, where applicable, has filed all federal and state tax returns which it is required to file and has paid all taxes shown on such returns and on all assessments it has received to the extent such taxes have become due. All taxes with respect to which the Company is obligated have been paid or adequate accruals have been set up to cover any such unpaid taxes. 2.15. Property. Except as otherwise set forth in or contemplated by the Registration Statement and Prospectus, the Company has good title, free and clear of all liens, encumbrances and defects, except liens for current taxes not due and payable, to all property and assets which are described in the Registration Statement and the Prospectus as being owned by the Company, subject only to such exceptions and qualifications as will be described in the Prospectus or which are not material and do not adversely affect the present or prospective business of the Company. 2.16. Authority. The execution and delivery by the Company of this Agreement has been duly authorized by all necessary corporate action and this Agreement is the valid, binding and legally enforceable obligation of the Company. III. Best Efforts Offering 3.01. Statement Of Best Efforts. Due to the dynamic aspects of the market, the Underwriter makes no guarantees as to the success of the Offering, but agrees to use its best efforts to bring the Offering to a successful close. The Underwriter shall market the Stock to qualified investors in the manner the Underwriter determines to be the best method, at the Underwriter's discretion. 3.02. No Liability of Underwriter. In the event the Underwriter is unable to sell any portion of the Stock in this Offering, the Underwriter shall in no way be liable for such unsold portion. IV. Prospectus 4.01. Delivery of Registration Statement. As required, the Company will deliver to the Underwriter without charge two signed copies of the Registration Statement, including all financial statements and exhibits filed therewith and any amendments or supplements thereto, and shall deliver without charge to the Underwriter as many copies of each Registration Statement and any amendment or supplement thereto as deemed necessary by the Underwriter, including such financial statements, exhibits, amendments and supplements. The signed copies of the Registration Statement/Prospectus so furnished to the Underwriter will include signed copies of any and all consents and certificates of UNDERWRITING AGREEMENT ACTI Page 6 of 24 the independent public accountant certifying to the financial statements included in the Registration Statement and Prospectus and signed copies of any and all consents and certificates of any other persons whose profession gives authority to statements made by them and who are named in the Registration Statement or Prospectus as having prepared, certified or reviewed any part thereof. 4.02. Delivery Of Preliminary Prospectus. The Company will deliver to the Underwriter, at the Company's expense, prior to the effective date of the Registration Statement as many printed copies of the Preliminary Prospectus filed with the SEC bearing the red ink statement required by SEC Rule 501 (c) (8) as the Underwriter may require for the purposes contemplated by this Agreement. The Company consents to the lawful use of such documents by the Underwriter and by dealers prior to the effective date of the Registration Statement. 4.03. Delivery Of Prospectus. The Company will deliver, at the Company's expense, as many printed copies of the Prospectus as the Underwriter may require for the purposes contemplated by this Agreement and shall deliver said printed copies of the Prospectus on the effective date and for such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. 4.04. Further Amendments and Supplements. If during such period of time as in the opinion of the Underwriter or its counsel an Prospectus relating to this financing is required to be delivered under the Act, any event occurs or any event known to the Company relating to or affecting the Company shall occur as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or if it is necessary at any time after the effective date of the Registration Statement to amend or supplement the Prospectus to comply with the Act, the Company will forthwith notify the Underwriter thereof and prepare and file with the SEC or other State or jurisdiction, as may be required by law in a SB-2 Offering, such further amendment or supplement to the Registration Statement and Prospectus and furnish and deliver to the Underwriter, all at the cost of the Company, a reasonable number of copies of the amended or supplemented Prospectus which as so amended or supplemented will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the Prospectus not misleading in light of the circumstance in which it is delivered to a purchaser or prospective purchaser, and which will comply in all respects with the Act, and in the event the Underwriter is required to deliver an Prospectus 90 days or more after the date of the Regulation SB-2 Offering, the Company will promptly upon request prepare such Prospectus or Prospectuss as may be necessary to permit compliance with the requirements of Section 10 of the Act. 4.05. Use Of Prospectus. The Company authorizes the Underwriter in connection with the distribution of the Stock to use the Prospectus, as from time to time amended or supplemented, in connection with the offering and sale of the Stock and in accordance with the applicable provisions of the Act and the applicable Rules and Regulations and applicable state blue sky or securities laws. UNDERWRITING AGREEMENT ACTI Page 7 of 24 V. Covenants Of the Company 5.01. Objection of Underwriter to Amendments or Supplements. After the date hereof, the Company will not at any time, whether before or after the effective date of the Registration Statement, file or distribute to any party any amendment or supplement to the Registration Statement or to the Prospectus unless and until a copy of such amendment or supplement has been previously furnished to the Underwriter within a reasonable time period prior to the proposed filing or distribution thereof, or of which the Underwriter or counsel for the Underwriter has reasonably objected to, in writing, on the ground that such amendment or supplement is not in compliance with the Act or the Rules and Regulations. 5.02. Company's Best Efforts to Cause Registration Statement to Become Effective. The Company will use its best efforts to cause the Registration Statement, if required by the Act, and any post-effective amendment subsequently filed, to become effective as promptly as reasonably practicable and will promptly advise the Underwriter, and confirm such advice in writing (i) when the Registration Statement shall have become effective and when any amendment thereto shall have become effective and when any amendment of or supplement to the Prospectus shall be filed with the SEC; (ii) when the SEC shall make a request or suggestion for any amendment to the Registration Statement or the Prospectus or for additional information and the nature and substance thereof; (iii) of the issuance by the SEC of an order suspending the effectiveness of the Registration Statement pursuant to Section 8 of the Act or of the initiation of any proceedings for that purpose; (iv) of the happening of any event which in the judgment of the Company makes any material statement in the Registration Statement or Prospectus untrue or which requires any changes to be made in the Registration Statement or Prospectus in order to make the statements therein not misleading; and (v) of the refusal to qualify or the suspension of the qualification of the Stock for offering or sale in any jurisdiction, or the institution of any proceedings for any of such purposes. The Company will use every reasonable effort to prevent the issuance of any such order or of any order preventing or suspending such use, to prevent any such refusal to qualify or any such suspension, and to obtain as soon as possible a lifting of any such order, the reversal of any such refusal and the termination of any such suspension. 5.03. Preparation Of Amendments and Supplements. The Company will promptly prepare and file promptly with the SEC, as required and upon request of the Underwriter, such amendments or supplements to the Registration Statement or Prospectus, in form satisfactory to counsel to the Company, as may be necessary, in the opinion of the counsel to the Underwriter and of counsel to the Company, in connection with the offering or distribution of the Stock and will use its best efforts to cause the same to become effective as promptly as possible. 5.04. Blue Sky Qualifications. The Company will, when and as requested by the Underwriter, use reasonable efforts to qualify the Stock or such part thereof as the Underwriter may determine for sale under the so-called blue sky laws of the States of Texas, Georgia, Colorado, Oklahoma, Idaho, Oregon, Louisiana, Kansas, Illinois, Massachusetts, Florida, Washington, Nevada, California, Connecticut, New York and of so many other states as the Underwriter may reasonably request and to continue such qualification in effect so long as required for the purposes of UNDERWRITING AGREEMENT ACTI Page 8 of 24 the distribution of the Stock; provided, however, the Company shall not be required to make a blue sky filing in any state which would require that shares representing so-called "cheap stock" be escrowed for more than five years. The Blue Sky work shall be undertaken by counsel selected by the Company and shall be at the Company's expense. 5.05. Financial Statements. The Company, at its own expense, will prepare and give and will continue to prepare and give such financial statements and other information to and as may be required by the SEC or any state, regulatory agency or jurisdiction in which the Stock may be qualified. 5.06. Reports And Financial Statements to the Underwriter. During the period of five years from the Closing Date, the Company will deliver to the Underwriter (i) copies of each annual report of the Company; (ii) copies of all reports it is required to file or make available pursuant to the Investment Company Act of 1940, as amended (the "ICA"); (iii) within 90 days after the close of each fiscal year of the Company, a financial report of the Company and its subsidiaries, if any, on a consolidated basis, and a similar financial report of all unconsolidated subsidiaries, if any, all such reports to include a balance sheet as of the end of the preceding fiscal year, an income statement, a statement of changes in financial condition and an analysis of investors' equity covering such fiscal year, and all to be in reasonable detail and, if required, certified by independent public accountants for the Company; (iv) within 45 days after the end of each quarterly fiscal period of the Company other than the last quarterly fiscal period in any fiscal year, copies of the consolidated income statement and statement of changes in financial condition for that period, and the balance sheet of the Company and its subsidiaries, if any, as of the end of that period and the income statement, statement of changes in financial condition and balance sheet of each unconsolidated subsidiary, if any, of the Company for that period, all subject to year-end adjustment, certified by the principal financial or accounting officer of the Company; (v) copies of all other statements, documents, or other information which the Company shall mail or otherwise make available to any class of its security holders, or if required shall file with SEC; and (vi) upon request in writing from the Underwriter, furnish to the Underwriter such other information as may reasonably be requested and which may be properly disclosed to the Underwriter with reference to the property, business and affairs of the Company and its subsidiaries, if any. If the Company shall fail to furnish the Underwriter with financial statements as herein provided, within the times specified herein, the Underwriter shall have the right to have such financial statements prepared by independent public accountants of their own choosing and the Company agrees to furnish such independent public accountants such data and assistance and access to such records as they may reasonably require to enable them to prepare such statements and to pay their reasonable fees and expenses in preparing the same, pursuant to Section 5.08. below. In the event the monies described in Section 5.08. below are not deposited the Company agrees to hold the Underwriter harmless if the Underwriter does not enforce the above listed rights. 5.07. Underwriter's Commission/Compensation. Upon Closing, the Company shall pay to the Underwriter the Sales Commission as set forth in theProspectus. This commission shall be ten percent (10%) of the gross proceeds from UNDERWRITING AGREEMENT ACTI Page 9 of 24 the sale of the Stock pursuant to the Offering. In addition, upon closing of the Offering, the Underwriter has a five year option to purchase 100,000 shares of common stock at a 20% discount below market price, at the time of exercise. 5.08. Expenses Paid by the Company. The Company and its officers agree to deposit with the Underwriter, upon execution of this Agreement, a sufficient amount of money to fund all anticipated expenses, and the initial amount of $ 25,000 U.S. has been deposited. Rockcrest Capital Corporation performs all due diligence investigations on behalf of the Underwriter. Subject to the limitations described below in this section 5.08 (dealing with funds in excess of $25,000 U.S.) the Company and/or its officers will deposit such funds, whether or not the transactions contemplated hereunder are consummated or this Agreement is prevented from becoming effective or is terminated, to fund all costs and expenses incident to the performance of its obligations under this Agreement, including all expenses incident to the authorization of the Stock and their issue and delivery to the Underwriter, any original issue taxes in connection therewith, all transfer taxes, if any, incident to the initial sale of the Stock to the qualified investors, the fees and expenses of the Company's counsel and accountants, all travel costs incurred by the Underwriter's personnel in connection with the Offering, the costs and expenses incident to the preparation, printing and filing under the Act and with the National Association of Securities Dealers, Inc., as necessary, of the Registration Statement and the Prospectus and any amendments or supplements thereto, the cost of printing, reproducing and filing, as necessary, the Registration Statement and Prospectus and the underwriting documents, the cost of printing and furnishing to the Underwriter copies of the Registration Statement and Prospectus, as well as any amendments and/or supplements thereto, and the cost of qualifying the Stock under the state securities or blue sky laws as provided in Section 5.04. herein, including expenses and disbursements of the Underwriter incurred in connection with such qualification, and any other expense deemed appropriate by the Underwriter. Said monies have been deposited with the Underwriter. Not withstanding the foregoing, any costs, fees, expenses, taxes and disbursements in excess of $25,000 shall only be the obligation of the Company by mutual written agreement between the parties and shall be paid by the Company promptly on or before the agreed upon date. The Underwriter and the Company may reach a mutual written agreement to revise the payment terms of any and all funds requested by the Underwriter. 5.09. Reports To Investors. During the period five years from the Closing Date, the Company will, as promptly as possible, not to exceed 120 days, after each annual fiscal period render and distribute reports to its investors which will include audited statements of its operations and cash flows during such period and its balance sheet as of the end of such period, as to which statements the Company's independent certified public accountants, if required, shall have rendered an opinion. 5.10. Section 11(a) Financials. The Company will make generally available to its security holders and will deliver to the Underwriter, as soon as practicable, but in no event later than the first day of the sixteenth full calendar month following the effective date of the Registration Statement, an earning statement (as to which no opinion need be rendered but which will satisfy the provisions of Section 11(a) UNDERWRITING AGREEMENT ACTI Page 10 of 24 of the Act) covering a period of at least 12 months beginning after the effective date of the Registration Statement. 5.11. Post-Effective Availability of Prospectus. Within the time during which the Prospectus is required to be delivered under the Act, the Company will comply, at its own expense, with all requirements imposed upon it by the Act, as now or hereafter amended, by the Rules and Regulations, as from time to time may be in force, and by any order of SEC, so far as necessary to permit the continuance of sales or dealings in the Stock. 5.12. Application Of Proceeds. The Company will apply the net proceeds from the sale of the Stock substantially in the manner set forth in the Prospectus. 5.13. Undertakings Of Certain Shareholders. The Company will deliver to the Underwriter, prior to or simultaneously with the execution of this Agreement an agreement executed by each officer, director or shareholder of the Company stating that such person shall not directly or indirectly offer or sell to qualified investors any portion of the shares of Common Stock owned prior to the effective date of this Agreement for a period of twelve months from the effective date of the Registration Statement without the Underwriter's prior written consent. 5.14. Delivery Of Documents. Prior to the funding of this Offering, the Company will deliver to the Underwriter, at its own expense, true and correct copies of the articles of incorporation and certificate of incorporation of the Company, and all amendments thereto, all such copies to be certified by the Secretary of State of the State of Delaware; true and correct copies of the bylaws of the Company and of the minutes of all meetings of the directors and the shareholders of the Company held prior to the Closing Date which in any way relate to the subject matter of this Agreement; and true and correct copies of all material contracts to which the Company is a part, other than contracts for the sale of products or services in the normal course of business. True and correct copies of any and all amendments to these instruments up to the Closing Date shall be provided to the Underwriter at the expense of the Company. 5.15. Cooperation With Underwriter's Due Diligence. At all times prior to the Closing Date, the Company will cooperate with the Underwriter in such investigation as the Underwriter may make or cause to be made of all the properties, business and operations of the Company in connection with this Offering, and the Company will make available to the Underwriter, in connection therewith, such information in its possession as the Underwriter may reasonably request. 5.16. No Sale Period. No offering, sale or other disposition of any common stock, equity or long-term debt will be made within one year after the effective date of the Prospectus, directly or indirectly, by the Company, otherwise than hereunder, unless the Underwriter gives prior written consent. UNDERWRITING AGREEMENT ACTI Page 11 of 24 5.17. Appointment Of Transfer Agent. The Company will appoint a transfer agent for the Stock subject to the Closing. Once such agent has been appointed, the Company will not change or terminate such appointment for a period of three years from the effective date without first obtaining the written consent of the Underwriter, which consent shall not be unreasonably withheld. 5.18. Compliance With Conditions Precedent. The Company will use all reasonable efforts to comply or cause to be complied with the conditions precedent to the several obligations of the Underwriter in Section 8 hereof. 5.19. Filings Required. The Company agrees to file with the SEC or any other state or jurisdiction all reports required under the Act, the Rules and Regulations or any other applicable law, and to provide a copy of such reports to the Underwriter, including but not limited to the filing of Form SR with the SEC in accordance with the provisions of Rule 463 promulgated under the Act. 5.20. Application To Moody's/ Standard & Poor's/ Dunn &Bradstreet The Company will, within 120 days after the effective date, apply for listing in Moody's Over-The-Counter Manual and/or Standard & Poor's and/or Dunn & Bradstreet and shall use its best efforts to have the Company listed in such manual. Whether the Company will apply for listing on one exchange or all three will be decided by the Underwriter and the Company cooperatively. 5.21. Application To NASDAQ/Bulletin Board The Company shall apply for entry of the Stock on the NASDAQ automated quotation system and/or the Bulletin Board and shall in such event use its best efforts to have its common stock quoted on that system. 5.22. Due Diligence Tour. The Company has agreed to spend up to $100,000 for the due diligence tour. The Company will follow the direction of the Underwriter regarding the structure and the particulars of the due diligence tour. The Company and the Underwriter will collectively decide the disposition of the due diligence tour. VI. Indemnification 6.01. Indemnification By Company. The Company agree to indemnify and hold harmless the Underwriter and each person who controls the Underwriter within the meaning of Section 15 of the Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act or any other statute or at common law and to reimburse persons indemnified as above for any legal or other expenses (including the cost of any investigation and preparation) incurred by them in connection with any litigation, whether or not resulting in any liability, but only insofar as such losses, claims, damages, liabilities and litigation arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in UNDERWRITING AGREEMENT ACTI Page 12 of 24 the Registration Statement or any amendment thereto or any application or other document filed in order to qualify the Stock under the blue sky or securities law of the states where the filings were made, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, all as of the date when the Registration Statement or such amendment, as the case may be, becomes effective, or any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (as amended or supplemented), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the indemnity agreement contained in this subsection 6.01. shall not apply to amounts paid in settlement of any such litigation if such settlements are effected without the consent of the Company, nor shall it apply to any Underwriter or any person controlling any Underwriter in respect of such losses, claims, damages, liabilities or actions arising out of or based upon any such untrue statements or made in reliance upon information within the knowledge of the Underwriter and furnished to the Company by the Underwriter for use in connection with the preparation of the Registration Statement and the Prospectus or any such amendment or supplement thereto. Furthermore, in the event the Company fails to provide all funds properly requested by the Underwriter pursuant to this Agreement in a timely manner as determined by the Underwriter in its sole reasonable discretion, the Company agrees to indemnify and hold harmless the Underwriter and each person who controls the Underwriter within the meaning of Section 15 of the Act against any and all claims arising out of this Agreement, any breach of this Agreement by the Company or failure by the Company to perform any authorized act under this Agreement, subject to the indemnity restrictions contained in this Section 6.01., whether such claims are originated by the Company, its officers, agents or assigns or by any other third party. This indemnity agreement is in addition to any other liability which the Company may otherwise have to the Underwriter. The Underwriter agrees that within ten days after the receipt by the Underwriter of written notice of the commencement of any action against them or against any person controlling them as aforesaid, in respect of which indemnity may be sought from the Company on account of the indemnity agreement contained in this subsection 6.01. to notify the Company in writing of the commencement thereof. The failure of the Underwriter so to notify the Company of any such action shall relieve the Company from any liability which it may have to the Underwriter or any person controlling the Underwriter as aforesaid on account of the indemnity agreement contained in this subsection 6.01., but shall not relieve the Company from any other liability which it may have to the Underwriter or such controlling person. In case any such action shall be brought against the Underwriter or any such controlling person and the Underwriter shall notify the Company of the Commencement thereof, the Company shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own expense, but such defense shall be conducted by counsel of recognized standing and reasonably satisfactory to the Underwriter or such controlling person or persons, defendant or defendants in such litigation. The Company agrees to notify the Underwriter promptly of commencement of any litigation or proceedings against it or any of its officers or directors, of which it may be advised, in connection with the issue and sale of any of its securities and to furnish to the Underwriter at its request copies of all pleadings therein and permit the Underwriter to be an observer therein and apprise the Underwriter of all developments therein, all at the Company's expense. Provided, however, that in no event shall the indemnification agreement contained in this subsection 6.01. UNDERWRITING AGREEMENT ACTI Page 13 of 24 inure to the benefit of any Underwriter (or any person controlling such Underwriter) on account of any losses, claims, damages, liabilities or actions arising from the sale of the Stock in this Offering to any person by such Underwriter if such losses, claims, damages, liabilities or actions arise out of, or are based upon, an untrue statement or omission or alleged untrue statement or omission in a Preliminary Prospectus and if the Prospectus shall correct the untrue statement or omission or the alleged untrue statement or omission which is the basis of the loss, claim, damage, liability or actionfor which indemnification is sought and a copy of the Prospectus had not been sent or given to such person at or prior to the confirmation of such sale to him in any case where such delivery is required by the Act, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with Sections 4.02. and 4.03. hereof. Provided, however, the Company's obligations to indemnify hereunder shall not be applicable to any liability to which the Underwriter is subject by reason of willful malfeasance, bad faith or gross negligence in the performance of its duties or by reason of willful disregard of its obligations and duties under this Agreement. Notwithstanding anything to the contrary in this subsection 6.01. of this Agreement, no Underwriter shall be indemnified by the Company against any liability by any such Underwriter to the Company or its shareholders except in accordance with the guidelines set forth in Release No. IC-11330 issued by the SEC on September 2, 1980. 6.02. Indemnification by Underwriter. The Underwriter will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and reasonable attorneys' fees) to which the Company or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any violation by the Underwriter in the sale of such securities of any applicable state or federal law or any rule, regulation or instruction thereunder relating to violations based on unauthorized statements by the Underwriter or any of their representatives, provided that such violation is not based upon any violation of such law, rule, regulation or instruction by the party claiming indemnification or inaccurate or misleading information furnished by the Company or its representatives, including information furnished to the Underwriter as contemplated herein. This indemnity agreement shall be in addition to any liability which the Underwriter may otherwise have. 6.03. Notice Of Litigation Against Underwriter. The Underwriter agrees to notify the Company promptly of the commencement of any litigation or proceeding against the Underwriter or against any such controlling person, of which it may be advised in connection with the issue and sale of any of the securities of the Company, and to furnish to the Company at its request copies of all pleadings therein and apprise it of all the developments therein, all at the Underwriter's expense, and permit the Company to be an observer therein. UNDERWRITING AGREEMENT ACTI Page 14 of 24 VII. Effectiveness Of Contract 7.01. Date Of Effectiveness This Agreement shall become effective immediately upon execution.The time of the release by the Underwriter of the Stock for offering, for the purposes of this Section VII., shall mean the time of the release by the Underwriter for publication of the first advertisement which is subsequently published relating to the Stock, or the time of the first delivery or mailing of copies of the Prospectus relating to the Stock which are subsequently delivered, whichever shall first occur. The Underwriter agrees to notify the Company immediately after the Underwriter shall have taken any action, by release or otherwise, whereby this Agreement shall have become effective. This Agreement shall, nevertheless, become effective at such time earlier than the time specified above, after the effective date, as the Underwriter may determine by notice to the Company. VIII. Conditions Of Underwriter's Obligations The Underwriter's obligations hereunder to make payment to the Company hereunder on the Closing Date shall be subject to the terms and conditions stated in the Prospectus, and to the accuracy of the representations and warranties on the part of the Company herein contained, to the performance by the Company of all its agreements herein contained, to the fulfillment of or compliance by the Company with all covenants and conditions hereof, and to the following additional conditions: 8.01. Effectiveness Of Offering Documents. The Offering Documents shall have become effective on or prior to the date stated therein. 8.02. Accuracy Of Offering Documents. The Underwriter shall not have disclosed in writing to the Company that the Prospectus or any amendment thereof or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel to the Underwriter, is material, or omits to state a fact which, in the opinion of counsel to the Underwriter, is material and is required to be stated therein, or is necessary to make the statements therein not misleading. 8.03. Casualty And Other Calamity. Between the date hereof and the Closing Date, the Company shall not have sustained any loss on account of fire, explosion, flood, accident, calamity or any other cause, of such character as materially adversely affects its business or property considered as an entire entity, whether or not such loss is covered by insurance and a key principal of the Company (Lawrence O. Perl and/or Raymond Findley) shall not have suffered any injury or disability of a nature which would materially adversely affect his ability as a key principal of the Company. 8.04. Litigation And Other Proceedings. Between the date hereof and the Closing Date, there shall be no litigation instituted or threatened against UNDERWRITING AGREEMENT ACTI Page 15 of 24 the Company and there shall be no proceeding instituted or threatened against the Company before or by any federal or state commission, regulatory body or administrative agency or other governmental body, domestic or foreign, wherein an unfavorable ruling, decision or finding would materially adversely affect the business, franchises, patents, operations or financial condition or income of the Company considered as an entity. 8.05. Lack of Material Change. Except as contemplated herein or as set forth in the Registration Statement and Prospectus, as such may amended, during the period subsequent to the date of the last audited balance sheet included in the Registration Statement and prior to the Closing Date, the Company (i) shall have conducted its business in the usual and ordinary manner as the same was being conducted on the date of the last audited balance sheet included in the Registration Statement; and (ii) shall not, except in the ordinary course of its business, have incurred any liabilities or obligations (direct or contingent) or disposed of any of its assets, or entered into any material transaction or suffered or experienced any substantially adverse change in its condition, financial or otherwise. At the Closing Date, the capital stock and surplus accounts of the Company shall be substantially the same as at the date of the last audited balance sheet included in the Registration Statement, without considering the proceeds from the sale of the Stock, other than as may be set forth in the Prospectus, and except as the surplus reflects the result of continued losses from operations. 8.06. Opinion of Counsel. The Company shall have furnished to the Underwriter the opinion, dated twenty-four hours prior to the Closing Date, addressed to the Underwriter, from the Company's counsel, to the effect that based upon their review of the Registration Statement and Prospectus, the Company's certificate of incorporation, bylaws, and relevant corporate proceedings, an examination of such statutes as the Company's counsel deem necessary and such other investigation by such counsel as it deems necessary to express such opinions: (i) The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own and operate its properties and to carry on its business as set forth in the Registration Statement and Prospectus. (ii) The Company is qualified as a foreign corporation in the State of Georgia and is not required to qualify or register as a foreign corporation in any other state and there are no other jurisdictions in which the Company's ownership of property or its conduct of business requires such qualification or registration and where the failure to so qualify would have a material adverse effect on its operations. (iii) The Company has authorized and outstanding capital stock as set forth in the Registration Statement and Prospectus; the outstanding common stock of the Company, and the Stock, conform to the statements concerning them in the Registration Statement and the Prospectus; the outstanding common stock of the Company has been duly and validly issued and is fully paid and nonassessable and contains no preemptive rights; the Stock has been duly authorized and, upon issuance thereof and payment therefor in accordance with this Agreement, will be duly and UNDERWRITING AGREEMENT ACTI Page 16 of 24 validly issued, fully paid and nonassessable, and will not be subject to the preemptive rights of any shareholder of the Company. (iv) No consents, approvals, authorizations or orders of agencies, officers or other regulatory authorities are known to such counsel which are necessary for the valid authorization, issue or sale of the Stock hereunder, except as required under the Act or blue sky or state securities laws. (v) The issuance and sale of the Stock, and the consummation of the transactions herein contemplated and compliance with the terms of this Agreement will not, to the best of Counsel's knowledge, conflict with or result in a breach of any of the terms, conditions or provisions of or constitute a default under the certificate of incorporation or bylaws of the Company, or any note, indenture, mortgage, deed of trust, or other agreement or instrument to which the Company is a party or by which the Company or any of its property is bound or any existing law (provided this paragraph shall not relate to federal or state securities laws), order, rule, regulation, writ, injunction, or decree of any government, governmental instrumentality, agency, body, arbitration tribunal, or court, domestic or foreign, having jurisdiction over the Company or its property. (vi) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel after such counsel has conducted a reasonable investigation, no order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated by the SEC under the Act, and the Prospectus, and each amendment and supplement thereto, complies as to form in all material respects with the requirements of the Act and the Rules and Regulations thereunder, and after a reasonable investigation such counsel has no reason to believe that either the Registration Statement or the Prospectus or any such amendment or supplement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which made (except that no opinion need be expressed as to financial statements contained in the Registration Statement or Prospectus); and such counsel is familiar with all contracts referred to in the Registration Statement or Prospectus and such contracts are sufficiently summarized or disclosed therein or filed as exhibits thereto as required, and such counsel, after a reasonable investigation, does not know of any contracts required to be summarized or disclosed or filed, and such counsel, after a reasonable investigation, does not know of any legal or governmental proceedings pending or threatened to which the Company is the subject of which is required to be disclosed in the Registration Statement or the Prospectus which are not disclosed and properly described therein. (vii) This Agreement has been duly authorized and executed by the Company and is a valid and binding agreement of the Company. As to routine factual matters such as the issuance of stock certificates and receipt of payment therefor, the states in which the Company transacts business, the adoption of resolutions reflected by the Company's minute book and the like, such counsel may rely on the certificate of an appropriate officer of the Company. Such opinion shall also cover such other matters incident to the transactions contemplated by this Agreement as the Underwriter shall reasonably request. UNDERWRITING AGREEMENT ACTI Page 17 of 24 8.07.01. Accountant's Letter. The Underwriter shall have received, if required, a letter addressed to the Underwriter and dated the date of this Agreement and the Closing Date, respectively, from the independent public accountant of the Company, stating that (i) with respect to the Company they are the independent public accountant of the Company within the meaning of the Act and the applicable published Rules and Regulations thereunder; (ii) in its opinion, the Company's financial statements which the independent public accountantaudited, at all dates and for all periods referred to and included in the Registration Statement and Prospectus, comply in all material respects with the applicable accounting requirements of the Act and the published Rules and Regulations thereunder with respect to SB-2 offering documents; (iii) on the basis of certain indicated procedures (but not an audit in accordance with generally accepted accounting principles), including examinations of the instruments of the Company set forth in the Prospectus, a reading of the latest available interim unaudited financial statements of the Company, whether or not appearing in the Prospectus, inquiries of the officers of the Company or other persons responsible for its financial and accounting matters regarding the specific items for which representations are requested below and a reading of the minute books of the Company, nothing has come to its attention which would cause it to believe that during the period from the last audited balance sheet included in the Registration Statement to a specified date not more than five days prior to the date of such letter (a) there has been any change in the capital stock or other securities of the Company or any payment or declaration of any dividend or other distribution in respect thereof or exchange therefor from that shown on its audited balance sheets or in the debt of the Company from that shown in the Registration Statement or Prospectus other than as set forth in or contemplated by the Registration Statement or Prospectus; (b) there have been any material decreases in net current assets or net assets as compared with amounts shown in the last audited balance sheet included in the Prospectus so as to make said financial statements misleading; and (c) on a basis of the indicated procedures and discussions referred to in clause (iii) above, nothing has come to its attention which, in its judgment, would cause the independent public accountant to believe or indicate that the unaudited financial statements and schedules, whether or not appearing in the Registration Statement and Prospectus, do not present fairly the financial position and results of the Company, for the periods indicated, in conformity with the generally accepted accounting principles applied on a consistent basis with the audited financial statements. 8.07.02. Conformed Copies of Accountant's Letter. The Underwriter shall be furnished without charge, in addition to the original signed copies, such number of signed or photostatic or conformed copies of such letters as the Underwriter shall reasonably request. 8.08. Officers' Certificate. The Company shall have furnished to the Underwriter a certificate by the Company's President and chief financial officer, dated as of the Closing Date, to the effect that, to the best of their knowledge; (i) The representations and warranties of the Company in this Agreement are true and correct as of the date of this Agreement and as of the Closing Date, and the Company has complied with all UNDERWRITING AGREEMENT ACTI Page 18 of 24 the agreements and has satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date. (ii) The Registration Statement has become effective and no order suspending the effectiveness of the Registration Statement has been issued and to the best of all knowledge of the respective signers after such respective signers have made inquiry, no proceeding for that purpose has been initiated or is threatened by the SEC. (iii) The respective signers have carefully examined the Registration Statement and the Prospectus and any amendments or supplements thereto, and the Registration Statement and the Prospectus and any amendments and supplements thereto contain all statements required to be stated therein, and all statements contained therein are true and correct, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and, since the effective date of the Registration Statement, has occurred no event required to be set forth in an amended or a supplemented Prospectus which has not been so set forth. (iv) Except as set forth in the Registration Statement and Prospectus since the respective dates as of which the periods for which information is given in the Registration Statement and Prospectus and prior to the date of such certificates, and except for anticipated continuing losses, (a) there has not been any substantially adverse change, financial or otherwise, in the affairs or condition of the Company, and (b) the Company has not incurred any liabilities, direct or contingent, or entered into any transactions, otherwise than in the ordinary course of business. (v) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, no dividends or distribution whatever have been declared and/or paid on or with respect to the common stock of the Company. 8.09. Tender Of Delivery of Stock. All of the Stock being offered by the Company shall be tendered for delivery in accordance with the terms and provisions of this Agreement. 8.10. Blue Sky Qualifications. The Stock shall be qualified in such states as the Underwriter may reasonably request pursuant to Section 5.04., and each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date. 8.11. Approval Of Underwriter. All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance satisfactory to the Underwriter, whose approval shall not be unreasonably withheld. The suggested form of such documents shall be provided to the Underwriter at least one business day before the Closing Date. If necessary, the Underwriterwill provide a written memorandum stating which such closing documents it deems necessary for its review. Such UNDERWRITING AGREEMENT ACTI Page 19 of 24 memorandum shall be delivered five business days before the Closing Date to counsel for the Company. 8.12. Officers' Certificate As a Company Representative. Any certificate signed by an officer of the Company and delivered to the Underwriter or to counsel for the Underwriter will be deemed a representation and warranty by the Company to the Underwriter as to the statements made therein. 8.13. Non-Payment Of Requested Funds by Company. All funds agreed upon by mutual written agreement between the parties, as discussed herein, shall be paid by the Company as described in this Agreement. In the event the Company does not provide any and all funds as mutually agreed upon, as described in this Agreement, the Underwriter reserves the right to cease all activity with respect to this Offering until such funds are received from the Company. In the event all such funds are not received within thirty days from the date such funds are due, and no written agreement between the Company and the Underwriter as to the payment of such requested funds is reached, the Underwriter reserves the right to withdraw from its role in this Offering and instruct the escrow agent to return all monies received from investors to fund the offering, at the cost of the Company. Such withdrawal shall not be deemed a breach of this Agreement. 8.14. Requested Contracts, Information and Documents Provided. All contracts, information and documents requested in writing by the Underwriter from the Company, to include audited financial statements, key man life insurance and any other liability and/or casualty insurance deemed necessary by the Underwriter, fidelity bonds, and non-compete agreements with officers, have been timely provided to the Underwriter as requested. The Underwriter may request any contracts, information or documents which it reasonably deems necessary in order to facilitate the funding of this Offering, within its sole discretion. IX. Termination 9.01. Termination Due to Non-Compliance. This Agreement may be terminated by the Underwriter by written notice to the Company in the event the Company shall have failed or been unable to comply in any material respect with any of the terms, conditions or provisions of this Agreement on the part of the Company to be performed, complied with or fulfilled (including but not limited to those specified in sections 2, 3, 4, 5, and 8 hereof) within the respective times herein provided for, unless compliance therewith or performance or satisfaction thereof shall have been expressly waived by the Underwriter in writing. The date of such termination notice shall be the termination date of this Agreement (the "Termination Date"). This Agreement may be terminated by the Company by written notice to the Underwriter in the event the Underwriter shall have failed or been unable to comply in any material respect with any of the terms, conditions or provisions of this Agreement on the part of the Underwriter to be performed, complied with or fulfilled, within the respective times herein provided for, unless compliance therewith or performance or satisfaction thereof shall have been expressly UNDERWRITING AGREEMENT ACTI Page 20 of 24 waived by the Company in writing. The date of such termination notice shall be the termination date of this Agreement (the "Termination Date"). 9.02. Termination Due to Due Diligence Investigations. In the event the Underwriter's due diligence investigations lead the Underwriter to believe any statement or fact presented by the Company, whether oral or written, on which it relied in executing this Agreement to be false or exaggerated, whether intentionally or unintentionally on the part of the Company, or to believe the Offering has an unacceptable likelihood of success or is fraudulent in any way, the Underwriter reserves the right to terminate this Agreement immediately, and upon termination the Underwriter shall refund any unused portion of any deposit it received from the Company. The Underwriter shall immediately provide a written notice to the Company notifying the Company of its termination of this Agreement and the reasons therefor. The date of such termination notice shall be the termination date of this Agreement (the "Termination Date"). 9.03. Market Out Termination This Agreement may be terminated by the Underwriter by notice to the Company at any time if, in the judgment of the Underwriter, payment for and delivery of the Stock is rendered impracticable or inadvisable because (i) additional material governmental restrictions not in force and effect on the date hereof shall have been imposed upon the trading in securities generally, or minimum or maximum prices shall have been generally established on the New York Stock Exchange or trading in securities generally on such Exchange shall have been suspended, or a general moratorium shall have been established by federal or state authorities; (ii) a war or other national calamity shall have occurred; (iii) substantial and material changes in the condition of the market (either generally or with reference to the sale of the Stock offered hereby) beyond normal fluctuations are such that it would be undesirable, impracticable or inadvisable in the judgment of the Underwriter to proceed with this Agreement or with the public offering; or (iv) of any matter materially adversely affecting the Company. The date of such termination notice shall be the termination date of this Agreement (the "Termination Date"). 9.04. Termination Due to Misuse of Discretion, Willful Malfeasance, Bad Faith or Gross Negligence. This Agreement may be terminated by the Company upon written notice to the Underwriter, in cases where the Underwriter has exercised misuse of discretion, willful malfeasance, bad faith or gross negligence in the performance of its duties or by reason of willful disregard of its obligations and duties under this Agreement. The date of such termination notice shall be the termination date of this Agreement (the "Termination Date"). 9.05. Termination Due to Court Proceedings. In the event any action or proceeding of the type referred to in subparagraph 10.02 below shall be instituted or threatened against the Underwriter at any time prior to the effective date hereunder, or in the event there shall be filed by or against the Underwriter in any court pursuant to any federal, state, local or municipal statute, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of the Underwriter's assets or if the Underwriter makes an assignment for the benefit of creditors, the Company shall have the right, with written notice to the Underwriter, to terminate this Agreement without any liability to the UNDERWRITING AGREEMENT ACTI Page 21 of 24 Underwriter of any kind except for the payment of all expenses as provided herein. The date of such termination notice shall be the termination date of this Agreement (the "Termination Date"). 9.06. Effect Of Termination Hereunder. Any termination of this Agreement pursuant to this Section IX shall be without liability of any character (including, but not limited to, loss of anticipated profits or consequential damages) on the part of any party thereto, except that the Company shall remain obligated to pay the costs and expenses provided to be paid by it specified in Section 5.08.; and the Company and the Underwriter shall be obligated to pay, respectively, their own losses, claims, damages or liabilities, joint or several, under this Agreement. Upon such termination the Underwriter shall instruct the escrow agent to return any and all funds received from investors to fund the offering, at the expense of the Company. X. Underwriter's Representations and Warranties The Underwriter represents and warrants to and agrees with the Company that: 10.01. Registration As Broker-Dealer and Member of NASD. The Underwriter is registered as a broker-dealer with the SEC and is registered as a broker-dealer in all states in which it conducts business and is a member in good standing of the National Association of Securities Dealers, Inc. 10.02. No Pending Proceedings. There is not now pending or threatened against the Underwriter any action or proceeding of which it has been advised, either in any court of competent jurisdiction, before the SEC or any state securities commission concerning its activities as a broker or dealer, nor has the Underwriter been named as a "cause" in any such action or proceeding. 10.03. Accountability Of Funds. The Underwriter shall provide a written, detailed accounting of any and all additional funds requested by the Underwriter from the Company which exceed the initial deposit amount as described in Section V above, upon written request from the Company received by the Underwriter within thirty days from the Closing Date or Termination Date of this Agreement, whichever shall occur first. 10.04. Furnish Distribution Sheets. The Underwriter undertakes to furnish the Company within thirty days after the Closing Date with a breakdown by states of the number of shares of Stock sold in each state in which the Stock is offered. UNDERWRITING AGREEMENT ACTI Page 22 of 24 XI. Arbitration and Venue 11.01. Arbitration Proceedings, Statement of Venue. Any disputes between Underwriter and the Company arising out of, or based in any way upon, the SB-2 Offering the subject of this Agreement shall be settled through arbitration. Any arbitration findings shall be binding upon all parties and final. The venue for such arbitration shall be Dallas County, Texas, and the costs and fees associated with such arbitration proceedings shall be borne by the party incurring such costs and fees. XII. Notice Except as otherwise expressly provided in this Agreement: 12.01. Notice To the Company. Whenever notice is required by the provisions of this Agreement to be given to the Company, such notice shall be in writing addressed to the Company as follows: American Card Technology, Inc. 1355 Terrell Mill Road Building 1462, Suite 200 Marietta, GA. 30067 with copy to: Cohn & Birnbaum P.C. Attn: Richard J. Shea 100 Pearl Street Hartford, Connecticut 06103-4500 Law Offices of Bartz & Bartz Attn: ______________ Southdale Office Center 6750 France Avenue South, Suite 350 Edina, Minnesota 55435 12.02. Notice To the Underwriter. Whenever notice is required by the provisions of this Agreement to be given to the Underwriter, such notice shall be given in writing and delivered via United States Post Office Certified Mail, addressed to the Underwriter as follows: Rockcrest Securities, L.L.C. 3626 North Hall Street, Suite 920 Dallas, Texas 75219 UNDERWRITING AGREEMENT ACTI Page 23 of 24 XIII. Miscellaneous 13.01. Benefit. This Agreement is made solely for the benefit of the Underwriter, the Company, their respective officers and directors and any controlling person referred to in Section 15 of the Act, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successor" or the term "successors and assigns" as used in this Agreement shall not include any purchasers, as such, of any of the Stock. 13.02. Survival. The respective indemnities, agreements, representations, warranties, covenants and other statements of the Company or its officers as set forth in or made pursuant to this Agreement and the indemnity agreements of the Company and the Underwriter contained in Section VI hereof shall survive and remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company or the Underwriter or any such officer or director thereof or any controlling person of the Company or the Underwriter; (ii) delivery of or payment for the Stock; (iii) the Closing Date; and (iv) any successor of the Company and the Underwriter or any controlling person, officer or director thereof, as the case may be, who shall be entitled to the benefits thereof. 13.03. Governing Law. The validity, interpretation and construction of this Agreement and of each part hereof shall be governed by the laws of the State of Texas. 13.04. Underwriter's Information. Notwithstanding any participation by the Underwriter or its counsel in the preparation and/or revision of the Prospectus, the statements with respect to this Offering on the cover page of the Prospectus and under the caption Underwriting in the Prospectus shall constitute the only written information furnished by or on behalf of the Underwriter referred to in subsection 2.02. hereof, in subsection 6.01. hereof and elsewhere in this Agreement. 13.05. Term. The term of this Agreement commences on the date of execution of this Agreement and continues until the Termination Date or five years from the Closing Date, whichever shall occur first. 13.06. Full Agreement and Counterparts. This Agreement, which represents the full and complete agreement between the parties and can only be modified in writing signed by both parties, may be executed in any number of counterparts, each of which may be deemed an original and all of which together will constitute one and the same instrument. 13.07. Over-Allotment. The Underwriter will be issued an option exercisable for 30 days after the date of the Prospectus to purchase up to an aggregate of 42,000 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less the underwriting UNDERWRITING AGREEMENT ACTI Page 24 of 24 discount. The Underwriter may exercise this option only to cover over-allotments, if any, made on the sale of the Stock offered hereby. To the extent that the Underwriter exercises this option, the Underwriter will be obligated to successfully sell the amount of shares of Stock that were exercised by the Underwriter. Please sign below to confirm that the foregoing correctly sets forth the full and complete Agreement between you and Rockcrest Securities, L.L.C. as of the date hereof. Executed on the dates below, effective May 1, 1998. Very truly yours, ROCKCREST SECURITIES. L.L.C. By: /s/Julie K. Chambers Date May 1, 1998 ------------------------------------- ------------------ Julie K. Chambers Its Vice President WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE AGREEMENT BETWEEN THE UNDERWRITER AND US. AMERICAN CARD TECHNOLOGY, INC. By: /s/Raymond Findley Date: May 1, 1998 ------------------------------------- ----------------- Raymond Findley Its President By: /s/Lawrence O. Perl Date: May 1. 1998 ------------------------------------- ----------------- Lawrence O. Perl Its Chief Executive Officer EX-3.1 3 EXHIBIT 3.1 EXHIBIT 3.1 FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN CARD TECHNOLOGY, INC. AMERICAN CARD TECHNOLOGY, INC., (the "Corporation"), a corporation organized under the laws of the State of Delaware, hereby amends and restates its Certificate of Incorporation, which was originally filed with the Secretary of State of Delaware on June 21, 1994, so that the same shall read, in its entirety, as follows: ARTICLE I. NAME (a) The name of the Corporation is AMERICAN CARD TECHNOLOGY, INC. (b) The address, including street, number, city, and county, of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle; and the name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company. ARTICLE II. PURPOSE The nature of the business and the purposes to be conducted and promoted by the Corporation shall be to conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE III. CAPITAL STOCK (a) The total number of shares of all classes of stock which the Corporation has authority to issue is Twenty-One Million (21,000,000), consisting of Twenty Million (20,000,000) shares of Common Stock, par value $.001 per share (the "Common Stock"), and One Million (1,000,000) shares of Preferred Stock, par value $.001 per share (the "Preferred Stock"). The voting powers, designations, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions, if any, of the Preferred Stock, in one or more series, shall be fixed by one or more resolutions providing for the issue of such stock adopted by the Corporation's board of directors, in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented (the "Delaware GCL"), and the board of directors is expressly vested with authority to adopt one or more such resolutions. No shareholder shall be entitled as of right to purchase or subscribe for any unissued shares of the Corporation, whether now or hereafter authorized or whether of a class now existing or of a class hereafter created, or to purchase or subscribe for any bonds, certificates of indebtedness, debentures, or other obligations convertible into shares of the Corporation. ARTICLE IV. DIRECTORS (a) The number of directors of the Corporation shall be established pursuant to the by-laws of the Corporation, provided that the number of directors may not be fewer than three (3) unless the Corporation has fewer than three (3) stockholders, in which case the number of directors may not be fewer than the number of stockholders. The board of directors is authorized to make, alter or repeal the by-laws of the Corporation. (b) Directors shall be divided into three classes of directors, each class containing an equal number of directors. During the initial term, directors in the first class shall be elected for a one-year term, directors in the second class shall be elected for a two-year term, and directors in the third class shall be elected for a three-year term. At each subsequent annual meeting, each class of directors standing for election shall be elected for a term of three years. (c) No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware GCL, or (iv) for any transaction from which the director derived any improper personal benefit. (d) All elections of directors may be by written ballot or by voice vote, as determined by the board of directors prior to any such election, or by written consent of stockholders pursuant to Section 228 of the Delaware GCL. ARTICLE V. INDEMNIFICATION (a) The Corporation shall, to the fullest extent permitted by Section 145 of the Delaware GCL, indemnify any and all directors and officers from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of such a person. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that, if the Delaware GCL requires the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer in advance of the final disposition of a proceeding, such payment shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this paragraph or otherwise. 2 ARTICLE VI. PERPETUAL EXISTENCE The Corporation is to have perpetual existence. ARTICLE VII. COMPROMISE OR ARRANGEMENT Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such matter as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. ARTICLE VIII. AMENDMENTS AND REPEAL The Corporation reserves the right to amend, alter, change, or repeal any provision contained in this First Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights herein conferred are granted subject to this reservation. I, RAYMOND FINDLEY, JR., do hereby certify that I am President of the Corporation and that the First Amended and Restated Certificate of Incorporation of the Corporation has been duly adopted by the written consent of the directors in accordance with the provisions of Sections 141(f), 242 and 245 of the General Corporation Law of Delaware, as amended. 3 IN WITNESS WHEREOF, AMERICAN CARD TECHNOLOGY, INC., has caused this certificate to be signed by its President as of this 11th day of December, 1996. AMERICAN CARD TECHNOLOGY, INC. By /s/ Raymond Findley, Jr. ----------------------------- Raymond Findley, Jr. Its President 4 EX-3.2 4 EXHIBIT 3.2 EXHIBIT 3.2 AMERICAN CARD TECHNOLOGY, INC. AMENDED AND RESTATED BYLAWS ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than sixty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders holding at least twenty-five percent (25%) in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 2 ARTICLE III DIRECTORS Section 1. The number of directors of the Corporation shall be established pursuant to the by-laws of the Corporation, provided that the number of directors may not be fewer than three (3) unless the Corporation has fewer than three (3) stockholders, in which case the number of directors may not be fewer than the number of stockholders. Section 2. Directors shall be divided into three classes of directors, each class containing as equal a number of directors as is possible. During the initial term, directors in the first class shall be elected for a one-year term, directors in the second class shall be elected for a two-year term, and directors in the third class shall be elected for a three-year term. At each subsequent annual meeting, each class of directors standing for election shall be elected for a term of three years. Section 3. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 4. The business of the corporation shall be managed by or under the direction of its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3 Section 7. Special meetings of the board may be called by the president on two days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 8. At all meetings of the board a majority of all directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 11. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to 4 authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 13. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS Section 14. Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president and a secretary. The board of directors may also choose a chairman of the board and chief executive officer, one or more vice presidents, one or more assistant secretaries, a treasurer, and one or 5 more assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president and a secretary and such other officers as the board of directors so elect. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall, subject to the board of directors, have general charge of the business of the corporation. He shall keep the board of directors fully informed of and shall freely consult them concerning the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. In the absence of the chief executive officer or in the event of his inability or refusal to act, the president shall preside over meetings of the stockholders and the board of directors. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Section 8. The chairman of the board and chief executive officer shall be the chief executive officer of the corporation and shall preside at all meetings of the stockholders and the board of directors, shall advise the president in the general and active management of the business of the corporation and shall consult with the president to see that all orders and resolutions of the board of directors are carried into effect. The chairman of the board and chief executive officer may execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 9. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order 6 designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 10. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 11. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 12. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 13. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so re quires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 14. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 15. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform 7 the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation. Upon the face or back of each stock certificate issued to represent any partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, shall be set forth the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Section 2. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be cancelled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate 8 action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stock holders of record entitled to notice of or to vote at a meeting of stock holders shall apply to any adjournment of the meeting provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. 9 FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word "Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 7. The Corporation shall, to the fullest extent permitted by Section 145 of the Delaware General Corporate Law, indemnify any and all directors and officers from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of such a person. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that, if the Delaware General Corporate Law requires the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer in advance of the final disposition of a proceeding, such payment shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this paragraph or otherwise. ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the board of directors by the certificate of incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. 10 EX-4.1 5 EXHIBIT 4.1 EXHIBIT 4.1 [Picture of] [United States] [ACTI] NUMBER SHARES American Card Technology, Inc. INCORPORATED UNDER THE LAWS OF DELAWARE COMMON STOCK CUSIP 025040 10 6 THIS CERTIFIES THAT------------------------------------------------------------- (SEE REVERSE FOR CERTAIN CONDITIONS) IS THE OWNER OF ---------------------------------------------------------------- FULLY PAID AND NON-ASSESSABLE SHARES OF THE $.001 PAR VALUE COMMON STOCK AMERICAN CARD TECHNOLOGY, INC. Transferable only on the books of the Corporation by the holder hereof in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation and By-Laws of the Corporation and all amendments thereto, copies of which are on file with the Transfer Agent, to all of which the holder of this certificate, by acceptance hereof assents. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by the facsimile signatures of its duly authorized officers and to be sealed with the facsimile seal of the Corporation. Dated: --------------------------- --------------------- SECRETARY PRESIDENT [Seal of American Card Technology, Inc.] American Card Technology, Inc. The Corporation will furnish without charge to each stockholder who so requests a copy of the provisions setting forth the powers, designations, preferences and relative , participating, optional, or other special rights of each class of stock or series thereof which the Corporation is authorized to issue and the qualifications, limitations or restrictions of such preferences and or rights. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM: as tenants in common TEN ENT: as tenants by the entireties JT TEN: as joint tenants with the right of survivorship and not as tenants in common UNIF GIFT ACT:------- Custodian -------- under Uniform Gifts to Minors Act ----- (CUST) (MINOR) (STATE) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, -----------------------HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ---------------------------------------- SHARES OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES DATED ------------------- - -------------------------------------------------------------------------------- NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULARY WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: - -------------------------------------------------------------------------------- THE SIGNATURE (S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVING AND LOAN ASSOCIATIONS AND CREDIT UNION WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO SEC RULE 17Ad-15. EX-5.1 6 EXHIBIT 5.1 EXHIBIT 5.1 Securities Commissioner May 4, 1998 Securities and Exchange Commission 450 5th Street NW Washington, DC. 20549 Dear Commissioner, We have acted as counsel to American Card Technology, Incorporated, a Delaware corporation, in connection with the preparation of a Regulation SB Offering Statement (the "Offering Statement" on Form SB-2, to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933. The Offering Statement relates to the sale of 420,000 shares of Common Stock, with par value of $.001 (the "Common Stock") as more particularly described in the Offering Statement. In connection therewith, we have examined (i) the Articles of Incorporation and the By-Laws of American Card Technology, Incorporated; (ii) records of the corporate proceedings of American Card Technology, Incorporated with respect to the issuance of shares of Common Stock by American Card Technology, Incorporated; (iii) the Offering Statement; and (iv) and such other documents as we have deemed necessary for the expression of the opinions contained herein. In making the foregoing examinations, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as certified or photo-static copies. As to questions of fact material to this opinion, where such facts have not been independently established by us, and as to the content and form of Articles of Incorporation, By-Laws, minutes and resolutions and other documents or writings, we have relied to the extent we deemed reasonably appropriate, upon representations of corporate officers or certificates of governmental officials. We express no opinion as to compliance with applicable state anti-fraud statutes, rules or regulations concerning the issuance of securities. Opinion of Consul Page 2 of 2 Based upon and subject to the foregoing and having due regard for such legal considerations that we deem relevant, we are of the opinion (i) that the Common Stock has been duly authorized for issuance and (ii) that upon payment for, and issuance of, the Common Stock in accordance with the terms of the Offering Statement, the Common stock will be validly issued and will be fully paid and non-assessable. Sincerely, /s/ R. John Bartz BARTZ & BARTZ, P.A. R. John Bartz Attorney at Law EX-8.1 7 EXHIBIT 8.1 EXHIBIT 8.1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors American Card Technology, Inc. We have audited the accompanying balance sheet of American Card Technology, Inc. (a development stage company) as of December 31, 1997, and the related statements of operations and cash flows for the years ended December 31, 1996 and 1997 and the statements of stockholders' deficit for each of the years (period) from June 21, 1994 (inception) to December 31, 1997. 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 American Card Technology, Inc. as of December 31, 1997, and the results of its operations and its cash flows for the years ended December 31, 1996 and 1997 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's dependence on outside financing, lack of existing commitments from lenders to provide necessary financing, lack of sufficient working capital, and losses since inception raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP New York, New York March 10, 1998 1 EX-9.1 8 EXHIBIT 9.1 EXHIBIT 9.1 VOTING TRUST AGREEMENT AGREEMENT made as of May 1, 1998 by and among THE 1994 PERL TRUST INDENTURE (hereinafter called the "Shareholder"), and BRUCE R. BONADIES, Trustee, hereinafter called the "Trustee"). WHEREAS, the Shareholder is the beneficial owner of Four Hundred Eighty Thousand Thirty-Five (480,035) shares of common stock of American Card Technology, Inc. (the "Corporation"), $0.001 par value (the "Trust Shares"); and WHEREAS, the parties hereto desire to create a voting trust with respect to the Trust Shares and, in so doing, to provide the Trustee with the exclusive right to vote the Trust Shares with respect to all matters on which the Trust Shares are entitled to vote. NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein, and for other good and valuable consideration, it is mutually agreed and covenanted by and between the parties to this Agreement as follows: 1. ISSUANCE OF SHARES TO TRUSTEE. The Shareholder, simultaneously with the execution of this Agreement, shall assign and deliver the share certificates representing the Trust Shares directly to the Trustee, who shall cause the Trust Shares to be transferred to the Trustee, as voting trustee, on the books of the Corporation. In the event that during the term of this Agreement (i) there shall be a stock split with respect to the Trust Shares, (ii) there shall be a distribution of stock made with respect to the Trust Shares, or (iii) the Shareholder shall purchase shares of the Corporation pursuant to the exercise of preemptive rights associated with the Trust Shares, the share certificates representing any additional shares received by the Shareholder as a result of such stock split, stock distribution, or exercise of preemptive rights shall be deemed to be assigned and delivered by the Shareholder to the Trustee (without the necessity of the Shareholder separately endorsing such share certificates to effect such assignment), the Trustee shall cause any such share certificates to be transferred to the Trustee as voting trustee, on the books of the Corporation, and such shares shall thereafter be treated as Trust Shares hereunder. 2. VOTING TRUST. The voting trust hereby created shall commence on the date hereof and continue through and including April 30, 1999. Throughout such period the Trustee shall have the exclusive right to vote upon such shares or to give written consents in lieu of voting thereon, subject to any limitation on the right to vote contained in the Certificate of Incorporation or other certificate filed pursuant to law, in person or by proxy at all meetings of the shareholders of the Corporation, and in all proceedings wherein the vote or written consent of shareholders may be required or authorized by law. 3. TRUST CERTIFICATES. The Shareholder, simultaneously with the execution of this Agreement, shall deliver its share certificates to the Trustee. The Trustee shall issue and deliver to the Shareholder, or to its nominee, certificates for the Trust Shares and any other shares hereafter transferred by the Shareholder hereunder to the Trustee in form substantially as follows: 2 TRUST CERTIFICATE No. _____ ______ Shares of Common Stock The undersigned trustee, voting trustee of shares of American Card Technology, Inc., under an agreement dated __________, 1998 (the "Voting Trust Agreement"), having received certain shares of the Corporation, pursuant to such agreement, which agreement the holder hereof by accepting this certificate ratifies and adopts, hereby certifies that ______________________ (the "Holder") will be entitled to receive a certificate for __________ (_____) fully paid shares of the Common Stock of American Card Technology, Inc., of the par value of $0.001 each, on the expiration of the Voting Trust Agreement. In the meantime, the Holder shall be entitled to receive payments equal to any dividends or other distributions that may be collected by the undersigned trustee upon such shares held by it under the terms of the trust agreement; provided, however, that in the event that (i) there is a stock split or stock distribution with respect to the shares represented hereby, or (ii) the holder hereof acquires additional shares of American Card Technology, Inc., pursuant to the exercise of pre-emptive rights associated with the shares represented hereby, any additional shares of stock received as a result of such stock split, stock distribution, or exercise of pre-emptive rights shall be subject to the Voting Trust Agreement and the undersigned trustee shall issue a new trust certificate in the same form as this instrument reflecting the new number of shares of stock. This certificate is transferable only by the registered holder in person or by his duly authorized attorney, and the holder hereof, by accepting this certificate, manifests his consent that the undersigned trustee may treat the registered holder hereof as the true owner for all purposes, except the delivery of share certificates, which delivery shall not be made without the surrender hereof. IN WITNESS WHEREOF, the undersigned trustee has executed this certificate this _____ day of ____________, ____. ______________________________ Trustee 4. TRANSFER AT TERMINATION. At the expiration of the term of the trust hereby created, the Trustee shall, upon surrender of the trust certificate, deliver to the holder thereof shares of stock of the Corporation equivalent in amount to the shares represented by the trust certificate surrendered. 5. LIABILITY. The Trustee shall use his best judgment in voting upon the stock held by him, but shall not be liable for the consequence of any vote cast, or consent given by him, in good faith, and in the absence of gross negligence. The Trustee shall incur no personal liability by reason of his acting as Trustee under this Agreement and the holding of the Trust Shares or for any delivery or misdelivery to any person, except to the extent such action is a willful breach of this Agreement or due to the gross negligence of the Trustee. The Shareholder shall protect, defend, indemnify and hold the Trustee harmless from and against any and all claims, expenses, obligations and liabilities, including attorneys' fees (including any attorneys' fees in any appellate and bankruptcy proceedings, or which arise without the filing of a suit), incurred in connection with this Agreement. 3 6. SUCCESSOR TRUSTEE. In the event of the death of the Trustee, the Trustee's rights and duties hereunder shall pass to a successor trustee (the "Successor Trustee") who shall be any person or entity whom the Shareholder shall specifically name to be the Successor Trustee. Upon becoming the Successor Trustee, such person or entity shall be deemed to be the Trustee hereunder for all purposes, including for purposes of this Section 6. 7. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Delaware of the United States of America. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written by their signatures hereto. /s/ Bruce R. Bonadies ------------------------------ Bruce R. Bonadies, Trustee THE 1994 PERL TRUST INDENTURE By: /s/ Bradley Hoffman -------------------------- Bradley Hoffman, Trustee By: /s/ Heidi G. Perl -------------------------- Heidi G. Perl, Trustee 4 EX-9.2 9 EXHIBIT 9.2 EXHIBIT 9.2 VOTING TRUST AGREEMENT AGREEMENT made as of May 1, 1998 by and among THE ROTHSTEIN FAMILY TRUST (hereinafter called the "Shareholder"), and LILLY BETER, Trustee, hereinafter called the "Trustee"). WHEREAS, the Shareholder is the beneficial owner of Five Hundred Eighty Seven Thousand Seven Hundred Seventy-Eight (587,778) shares of common stock of American Card Technology, Inc. (the "Corporation"), $0.001 par value (the "Trust Shares"); and WHEREAS, the parties hereto desire to create a voting trust with respect to the Trust Shares and, in so doing, to provide the Trustee with the exclusive right to vote the Trust Shares with respect to all matters on which the Trust Shares are entitled to vote. NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein, and for other good and valuable consideration, it is mutually agreed and covenanted by and between the parties to this Agreement as follows: 1. ISSUANCE OF SHARES TO TRUSTEE. The Shareholder, simultaneously with the execution of this Agreement, shall assign and deliver the share certificates representing the Trust Shares directly to the Trustee, who shall cause the Trust Shares to be transferred to the Trustee, as voting trustee, on the books of the Corporation. In the event that during the term of this Agreement (i) there shall be a stock split with respect to the Trust Shares, (ii) there shall be a distribution of stock made with respect to the Trust Shares, or (iii) the Shareholder shall purchase shares of the Corporation pursuant to the exercise of preemptive rights associated with the Trust Shares, the share certificates representing any additional shares received by the Shareholder as a result of such stock split, stock distribution, or exercise of preemptive rights shall be deemed to be assigned and delivered by the Shareholder to the Trustee (without the necessity of the Shareholder separately endorsing such share certificates to effect such assignment), the Trustee shall cause any such share certificates to be transferred to the Trustee as voting trustee, on the books of the Corporation, and such shares shall thereafter be treated as Trust Shares hereunder. 2. VOTING TRUST. The voting trust hereby created shall commence on the date hereof and continue through and including April 30, 1999. Throughout such period the Trustee shall have the exclusive right to vote upon such shares or to give written consents in lieu of voting thereon, subject to any limitation on the right to vote contained in the Certificate of Incorporation or other certificate filed pursuant to law, in person or by proxy at all meetings of the shareholders of the Corporation, and in all proceedings wherein the vote or written consent of shareholders may be required or authorized by law. 3. TRUST CERTIFICATES. The Shareholder, simultaneously with the execution of this Agreement, shall deliver its share certificates to the Trustee. The Trustee shall issue and deliver to the Shareholder, or to its nominee, certificates for the Trust Shares and any other shares hereafter transferred by the Shareholder hereunder to the Trustee in form substantially as follows: 2 TRUST CERTIFICATE No. _____ ______ Shares of Common Stock The undersigned trustee, voting trustee of shares of American Card Technology, Inc., under an agreement dated __________, 1998 (the "Voting Trust Agreement"), having received certain shares of the Corporation, pursuant to such agreement, which agreement the holder hereof by accepting this certificate ratifies and adopts, hereby certifies that ______________________ (the "Holder") will be entitled to receive a certificate for __________ (_____) fully paid shares of the Common Stock of American Card Technology, Inc., of the par value of $0.001 each, on the expiration of the Voting Trust Agreement. In the meantime, the Holder shall be entitled to receive payments equal to any dividends or other distributions that may be collected by the undersigned trustee upon such shares held by it under the terms of the trust agreement; provided, however, that in the event that (i) there is a stock split or stock distribution with respect to the shares represented hereby, or (ii) the holder hereof acquires additional shares of American Card Technology, Inc., pursuant to the exercise of pre-emptive rights associated with the shares represented hereby, any additional shares of stock received as a result of such stock split, stock distribution, or exercise of pre-emptive rights shall be subject to the Voting Trust Agreement and the undersigned trustee shall issue a new trust certificate in the same form as this instrument reflecting the new number of shares of stock. This certificate is transferable only by the registered holder in person or by his duly authorized attorney, and the holder hereof, by accepting this certificate, manifests his consent that the undersigned trustee may treat the registered holder hereof as the true owner for all purposes, except the delivery of share certificates, which delivery shall not be made without the surrender hereof. IN WITNESS WHEREOF, the undersigned trustee has executed this certificate this _____ day of ____________, ____. ______________________________ Trustee 4. TRANSFER AT TERMINATION. At the expiration of the term of the trust hereby created, the Trustee shall, upon surrender of the trust certificate, deliver to the holder thereof shares of stock of the Corporation equivalent in amount to the shares represented by the trust certificate surrendered. 5. LIABILITY. The Trustee shall use his best judgment in voting upon the stock held by him, but shall not be liable for the consequence of any vote cast, or consent given by him, in good faith, and in the absence of gross negligence. The Trustee shall incur no personal liability by reason of his acting as Trustee under this Agreement and the holding of the Trust Shares or for any delivery or misdelivery to any person, except to the extent such action is a willful breach of this Agreement or due to the gross negligence of the Trustee. The Shareholder shall protect, defend, indemnify and hold the Trustee harmless from and against any and all claims, expenses, obligations and liabilities, including attorneys' fees (including any attorneys' fees in any appellate and bankruptcy proceedings, or which arise without the filing of a suit), incurred in connection with this Agreement. 3 6. SUCCESSOR TRUSTEE. In the event of the death of the Trustee, the Trustee's rights and duties hereunder shall pass to a successor trustee (the "Successor Trustee") who shall be any person or entity whom the Shareholder shall specifically name to be the Successor Trustee. Upon becoming the Successor Trustee, such person or entity shall be deemed to be the Trustee hereunder for all purposes, including for purposes of this Section 6. 7. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Delaware of the United States of America. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written by their signatures hereto. /s/ Lilly Beter --------------------- Lilly Beter, Trustee THE ROTHSTEIN FAMILY TRUST By: /s/ Marilyn Rothstein -------------------------- Marilyn Rothstein, Trustee 4 EX-10.1 10 EXHIBIT 10.1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT Employment Agreement made as of the _____ day of _____, 1998 by and between American Card Technology, Inc. (the "Company"), a Delaware corporation, and Lawrence O. Perl, of Key Biscayne, Florida (the "Employee"). W I T N E S E T H : WHEREAS, Employee is employed by the Company as its Chief Executive Officer, and as a condition of closing on an initial public offering of the Company's common stock (the "IPO Closing") through Rockcrest Securities L.L.C. ("Rockcrest"), Rockcrest, Employee and the Company have required that this Employment Agreement be entered into to be effective on the IPO Closing; NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth below, the parties hereby agree as follows: 1. EMPLOYMENT 1.1 Position and Duties. The Company shall employ Employee to serve in and to have the authority and responsibilities for the position of chief executive officer and to perform such other duties as relate to such position or for such other position and duties as the Board of Directors of the Company (the "Board") in its discretion may from time to time determine and assign to him. The Board will have the authority to determine the means and manner by which Employee is to perform his duties. 1.2 Exclusiveness. The Employee shall devote substantially all of his business time, attention and energies to the business of the Company and the performance of his responsibilities and duties and shall carry out such responsibilities and duties diligently and to the best of his abilities. The Employee recognizes that the Company is entering into this Agreement because of the Employee's expertise, skills, and talents and his agreement to devote all of such expertise, skills, and talents to the tasks assigned him pursuant to this Agreement. The Employee agrees that he shall not engage in any other business activities of any kind which would give rise to a conflict of interest for the Employee with respect to his duties and obligations to the Company. 1.3 Compliance with Policies and Laws. Employee will at all times comply with all applicable policies, standards and regulations of the Company as may be established from time to time and will comply with all applicable laws and regulations. 1.4 Personal Service. Employee's personal performance of his duties is the essence of this Agreement. Employee's rights and obligations under this Agreement are not assignable by Employee. 2. COMPENSATION 2.1 Base Salary. For all services to be rendered by Employee in any capacity hereunder, including services as an officer, director, member of any committee or any other duties assigned to him by the directors or officers of the Company, the Company agrees to pay Employee an initial base salary of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) per year payable in equal bi-weekly installments in arrears. Employee's Base Salary may be adjusted upward at the sole discretion of the Company during the term of this Agreement. 2.2 Incentive Bonus. Employee shall be entitled to participate in the Company's Key Officer Incentive Bonus Plan if and when established by the Board. This plan shall be established or changed as the circumstances warrant by the Board and the amount which shall be paid to Employee as well as when such payment will be made will likewise be established by the Board. 2.3 Other Bonuses or Incentive Compensation. Employee may also receive such other bonuses, grants of stock, stock options, warrants or stock appreciation rights as may be determined by the Board, in its sole discretion. 2.4 Other Benefits. Employee shall be entitled to such fringe benefits, including, but not limited to, vacation, sick leave, participation in medical, dental and life insurance plans and pension or profit-sharing plans, as are customarily provided to the senior executives of the Company as determined by the Board of Directors of the Company and as provided by the terms of the applicable benefit plans. 2.5 Reimbursement of Expenses. The Company shall reimburse the reasonable travel, entertainment and other expenses incurred by Employee in connection with the performance of his duties in accordance with such policies as may be adopted from time to time by the Company. 3. TERM OF THE AGREEMENT Employee's employment under this Agreement will commence upon the IPO Closing and continue, subject to early termination as provided in Paragraph 4 below, for a term of five years. 4. EARLY TERMINATION; SEVERANCE 4.1 Employee's employment under this Agreement may or will, as appropriate, be terminated prior to the expiration of the term set forth above in Paragraph 3 in the following circumstances. (a) Disability. If Employee is disabled and fails to perform his duties hereunder on account of illness or other incapacity which prevents Employee from performing his duties for a continuous period of one hundred eighty days, the Company thereafter may, upon ten days written notice, terminate Employee's employment under this Agreement. (b) Death. In the event of the death of Employee, this Agreement will terminate immediately. (c) By the Company for Cause. The Company may terminate Employee's employment under this Agreement for Cause. For purposes of this subparagraph, the Company will have "Cause" to terminate this Agreement upon (i) the willful and continued failure by Employee to substantially perform his duties hereunder (other than such failure resulting from Employee's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Employee has not substantially performed his duties, or (ii) the willful engaging by Employee in misconduct which is materially injurious to the Company, monetarily or otherwise, (iii) the willful violation by Employee of the provisions of this Agreement, (iv) a material breach of any fiduciary duty owed by Employee to the Company or its relationships with employees, suppliers, customers or others with whom the Company does business or (v) the habitual or repeated misuse of alcohol or controlled substances. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith or without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee will not be deemed to have been terminated for Cause without reasonable notice to Employee setting forth the reasons for the Company's intention to terminate for Cause, an opportunity for Employee to be heard before the Board, and thereafter, a determination that in the good faith opinion of the Board, "Cause" exists within the meaning set forth in clause (i), (ii), (iii), (iv) or (v) of this subparagraph. (d) By Company Without Cause. The Company may terminate Employee's employment under this Agreement unilaterally at any time for any reason or for no reason by giving Employee ninety (90) days' advance notice of the intention to terminate. Employee may, at the sole discretion of the Company, be relieved of his duties during such ninety (90) day period, although Employee must be paid during such period. (e) By Employee. Employee may terminate his employment under this Agreement at any time upon ninety (90) days written notice to the Company. Employee may, at the sole discretion of the Company, be relieved of his duties during such ninety-day period, but continue to be paid during such period. 4.2 In the event of termination of Employee's employment prior to the end of the Term, Employee shall be entitled to a lump sum severance payment payable on the date of termination as follows: (a) In the event the Employee's employment is terminated due to Employee's death or disability, the Employee or Employee's estate shall be entitled to a payment equal to the sum of (i) six months of the then current base annual salary (including accrued portions), (ii) any accrued salary which has not been paid, and (iii) any expense reimbursements due and owing to him at the time of such termination. (b) If the Employee's employment is terminated by the Company without Cause as defined above, or Employee terminates his employment for Good Reason (as hereafter defined), the Employee shall be entitled to a payment equal to the sum of (i) the greater of one year of the then current base annual salary, or the total base annual salary which would be payable for the balance of the Term, and (ii) a pro-rata portion of what the Incentive Bonus for the then current year would be if the calculation for the year through such date of termination annualized out for the year would have resulted in an Incentive Bonus for the year, and (iii) any accrued salary which has not been paid, and (iv) any expense reimbursements due and owing to him at the time of such termination. (c) In the event that Employee's employment is terminated by the Company for Cause or is terminated by Employee voluntarily prior to the end of the Term other than for Good Reason, Employee shall not be entitled to any severance payment. 4.3 For purposes hereof: "Good Reason" is defined to mean (i) the Board substantially diminishing Employee's responsibilities and activities to a degree which is not commensurate with the position held by Employee; or (ii) the Board taking action in material breach of this Agreement; or (iii) requiring the Employee to relocate to anywhere other than the metropolitan Atlanta area; or (iv) the voluntary resignation of Employee at any time within sixty days after a Change in Control (as hereinafter defined). "Change of Control" shall mean any transaction or series of transactions (including, without limitation, a tender offer, merger or consolidation) the result of which is that any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than Lawrence O. Perl, Raymond Findley, Jr., Raymond Roncari and Harold Rothstein, or trusts for the benefit of any of the foregoing or their respective families, and any "person" or "group" solicited by any of such persons: (i) becomes the beneficial owner of more than 50 percent of the total aggregate voting power of all classes of the voting stock of the Company and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis; or (ii) acquires all or substantially all of the assets of the Company. 5. COVENANT NOT TO COMPETE; CONFIDENTIALITY 5.1 Noncompetition. (a) Employee acknowledges and understands that the Business (as defined below) in which the Company is engaged can be and will be effectively and efficiently conducted anywhere in the world and the Company's business is international in scope (as opposed to national and regional). Therefore, as a material consideration of the Company's entering into this Agreement, Employee agrees that during the Term and for a period of one year following termination of Employee's employment under this Agreement for any reason whatsoever, in the entire world, directly or indirectly, Employee shall not, in any location whatsoever, (i) own (as a proprietor, partner, stockholder, or otherwise) an interest in or (ii) participate (as an officer, director, or in any other capacity) in the management, operation or control of, or (iii) perform services as or act in the capacity of an employee, independent contractor, consultant or agent of any enterprise, which competes, or intends to compete with the Company's Business (the "Non-Compete Covenant") except with the prior written consent of the Board, which consent may be withheld or granted in the Board's sole and absolute discretion. The Company's "Business" as that term is used in this Paragraph 5.1 means the development, manufacture, marketing, selling or distribution of smart cards or smart card related systems. (b) Notwithstanding the foregoing, in the event that Employee's employment is terminated due to expiration of the Term without early termination under Section 4, and Employee's employment is not otherwise renewed, Employee shall not be bound to the Non-Compete Covenant unless the Company makes the following election. The Company shall have the option to bind Employee to the Non-Compete Covenant for one year after the termination of his employment due to expiration of the Term by electing to do so and agreeing to pay to Employee the Non-Compete Consideration (as hereafter defined) in equal monthly installments over the one year period. To make such election, the Company shall give Employee notice of such election (which shall include an agreement to pay the Non-Compete Consideration) by no later than the Election Date (as hereafter defined). Failure to give such notice by the Election Date shall be deemed an election by the Company to not bind Employee to the Non-Compete Covenant for the one year period following expiration of the Term. In the event that the Company shall default in its payment of any installment of the Non-Compete Consideration, Employee shall be relieved from the Non-Compete Covenant, in addition to any other rights and remedies which Employee may have. For purposes hereof: the "Non-Compete Consideration" is the amount equal to the current base annual salary being paid to Employee on the day prior to the date of expiration of the Term, and the "Election Date" is the date which is three (3) months prior to the date on which the Term expires. 5.2 Covenant Not to Promote Termination of Relationships. As a material consideration for the Company's entering into this Agreement, Employee covenants and agrees that for a period of two years commencing on the termination of Employee's employment with the Company, Employee shall not persuade or entice, or attempt to persuade or entice any customer or client of the Company to terminate its business or contractual relationship with the Company, or refrain from establishing any such relationship with the Company. 5.3 Inducement of Breach. Employee shall promptly notify the Company if any person, firm, partnership, limited liability company, association, corporation or other entity attempts to induce Employee to breach any of the terms or provisions of this Agreement. 5.4 Confidentiality. Employee acknowledges and agrees that all product or service information, marketing information, lists or identities of the Company's customers, pricing and cost information, financial information, technical data, technical know-how, and other information and data related to the Company's business ("Confidential Information") are valuable assets of the Company. Except for Confidential Information which is a matter of public record through no action or fault of the Employee, Employee shall not, during the Term or after termination of Employee's employment hereunder for any reason whatsoever, use, divulge, disclose, or communicate any Confidential Information to any person or entity or use any Confidential Information for the benefit of Employee or any other person or entity, except with the prior consent of the Board of Directors of the Company, which consent may be withheld or granted in the Board's sole and absolute discretion. 5.5 Return of Documents. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, memoranda, notes and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company and shall be returned to the Company by Employee upon the termination of Employee's employment hereunder for any reason whatsoever, or upon the written request of the Company at any time. 5.6 No Solicitation. As a material consideration of the Company's entering into this agreement, Employee covenants and agrees that during the Term and for a period of two years after the termination of Employee's employment hereunder for any reason whatsoever, neither Employee, nor any person or entity controlled by Employee (including without limitation, members of Employee's family), shall, directly or indirectly: (i) solicit for employment any person employed by, or serving as a consultant to, the Company or the Company's affiliates, successors or assigns or (ii) solicit or aid in the solicitation of persons or business entities with whom the Company has done business or with whom the Company has attempted to do business. 5.7 Equitable relief; Other Remedies. Employee acknowledges and agrees that it would be difficult to measure damage to the Company from any breach by Employee of any matter described in this Section 5 of this Agreement and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall directly or indirectly breach or take steps preliminary to breaching any of the provisions of this Section 5 of this Agreement, the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders or equitable relief to restrain any such breach, without showing or proving any actual damage sustained by the Company. Employee further agrees that, for any period during which the breach of any provision of this Agreement has not been enjoined, the Company shall be entitled, upon proof of same, to actual and consequential damages caused by such breach, including, but not limited to loss of business relationships, loss of goodwill and loss of prospective business advantage. 5.8 No release. Employee agrees that the termination of this Agreement shall not release Employee from any of Employee's obligations under this Section 5, all of which shall survive such termination. 6. INDEMNIFICATION To the fullest extent permitted under the law, the Company will defend, advance funds, indemnify and hold Employee harmless with respect to any expenses incurred, claims made against and other liabilities arising in connection with any actual or threatened action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including any suit or proceeding by or in the right of the Company) to which Employee is made a party, is threatened to be made a party or is an actual or potential witness by reason of the fact that Employee is an officer, employee, director or agent of the Company, or at the request of the Company, an officer, employee, director or agent of any other entity, unless, in connection with such action, suit or proceeding or in connection with the claims made therein, Employee has engaged in acts of bad faith, willful misconduct, gross negligence or reckless disregard of his duties to the Company or the best interests of the Company. 7. GENERAL PROVISIONS 7.1 Entire Agreement. This Agreement contains the entire agreement and understanding of the parties with respect to the employment of Employee by the Company and supersedes all prior and contemporaneous agreements between them with respect to such subject matter. 7.2 Modification. This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing, signed by an employee and an authorized officer of the Company. 7.3 Waiver. Failure of any party at any time to require performance of any provision of this Agreement shall not limit such party's right to enforce such provision, nor shall any waiver of any breach of this Agreement constitute a waiver of such provision itself. No attempted or purposed waiver of any provision of this Agreement shall be effective unless set forth in writing and signed by the party to be bound. 7.4 Severability. The agreements and covenants contained in this Agreement are severable, and in the event any of the agreements and covenants contained in this Agreement should be held to be invalid by an arbitrator or by any court or tribunal of competent jurisdiction, this agreement shall be interpreted as if such valid agreements and covenants were not contained herein; provided however, that if any legal proceeding or arbitrator or a court shall hold unenforceable the covenants contained in Section 5 above by reason of their geographic extent or duration or otherwise, any such covenant shall be reduced in scope to the extent required by law and enforced in its reduced form. 7.5 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the state of Georgia. 7.6 Controversies or Disputes. Any controversy, claim, or dispute arising under or relating to this agreement, or that arises out of or that is based upon the employment relationship (including any wage claim, any claim for wrongful termination, or any claim based upon any statute, regulation, or law including those concerning employment discrimination, sexual harassment, civil rights, age or disabilities), including tort claims (except a tort that is a "compensable injury" under workers' compensation law), or a dispute between the parties that arose or arises before, during or after employment, other than any matter as to which a party seeks injunctive relief, shall be resolved by a single, neutral arbitrator in an arbitration conducted in Georgia, in accordance with the then-current rules of commercial arbitration of the American Arbitration Association. Employee and the Company agree that neither party is entitled to recover punitive damages. The decision or award rendered by the arbitrator shall be final, nonappealable, and binding upon the parties, and judgment may be entered upon it in accordance with applicable law in a court of competent jurisdiction. The arbitrator shall be an attorney with at least ten years of experience in employment law. Arbitration in accordance with this paragraph is the sole and exclusive method, means and procedure to resolve any and all claims or disputes other than those seeking exclusively injunctive relief. Employee and the Company hereby irrevocably waive any and all rights to resolve disputes in a manner contrary to the provisions of this paragraph. Any and all attempts to circumvent the terms of this paragraph shall be null and void and of no force and effect whatsoever. 8. NOTICES Any notice given pursuant this Agreement shall be in writing and shall be deemed given on the earlier of the date the notice is (i) personally delivered to the party to be notified, (ii) mailed, postage prepaid, certified with return receipt requested, addressed as follows, or to such other address as a party may from time to time designate by notice to the other party, or (iii) delivered at the party's address via courier service. To the Company: American Card Technology, Inc. 1355 Terrell Mill Road Building 1462, Suite 200 Marietta, Georgia 30067 Attention: President To the Employee: Lawrence O. Perl 251 Crandon Boulevard - Unit 342 Key Biscayne, Florida 33149 AMERICAN CARD TECHNOLOGY, INC. By -------------------- Its President Duly Authorized EMPLOYEE ------------------------- Lawrence O. Perl AMERICAN CARD TECHNOLOGY, INC. 1355 TERRELL MILL ROAD BUILDING 1462, SUITE 200 MARIETTA, GEORGIA 30067 - -------------------------------------------------------------------------------- April 20, 1998 Mr. Lawrence O. Perl 251 Crandon Boulevard - Unit 342 Key Biscayne, Florida 33149 Dear Larry: I refer to that certain Employment Agreement dated as of the date hereof by and between American Card Technology, Inc. (the "Company"), as Employer, and Raymond Findley, Jr., as Employee (the "Agreement"). Notwithstanding anything to the contrary contained Section 2 of in the Agreement, until such time (the "Conversion Date") as the Company (i) raises an amount equal to or greater than Six Million Four Hundred Thousand and 00/100 Dollars ($6,400,000.00), net of underwriting commissions, through an initial public offering, or (ii) the closing of a subsequent debt financing arranged through Lilly Beter Capital Group, Ltd., the bi-weekly payments to be made in arrears with respect to base salary shall be calculated as if the base salary was One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00). Any balance of the base salary shall accrue and bear interest at a rate of ten percent (10%) per annum and be payable in full on the Conversion Date. Please acknowledge your consent to the foregoing by countersigning the enclosed duplicate copy of this letter below. Very truly yours, Raymond Findley, Jr. President ACKNOWLEDGED AND AGREED TO THIS ___ DAY OF _________, 1998 - -------------------------------- Lawrence O. Perl EX-10.2 11 EXHIBIT 10.2 EXHIBIT 10.2 EMPLOYMENT AGREEMENT Employment Agreement made as of the _____ day of _____, 1998 by and between American Card Technology, Inc. (the "Company"), a Delaware corporation, and Raymond Findley, Jr., of Marietta, Georgia (the "Employee"). W I T N E S E T H : WHEREAS, Employee is employed by the Company as its Vice President of Technical Operations, and as a condition of closing on an initial public offering of the Company's common stock (the "IPO Closing") through Rockcrest Securities L.L.C. ("Rockcrest"), Rockcrest, Employee and the Company have required that this Employment Agreement be entered into to be effective on the IPO Closing; NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth below, the parties hereby agree as follows: 1. EMPLOYMENT 1.1 Position and Duties. The Company shall employ Employee to serve in and to have the authority and responsibilities for the position of vice president of technical operations and to perform such other duties as relate to such position or for such other position and duties as the Board of Directors of the Company (the "Board") in its discretion may from time to time determine and assign to him. The Board will have the authority to determine the means and manner by which Employee is to perform his duties. 1.2 Exclusiveness. The Employee shall devote substantially all of his business time, attention and energies to the business of the Company and the performance of his responsibilities and duties and shall carry out such responsibilities and duties diligently and to the best of his abilities. The Employee recognizes that the Company is entering into this Agreement because of the Employee's expertise, skills, and talents and his agreement to devote all of such expertise, skills, and talents to the tasks assigned him pursuant to this Agreement. The Employee agrees that he shall not engage in any other business activities of any kind which would give rise to a conflict of interest for the Employee with respect to his duties and obligations to the Company. 1.3 Compliance with Policies and Laws. Employee will at all times comply with all applicable policies, standards and regulations of the Company as may be established from time to time and will comply with all applicable laws and regulations. 1.4 Personal Service. Employee's personal performance of his duties is the essence of this Agreement. Employee's rights and obligations under this Agreement are not assignable by Employee. 2. COMPENSATION 2.1 Base Salary. For all services to be rendered by Employee in any capacity hereunder, including services as an officer, director, member of any committee or any other duties assigned to him by the directors or officers of the Company, the Company agrees to pay Employee an initial base salary of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) per year payable in equal bi-weekly installments in arrears. Employee's Base Salary may be adjusted upward at the sole discretion of the Company during the term of this Agreement. 2.2 Incentive Bonus. Employee shall be entitled to participate in the Company's Key Officer Incentive Bonus Plan if and when established by the Board. This plan shall be established or changed as the circumstances warrant by the Board and the amount which shall be paid to Employee as well as when such payment will be made will likewise be established by the Board. 2.3 Other Bonuses or Incentive Compensation. Employee may also receive such other bonuses, grants of stock, stock options, warrants or stock appreciation rights as may be determined by the Board, in its sole discretion. 2.4 Other Benefits. Employee shall be entitled to such fringe benefits, including, but not limited to, vacation, sick leave, participation in medical, dental and life insurance plans and pension or profit-sharing plans, as are customarily provided to the senior executives of the Company as determined by the Board of Directors of the Company and as provided by the terms of the applicable benefit plans. 1 2.5 Reimbursement of Expenses. The Company shall reimburse the reasonable travel, entertainment and other expenses incurred by Employee in connection with the performance of his duties in accordance with such policies as may be adopted from time to time by the Company. 3. TERM OF THE AGREEMENT Employee's employment under this Agreement will commence upon the IPO Closing and continue, subject to early termination as provided in Paragraph 4 below, for a term of five years. 4. EARLY TERMINATION; SEVERANCE 4.1 Employee's employment under this Agreement may or will, as appropriate, be terminated prior to the expiration of the term set forth above in Paragraph 3 in the following circumstances. (a) Disability. If Employee is disabled and fails to perform his duties hereunder on account of illness or other incapacity which prevents Employee from performing his duties for a continuous period of one hundred eighty days, the Company thereafter may, upon ten days written notice, terminate Employee's employment under this Agreement. (b) Death. In the event of the death of Employee, this Agreement will terminate immediately. (c) By the Company for Cause. The Company may terminate Employee's employment under this Agreement for Cause. For purposes of this subparagraph, the Company will have "Cause" to terminate this Agreement upon (i) the willful and continued failure by Employee to substantially perform his duties hereunder (other than such failure resulting from Employee's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Employee has not substantially performed his duties, or (ii) the willful engaging by Employee in misconduct which is materially injurious to the Company, monetarily or otherwise, (iii) the willful violation by Employee of the provisions of this Agreement, (iv) a material breach of any fiduciary duty owed by Employee to the Company or its relationships with employees, suppliers, customers or others with whom the Company does business or (v) the habitual or repeated misuse of alcohol or controlled substances. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith or without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee will not be deemed to have been terminated for Cause without reasonable notice to Employee setting forth the reasons for the Company's intention to terminate for Cause, an opportunity for Employee to be heard before the Board, and thereafter, a determination that in the good faith opinion of the Board, "Cause" exists within the meaning set forth in clause (i), (ii), (iii), (iv) or (v) of this subparagraph. (d) By Company Without Cause. The Company may terminate Employee's employment under this Agreement unilaterally at any time for any reason or for no reason by giving Employee ninety (90) days' advance notice of the intention to terminate. Employee may, at the sole discretion of the Company, be relieved of his duties during such ninety (90) day period, although Employee must be paid during such period. 2 (e) By Employee. Employee may terminate his employment under this Agreement at any time upon ninety (90) days written notice to the Company. Employee may, at the sole discretion of the Company, be relieved of his duties during such ninety-day period, but continue to be paid during such period. 4.2 In the event of termination of Employee's employment prior to the end of the Term, Employee shall be entitled to a lump sum severance payment payable on the date of termination as follows: (a) In the event the Employee's employment is terminated due to Employee's death or disability, the Employee or Employee's estate shall be entitled to a payment equal to the sum of (i) six months of the then current base annual salary (including accrued portions), (ii) any accrued salary which has not been paid, and (iii) any expense reimbursements due and owing to him at the time of such termination. (b) If the Employee's employment is terminated by the Company without Cause as defined above, or Employee terminates his employment for Good Reason (as hereafter defined), the Employee shall be entitled to a payment equal to the sum of (i) the greater of one year of the then current base annual salary, or the total base annual salary which would be payable for the balance of the Term, and (ii) a pro-rata portion of what the Incentive Bonus for the then current year would be if the calculation for the year through such date of termination annualized out for the year would have resulted in an Incentive Bonus for the year, and (iii) any accrued salary which has not been paid, and (iv) any expense reimbursements due and owing to him at the time of such termination. (c) In the event that Employee's employment is terminated by the Company for Cause or is terminated by Employee voluntarily prior to the end of the Term other than for Good Reason, Employee shall not be entitled to any severance payment. 4.3 For purposes hereof: "Good Reason" is defined to mean (i) the Board substantially diminishing Employee's responsibilities and activities to a degree which is not commensurate with the position held by Employee; or (ii) the Board taking action in material breach of this Agreement; or (iii) requiring the Employee to relocate to anywhere other than the metropolitan Atlanta area; or (iv) the voluntary resignation of Employee at any time within sixty days after a Change in Control (as hereinafter defined). "Change of Control" shall mean any transaction or series of transactions (including, without limitation, a tender offer, merger or consolidation) the result of which is that any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than Lawrence O. Perl, Raymond Findley, Jr., Raymond Roncari and Harold Rothstein, or trusts for the benefit of any of the foregoing or their respective families, and any "person" or "group" solicited by any of such persons: (i) becomes the beneficial owner of more than 50 percent of the total aggregate voting power of all classes of the voting stock of the Company and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis; or (ii) acquires all or substantially all of the assets of the Company. 5. COVENANT NOT TO COMPETE; CONFIDENTIALITY 3 5.1 Noncompetition. (a) Employee acknowledges and understands that the Business (as defined below) in which the Company is engaged can be and will be effectively and efficiently conducted anywhere in the world and the Company's business is international in scope (as opposed to national and regional). Therefore, as a material consideration of the Company's entering into this Agreement, Employee agrees that during the Term and for a period of one year following termination of Employee's employment under this Agreement for any reason whatsoever, in the entire world, directly or indirectly, Employee shall not, in any location whatsoever, (i) own (as a proprietor, partner, stockholder, or otherwise) an interest in or (ii) participate (as an officer, director, or in any other capacity) in the management, operation or control of, or (iii) perform services as or act in the capacity of an employee, independent contractor, consultant or agent of any enterprise, which competes, or intends to compete with the Company's Business (the "Non-Compete Covenant") except with the prior written consent of the Board, which consent may be withheld or granted in the Board's sole and absolute discretion. The Company's "Business" as that term is used in this Paragraph 5.1 means the development, manufacture, marketing, selling or distribution of smart cards or smart card related systems. (b) Notwithstanding the foregoing, in the event that Employee's employment is terminated due to expiration of the Term without early termination under Section 4, and Employee's employment is not otherwise renewed, Employee shall not be bound to the Non-Compete Covenant unless the Company makes the following election. The Company shall have the option to bind Employee to the Non-Compete Covenant for one year after the termination of his employment due to expiration of the Term by electing to do so and agreeing to pay to Employee the Non-Compete Consideration (as hereafter defined) in equal monthly installments over the one year period. To make such election, the Company shall give Employee notice of such election (which shall include an agreement to pay the Non-Compete Consideration) by no later than the Election Date (as hereafter defined). Failure to give such notice by the Election Date shall be deemed an election by the Company to not bind Employee to the Non-Compete Covenant for the one year period following expiration of the Term. In the event that the Company shall default in its payment of any installment of the Non-Compete Consideration, Employee shall be relieved from the Non-Compete Covenant, in addition to any other rights and remedies which Employee may have. For purposes hereof: the "Non-Compete Consideration" is the amount equal to the current base annual salary being paid to Employee on the day prior to the date of expiration of the Term, and the "Election Date" is the date which is three (3) months prior to the date on which the Term expires. 5.2 Covenant Not to Promote Termination of Relationships. As a material consideration for the Company's entering into this Agreement, Employee covenants and agrees that for a period of two years commencing on the termination of Employee's employment with the Company, Employee shall not persuade or entice, or attempt to persuade or entice any customer or client of the Company to terminate its business or contractual relationship with the Company, or refrain from establishing any such relationship with the Company. 5.3 Inducement of Breach. Employee shall promptly notify the Company if any person, firm, partnership, limited liability company, association, corporation or other entity attempts to induce Employee to breach any of the terms or provisions of this Agreement. 5.4 Confidentiality. Employee acknowledges and agrees that all product or service information, marketing information, lists or identities of the Company's customers, pricing and cost information, financial information, technical data, technical know-how, and other information and data related to the Company's business ("Confidential Information") are valuable assets of the Company. 4 Except for Confidential Information which is a matter of public record through no action or fault of the Employee, Employee shall not, during the Term or after termination of Employee's employment hereunder for any reason whatsoever, use, divulge, disclose, or communicate any Confidential Information to any person or entity or use any Confidential Information for the benefit of Employee or any other person or entity, except with the prior consent of the Board of Directors of the Company, which consent may be withheld or granted in the Board's sole and absolute discretion. 5.5 Return of Documents. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, memoranda, notes and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company and shall be returned to the Company by Employee upon the termination of Employee's employment hereunder for any reason whatsoever, or upon the written request of the Company at any time. 5.6 No Solicitation. As a material consideration of the Company's entering into this agreement, Employee covenants and agrees that during the Term and for a period of two years after the termination of Employee's employment hereunder for any reason whatsoever, neither Employee, nor any person or entity controlled by Employee (including without limitation, members of Employee's family), shall, directly or indirectly: (i) solicit for employment any person employed by, or serving as a consultant to, the Company or the Company's affiliates, successors or assigns or (ii) solicit or aid in the solicitation of persons or business entities with whom the Company has done business or with whom the Company has attempted to do business. 5.7 Equitable relief; Other Remedies. Employee acknowledges and agrees that it would be difficult to measure damage to the Company from any breach by Employee of any matter described in this Section 5 of this Agreement and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall directly or indirectly breach or take steps preliminary to breaching any of the provisions of this Section 5 of this Agreement, the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders or equitable relief to restrain any such breach, without showing or proving any actual damage sustained by the Company. Employee further agrees that, for any period during which the breach of any provision of this Agreement has not been enjoined, the Company shall be entitled, upon proof of same, to actual and consequential damages caused by such breach, including, but not limited to loss of business relationships, loss of goodwill and loss of prospective business advantage. 5.8 No release. Employee agrees that the termination of this Agreement shall not release Employee from any of Employee's obligations under this Section 5, all of which shall survive such termination. 6. INDEMNIFICATION To the fullest extent permitted under the law, the Company will defend, advance funds, indemnify and hold Employee harmless with respect to any expenses incurred, claims made against and other liabilities arising in connection with any actual or threatened action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including any suit or proceeding by or in the right of the Company) to which Employee is made a party, is threatened to be made a party or is an actual or potential witness by reason of the fact that Employee is an officer, employee, director or agent of the Company, or at the request of the Company, an officer, employee, director or agent of any other entity, 5 unless, in connection with such action, suit or proceeding or in connection with the claims made therein, Employee has engaged in acts of bad faith, willful misconduct, gross negligence or reckless disregard of his duties to the Company or the best interests of the Company. 7. GENERAL PROVISIONS 7.1 Entire Agreement. This Agreement contains the entire agreement and understanding of the parties with respect to the employment of Employee by the Company and supersedes all prior and contemporaneous agreements between them with respect to such subject matter. 7.2 Modification. This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing, signed by an employee and an authorized officer of the Company. 7.3 Waiver. Failure of any party at any time to require performance of any provision of this Agreement shall not limit such party's right to enforce such provision, nor shall any waiver of any breach of this Agreement constitute a waiver of such provision itself. No attempted or purposed waiver of any provision of this Agreement shall be effective unless set forth in writing and signed by the party to be bound. 7.4 Severability. The agreements and covenants contained in this Agreement are severable, and in the event any of the agreements and covenants contained in this Agreement should be held to be invalid by an arbitrator or by any court or tribunal of competent jurisdiction, this agreement shall be interpreted as if such valid agreements and covenants were not contained herein; provided however, that if any legal proceeding or arbitrator or a court shall hold unenforceable the covenants contained in Section 5 above by reason of their geographic extent or duration or otherwise, any such covenant shall be reduced in scope to the extent required by law and enforced in its reduced form. 7.5 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the state of Georgia. 7.6 Controversies or Disputes. Any controversy, claim, or dispute arising under or relating to this agreement, or that arises out of or that is based upon the employment relationship (including any wage claim, any claim for wrongful termination, or any claim based upon any statute, regulation, or law including those concerning employment discrimination, sexual harassment, civil rights, age or disabilities), including tort claims (except a tort that is a "compensable injury" under workers' compensation law), or a dispute between the parties that arose or arises before, during or after employment, other than any matter as to which a party seeks injunctive relief, shall be resolved by a single, neutral arbitrator in an arbitration conducted in Georgia, in accordance with the then-current rules of commercial arbitration of the American Arbitration Association. Employee and the Company agree that neither party is entitled to recover punitive damages. The decision or award rendered by the arbitrator shall be final, nonappealable, and binding upon the parties, and judgment may be entered upon it in accordance with applicable law in a court of competent jurisdiction. The arbitrator shall be an attorney with at least ten years of experience in employment law. Arbitration in accordance with this paragraph is the sole and exclusive method, means and procedure to resolve any and all claims or disputes other than those seeking exclusively injunctive relief. Employee and the Company hereby irrevocably waive any and all rights to resolve disputes in a manner contrary to the 6 provisions of this paragraph. Any and all attempts to circumvent the terms of this paragraph shall be null and void and of no force and effect whatsoever. 8. NOTICES Any notice given pursuant this Agreement shall be in writing and shall be deemed given on the earlier of the date the notice is (i) personally delivered to the party to be notified, (ii) mailed, postage prepaid, certified with return receipt requested, addressed as follows, or to such other address as a party may from time to time designate by notice to the other party, or (iii) delivered at the party's address via courier service. To the Company: American Card Technology, Inc. 1355 Terrell Mill Road Building 1462, Suite 200 Marietta, Georgia 30067 Attention: President To the Employee: Raymond Findley, Jr. 4141 Christacy Way Marietta, Georgia 30066 AMERICAN CARD TECHNOLOGY, INC. By ------------------- Its President Duly Authorized EMPLOYEE ------------------------ Raymond Findley, Jr. 7 AMERICAN CARD TECHNOLOGY, INC. 1355 TERRELL MILL ROAD BUILDING 1462, SUITE 200 MARIETTA, GEORGIA 30067 April 20, 1998 Mr. Raymond Findley, Jr. 1108 Waterford Green Point Marietta, Georgia 30068 Dear Ray: I refer to that certain Employment Agreement dated as of the date hereof by and between American Card Technology, Inc. (the "Company"), as Employer, and Raymond Findley, Jr., as Employee (the "Agreement"). Notwithstanding anything to the contrary contained Section 2 of in the Agreement, until such time (the "Conversion Date") as the Company (i) raises an amount equal to or greater than Six Million Four Hundred Thousand and 00/100 Dollars ($6,400,000.00), net of underwriting commissions, through an initial public offering, or (ii) the closing of a subsequent debt financing arranged through Lilly Beter Capital Group, Ltd., the bi-weekly payments to be made in arrears with respect to base salary shall be calculated as if the base salary was One Hundred Thousand and 00/100 Dollars ($100,000.00). Any balance of the base salary shall accrue and bear interest at a rate of ten percent (10%) per annum and be payable in full on the Conversion Date. Please acknowledge your consent to the foregoing by countersigning the enclosed duplicate copy of this letter below. Very truly yours, Lawrence O. Perl President ACKNOWLEDGED AND AGREED TO THIS ___ DAY OF _________, 1998 - -------------------------------- Raymond Findley, Jr. EX-10.3 12 EXHIBIT 10.3 EXHIBIT 10.3 EMPLOYMENT AGREEMENT Employment Agreement made as of the _____ day of _____, 1998 by and between American Card Technology, Inc. (the "Company"), a Delaware corporation, and Robert H. Dixon, of Marietta, Georgia (the "Employee"). W I T N E S E T H : WHEREAS, Employee is employed by the Company as its Vice President of Technical Operations, and as a condition of closing on an initial public offering of the Company's common stock (the "IPO Closing") through Rockcrest Securities L.L.C. ("Rockcrest"), Rockcrest, Employee and the Company have required that this Employment Agreement be entered into to be effective on the IPO Closing; NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth below, the parties hereby agree as follows: 1. EMPLOYMENT 1.1 Position and Duties. The Company shall employ Employee to serve in and to have the authority and responsibilities for the position of vice president of technical operations and to perform such other duties as relate to such position or for such other position and duties as the Board of Directors of the Company (the "Board") in its discretion may from time to time determine and assign to him. The Board will have the authority to determine the means and manner by which Employee is to perform his duties. 1.2 Exclusiveness. The Employee shall devote substantially all of his business time, attention and energies to the business of the Company and the performance of his responsibilities and duties and shall carry out such responsibilities and duties diligently and to the best of his abilities. The Employee recognizes that the Company is entering into this Agreement because of the Employee's expertise, skills, and talents and his agreement to devote all of such expertise, skills, and talents to the tasks assigned him pursuant to this Agreement. The Employee agrees that he shall not engage in any other business activities of any kind which would give rise to a conflict of interest for the Employee with respect to his duties and obligations to the Company. 1.3 Compliance with Policies and Laws. Employee will at all times comply with all applicable policies, standards and regulations of the Company as may be established from time to time and will comply with all applicable laws and regulations. 1.4 Personal Service. Employee's personal performance of his duties is the essence of this Agreement. Employee's rights and obligations under this Agreement are not assignable by Employee. 2. COMPENSATION 2.1 Base Salary. For all services to be rendered by Employee in any capacity hereunder, including services as an officer, director, member of any committee or any other duties assigned to him by the directors or officers of the Company, the Company agrees to pay Employee an initial base salary of Two Hundred Thousand and 00/100 Dollars ($200,000.00) per year payable in equal bi-weekly installments in arrears. Employee's Base Salary may be adjusted upward at the sole discretion of the Company during the term of this Agreement. 2.2 Incentive Bonus. Employee shall be entitled to participate in the Company's Key Officer Incentive Bonus Plan if and when established by the Board. This plan shall be established or changed as the circumstances warrant by the Board and the amount which shall be paid to Employee as well as when such payment will be made will likewise be established by the Board. 2.3 Other Bonuses or Incentive Compensation. Employee may also receive such other bonuses, grants of stock, stock options, warrants or stock appreciation rights as may be determined by the Board, in its sole discretion. 2.4 Other Benefits. Employee shall be entitled to such fringe benefits, including, but not limited to, vacation, sick leave, participation in medical, dental and life insurance plans and pension or profit-sharing plans, as are customarily provided to the senior executives of the Company as determined by the Board of Directors of the Company and as provided by the terms of the applicable benefit plans. 2.5 Reimbursement of Expenses. The Company shall reimburse the reasonable travel, entertainment and other expenses incurred by Employee in connection with the performance of his duties in accordance with such policies as may be adopted from time to time by the Company. 3. TERM OF THE AGREEMENT Employee's employment under this Agreement will commence upon the IPO Closing and continue, subject to early termination as provided in Paragraph 4 below, for a term of five years. 4. EARLY TERMINATION; SEVERANCE 4.1 Employee's employment under this Agreement may or will, as appropriate, be terminated prior to the expiration of the term set forth above in Paragraph 3 in the following circumstances. (a) Disability. If Employee is disabled and fails to perform his duties hereunder on account of illness or other incapacity which prevents Employee from performing his duties for a continuous period of one hundred eighty days, the Company thereafter may, upon ten days written notice, terminate Employee's employment under this Agreement. (b) Death. In the event of the death of Employee, this Agreement will terminate immediately. (c) By the Company for Cause. The Company may terminate Employee's employment under this Agreement for Cause. For purposes of this subparagraph, the Company will have "Cause" to terminate this Agreement upon (i) the willful and continued failure by Employee to substantially perform his duties hereunder (other than such failure resulting from Employee's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Employee has not substantially performed his duties, or (ii) the willful engaging by Employee in misconduct which is materially injurious to the Company, monetarily or otherwise, (iii) the willful violation by Employee of the provisions of this Agreement, (iv) a material breach of any fiduciary duty owed by Employee to the Company or its relationships with employees, suppliers, customers or others with whom the Company does business or (v) the habitual or repeated misuse of alcohol or controlled substances. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith or without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee will not be deemed to have been terminated for Cause without reasonable notice to Employee setting forth the reasons for the Company's intention to terminate for Cause, an opportunity for Employee to be heard before the Board, and thereafter, a determination that in the good faith opinion of the Board, "Cause" exists within the meaning set forth in clause (i), (ii), (iii), (iv) or (v) of this subparagraph. (d) By Company Without Cause. The Company may terminate Employee's employment under this Agreement unilaterally at any time for any reason or for no reason by giving Employee ninety (90) days' advance notice of the intention to terminate. Employee may, at the sole discretion of the Company, be relieved of his duties during such ninety (90) day period, although Employee must be paid during such period. (e) By Employee. Employee may terminate his employment under this Agreement at any time upon ninety (90) days written notice to the Company. Employee may, at the sole discretion of the Company, be relieved of his duties during such ninety-day period, but continue to be paid during such period. 4.2 In the event of termination of Employee's employment prior to the end of the Term, Employee shall be entitled to a lump sum severance payment payable on the date of termination as follows: (a) In the event the Employee's employment is terminated due to Employee's death or disability, the Employee or Employee's estate shall be entitled to a payment equal to the sum of (i) six months of the then current base annual salary (including accrued portions), (ii) any accrued salary which has not been paid, and (iii) any expense reimbursements due and owing to him at the time of such termination. (b) If the Employee's employment is terminated by the Company without Cause as defined above, or Employee terminates his employment for Good Reason (as hereafter defined), the Employee shall be entitled to a payment equal to the sum of (i) the greater of one year of the then current base annual salary, or the total base annual salary which would be payable for the balance of the Term, and (ii) a pro-rata portion of what the Incentive Bonus for the then current year would be if the calculation for the year through such date of termination annualized out for the year would have resulted in an Incentive Bonus for the year, and (iii) any accrued salary which has not been paid, and (iv) any expense reimbursements due and owing to him at the time of such termination. (c) In the event that Employee's employment is terminated by the Company for Cause or is terminated by Employee voluntarily prior to the end of the Term other than for Good Reason, Employee shall not be entitled to any severance payment. 4.3 For purposes hereof: "Good Reason" is defined to mean (i) the Board substantially diminishing Employee's responsibilities and activities to a degree which is not commensurate with the position held by Employee; or (ii) the Board taking action in material breach of this Agreement; or (iii) requiring the Employee to relocate to anywhere other than the metropolitan Atlanta area; or (iv) the voluntary resignation of Employee at any time within sixty days after a Change in Control (as hereinafter defined). "Change of Control" shall mean any transaction or series of transactions (including, without limitation, a tender offer, merger or consolidation) the result of which is that any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than Lawrence O. Perl, Raymond Findley, Jr., Raymond Roncari and Harold Rothstein, or trusts for the benefit of any of the foregoing or their respective families, and any "person" or "group" solicited by any of such persons: (i) becomes the beneficial owner of more than 50 percent of the total aggregate voting power of all classes of the voting stock of the Company and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis; or (ii) acquires all or substantially all of the assets of the Company. 5. COVENANT NOT TO COMPETE; CONFIDENTIALITY 5.1 Noncompetition. (a) Employee acknowledges and understands that the Business (as defined below) in which the Company is engaged can be and will be effectively and efficiently conducted anywhere in the world and the Company's business is international in scope (as opposed to national and regional). Therefore, as a material consideration of the Company's entering into this Agreement, Employee agrees that during the Term and for a period of one year following termination of Employee's employment under this Agreement for any reason whatsoever, in the entire world, directly or indirectly, Employee shall not, in any location whatsoever, (i) own (as a proprietor, partner, stockholder, or otherwise) an interest in or (ii) participate (as an officer, director, or in any other capacity) in the management, operation or control of, or (iii) perform services as or act in the capacity of an employee, independent contractor, consultant or agent of any enterprise, which competes, or intends to compete with the Company's Business (the "Non-Compete Covenant") except with the prior written consent of the Board, which consent may be withheld or granted in the Board's sole and absolute discretion. The Company's "Business" as that term is used in this Paragraph 5.1 means the development, manufacture, marketing, selling or distribution of smart cards or smart card related systems. (b) Notwithstanding the foregoing, in the event that Employee's employment is terminated due to expiration of the Term without early termination under Section 4, and Employee's employment is not otherwise renewed, Employee shall not be bound to the Non-Compete Covenant unless the Company makes the following election. The Company shall have the option to bind Employee to the Non-Compete Covenant for one year after the termination of his employment due to expiration of the Term by electing to do so and agreeing to pay to Employee the Non-Compete Consideration (as hereafter defined) in equal monthly installments over the one year period. To make such election, the Company shall give Employee notice of such election (which shall include an agreement to pay the Non-Compete Consideration) by no later than the Election Date (as hereafter defined). Failure to give such notice by the Election Date shall be deemed an election by the Company to not bind Employee to the Non-Compete Covenant for the one year period following expiration of the Term. In the event that the Company shall default in its payment of any installment of the Non-Compete Consideration, Employee shall be relieved from the Non-Compete Covenant, in addition to any other rights and remedies which Employee may have. For purposes hereof: the "Non-Compete Consideration" is the amount equal to the current base annual salary being paid to Employee on the day prior to the date of expiration of the Term, and the "Election Date" is the date which is three (3) months prior to the date on which the Term expires. 5.2 Covenant Not to Promote Termination of Relationships. As a material consideration for the Company's entering into this Agreement, Employee covenants and agrees that for a period of two years commencing on the termination of Employee's employment with the Company, Employee shall not persuade or entice, or attempt to persuade or entice any customer or client of the Company to terminate its business or contractual relationship with the Company, or refrain from establishing any such relationship with the Company. 5.3 Inducement of Breach. Employee shall promptly notify the Company if any person, firm, partnership, limited liability company, association, corporation or other entity attempts to induce Employee to breach any of the terms or provisions of this Agreement. 5.4 Confidentiality. Employee acknowledges and agrees that all product or service information, marketing information, lists or identities of the Company's customers, pricing and cost information, financial information, technical data, technical know-how, and other information and data related to the Company's business ("Confidential Information") are valuable assets of the Company. Except for Confidential Information which is a matter of public record through no action or fault of the Employee, Employee shall not, during the Term or after termination of Employee's employment hereunder for any reason whatsoever, use, divulge, disclose, or communicate any Confidential Information to any person or entity or use any Confidential Information for the benefit of Employee or any other person or entity, except with the prior consent of the Board of Directors of the Company, which consent may be withheld or granted in the Board's sole and absolute discretion. 5.5 Return of Documents. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, memoranda, notes and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company and shall be returned to the Company by Employee upon the termination of Employee's employment hereunder for any reason whatsoever, or upon the written request of the Company at any time. 5.6 No Solicitation. As a material consideration of the Company's entering into this agreement, Employee covenants and agrees that during the Term and for a period of two years after the termination of Employee's employment hereunder for any reason whatsoever, neither Employee, nor any person or entity controlled by Employee (including without limitation, members of Employee's family), shall, directly or indirectly: (i) solicit for employment any person employed by, or serving as a consultant to, the Company or the Company's affiliates, successors or assigns or (ii) solicit or aid in the solicitation of persons or business entities with whom the Company has done business or with whom the Company has attempted to do business. 5.7 Equitable relief; Other Remedies. Employee acknowledges and agrees that it would be difficult to measure damage to the Company from any breach by Employee of any matter described in this Section 5 of this Agreement and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall directly or indirectly breach or take steps preliminary to breaching any of the provisions of this Section 5 of this Agreement, the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders or equitable relief to restrain any such breach, without showing or proving any actual damage sustained by the Company. Employee further agrees that, for any period during which the breach of any provision of this Agreement has not been enjoined, the Company shall be entitled, upon proof of same, to actual and consequential damages caused by such breach, including, but not limited to loss of business relationships, loss of goodwill and loss of prospective business advantage. 5.8 No release. Employee agrees that the termination of this Agreement shall not release Employee from any of Employee's obligations under this Section 5, all of which shall survive such termination. 6. INDEMNIFICATION To the fullest extent permitted under the law, the Company will defend, advance funds, indemnify and hold Employee harmless with respect to any expenses incurred, claims made against and other liabilities arising in connection with any actual or threatened action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including any suit or proceeding by or in the right of the Company) to which Employee is made a party, is threatened to be made a party or is an actual or potential witness by reason of the fact that Employee is an officer, employee, director or agent of the Company, or at the request of the Company, an officer, employee, director or agent of any other entity, unless, in connection with such action, suit or proceeding or in connection with the claims made therein, Employee has engaged in acts of bad faith, willful misconduct, gross negligence or reckless disregard of his duties to the Company or the best interests of the Company. 7. GENERAL PROVISIONS 7.1 Entire Agreement. This Agreement contains the entire agreement and understanding of the parties with respect to the employment of Employee by the Company and supersedes all prior and contemporaneous agreements between them with respect to such subject matter. 7.2 Modification. This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing, signed by an employee and an authorized officer of the Company. 7.3 Waiver. Failure of any party at any time to require performance of any provision of this Agreement shall not limit such party's right to enforce such provision, nor shall any waiver of any breach of this Agreement constitute a waiver of such provision itself. No attempted or purposed waiver of any provision of this Agreement shall be effective unless set forth in writing and signed by the party to be bound. 7.4 Severability. The agreements and covenants contained in this Agreement are severable, and in the event any of the agreements and covenants contained in this Agreement should be held to be invalid by an arbitrator or by any court or tribunal of competent jurisdiction, this agreement shall be interpreted as if such valid agreements and covenants were not contained herein; provided however, that if any legal proceeding or arbitrator or a court shall hold unenforceable the covenants contained in Section 5 above by reason of their geographic extent or duration or otherwise, any such covenant shall be reduced in scope to the extent required by law and enforced in its reduced form. 7.5 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the state of Georgia. 7.6 Controversies or Disputes. Any controversy, claim, or dispute arising under or relating to this agreement, or that arises out of or that is based upon the employment relationship (including any wage claim, any claim for wrongful termination, or any claim based upon any statute, regulation, or law including those concerning employment discrimination, sexual harassment, civil rights, age or disabilities), including tort claims (except a tort that is a "compensable injury" under workers' compensation law), or a dispute between the parties that arose or arises before, during or after employment, other than any matter as to which a party seeks injunctive relief, shall be resolved by a single, neutral arbitrator in an arbitration conducted in Georgia, in accordance with the then-current rules of commercial arbitration of the American Arbitration Association. Employee and the Company agree that neither party is entitled to recover punitive damages. The decision or award rendered by the arbitrator shall be final, nonappealable, and binding upon the parties, and judgment may be entered upon it in accordance with applicable law in a court of competent jurisdiction. The arbitrator shall be an attorney with at least ten years of experience in employment law. Arbitration in accordance with this paragraph is the sole and exclusive method, means and procedure to resolve any and all claims or disputes other than those seeking exclusively injunctive relief. Employee and the Company hereby irrevocably waive any and all rights to resolve disputes in a manner contrary to the provisions of this paragraph. Any and all attempts to circumvent the terms of this paragraph shall be null and void and of no force and effect whatsoever. 8. NOTICES Any notice given pursuant this Agreement shall be in writing and shall be deemed given on the earlier of the date the notice is (i) personally delivered to the party to be notified, (ii) mailed, postage prepaid, certified with return receipt requested, addressed as follows, or to such other address as a party may from time to time designate by notice to the other party, or (iii) delivered at the party's address via courier service. To the Company: American Card Technology, Inc. 1355 Terrell Mill Road Building 1462, Suite 200 Marietta, Georgia 30067 Attention: President To the Employee: Robert H. Dixon 4141 Christacy Way Marietta, Georgia 30066 AMERICAN CARD TECHNOLOGY, INC. By ----------------------- Its President Duly Authorized EMPLOYEE -------------------------- Robert H. Dixon AMERICAN CARD TECHNOLOGY, INC. 1355 TERRELL MILL ROAD BUILDING 1462, SUITE 200 MARIETTA, GEORGIA 30067 - ------------------------------------------------------------------------------- April 20, 1998 Mr. Robert H. Dixon 4141 Christacy Way Marietta, Georgia 30066 Dear Rob: I refer to that certain Employment Agreement dated as of the date hereof by and between American Card Technology, Inc. (the "Company"), as Employer, and Raymond Findley, Jr., as Employee (the "Agreement"). Notwithstanding anything to the contrary contained Section 2 of in the Agreement, until such time (the "Conversion Date") as the Company (i) raises an amount equal to or greater than Six Million Four Hundred Thousand and 00/100 Dollars ($6,400,000.00), net of underwriting commissions, through an initial public offering, or (ii) the closing of a subsequent debt financing arranged through Lilly Beter Capital Group, Ltd., the bi-weekly payments to be made in arrears with respect to base salary shall be calculated as if the base salary was One Hundred Thousand and 00/100 Dollars ($100,000.00). Any balance of the base salary shall accrue and bear interest at a rate of ten percent (10%) per annum and be payable in full on the Conversion Date. Please acknowledge your consent to the foregoing by countersigning the enclosed duplicate copy of this letter below. Very truly yours, Raymond Findley, Jr. President ACKNOWLEDGED AND AGREED TO THIS ___ DAY OF _________, 1998 _______________________________ Robert H. Dixon EX-10.4 13 EXHIBIT 10.4 EXHIBIT 10.4 ESCROW AGREEMENT THIS ESCROW AGREEMENT is made and entered into as of the 1st day of May, 1998, by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation ("American Card Technology, Inc."), and The Bank of New York, (the Escrow Agent). WHEREAS, American Card Technology, Inc. intends to publicly offer not less than $5,001,400 nor more than $7,140,000 of common stock, each consisting of $17.00 per share of common stock of American Card Technology, Inc. (the "Securities"), for which each subscriber will pay $17.00 per share; and WHEREAS, it has been determined that the proceeds to be received from the offering should be placed in escrow until such time as subscriptions for $5,001,400 of shares of the Securities (the "Minimum Amount"), has been deposited into escrow, which at that time the funds will be released to the Company ("American Card Technology, Inc.); WHEREAS, the Escrow Agent is willing to accept appointment as Escrow Agent for the expressed duties outlined herein. NOW, THEREFORE, in consideration of the premises and agreements set forth herein, the parties hereto agree as follows; 1. PROCEEDS TO BE ESCROWED. All funds received by American Card Technology, Inc., in payment for Securities will be delivered to the Escrow Agent within three (3) days following the day upon which such proceeds are received by American Card Technology, Inc. and shall be retained in escrow by the Escrow Agent and invested as stated below. During the term of this Agreement, American Card Technology, Inc. shall cause all checks received by and made payable to it in payments for such Securities to be endorsed in favor of The Bank of New York as Escrow Agent for American Card Technology, Inc. In the event that checks deposited in the escrow accounts prove uncollectible after the funds represented thereby have been released by the Escrow Agent to American Card Technology, Inc., then American Card Technology, Inc. shall promptly reimburse the Escrow Agent for any and all cost incurred for such, upon request, and the Escrow Agent shall deliver the returned checks to American Card Technology, Inc. 2. IDENTITY OF SUBSCRIBERS. American Card Technology, Inc. shall furnish to the Escrow Agent with each delivery of funds, as provided in paragraph 1 hereof, a list of the persons who have paid money for the purchase of Securities showing the name, address, tax ID number and amount of Securities subscribed for the amount of money paid. All proceeds so deposited shall remain the property of the subscriber and not be subject to any liens or charges by American Card Technology, Inc., or the Escrow Agent, or judgments or creditor's claims against American Card Technology, Inc., until released to American Card Technology, Inc. as hereinafter provided. 3. DISBURSEMENT OF FUNDS. From time to time, and at the end of the third business day following the Initial Closing Date and the Termination Date (as defined in paragraph 4 hereof) the Escrow Agent shall notify American Card Technology, Inc. of the amount of the funds received hereunder. Upon the Initial Closing Date the Escrow Agent will release into the custody of American Card Technology, Inc. all of the Escrow Account funds. Upon the Termination Date, the balance of the Escrow Account funds will be released into the custody of American Card Technology, Inc. within five (5) business days after notification. If the Minimum Amount of proceeds has not been delivered prior to the Termination Date, the Escrow Agent shall, with a reasonable time following the Termination Date, but in no event more than thirty (30) days after the Termination Date, refund to each subscriber at the address appearing on the list of subscribers, or at such other address as be furnished to the Escrow Agent by the subscriber in writing, all sums paid by the subscriber pursuant to his subscription agreement for Securities, together with the interest earned on such funds in the escrow account and shall then notify American Card Technology, Inc. in writing of such funds. American Card Technology, Inc. may extend the offering of a maximum of no more than two (2) sixty- (60) day periods by giving the Escrow Agent a written notice of such an event. 4. TERMS OF ESCROW. The "Initial Closing Date" shall be the date upon which the proceeds received into the Escrow Account equal or exceed $5,001,400. The "Termination Date" shall be the earlier of 180 days from the date of the Public Offering effectiveness from the Securities and Exchange Commission; or (ii) the date the Escrow Agent received written notice from American Card Technology, Inc. that it is abandoning the sale of the securities, subject to section 3. American Card Technology, Inc. may extend the termination date two (2) sixty- (60) day periods upon written notice to the Escrow Agent. In all events this escrow shall terminate upon the one- (1) year anniversary from the date of this Agreement. 5. DUTY AND LIABILITY OF THE ESCROW AGENT. The sole duty of the Escrow Agent, other than as herein specified, shall be to receive said funds and hold them subject to release, in accordance herewith, and the Escrow Agent shall be under no duty to determine whether American Card Technology, Inc. is complying with requirements of this Agreement in tendering to the Escrow Agent said proceeds of the sale of said securities. The Escrow Agent may conclusively rely upon and be protected in acting upon any statement, certificate, notice, request, consent, order or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall have no duty or liability to verify any such statement, certificate, notice, request, consent, order or other document, and its sole responsibility shall be to act only as expressly set forth in this Agreement. The Escrow Agent shall be under no obligation to institute or defend any action, suit or proceeding in connection with this agreement unless first indemnified to its satisfaction. The Escrow Agent may consult counsel in respect of any question arising under this Agreement and the Escrow Agent shall not be liable for any action taken or omitted in good faith upon advise of such counsel. The Escrow Agent shall not be liable for any action taken in the absence of gross negligence or willful misconduct while following the terms of this Agreement. 6. ESCROW AGENT FEE. The Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit A, which compensation shall be paid by American Card Technology, Inc. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent's services as contemplated by this Agreement; PROVIDED, HOWEVER, that in the event that the conditions for the disbursement of funds under this Agreement are not fulfilled, or the Escrow Agent renders any material service not contemplated in this Agreement, or there is any assignment of interest in the subject matter of this Agreement, or any material modification hereof, or if any material controversy arises hereunder, or the Escrow Agent is made a party to any litigation pertaining to this Agreement, or the subject matter hereof, then the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all cost and expenses, including reasonable attorney's fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable from American Card Technology, Inc. 7. INVESTMENT OF PROCEEDS. All funds held by the Escrow Agent pursuant to this Agreement shall constitute trust property for the purposes for which they are held. The Escrow Agent shall invest all funds received from subscribers in The Bank of New York Cash Reserve Fund. 8. ISSUANCE OF CERTIFICATES. Until the terms of this Agreement with respect to Securities have been met and the funds hereunder received from subscriptions for Securities have been released to American Card Technology, Inc., American Card Technology, Inc. may not issue any certificates or other evidence of Securities, except subscription agreements. 9. NOTICES. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of service if served personally on the party to whom notice is to be given, (b) on the day of transmission if sent by facsimile transmission to the facsimile number given below, along with a hardcopy to follow through the mail, and telephonic confirmation of receipt is obtained promptly after completion of transmission, (c) on the day after delivery to Federal Express or similar overnight courier or the Express Mail service maintained by the United States Postal Service, Or (d) on the fifth day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, return receipt requested, to the party as follows: If to American Card Technology, Inc.: American Card Technology, Inc. 1355 Terrell Mill Road Building 1462, Suite 200 Marietta, GA 30067 (770) 951-2284 FAX (770) 951-9221 Attn: President If to Escrow Agent: The Bank of New York 101 Barclay Street - 12 East New York, NY 10286 (212) 815-7172 FAX (212) 815-7181 Attn: Matthew Louis Insurance Trust and Escrow Unit Any party may change its address for purposes of this paragraph by giving the other party written notice of the new address in the manner set forth above. 10. INDEMNIFICATION OF ESCROW AGENT. American Card Technology, Inc. hereby indemnifies and holds harmless the Escrow Agent from and against, any and all loss, liability, cost, damage and expense, including, without limitation, reasonable counsel fees, which the Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against the Escrow Agent arising out of or relating in any way to this Agreement or any transaction to which this Agreement relates unless such action, claim or proceeding is the result of the willful misconduct of the Escrow Agent. The Escrow Agent may consult counsel in respect of any question arising under the Escrow Agreement and the Escrow Agent shall not be liable for any action taken or omitted in good faith upon advice of such counsel. This Indemnification will survive the termination of this Escrow Agreement. 11. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement, no party hereto shall assign this Agreement or any rights or obligations hereunder without the prior written consent to the other parties hereto and any such attempted assignment without such prior written consent shall be void and of no force and effect. This Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the parties hereto. 12. GOVERNING LAW; JURISDICTION. This Agreement shall be constructed, performed and enforced in accordance with, and governed by, the internal laws of the State of New York, without giving effect to the principles of conflicts of laws thereof. 13. SEVERABILITY. In the event that any part of this Agreement is declared by any court or other judicial or administrative body to be null, void, or unenforceable, said provision shall survive to the extent it is not so declared, and all of the other provisions of this Agreement shall remain in full force and effect. 14. AMENDMENTS; WAIVERS. This Agreement may be amended or modified, and any of the terms, covenants, representations, warranties, or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver, of any such condition, or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement. 15. ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties hereto with respect to the escrow contemplated hereby and supersedes and replaces all prior and contemporaneous agreements and understandings, oral or written, with regard to such escrow. 16. SECTION HEADINGS. The section headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 17. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which constitute the same instrument. 18. RESIGNATION. Escrow Agent may resign upon 30 days advance written notice to American Card Technology, Inc. If a successor escrow agent is not appointed within the 30 day period following such notice, Escrow Agent may petition any court of competent jurisdiction to name a successor escrow agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first set forth above. AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley ---------------------- President THE BANK OF NEW YORK By: /s/ Matthew Louis ---------------------- EXHIBIT A SUBSCRIPTION ESCROW AGENT PROPOSAL FOR AMERICAN CARD TECHNOLOGY ADMINISTRATION FEE ....................................................$7,500.00 This one time charge is payable at the initial closing and includes the following services: - - Review of the Escrow Agreement - - Establishment of administrative an operational account procedures - - Receipt and investment of funds - - Generation of account statements - - Daily account reconciliation Investor accounts, each ...................................................$8.00 1099's, each ..............................................................$3.00 Additional closings, each ...............................................$500.00 (Return of Investor Funds) "bust outs," each .............................$25.00 Returned checks, each ....................................................$25.00 Wire transfers, each .....................................................$25.00 TERMS OF PROPOSAL OUT-OF-POCKET EXPENSES: ESTIMATE $250.00 Fees quoted do not include any out-of-pocket expenses including, but not limited to, stationery, postage, telephone, telex, wire transfer, original issue delivery costs and retention of records which will be billed to the account. EXTERNAL COUNSEL FEES: Fees quoted do not include outside counsel fees. A bill for services rendered up to closing will be presented for payment on the closing date. MISCELLANEOUS SERVICES: The charges for performing services not contemplated at the time of the execution of the documents or not specifically covered elsewhere in the schedule will be determined by appraisal in amounts commensurate with the service. GENERAL: Our administrative fee covers a period of one year or any portion thereof and is not subject to proration. The Bank of New York's final acceptance of this appointment is subject to the full review and approval of all related documentation related hereto, and standard conflict procedures. This offer shall be deemed terminated if we do not enter into a written agreement within three months from the date of transmittal. In the event the transaction terminates before closing, you will be responsible for paying all out-of-pocket expenses incurred, including counsel fees, if applicable. EX-10.7-1 14 EXHIBIT 10.7.1 EXHIBIT 10.7.1 AMERICAN CARD TECHNOLOGY, INC. SUBSCRIPTION AGREEMENT The undersigned hereby subscribes for the purchase of ____________ shares of American Card Technology, Inc. a Delaware Corporation (the Company) at $17.00 per share in the aggregate amount of $_________________. The undersigned herewith submits the undersigned's check payable to American Card Technology, Incorporated in full payment for such shares. INCLUDE CHECK PAYABLE TO AMERICAN CARD TECHNOLOGY, INC. Please print names in which shares are to be registered ________________________ ________________________ Investors Residence Address and Social Security or ________________________ Tax Identification Number(s). (Must be completed for ________________________ registration purposes; no post office boxes please). ________________________ City____________________ State & Zip_____________ Tax ID or SS No.________ Tax ID or SS No_________ Mailing Address to which notices and checks ________________________ Should be sent (if different from the Residence ________________________ Address) ________________________ City____________________ State & Zip_____________ TELEPHONE Home:___________________ Business:_______________ Manner in which title is held (check one): 1. ________ Community Property 2. ________ Joint Tenants With Right of Survivorship 3. ________ Separate Property 4. ________ Individual Ownership 5. ________ Partnership 6. ________ Tenants in Common 7. ________ Corporation 8. ________ Other (Specify) : ________________________________________ ________________________________________ - --------------------------------------- ----------------------------------- Signature Date EX-10.7-2 15 EXHIBIT 10.7.2 EXHIBIT 10.7.2 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. EXERCISABLE AFTER 9:00 A.M., UNITED STATES EASTERN TIME ZONE TIME, ON MARCH 3, 1999 AND PRIOR TO 5:00 P.M., UNITED STATES EASTERN TIME ZONE, MARCH 3, 2004 50,000 Warrants AMERICAN CARD TECHNOLOGY, INC. WARRANT This warrant certificate (the "Warrant Certificate") certifies that Chapman Group, LLC or registered assigns, is the registered holder of warrants to purchase, at any time commencing on March 3, 1999 and continuing until 5:00 P.M., United States Eastern Time Zone, on March 3, 2004 (the "Expiration Date"), up to 50,000 fully-paid and non-assessable shares, subject to adjustment in accordance with Article 7 hereof (the "Warrant Shares"), of the common stock, par value $.001 per share (the "Common Stock"), of American Card Technology, Inc., a Delaware corporation (the "Company"), subject to the terms and conditions set forth herein. The warrants represented by this Warrant Certificate and any warrants resulting from a transfer or subdivision of the warrants represented by this Warrant Certificate shall sometimes hereinafter be referred to, individually, as a "Warrant" and, collectively, as the "Warrants." 1. EXERCISE OF WARRANTS. (a) Each Warrant is initially exercisable to purchase one Warrant Share at an initial exercise price per Warrant Share of eighty percent (80%) of the per share Market Price (as defined in Section 1(b) hereof) of the Common Stock on the exercise date, subject to adjustment as set forth in Article 7 hereof, payable in cash or by check to the order of the Company, or any combination of cash or check. Upon surrender of this Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at the Company's principal offices (presently located at 1355 Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia 30067) the registered holder hereof (the "Holder" or "Holders") shall be entitled to receive a certificate or certificates for the Warrant Shares so purchased. The purchase rights represented by this Warrant Certificate are exercisable at the option of the Holder hereof, in whole or in part (but not as to fractional shares of Common Stock). In the case of the purchase of less than all the Warrant Shares purchasable under this Warrant Certificate, the Company shall cancel this Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Warrant Shares purchasable hereunder. (b) "Market Price" at any date (the "Applicable Date") shall be deemed to be the average of the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or as reported in the NASDAQ National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ National Market System, the closing bid price as furnished by the National Association of Securities Dealers, Int. through NASDAQ or similar organization if NASDAQ is no longer reporting such information, or if the Common Stock is not quoted on NASDAQ or a similar organization, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it for the day immediately preceding the Applicable Date, the day of the Applicable Date and the day immediately after the Applicable Date. 2. CASHLESS EXERCISE. At any time until the Expiration Date, the Holder may, at its option, exchange the Warrants represented by this Warrant Certificate, in whole or in part (a "Warrant Exchange"), into the number of Warrant Shares determined in accordance with this Section 2, by surrendering this Warrant Certificate at the principal office of the Company accompanied by a notice stating such Holder's intent to effect such exchange, the number of Warrant Shares to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the Warrant Shares issuable upon such Warrant Exchange and, if applicable, a new Warrant Certificate (a "Remainder Warrant Certificate") of like tenor evidencing the Warrants which were subject to the surrendered Warrant Certificate and not included in the Warrant Exchange, shall be issued as of the Exchange Date and delivered to the Holder within three (3) business days following the Exchange Date. In connection with any Warrant Exchange, the Holder's Warrant Certificate shall represent the right to subscribe for and acquire (I) the number of Warrant Shares (rounded to the next highest integer) equal to (A) the number of Warrant Shares specified by the Holder in its Notice of Exchange (the Total Warrant Share Number") less (B) the number of Warrant Shares equal to the quotient obtained by dividing (i) the product of the Total Warrant Share Number and the existing Exercise Price per Warrant Share by (ii) the current Market Price (as hereinafter defined) of a share of Common Stock, and (II) a Remainder Warrant Certificate, if applicable. 3. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the issuance of certificates for the Warrant Shares purchased pursuant to such exercise shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Article 4 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and, upon exercise of the Warrants, the certificates representing the Warrant Shares shall be executed on behalf of the Company by the manual or facsimile signature of those officers required to sign such certificates under applicable law. The Warrant Certificates and, upon exercise of the Warrants, in part or in whole, certificates representing the Warrant Shares shall bear a legend substantially similar to the following: "The securities represented by this certificate and/or the securities issuable upon exercise thereof have not been registered under the Securities Act-of 1933, as amended ("Act"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the issuer of an opinion of counsel, reasonably satisfactory to counsel to the issuer, stating that an exemption from registration under such Act is available." 4. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants and the Warrant Shares issuable upon exercise of the Warrants are being acquired as an investment and not with a view to the distribution thereof. 5. REGISTRATION RIGHTS. In the event that, at some date after the closing of an initial public offering of the Company's securities, the Company determines to sell securities of the Company, for its own account or for the account of others, in a registered public offering involving an underwriting, the Company shall give prompt written notice thereof to the Holder, and if the Holder shall so request in writing within twenty (20) days after receipt of any such notice, the Company shall include in such registration all Warrant Shares that the Holder so requests to be registered thereunder. The Company, at the written request of the underwriters, may limit such sales under any registration statement. The Company and the Holder shall provide the underwriters with all requisite indemnities, comfort letters, or such other documents as such underwriters may request. The Company shall bear all of the expenses of any such registration and sale, except that the Holder shall bear and pay (i) the underwriters' discount attributable to the Warrant Shares sold by the Holder, and (ii) Holder's attorney's fees. 6. PRICE. 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price of each Warrant shall be eighty percent (80%) of the per share Market Price of the Common Stock on the exercise date, per Warrant Share. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Article 7 hereof. 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. 7.1 DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution, the Exercise Price in effect immediately prior to such dividend or distribution shall be reduced to a price determined by (i) dividing an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution by (ii) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For purposes of any computation to be made in accordance with the provisions of this Article 7.1, the shares of Common Stock issuable by way of dividend or distribution shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for determination of shareholders entitled to receive such dividend or distribution. 7.2 SUBDIVISION AND COMBINATION. In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 7.3 ADJUSTMENT IN NUMBER OF WARRANT SHARES. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 7, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full share of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 7.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in nominal value to no nominal value, or from no nominal value to nominal value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in nominal value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holder shall thereafter have the right to purchase the kind and. number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holder were the owner of the Warrant Shares issuable upon exercise of the Warrants immediately prior to any such events at a price equal to the product of (x) the number of Warrant Shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holder had exercised the Warrants. 7.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares issued or issuable upon the exercise of outstanding options, rights and warrants and upon the conversion or exchange of outstanding convertible or exchangeable securities. 8. REDEMPTION. The Warrants are redeemable by the Company in whole or in part, on not less than thirty (30) days, prior written notice at a redemption price of $.10 per Warrant at any time commencing March 3, 2000, provided that the closing bid quotation price of the Common Stock on each of the twenty (20) trading days ending on the third day prior to the day on which the Company gives notice of redemption has been at least $18.00. The redemption notice shall be mailed to the Holders of the Warrants at their addresses appearing in the Warrant register. Holders of the Warrants will have exercise rights until the close of business on the date fixed for redemption. 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant Certificate is exchangeable without expense, upon the surrender hereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant Certificate, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. ELIMINATION OF FRACTIONAL INTERESTS. The Company. shall not be required to issue certificates representing fractions of shares of Common Stock and shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up, if such fraction is greater than one-half, or down, if such fraction is equal to or less than one-half, to the nearest whole number of shares of Common Stock to which the Holder is otherwise entitled. 11. RESERVATION OF SHARES. The Company covenants and agrees that it will at all times reserve and keep available out of its authorized share capital, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock as shall be equal to the number of Warrant Shares issuable upon the exercise of the Warrants, for issuance upon such exercise, and that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Warrant Shares issuable upon such exercise shall be duly and validly issued, fully paid, nonassessable and not subject to the preemptive rights of any shareholder. 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional Common Stock or other shares of capital stock of the Company or securities convertible into or exchangeable for Common Stock or other shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. NOTICES All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when personally delivered or sent by registered or certified mail (return receipt requested, postage prepaid), facsimile transmission or overnight courier: (a) if to a registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) if to the Company, to the address set forth in Article 1 of this Agreement or to such other address as the Company may designate by notice to the Holders. 14. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. 15. GOVERNING LAW 15.1 CHOICE OF LAW. This Warrant Certificate shall be deemed to have been made and delivered in the State of Georgia and, except to the extent the Delaware General Corporation Law shall mandatorily apply, shall be governed as to validity, interpretation, construction, effect and in all other respects with the substantive laws of the State of Georgia, without giving effect to the choice of laws rules thereof. 15.2 JURISDICTION AND SERVICE OF PROCESS. The Company and the Holder each (a) agree that any legal suit, action or proceeding arising out of or relating to this Warrant Certificate shall be instituted exclusively in the Georgia Superior Court, Judicial Circuit of Cobb County or in the United States District Court for the Northern District of Georgia, Atlanta Division, (b) waive any objection which the Company or such Holder may have now or hereafter based upon forum non conveniens or to the venue of any such suit, action or proceeding, and (c) irrevocably consent to the jurisdiction of the Georgia Superior Court, Judicial Circuit of Cobb County and the United States District Court for the Northern District of Georgia, Atlanta Division, in any such suit, action or proceeding. The Company and the Holder each further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the Georgia Superior Court, Judicial Circuit of Cobb County or in the United States District Court for the Northern District of Georgia, Atlanta Division, and agree that service of process upon the Company or the Holder mailed by certified mail to their respective addresses shall be deemed in every respect effective service of process upon the Company or the Holder, as the case may be, in any suit, action or proceeding. FURTHER, BOTH THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THE TERMS OF THIS WARRANT CERTIFICATE AND IN CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, as of this 12th day of February, 1998. SIGNED, SEALED, AND DELIVERED IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC. ______________________________ By: /s/ Lawrence O. Perl ------------------------------ Lawrence O. Perl Its Chief Executive Officer ______________________________ EX-10.7-3 16 EXHIBIT 10.7.3 EXHIBIT 10.7.3 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAIL- ABLE. EXERCISABLE AFTER 9:00 A.M., UNITED STATES EASTERN TIME ZONE TIME, ON MARCH 3, 1999 AND PRIOR TO 5:00 P.M., UNITED STATES EASTERN TIME ZONE, MARCH 3, 2004 12,500 Warrants AMERICAN CARD TECHNOLOGY, INC. WARRANT This warrant certificate (the "Warrant Certificate") certifies that Harold Roth- stein or registered assigns, is the registered holder of warrants to purchase, at any time commencing on March 3, 1999 and continuing until 5:00 P.M., United States Eastern Time Zone, on March 3, 2004 (the "Expiration Date"), up to 12,500 fully-paid and non-assessable shares, subject to adjustment in accordance with Article 7 hereof (the "Warrant Shares"), of the common stock, par value $.001 per share (the "Common Stock"), of American Card Technology, Inc., a Delaware corporation (the "Company"), subject to the terms and conditions set forth here- in. The warrants represented by this Warrant Certificate and any warrants re- sulting from a transfer or subdivision of the warrants represented by this War- rant Certificate shall sometimes hereinafter be referred to, individually, as a "Warrant" and, collectively, as the "Warrants." 1. EXERCISE OF WARRANTS. (a) Each Warrant is initially exercisable to purchase one Warrant Share at an initial exercise price per Warrant Share of eighty percent (80%) of the per share Market Price (as defined in Section 1(b) hereof) of the Common Stock on the exercise date, subject to adjustment as set forth in Article 7 hereof, payable in cash or by check to the order of the Company, or any combina- tion of cash or check. Upon surrender of this Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at the Company's principal offices (presently located at 1355 Terrell Mill Road, Build- ing 1462, Suite 200, Marietta, Georgia 30067) the registered holder hereof (the "Holder" or "Holders") shall be entitled to receive a certificate or certifi- cates for the Warrant Shares so purchased. The purchase rights represented by this Warrant Certificate are exercisable at the option of the Holder hereof, in whole or in part (but not as to fractional shares of Common Stock). In the case of the purchase of less than all the Warrant Shares purchasable under this War- rant Certificate, the Company shall cancel this Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Warrant Shares purchasable hereunder. (b) "Market Price" at any date (the "Applicable Date") shall be deemed to be the average of the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admit- ted to trading or as reported in the NASDAQ National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ National Market System, the closing bid price as furnished by the National Association of Securities Dealers, Int. through NASDAQ or similar organization if NASDAQ is no longer reporting such informa- tion, or if the Common Stock is not quoted on NASDAQ or a similar organization, as determined in good faith by resolution of the Board of Directors of the Com- pany, based on the best information available to it for the day immediately preceding the Applicable Date, the day of the Applicable Date and the day imme- diately after the Applicable Date. 2. CASHLESS EXERCISE. At any time until the Expiration Date, the Holder may, at its option, exchange the Warrants represented by this Warrant Certifi- cate, in whole or in part (a "Warrant Exchange"), into the number of Warrant Shares determined in accordance with this Section 2, by surrendering this War- rant Certificate at the principal office of the Company accompanied by a notice stating such Holder's intent to effect such exchange, the number of Warrant Shares to be exchanged and the date on which the Holder requests that such War- rant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certifi- cates for the Warrant Shares issuable upon such Warrant Exchange and, if appli- cable, a new Warrant Certificate (a "Remainder Warrant Certificate") of like tenor evidencing the Warrants which were subject to the surrendered Warrant Certificate and not included in the Warrant Exchange, shall be issued as of the Exchange Date and delivered to the Holder within three (3) business days follow- ing the Exchange Date. In connection with any Warrant Exchange, the Holder's Warrant Certificate shall represent the right to subscribe for and acquire (I) the number of Warrant Shares (rounded to the next highest integer) equal to (A) the number of Warrant Shares specified by the Holder in its Notice of Exchange (the Total Warrant Share Number") less (B) the number of Warrant Shares equal to the quotient obtained by dividing (i) the product of the Total Warrant Share Number and the existing Exercise Price per Warrant Share by (ii) the current Market Price (as hereinafter defined) of a share of Common Stock, and (II) a Remainder Warrant Certificate, if applicable. 3. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the is- suance of certificates for the Warrant Shares purchased pursuant to such exer- cise shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such cer- tificates shall (subject to the provisions of Article 4 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and, upon exercise of the Warrants, the certifi- cates representing the Warrant Shares shall be executed on behalf of the Company by the manual or facsimile signature of those officers required to sign such certificates under applicable law. The Warrant Certificates and, upon exercise of the Warrants, in part or in whole, certificates representing the Warrant Shares shall bear a legend substan- tially similar to the following: "The securities represented by this certificate and/or the securities issu- able upon exercise thereof have not been registered under the Securities Act of 1933, as amended ("Act"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applica- ble, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the issuer of an opinion of counsel, reasonably satisfactory to coun- sel to the issuer, stating that an exemption from registration under such Act is available." 4. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant Cer- tificate, by its acceptance thereof, covenants and agrees that the Warrants and the Warrant Shares issuable upon exercise of the Warrants are being acquired as an investment and not with a view to the distribution thereof. 5. REGISTRATION RIGHTS. In the event that, at some date after the clos-ing of an initial public offering of the Company's securities, the Company de-termines to sell securities of the Company, for its own account or for the ac-count of others, in a registered public offering involving an underwriting, the Company shall give prompt written notice thereof to the Holder, and if the Hold-er shall so request in writing within twenty (20) days after receipt of any such notice, the Company shall include in such registration all Warrant Shares that the Holder so requests to be registered thereunder. The Company, at the written request of the underwriters, may limit such sales under any registration state-ment. The Company and the Holder shall provide the underwriters with all requi-site indemnities, comfort letters, or such other documents as such underwriters may request. The Company shall bear all of the expenses of any such registra-tion and sale, except that the Holder shall bear and pay (i) the underwriters' discount attributable to the Warrant Shares sold by the Holder, and (ii) Holder's attorney's fees. 6. PRICE. 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price of each Warrant shall be eighty percent (80%) of the per share Market Price of the Common Stock on the exercise date, per Warrant Share. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Article 7 hereof. 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the con- text. 7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. 7.1 DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution, the Exercise Price in effect immediately prior to such dividend or distribution shall be reduced to a price determined by (i) dividing an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution by (ii) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For purposes of any computation to be made in accordance with the provisions of this Article 7.1, the shares of Common Stock issuable by way of dividend or distribution shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for determination of shareholders entitled to receive such dividend or distribution. 7.2 SUBDIVISION AND COMBINATION. In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 7.3 ADJUSTMENT IN NUMBER OF WARRANT SHARES. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 7, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full share of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 7.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in nominal value to no nominal value, or from no nominal value to nomi- nal value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in nominal value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holder shall thereafter have the right to purchase the kind and. number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holder were the owner of the Warrant Shares issuable upon exercise of the Warrants immediately prior to any such events at a price equal to the product of (x) the number of Warrant Shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holder had exercised the Warrants. 7.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares issued or issuable upon the exercise of outstanding options, rights and warrants and upon the conversion or exchange of outstanding convertible or exchangeable securities. 8. REDEMPTION. The Warrants are redeemable by the Company in whole or in part, on not less than thirty (30) days, prior written notice at a redemption price of $.10 per Warrant at any time commencing March 3, 2000, provided that the closing bid quotation price of the Common Stock on each of the twenty (20) trading days ending on the third day prior to the day on which the Company gives notice of redemption has been at least $18.00. The redemption notice shall be mailed to the Holders of the Warrants at their addresses appearing in the War- rant register. Holders of the Warrants will have exercise rights until the close of business on the date fixed for redemption. 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant Cer- tificate is exchangeable without expense, upon the surrender hereof by the reg- istered Holder at the principal executive office of the Company, for a new War- rant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satis- factory to it, and reimbursement to the Company of all reasonable expenses inci- dental thereto, and upon surrender and cancellation of this Warrant Certificate, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. ELIMINATION OF FRACTIONAL INTERESTS. The Company. shall not be re- quired to issue certificates representing fractions of shares of Common Stock and shall not be required to issue scrip or pay cash in lieu of fractional in- terests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up, if such fraction is greater than one- half, or down, if such fraction is equal to or less than one-half, to the near- est whole number of shares of Common Stock to which the Holder is otherwise entitled. 11. RESERVATION OF SHARES. The Company covenants and agrees that it will at all times reserve and keep available out of its authorized share capital, solely for the purpose of issuance upon the exercise of the Warrants, such num- ber of shares of Common Stock as shall be equal to the number of Warrant Shares issuable upon the exercise of the Warrants, for issuance upon such exercise, and that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Warrant Shares issuable upon such exercise shall be duly and validly issued, fully paid, nonassessable and not subject to the preemptive rights of any share- holder. 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional Common Stock or other shares of capital stock of the Company or securities convertible into or exchangeable for Common Stock or other shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchange- able securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. NOTICES All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when personally delivered or sent by registered or certified mail (return receipt requested, postage prepaid), facsimile transmission or overnight courier: (a) if to a registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) if to the Company, to the address set forth in Article 1 of this Agreement or to such other address as the Company may designate by notice to the Holders. 14. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. 15. GOVERNING LAW 15.1 CHOICE OF LAW. This Warrant Certificate shall be deemed to have been made and delivered in the State of Georgia and, except to the extent the Delaware General Corporation Law shall mandatorily apply, shall be governed as to validity, interpretation, construction, effect and in all other respects with the substantive laws of the State of Georgia, without giving effect to the choice of laws rules thereof. 15.2 JURISDICTION AND SERVICE OF PROCESS. The Company and the Holder each (a) agree that any legal suit, action or proceeding arising out of or re- lating to this Warrant Certificate shall be instituted exclusively in the Geor- gia Superior Court, Judicial Circuit of Cobb County or in the United States District Court for the Northern District of Georgia, Atlanta Division, (b) waive any objection which the Company or such Holder may have now or hereafter based upon forum non conveniens or to the venue of any such suit, action or proceed- ing, and (c) irrevocably consent to the jurisdiction of the Georgia Superior Court, Judicial Circuit of Cobb County and the United States District Court for the Northern District of Georgia, Atlanta Division, in any such suit, action or proceeding. The Company and the Holder each further agree to accept and ac- knowledge service of any and all process which may be served in any such suit, action or proceeding in the Georgia Superior Court, Judicial Circuit of Cobb County or in the United States District Court for the Northern District of Geor- gia, Atlanta Division, and agree that service of process upon the Company or the Holder mailed by certified mail to their respective addresses shall be deemed in every respect effective service of process upon the Company or the Holder, as the case may be, in any suit, action or proceeding. FURTHER, BOTH THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THE TERMS OF THIS WARRANT CERTIFICATE AND IN CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, as of this 3rd day of March, 1998. SIGNED, SEALED, AND DELIVERED IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC. /s/ Sharon Churchill By: /s/ Lawrence O. Perl - ----------------------------- --------------------------- Lawrence O. Perl Its Chief Executive Officer - -------------------------------- EX-10.7-4 17 EXHIBIT 10.7.4 EXHIBIT 10.7.4 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. EXERCISABLE AFTER 9:00 A.M., UNITED STATES EASTERN TIME ZONE TIME, ON MARCH 3, 1999 AND PRIOR TO 5:00 P.M., UNITED STATES EASTERN TIME ZONE, MARCH 3, 2004 12,500 Warrants AMERICAN CARD TECHNOLOGY, INC. WARRANT This warrant certificate (the "Warrant Certificate") certifies that Raymond A. Roncari or registered assigns, is the registered holder of warrants to purchase, at any time commencing on March 3, 1999 and continuing until 5:00 P.M., United States Eastern Time Zone, on March 3, 2004 (the "Expiration Date"), up to 12,500 fully-paid and non-assessable shares, subject to adjustment in accordance with Article 7 hereof (the "Warrant Shares"), of the common stock, par value $.001 per share (the "Common Stock"), of American Card Technology, Inc., a Delaware corporation (the "Company"), subject to the terms and conditions set forth herein. The warrants represented by this Warrant Certificate and any warrants resulting from a transfer or subdivision of the warrants represented by this Warrant Certificate shall sometimes hereinafter be referred to, individually, as a "Warrant" and, collectively, as the "Warrants." 1. EXERCISE OF WARRANTS. (a) Each Warrant is initially exercisable to purchase one Warrant Share at an initial exercise price per Warrant Share of eighty percent (80%) of the per share Market Price (as defined in Section 1(b) hereof) of the Common Stock on the exercise date, subject to adjustment as set forth in Article 7 hereof, payable in cash or by check to the order of the Company, or any combination of cash or check. Upon surrender of this Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at the Company's principal offices (presently located at 1355 Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia 30067) the registered holder hereof (the "Holder" or "Holders") shall be entitled to receive a certificate or certificates for the Warrant Shares so purchased. The purchase rights represented by this Warrant Certificate are exercisable at the option of the Holder hereof, in whole or in part (but not as to fractional shares of Common Stock). In the case of the purchase of less than all the Warrant Shares purchasable under this Warrant Certificate, the Company shall cancel this Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Warrant Shares purchasable hereunder. (b) "Market Price" at any date (the "Applicable Date") shall be deemed to be the average of the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or as reported in the NASDAQ National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ National Market System, the closing bid price as furnished by the National Association of Securities Dealers, Int. through NASDAQ or similar organization if NASDAQ is no longer reporting such information, or if the Common Stock is not quoted on NASDAQ or a similar organization, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it for the day immediately preceding the Applicable Date, the day of the Applicable Date and the day immediately after the Applicable Date. 2. CASHLESS EXERCISE. At any time until the Expiration Date, the Holder may, at its option, exchange the Warrants represented by this Warrant Certificate, in whole or in part (a "Warrant Exchange"), into the number of Warrant Shares determined in accordance with this Section 2, by surrendering this Warrant Certificate at the principal office of the Company accompanied by a notice stating such Holder's intent to effect such exchange, the number of Warrant Shares to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the Warrant Shares issuable upon such Warrant Exchange and, if applicable, a new Warrant Certificate (a "Remainder Warrant Certificate") of like tenor evidencing the Warrants which were subject to the surrendered Warrant Certificate and not included in the Warrant Exchange, shall be issued as of the Exchange Date and delivered to the Holder within three (3) business days following the Exchange Date. In connection with any Warrant Exchange, the Holder's Warrant Certificate shall represent the right to subscribe for and acquire (I) the number of Warrant Shares (rounded to the next highest integer) equal to (A) the number of Warrant Shares specified by the Holder in its Notice of Exchange (the Total Warrant Share Number") less (B) the number of Warrant Shares equal to the quotient obtained by dividing (i) the product of the Total Warrant Share Number and the existing Exercise Price per Warrant Share by (ii) the current Market Price (as hereinafter defined) of a share of Common Stock, and (II) a Remainder Warrant Certificate, if applicable. 3. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the issuance of certificates for the Warrant Shares purchased pursuant to such exercise shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Article 4 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and, upon exercise of the Warrants, the certificates representing the Warrant Shares shall be executed on behalf of the Company by the manual or facsimile signature of those officers required to sign such certificates under applicable law. The Warrant Certificates and, upon exercise of the Warrants, in part or in whole, certificates representing the Warrant Shares shall bear a legend substantially similar to the following: "The securities represented by this certificate and/or the securities issuable upon exercise thereof have not been registered under the Securities Act-of 1933, as amended ("Act"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the issuer of an opinion of counsel, reasonably satisfactory to counsel to the issuer, stating that an exemption from registration under such Act is available." 4. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants and the Warrant Shares issuable upon exercise of the Warrants are being acquired as an investment and not with a view to the distribution thereof. 5. REGISTRATION RIGHTS. In the event that, at some date after the closing of an initial public offering of the Company's securities, the Company determines to sell securities of the Company, for its own account or for the account of others, in a registered public offering involving an underwriting, the Company shall give prompt written notice thereof to the Holder, and if the Holder shall so request in writing within twenty (20) days after receipt of any such notice, the Company shall include in such registration all Warrant Shares that the Holder so requests to be registered thereunder. The Company, at the written request of the underwriters, may limit such sales under any registration statement. The Company and the Holder shall provide the underwriters with all requisite indemnities, comfort letters, or such other documents as such underwriters may request. The Company shall bear all of the expenses of any such registration and sale, except that the Holder shall bear and pay (i) the underwriters' discount attributable to the Warrant Shares sold by the Holder, and (ii) Holder's attorney's fees. 6. PRICE. 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price of each Warrant shall be eighty percent (80%) of the per share Market Price of the Common Stock on the exercise date, per Warrant Share. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Article 7 hereof. 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. 7.1 DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution, the Exercise Price in effect immediately prior to such dividend or distribution shall be reduced to a price determined by (i) dividing an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution by (ii) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For purposes of any computation to be made in accordance with the provisions of this Article 7.1, the shares of Common Stock issuable by way of dividend or distribution shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for determination of shareholders entitled to receive such dividend or distribution. 7.2 SUBDIVISION AND COMBINATION. In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 7.3 ADJUSTMENT IN NUMBER OF WARRANT SHARES. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 7, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full share of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 7.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in nominal value to no nominal value, or from no nominal value to nominal value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in nominal value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holder shall thereafter have the right to purchase the kind and. number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holder were the owner of the Warrant Shares issuable upon exercise of the Warrants immediately prior to any such events at a price equal to the product of (x) the number of Warrant Shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holder had exercised the Warrants. 7.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares issued or issuable upon the exercise of outstanding options, rights and warrants and upon the conversion or exchange of outstanding convertible or exchangeable securities. 8. REDEMPTION. The Warrants are redeemable by the Company in whole or in part, on not less than thirty (30) days, prior written notice at a redemption price of $.10 per Warrant at any time commencing March 3, 2000, provided that the closing bid quotation price of the Common Stock on each of the twenty (20) trading days ending on the third day prior to the day on which the Company gives notice of redemption has been at least $18.00. The redemption notice shall be mailed to the Holders of the Warrants at their addresses appearing in the Warrant register. Holders of the Warrants will have exercise rights until the close of business on the date fixed for redemption. 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant Certificate is exchangeable without expense, upon the surrender hereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant Certificate, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. ELIMINATION OF FRACTIONAL INTERESTS. The Company. shall not be required to issue certificates representing fractions of shares of Common Stock and shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up, if such fraction is greater than one-half, or down, if such fraction is equal to or less than one-half, to the nearest whole number of shares of Common Stock to which the Holder is otherwise entitled. 11. RESERVATION OF SHARES. The Company covenants and agrees that it will at all times reserve and keep available out of its authorized share capital, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock as shall be equal to the number of Warrant Shares issuable upon the exercise of the Warrants, for issuance upon such exercise, and that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Warrant Shares issuable upon such exercise shall be duly and validly issued, fully paid, nonassessable and not subject to the preemptive rights of any shareholder. 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional Common Stock or other shares of capital stock of the Company or securities convertible into or exchangeable for Common Stock or other shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. NOTICES All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when personally delivered or sent by registered or certified mail (return receipt requested, postage prepaid), facsimile transmission or overnight courier: (a) if to a registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) if to the Company, to the address set forth in Article 1 of this Agreement or to such other address as the Company may designate by notice to the Holders. 14. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. 15. GOVERNING LAW 15.1 CHOICE OF LAW. This Warrant Certificate shall be deemed to have been made and delivered in the State of Georgia and, except to the extent the Delaware General Corporation Law shall mandatorily apply, shall be governed as to validity, interpretation, construction, effect and in all other respects with the substantive laws of the State of Georgia, without giving effect to the choice of laws rules thereof. 15.2 JURISDICTION AND SERVICE OF PROCESS. The Company and the Holder each (a) agree that any legal suit, action or proceeding arising out of or relating to this Warrant Certificate shall be instituted exclusively in the Georgia Superior Court, Judicial Circuit of Cobb County or in the United States District Court for the Northern District of Georgia, Atlanta Division, (b) waive any objection which the Company or such Holder may have now or hereafter based upon forum non conveniens or to the venue of any such suit, action or proceeding, and (c) irrevocably consent to the jurisdiction of the Georgia Superior Court, Judicial Circuit of Cobb County and the United States District Court for the Northern District of Georgia, Atlanta Division, in any such suit, action or proceeding. The Company and the Holder each further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the Georgia Superior Court, Judicial Circuit of Cobb County or in the United States District Court for the Northern District of Georgia, Atlanta Division, and agree that service of process upon the Company or the Holder mailed by certified mail to their respective addresses shall be deemed in every respect effective service of process upon the Company or the Holder, as the case may be, in any suit, action or proceeding. FURTHER, BOTH THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THE TERMS OF THIS WARRANT CERTIFICATE AND IN CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, as of this 3rd day of March, 1998. SIGNED, SEALED, AND DELIVERED IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC. /s/ Sharon Churchill By: /s/ Lawrence O. Perl - ----------------------------- ---------------------------- Lawrence O. Perl Its Chief Executive Officer - --------------------------------- EX-10.8-1 18 EXHIBIT 10.8.1 EXHIBIT 10.8.1 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and LILLY BETER (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to those directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee") has authorized the awarding of an option under the Plan to the Optionee. Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 2,500 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price"). (b) EXERCISE OF OPTION. Subject to the terms and conditions set forth herein, this Option shall be exercisable, in whole or in part, at any time and from time to time, during that period commencing on the date hereof and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which date this Option shall lapse with respect to any shares of Common Stock not theretofore purchased). (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full (i) by cash or certified or bank check, (ii) by delivery of shares of Common Stock then owned by the Optionee with a fair market value at the time of exercise equal to the Option Price, or (iii) by a combination of (i) and (ii). No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall cease to be a director of the Corporation for whatever reason other than by death or disability, the Optionee shall have the right to exercise the Option (except to the extent the Option shall have been exercised or shall have expired) until the later to occur of (i) ninety (90) days after the date of termination of service as a director, or (ii) six (6) months and ten (10) days after the Optionee's last purchase or sale of shares of Common Stock prior to the termination of Optionee's service as a director. Any portion of the Option not exercised within said period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. (f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or become disabled within the meaning of Section 22(e)(3) of the Code while still serving as a director or prior to the termination of the Option pursuant to Section 3(e) hereof, the Optionee or the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death or disability to exercise the Option, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be subject to the following terms and conditions: (a) TRANSFERABILITY. The Common Stock shall be transferable only in compliance with this Section 4 and only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. All transfers, whether or not permitted by this section, shall be subject to all of the provisions of this Agreement. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. In addition, such shares are subject to a right of repurchase by the Corporation. (b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL. The Corporation shall have a right to repurchase, at the buy-back price set forth below, any or all of the Common Stock issued upon the exercise of the Option. Such right shall arise if the Optionee ceases to serve as a director of the Corporation for any reason, if the Optionee becomes disabled, at the time of the Optionee's death, or if the Optionee elects to dispose of any such shares of Common Stock by sale, transfer or other disposition. (i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation for any reason, the Corporation shall, within thirty days immediately following the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (1) stating that the Corporation has the first right to purchase the Common Stock; (2) designating the number of shares of the Common Stock that the Optionee or the Optionee's legal representative must sell to the Corporation; (3) naming the buy-back price per share in cash at which the Optionee or the Optionee's legal representative is obligated to sell such shares, as determined herein; and (4) stating whether the Corporation elects to exercise its right to repurchase the Common Stock. (ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee elects to dispose of any of the Common Stock, the Optionee shall give to the President of the Corporation a signed notice in 2 writing, either delivered by hand, or mailed by registered or certified mail, to the Corporation's principal office: (1) designating the number of shares of the Common Stock to be disposed of; (2) stating the specific manner in which the Optionee proposes to dispose of such shares if they are not purchased by the Corporation pursuant to this Agreement; (3) specifying the names and addresses of the persons to whom the Optionee desires to dispose of such shares to the extent not so purchased by the Corporation; (4) offering to sell such shares to the Corporation; (5) naming the price per share in cash at which the Optionee is willing to sell such shares to the Corporation, which price shall not be greater than the buy-back price as determined herein; and (6) designating the Optionee's mailing address. The Corporation shall have a period of thirty days after the receipt of the notice within which to accept the Optionee's offer as contained in the Optionee's notice. Acceptance shall be by notice in writing to that effect hand delivered or mailed to the Optionee prior to the expiration date of said thirty-day period to the mailing address designated in the Optionee's notice. If the Corporation declines to accept such offer, the Optionee shall have a period of forty-five (45) days within which to dispose of such shares of Common Stock. Such forty-five (45) day period shall commence on the date of receipt of the Corporation's written rejection of such offer or, if the Corporation does not reject such offer in writing, on the expiration of the thirty-day period within which the Corporation may accept such offer. (iii) BUY-BACK. The buy-back price per share for purposes of this Section 4(b) shall be: (1) the price per share offered in a bona fide offer to purchase, or (2) in the absence of a bona fide offer to purchase, the fair market value per share as determined by the Board or the Committee, which amount shall not be less than the price per share at which shares of Common Stock were last sold by the Corporation other than pursuant to the Plan. (c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are subject to repurchase as provided in Section 4(b) hereof, and the Corporation shall have exercised its right to repurchase, the Optionee or the Optionee's legal representative shall immediately deliver to the Corporation the certificates for the shares. The certificates shall be voided, and the shares of the Common Stock represented by the certificates shall be thereafter treated on the books of the Corporation as treasury shares. A person required to deliver a certificate for the Common Stock under this section shall be deemed irrevocably to have authorized the voiding of such certificate and the treatment of such Common Stock as treasury shares (regardless whether the certificates are in fact delivered) and irrevocably to have authorized the Board to terminate his status as a shareholder in respect of such shares. (d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have the right to pay the purchase price for any shares purchased pursuant to this Section 4 over a one year period, in equal quarterly installments without interest, or, in the case of a bona fide offer to purchase, in the manner and over such period of time as provided for in such offer. (e) PRICE ADJUSTMENT. In all cases the buy-back price per share shall be adjusted to reflect previous capital changes, if any, as described in Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made by a third party unrelated to the Corporation or its shareholders with the intention that such purchase be an investment in the Corporation and not with a view to distribution or resale, nor shall any offer to purchase be deemed "bona fide" if made by a competitor of the Corporation regardless of the offeror's intention. 5. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation and the Optionee has accrued but not exercised rights to purchase shares of Common Stock, the following terms and conditions shall apply. 3 (a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the Optionee's service as a director, or upon the Optionee's death or disability giving the Optionee, or the Optionee's legal representative, rights to exercise the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall, within thirty days immediately following the date on which the Corporation learns of the Optionee's death, disability, or the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (i) stating that the Corporation has the first right to purchase the Common Stock subject to the Option; (ii) designating the number of shares of the Common Stock which the Optionee or the Optionee's legal representative has a right to purchase under the Option and the option price per share under this Agreement; (iii) naming the buy-back price per share in cash which the Optionee or the Optionee's legal representative is obligated to sell the shares subject to the Option, as determined herein; and (iv) stating whether the Corporation will exercise its right to repurchase the Common Stock if the Optionee or the Optionee's legal representative exercised the Option. (b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK. The Optionee or the Optionee's legal representative may exercise the Option within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as the case may be, by giving the Corporation notice of exercise of the Option under Section 3(c) hereof. However, such notice need not be accompanied by tender of payment if the Corporation has elected to exercise its right to repurchase. Upon receipt of the notice of exercise from the Optionee or the Optionee's legal representative within the applicable time period, the Corporation shall pay the Optionee or the Optionee's legal representative for each share an amount equal to the buy-back price per share less the option price per share. If the Corporation does not exercise its right to repurchase under Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the provisions for exercising the Option under Section 3(c) shall apply. (c) COMBINING NOTICES. If the Optionee, or the Optionee's legal representative, has both shares of Common Stock and a right to exercise the Option as to additional shares of Common Stock, then the Corporation may deliver one notice to the Optionee or the Optionee's legal representative to satisfy the provisions of Section 4(b)(i) hereof and Section 5(a) hereof provided the information required to be contained in each notice under such sections are contained in the single notice. 6. Failure by the Corporation to exercise its rights to repurchase the Common Stock upon termination of service as a director of the Optionee shall not be a waiver of the Corporation's right to repurchase on a subsequent sale, transfer or other disposition of Common Stock. 7. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 8. The number and Option Price of shares of Common Stock subject to this Option may be adjusted or substituted as follows: (a) In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into 4 which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8(a), in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8(a) shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. (b) Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 9. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 10. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 11. If the Corporation registers any of its shares of common stock under the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4 and Section 5 hereof shall terminate on the day the registration statement becomes effective. The Common Stock issued upon exercise of the Option shall thereupon be free of any restriction imposed hereby, except for the restriction requiring transfer pursuant to the Act if such registration does not include the Common Stock, and neither the Corporation nor the Optionee shall have any further rights or obligations under Section 4 or Section 5 hereof, except the Corporation's obligation to complete payments, under Section 4(b) hereof, for the Common Stock previously repurchased. 12. This Agreement shall be interpreted according to the laws of the State of Georgia. 13. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 14. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ---------------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Lilly Beter - ------------------------------ --------------------------------- Secretary Lilly Beter 6 EXHIBIT A ______________________________________________________ Address of Person Exercising Option _____________________ Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ______________________________ Lilly Beter AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted by the following resolution of the Board of Directors dated as of February 2, 1998: RESOLVED: that the Board of Directors, acting as the committee to administer the American Card Technology, Inc. 1996 Nonemployee Directors' Stock Option Plan (the "Directors' Plan"), amend the Directors' Plan as follows: (a) By deleting Paragraph 6(a) in its entirety and substituting the following in lieu thereof: "(a) an Option to purchase 2,500 shares of Common Stock will be granted to each Participant on February 2, 1998 (b) By deleting the references to "1997" in Paragraph 6(c) and substituting "1999" in lieu therefor. (c) By deleting the first sentence of Paragraph 7(a) and substituting the following in lieu therefor: "The exercise price of each Director's Option shall be at least one hundred percent (100%) of the fair market value of the shares subject to such Option on the date of grant." and the Directors' Plan is hereby so amended. EX-10.8-2 19 EXHIBIT 10.8.2 EXHIBIT 10.8.2 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and HAROLD ROTHSTEIN (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to those directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee") has authorized the awarding of an option under the Plan to the Optionee. Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 2,500 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price"). (b) EXERCISE OF OPTION. Subject to the terms and conditions set forth herein, this Option shall be exercisable, in whole or in part, at any time and from time to time, during that period commencing on the date hereof and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which date this Option shall lapse with respect to any shares of Common Stock not theretofore purchased). (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full (i) by cash or certified or bank check, (ii) by delivery of shares of Common Stock then owned by the Optionee with a fair market value at the time of exercise equal to the Option Price, or (iii) by a combination of (i) and (ii). No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall cease to be a director of the Corporation for whatever reason other than by death or disability, the Optionee shall have the right to exercise the Option (except to the extent the Option shall have been exercised or shall have expired) until the later to occur of (i) ninety (90) days after the date of termination of service as a director, or (ii) six (6) months and ten (10) days after the Optionee's last purchase or sale of shares of Common Stock prior to the termination of Optionee's service as a director. Any portion of the Option not exercised within said period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. (f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or become disabled within the meaning of Section 22(e)(3) of the Code while still serving as a director or prior to the termination of the Option pursuant to Section 3(e) hereof, the Optionee or the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death or disability to exercise the Option, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be subject to the following terms and conditions: (a) TRANSFERABILITY. The Common Stock shall be transferable only in compliance with this Section 4 and only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. All transfers, whether or not permitted by this section, shall be subject to all of the provisions of this Agreement. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. In addition, such shares are subject to a right of repurchase by the Corporation. (b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL. The Corporation shall have a right to repurchase, at the buy-back price set forth below, any or all of the Common Stock issued upon the exercise of the Option. Such right shall arise if the Optionee ceases to serve as a director of the Corporation for any reason, if the Optionee becomes disabled, at the time of the Optionee's death, or if the Optionee elects to dispose of any such shares of Common Stock by sale, transfer or other disposition. (i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation for any reason, the Corporation shall, within thirty days immediately following the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (1) stating that the Corporation has the first right to purchase the Common Stock; (2) designating the number of shares of the Common Stock that the Optionee or the Optionee's legal representative must sell to the Corporation; (3) naming the buy-back price per share in cash at which the Optionee or the Optionee's legal representative is obligated to sell such shares, as determined herein; and (4) stating whether the Corporation elects to exercise its right to repurchase the Common Stock. (ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee elects to dispose of any of the Common Stock, the Optionee shall give to the President of the Corporation a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Corporation's principal office: (1) designating the number of shares of the Common Stock to be disposed of; (2) stating the specific manner in which the Optionee proposes to dispose of such shares if they are not purchased by the Corporation pursuant to this Agreement; (3) specifying the names and addresses of the persons to whom the Optionee desires to dispose of such shares to the extent not so purchased by the Corporation; (4) offering to sell such shares to the Corporation; (5) naming the price per share in cash at which the Optionee is willing to sell such shares to the Corporation, which price shall not be greater than the buy-back price as determined herein; and (6) designating the Optionee's mailing address. The Corporation shall have a period of thirty days after the receipt of the notice within which to accept the Optionee's offer as contained in the Optionee's notice. Acceptance shall be by notice in writing to that effect hand delivered or mailed to the Optionee prior to the expiration date of said thirty-day period to the mailing address designated in the Optionee's notice. If the Corporation declines to accept such offer, the Optionee shall have a period of forty-five (45) days within which to dispose of such shares of Common Stock. Such forty-five (45) day period shall commence on the date of receipt of the Corporation's written rejection of such offer or, if the Corporation does not reject such offer in writing, on the expiration of the thirty-day period within which the Corporation may accept such offer. (iii) BUY-BACK. The buy-back price per share for purposes of this Section 4(b) shall be: (1) the price per share offered in a bona fide offer to purchase, or (2) in the absence of a bona fide offer to purchase, the fair market value per share as determined by the Board or the Committee, which amount shall not be less than the price per share at which shares of Common Stock were last sold by the Corporation other than pursuant to the Plan. (c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are subject to repurchase as provided in Section 4(b) hereof, and the Corporation shall have exercised its right to repurchase, the Optionee or the Optionee's legal representative shall immediately deliver to the Corporation the certificates for the shares. The certificates shall be voided, and the shares of the Common Stock represented by the certificates shall be thereafter treated on the books of the Corporation as treasury shares. A person required to deliver a certificate for the Common Stock under this section shall be deemed irrevocably to have authorized the voiding of such certificate and the treatment of such Common Stock as treasury shares (regardless whether the certificates are in fact delivered) and irrevocably to have authorized the Board to terminate his status as a shareholder in respect of such shares. (d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have the right to pay the purchase price for any shares purchased pursuant to this Section 4 over a one year period, in equal quarterly installments without interest, or, in the case of a bona fide offer to purchase, in the manner and over such period of time as provided for in such offer. (e) PRICE ADJUSTMENT. In all cases the buy-back price per share shall be adjusted to reflect previous capital changes, if any, as described in Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made by a third party unrelated to the Corporation or its shareholders with the intention that such purchase be an investment in the Corporation and not with a view to distribution or resale, nor shall any offer to purchase be deemed "bona fide" if made by a competitor of the Corporation regardless of the offeror's intention. 5. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation and the Optionee has accrued but not exercised rights to purchase shares of Common Stock, the following terms and conditions shall apply. (a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the Optionee's service as a director, or upon the Optionee's death or disability giving the Optionee, or the Optionee's legal representative, rights to exercise the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall, within thirty days immediately following the date on which the Corporation learns of the Optionee's death, disability, or the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (i) stating that the Corporation has the first right to purchase the Common Stock subject to the Option; (ii) designating the number of shares of the Common Stock which the Optionee or the Optionee's legal representative has a right to purchase under the Option and the option price per share under this Agreement; (iii) naming the buy-back price per share in cash which the Optionee or the Optionee's legal representative is obligated to sell the shares subject to the Option, as determined herein; and (iv) stating whether the Corporation will exercise its right to repurchase the Common Stock if the Optionee or the Optionee's legal representative exercised the Option. (b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK. The Optionee or the Optionee's legal representative may exercise the Option within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as the case may be, by giving the Corporation notice of exercise of the Option under Section 3(c) hereof. However, such notice need not be accompanied by tender of payment if the Corporation has elected to exercise its right to repurchase. Upon receipt of the notice of exercise from the Optionee or the Optionee's legal representative within the applicable time period, the Corporation shall pay the Optionee or the Optionee's legal representative for each share an amount equal to the buy-back price per share less the option price per share. If the Corporation does not exercise its right to repurchase under Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the provisions for exercising the Option under Section 3(c) shall apply. (c) COMBINING NOTICES. If the Optionee, or the Optionee's legal representative, has both shares of Common Stock and a right to exercise the Option as to additional shares of Common Stock, then the Corporation may deliver one notice to the Optionee or the Optionee's legal representative to satisfy the provisions of Section 4(b)(i) hereof and Section 5(a) hereof provided the information required to be contained in each notice under such sections are contained in the single notice. 6. Failure by the Corporation to exercise its rights to repurchase the Common Stock upon termination of service as a director of the Optionee shall not be a waiver of the Corporation's right to repurchase on a subsequent sale, transfer or other disposition of Common Stock. 7. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 8. The number and Option Price of shares of Common Stock subject to this Option may be adjusted or substituted as follows: (a) In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8(a), in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8(a) shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. (b) Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 9. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 10. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 11. If the Corporation registers any of its shares of common stock under the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4 and Section 5 hereof shall terminate on the day the registration statement becomes effective. The Common Stock issued upon exercise of the Option shall thereupon be free of any restriction imposed hereby, except for the restriction requiring transfer pursuant to the Act if such registration does not include the Common Stock, and neither the Corporation nor the Optionee shall have any further rights or obligations under Section 4 or Section 5 hereof, except the Corporation's obligation to complete payments, under Section 4(b) hereof, for the Common Stock previously repurchased. 12. This Agreement shall be interpreted according to the laws of the State of Georgia. 13. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 14. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ------------------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Harold Rothstein - -------------------------------- -------------------------------- Secretary Harold Rothstein EXHIBIT A ------------------------------------------------------- Address of Person Exercising Option ---------------------- Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: -------------------------------------------- -------------------------------------------- -------------------------------------------- D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, -------------------------------- Harold Rothstein AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted by the following resolution of the Board of Directors dated as of February 2, 1998: RESOLVED: that the Board of Directors, acting as the committee to administer the American Card Technology, Inc. 1996 Nonemployee Directors' Stock Option Plan (the "Directors' Plan"), amend the Directors' Plan as follows: (a) By deleting Paragraph 6(a) in its entirety and substituting the following in lieu thereof: "(a) an Option to purchase 2,500 shares of Common Stock will be granted to each Participant on February 2, 1998 (b) By deleting the references to "1997" in Paragraph 6(c) and substituting "1999" in lieu therefor. (c) By deleting the first sentence of Paragraph 7(a) and substituting the following in lieu therefor: "The exercise price of each Director's Option shall be at least one hundred percent (100%) of the fair market value of the shares subject to such Option on the date of grant." and the Directors' Plan is hereby so amended. EX-10.8-3 20 EXHIBIT 10.8.3 EXHIBIT 10.8.3 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and RAYMOND RONCARI (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to those directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee") has authorized the awarding of an option under the Plan to the Optionee. Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 2,500 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price"). (b) EXERCISE OF OPTION. Subject to the terms and conditions set forth herein, this Option shall be exercisable, in whole or in part, at any time and from time to time, during that period commencing on the date hereof and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which date this Option shall lapse with respect to any shares of Common Stock not theretofore purchased). (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full (i) by cash or certified or bank check, (ii) by delivery of shares of Common Stock then owned by the Optionee with a fair market value at the time of exercise equal to the Option Price, or (iii) by a combination of (i) and (ii). No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall cease to be a director of the Corporation for whatever reason other than by death or disability, the Optionee shall have the right to exercise the Option (except to the extent the Option shall have been exercised or shall have expired) until the later to occur of (i) ninety (90) days after the date of termination of service as a director, or (ii) six (6) months and ten (10) days after the Optionee's last purchase or sale of shares of Common Stock prior to the termination of Optionee's service as a director. Any portion of the Option not exercised within said period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. (f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or become disabled within the meaning of Section 22(e)(3) of the Code while still serving as a director or prior to the termination of the Option pursuant to Section 3(e) hereof, the Optionee or the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death or disability to exercise the Option, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be subject to the following terms and conditions: (a) TRANSFERABILITY. The Common Stock shall be transferable only in compliance with this Section 4 and only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. All transfers, whether or not permitted by this section, shall be subject to all of the provisions of this Agreement. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. In addition, such shares are subject to a right of repurchase by the Corporation. (b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL. The Corporation shall have a right to repurchase, at the buy-back price set forth below, any or all of the Common Stock issued upon the exercise of the Option. Such right shall arise if the Optionee ceases to serve as a director of the Corporation for any reason, if the Optionee becomes disabled, at the time of the Optionee's death, or if the Optionee elects to dispose of any such shares of Common Stock by sale, transfer or other disposition. (i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation for any reason, the Corporation shall, within thirty days immediately following the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (1) stating that the Corporation has the first right to purchase the Common Stock; (2) designating the number of shares of the Common Stock that the Optionee or the Optionee's legal representative must sell to the Corporation; (3) naming the buy-back price per share in cash at which the Optionee or the Optionee's legal representative is obligated to sell such shares, as determined herein; and (4) stating whether the Corporation elects to exercise its right to repurchase the Common Stock. (ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee elects to dispose of any of the Common Stock, the Optionee shall give to the President of the Corporation a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Corporation's principal office: (1) designating the number of shares of the Common Stock to be disposed of; (2) stating the specific manner in which the Optionee proposes to dispose of such shares if they are not purchased by the Corporation pursuant to this Agreement; (3) specifying the names and addresses of the persons to whom the Optionee desires to dispose of such shares to the extent not so purchased by the Corporation; (4) offering to sell such shares to the Corporation; (5) naming the price per share in cash at which the Optionee is willing to sell such shares to the Corporation, which price shall not be greater than the buy-back price as determined herein; and (6) designating the Optionee's mailing address. The Corporation shall have a period of thirty days after the receipt of the notice within which to accept the Optionee's offer as contained in the Optionee's notice. Acceptance shall be by notice in writing to that effect hand delivered or mailed to the Optionee prior to the expiration date of said thirty-day period to the mailing address designated in the Optionee's notice. If the Corporation declines to accept such offer, the Optionee shall have a period of forty-five (45) days within which to dispose of such shares of Common Stock. Such forty-five (45) day period shall commence on the date of receipt of the Corporation's written rejection of such offer or, if the Corporation does not reject such offer in writing, on the expiration of the thirty-day period within which the Corporation may accept such offer. (iii) BUY-BACK. The buy-back price per share for purposes of this Section 4(b) shall be: (1) the price per share offered in a bona fide offer to purchase, or (2) in the absence of a bona fide offer to purchase, the fair market value per share as determined by the Board or the Committee, which amount shall not be less than the price per share at which shares of Common Stock were last sold by the Corporation other than pursuant to the Plan. (c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are subject to repurchase as provided in Section 4(b) hereof, and the Corporation shall have exercised its right to repurchase, the Optionee or the Optionee's legal representative shall immediately deliver to the Corporation the certificates for the shares. The certificates shall be voided, and the shares of the Common Stock represented by the certificates shall be thereafter treated on the books of the Corporation as treasury shares. A person required to deliver a certificate for the Common Stock under this section shall be deemed irrevocably to have authorized the voiding of such certificate and the treatment of such Common Stock as treasury shares (regardless whether the certificates are in fact delivered) and irrevocably to have authorized the Board to terminate his status as a shareholder in respect of such shares. (d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have the right to pay the purchase price for any shares purchased pursuant to this Section 4 over a one year period, in equal quarterly installments without interest, or, in the case of a bona fide offer to purchase, in the manner and over such period of time as provided for in such offer. (e) PRICE ADJUSTMENT. In all cases the buy-back price per share shall be adjusted to reflect previous capital changes, if any, as described in Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made by a third party unrelated to the Corporation or its shareholders with the intention that such purchase be an investment in the Corporation and not with a view to distribution or resale, nor shall any offer to purchase be deemed "bona fide" if made by a competitor of the Corporation regardless of the offeror's intention. 5. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation and the Optionee has accrued but not exercised rights to purchase shares of Common Stock, the following terms and conditions shall apply. (a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the Optionee's service as a director, or upon the Optionee's death or disability giving the Optionee, or the Optionee's legal representative, rights to exercise the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall, within thirty days immediately following the date on which the Corporation learns of the Optionee's death, disability, or the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (i) stating that the Corporation has the first right to purchase the Common Stock subject to the Option; (ii) designating the number of shares of the Common Stock which the Optionee or the Optionee's legal representative has a right to purchase under the Option and the option price per share under this Agreement; (iii) naming the buy-back price per share in cash which the Optionee or the Optionee's legal representative is obligated to sell the shares subject to the Option, as determined herein; and (iv) stating whether the Corporation will exercise its right to repurchase the Common Stock if the Optionee or the Optionee's legal representative exercised the Option. (b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK. The Optionee or the Optionee's legal representative may exercise the Option within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as the case may be, by giving the Corporation notice of exercise of the Option under Section 3(c) hereof. However, such notice need not be accompanied by tender of payment if the Corporation has elected to exercise its right to repurchase. Upon receipt of the notice of exercise from the Optionee or the Optionee's legal representative within the applicable time period, the Corporation shall pay the Optionee or the Optionee's legal representative for each share an amount equal to the buy-back price per share less the option price per share. If the Corporation does not exercise its right to repurchase under Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the provisions for exercising the Option under Section 3(c) shall apply. (c) COMBINING NOTICES. If the Optionee, or the Optionee's legal representative, has both shares of Common Stock and a right to exercise the Option as to additional shares of Common Stock, then the Corporation may deliver one notice to the Optionee or the Optionee's legal representative to satisfy the provisions of Section 4(b)(i) hereof and Section 5(a) hereof provided the information required to be contained in each notice under such sections are contained in the single notice. 6. Failure by the Corporation to exercise its rights to repurchase the Common Stock upon termination of service as a director of the Optionee shall not be a waiver of the Corporation's right to repurchase on a subsequent sale, transfer or other disposition of Common Stock. 7. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 8. The number and Option Price of shares of Common Stock subject to this Option may be adjusted or substituted as follows: (a) In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8(a), in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8(a) shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. (b) Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 9. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 10. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 11. If the Corporation registers any of its shares of common stock under the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4 and Section 5 hereof shall terminate on the day the registration statement becomes effective. The Common Stock issued upon exercise of the Option shall thereupon be free of any restriction imposed hereby, except for the restriction requiring transfer pursuant to the Act if such registration does not include the Common Stock, and neither the Corporation nor the Optionee shall have any further rights or obligations under Section 4 or Section 5 hereof, except the Corporation's obligation to complete payments, under Section 4(b) hereof, for the Common Stock previously repurchased. 12. This Agreement shall be interpreted according to the laws of the State of Georgia. 13. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 14. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By:/s/ Raymond Findley, Jr. ------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Raymond Roncari - ------------------------------ ----------------------- Secretary Raymond Roncari EXHIBIT A ______________________________________________________ Address of Person Exercising Option _____________________ Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____appear personally to make payment and accept delivery _____be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ______________________________ Raymond Roncari AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted by the following resolution of the Board of Directors dated as of February 2, 1998: RESOLVED: that the Board of Directors, acting as the committee to administer the American Card Technology, Inc. 1996 Nonemployee Directors' Stock Option Plan (the "Directors' Plan"), amend the Directors' Plan as follows: (a) By deleting Paragraph 6(a) in its entirety and substituting the following in lieu thereof: "(a) an Option to purchase 2,500 shares of Common Stock will be granted to each Participant on February 2, 1998 (b) By deleting the references to "1997" in Paragraph 6(c) and substituting "1999" in lieu therefor. (c) By deleting the first sentence of Paragraph 7(a) and substituting the following in lieu therefor: "The exercise price of each Director's Option shall be at least one hundred percent (100%) of the fair market value of the shares subject to such Option on the date of grant." and the Directors' Plan is hereby so amended. EX-10.8-4 21 EXHIBIT 10.8.4 EXHIBIT 10.8.4 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and BRUCE BONADIES (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to those directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee") has authorized the awarding of an option under the Plan to the Optionee. Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 2,500 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price"). (b) EXERCISE OF OPTION. Subject to the terms and conditions set forth herein, this Option shall be exercisable, in whole or in part, at any time and from time to time, during that period commencing on the date hereof and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which date this Option shall lapse with respect to any shares of Common Stock not theretofore purchased). (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full (i) by cash or certified or bank check, (ii) by delivery of shares of Common Stock then owned by the Optionee with a fair market value at the time of exercise equal to the Option Price, or (iii) by a combination of (i) and (ii). No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall cease to be a director of the Corporation for whatever reason other than by death or disability, the Optionee shall have the right to exercise the Option (except to the extent the Option shall have been exercised or shall have expired) until the later to occur of (i) ninety (90) days after the date of termination of service as a director, or (ii) six (6) months and ten (10) days after the Optionee's last purchase or sale of shares of Common Stock prior to the termination of Optionee's service as a director. Any portion of the Option not exercised within said period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. (f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or become disabled within the meaning of Section 22(e)(3) of the Code while still serving as a director or prior to the termination of the Option pursuant to Section 3(e) hereof, the Optionee or the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death or disability to exercise the Option, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be subject to the following terms and conditions: (a) TRANSFERABILITY. The Common Stock shall be transferable only in compliance with this Section 4 and only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. All transfers, whether or not permitted by this section, shall be subject to all of the provisions of this Agreement. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. In addition, such shares are subject to a right of repurchase by the Corporation. (b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL. The Corporation shall have a right to repurchase, at the buy-back price set forth below, any or all of the Common Stock issued upon the exercise of the Option. Such right shall arise if the Optionee ceases to serve as a director of the Corporation for any reason, if the Optionee becomes disabled, at the time of the Optionee's death, or if the Optionee elects to dispose of any such shares of Common Stock by sale, transfer or other disposition. (i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation for any reason, the Corporation shall, within thirty days immediately following the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (1) stating that the Corporation has the first right to purchase the Common Stock; (2) designating the number of shares of the Common Stock that the Optionee or the Optionee's legal representative must sell to the Corporation; (3) naming the buy-back price per share in cash at which the Optionee or the Optionee's legal representative is obligated to sell such shares, as determined herein; and (4) stating whether the Corporation elects to exercise its right to repurchase the Common Stock. (ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee elects to dispose of any of the Common Stock, the Optionee shall give to the President of the Corporation a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Corporation's principal office: (1) designating the number of shares of the Common Stock to be disposed of; (2) stating the specific manner in which the Optionee proposes to dispose of such shares if they are not purchased by the Corporation pursuant to this Agreement; (3) specifying the names and addresses of the persons to whom the Optionee desires to dispose of such shares to the extent not so purchased by the Corporation; (4) offering to sell such shares to the Corporation; (5) naming the price per share in cash at which the Optionee is willing to sell such shares to the Corporation, which price shall not be greater than the buy-back price as determined herein; and (6) designating the Optionee's mailing address. The Corporation shall have a period of thirty days after the receipt of the notice within which to accept the Optionee's offer as contained in the Optionee's notice. Acceptance shall be by notice in writing to that effect hand delivered or mailed to the Optionee prior to the expiration date of said thirty-day period to the mailing address designated in the Optionee's notice. If the Corporation declines to accept such offer, the Optionee shall have a period of forty-five (45) days within which to dispose of such shares of Common Stock. Such forty-five (45) day period shall commence on the date of receipt of the Corporation's written rejection of such offer or, if the Corporation does not reject such offer in writing, on the expiration of the thirty-day period within which the Corporation may accept such offer. (iii) BUY-BACK. The buy-back price per share for purposes of this Section 4(b) shall be: (1) the price per share offered in a bona fide offer to purchase, or (2) in the absence of a bona fide offer to purchase, the fair market value per share as determined by the Board or the Committee, which amount shall not be less than the price per share at which shares of Common Stock were last sold by the Corporation other than pursuant to the Plan. (c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are subject to repurchase as provided in Section 4(b) hereof, and the Corporation shall have exercised its right to repurchase, the Optionee or the Optionee's legal representative shall immediately deliver to the Corporation the certificates for the shares. The certificates shall be voided, and the shares of the Common Stock represented by the certificates shall be thereafter treated on the books of the Corporation as treasury shares. A person required to deliver a certificate for the Common Stock under this section shall be deemed irrevocably to have authorized the voiding of such certificate and the treatment of such Common Stock as treasury shares (regardless whether the certificates are in fact delivered) and irrevocably to have authorized the Board to terminate his status as a shareholder in respect of such shares. (d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have the right to pay the purchase price for any shares purchased pursuant to this Section 4 over a one year period, in equal quarterly installments without interest, or, in the case of a bona fide offer to purchase, in the manner and over such period of time as provided for in such offer. (e) PRICE ADJUSTMENT. In all cases the buy-back price per share shall be adjusted to reflect previous capital changes, if any, as described in Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made by a third party unrelated to the Corporation or its shareholders with the intention that such purchase be an investment in the Corporation and not with a view to distribution or resale, nor shall any offer to purchase be deemed "bona fide" if made by a competitor of the Corporation regardless of the offeror's intention. 5. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation and the Optionee has accrued but not exercised rights to purchase shares of Common Stock, the following terms and conditions shall apply. (a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the Optionee's service as a director, or upon the Optionee's death or disability giving the Optionee, or the Optionee's legal representative, rights to exercise the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall, within thirty days immediately following the date on which the Corporation learns of the Optionee's death, disability, or the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (i) stating that the Corporation has the first right to purchase the Common Stock subject to the Option; (ii) designating the number of shares of the Common Stock which the Optionee or the Optionee's legal representative has a right to purchase under the Option and the option price per share under this Agreement; (iii) naming the buy-back price per share in cash which the Optionee or the Optionee's legal representative is obligated to sell the shares subject to the Option, as determined herein; and (iv) stating whether the Corporation will exercise its right to repurchase the Common Stock if the Optionee or the Optionee's legal representative exercised the Option. (b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK. The Optionee or the Optionee's legal representative may exercise the Option within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as the case may be, by giving the Corporation notice of exercise of the Option under Section 3(c) hereof. However, such notice need not be accompanied by tender of payment if the Corporation has elected to exercise its right to repurchase. Upon receipt of the notice of exercise from the Optionee or the Optionee's legal representative within the applicable time period, the Corporation shall pay the Optionee or the Optionee's legal representative for each share an amount equal to the buy-back price per share less the option price per share. If the Corporation does not exercise its right to repurchase under Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the provisions for exercising the Option under Section 3(c) shall apply. (c) COMBINING NOTICES. If the Optionee, or the Optionee's legal representative, has both shares of Common Stock and a right to exercise the Option as to additional shares of Common Stock, then the Corporation may deliver one notice to the Optionee or the Optionee's legal representative to satisfy the provisions of Section 4(b)(i) hereof and Section 5(a) hereof provided the information required to be contained in each notice under such sections are contained in the single notice. 6. Failure by the Corporation to exercise its rights to repurchase the Common Stock upon termination of service as a director of the Optionee shall not be a waiver of the Corporation's right to repurchase on a subsequent sale, transfer or other disposition of Common Stock. 7. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 8. The number and Option Price of shares of Common Stock subject to this Option may be adjusted or substituted as follows: (a) In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8(a), in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8(a) shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. (b) Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 9. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 10. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 11. If the Corporation registers any of its shares of common stock under the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4 and Section 5 hereof shall terminate on the day the registration statement becomes effective. The Common Stock issued upon exercise of the Option shall thereupon be free of any restriction imposed hereby, except for the restriction requiring transfer pursuant to the Act if such registration does not include the Common Stock, and neither the Corporation nor the Optionee shall have any further rights or obligations under Section 4 or Section 5 hereof, except the Corporation's obligation to complete payments, under Section 4(b) hereof, for the Common Stock previously repurchased. 12. This Agreement shall be interpreted according to the laws of the State of Georgia. 13. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 14. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. --------------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Bruce Bonadies - ------------------------------- --------------------------------- Secretary Bruce Bonadies EXHIBIT A ______________________________________________________ Address of Person Exercising Option _____________________ Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ______________________________ Bruce Bonadies AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted by the following resolution of the Board of Directors dated as of February 2, 1998: RESOLVED: that the Board of Directors, acting as the committee to administer the American Card Technology, Inc. 1996 Nonemployee Directors' Stock Option Plan (the "Directors' Plan"), amend the Directors' Plan as follows: (a) By deleting Paragraph 6(a) in its entirety and substituting the following in lieu thereof: "(a) an Option to purchase 2,500 shares of Common Stock will be granted to each Participant on February 2, 1998 (b) By deleting the references to "1997" in Paragraph 6(c) and substituting "1999" in lieu therefor. (c) By deleting the first sentence of Paragraph 7(a) and substituting the following in lieu therefor: "The exercise price of each Director's Option shall be at least one hundred percent (100%) of the fair market value of the shares subject to such Option on the date of grant." and the Directors' Plan is hereby so amended. EX-10.8-5 22 EXHIBIT 10.8.5 EXHIBIT 10.8.5 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and GORDON WALKER (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to those directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee") has authorized the awarding of an option under the Plan to the Optionee. Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 2,500 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price"). (b) EXERCISE OF OPTION. Subject to the terms and conditions set forth herein, this Option shall be exercisable, in whole or in part, at any time and from time to time, during that period commencing on the date hereof and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which date this Option shall lapse with respect to any shares of Common Stock not theretofore purchased). (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full (i) by cash or certified or bank check, (ii) by delivery of shares of Common Stock then owned by the Optionee with a fair market value at the time of exercise equal to the Option Price, or (iii) by a combination of (i) and (ii). No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall cease to be a director of the Corporation for whatever reason other than by death or disability, the Optionee shall have the right to exercise the Option (except to the extent the Option shall have been exercised or shall have expired) until the later to occur of (i) ninety (90) days after the date of termination of service as a director, or (ii) six (6) months and ten (10) days after the Optionee's last purchase or sale of shares of Common Stock prior to the termination of Optionee's service as a director. Any portion of the Option not exercised within said period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. (f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or become disabled within the meaning of Section 22(e)(3) of the Code while still serving as a director or prior to the termination of the Option pursuant to Section 3(e) hereof, the Optionee or the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death or disability to exercise the Option, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. Shares of Common Stock issued upon such exercise shall be subject to the Corporation's right to repurchase the Common Stock as provided in Section 5 hereof. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be subject to the following terms and conditions: (a) TRANSFERABILITY. The Common Stock shall be transferable only in compliance with this Section 4 and only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. All transfers, whether or not permitted by this section, shall be subject to all of the provisions of this Agreement. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. In addition, such shares are subject to a right of repurchase by the Corporation. (b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL. The Corporation shall have a right to repurchase, at the buy-back price set forth below, any or all of the Common Stock issued upon the exercise of the Option. Such right shall arise if the Optionee ceases to serve as a director of the Corporation for any reason, if the Optionee becomes disabled, at the time of the Optionee's death, or if the Optionee elects to dispose of any such shares of Common Stock by sale, transfer or other disposition. (i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation for any reason, the Corporation shall, within thirty days immediately following the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (1) stating that the Corporation has the first right to purchase the Common Stock; (2) designating the number of shares of the Common Stock that the Optionee or the Optionee's legal representative must sell to the Corporation; (3) naming the buy-back price per share in cash at which the Optionee or the Optionee's legal representative is obligated to sell such shares, as determined herein; and (4) stating whether the Corporation elects to exercise its right to repurchase the Common Stock. (ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee elects to dispose of any of the Common Stock, the Optionee shall give to the President of the Corporation a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Corporation's principal office: (1) designating the number of shares of the Common Stock to be disposed of; (2) stating the specific manner in which the Optionee proposes to dispose of such shares if they are not purchased by the Corporation pursuant to this Agreement; (3) specifying the names and addresses of the persons to whom the Optionee desires to dispose of such shares to the extent not so purchased by the Corporation; (4) offering to sell such shares to the Corporation; (5) naming the price per share in cash at which the Optionee is willing to sell such shares to the Corporation, which price shall not be greater than the buy-back price as determined herein; and (6) designating the Optionee's mailing address. The Corporation shall have a period of thirty days after the receipt of the notice within which to accept the Optionee's offer as contained in the Optionee's notice. Acceptance shall be by notice in writing to that effect hand delivered or mailed to the Optionee prior to the expiration date of said thirty-day period to the mailing address designated in the Optionee's notice. If the Corporation declines to accept such offer, the Optionee shall have a period of forty-five (45) days within which to dispose of such shares of Common Stock. Such forty-five (45) day period shall commence on the date of receipt of the Corporation's written rejection of such offer or, if the Corporation does not reject such offer in writing, on the expiration of the thirty-day period within which the Corporation may accept such offer. (iii) BUY-BACK. The buy-back price per share for purposes of this Section 4(b) shall be: (1) the price per share offered in a bona fide offer to purchase, or (2) in the absence of a bona fide offer to purchase, the fair market value per share as determined by the Board or the Committee, which amount shall not be less than the price per share at which shares of Common Stock were last sold by the Corporation other than pursuant to the Plan. (c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are subject to repurchase as provided in Section 4(b) hereof, and the Corporation shall have exercised its right to repurchase, the Optionee or the Optionee's legal representative shall immediately deliver to the Corporation the certificates for the shares. The certificates shall be voided, and the shares of the Common Stock represented by the certificates shall be thereafter treated on the books of the Corporation as treasury shares. A person required to deliver a certificate for the Common Stock under this section shall be deemed irrevocably to have authorized the voiding of such certificate and the treatment of such Common Stock as treasury shares (regardless whether the certificates are in fact delivered) and irrevocably to have authorized the Board to terminate his status as a shareholder in respect of such shares. (d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have the right to pay the purchase price for any shares purchased pursuant to this Section 4 over a one year period, in equal quarterly installments without interest, or, in the case of a bona fide offer to purchase, in the manner and over such period of time as provided for in such offer. (e) PRICE ADJUSTMENT. In all cases the buy-back price per share shall be adjusted to reflect previous capital changes, if any, as described in Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made by a third party unrelated to the Corporation or its shareholders with the intention that such purchase be an investment in the Corporation and not with a view to distribution or resale, nor shall any offer to purchase be deemed "bona fide" if made by a competitor of the Corporation regardless of the offeror's intention. 5. In the event the Optionee dies, becomes disabled, or ceases to serve as a director of the Corporation and the Optionee has accrued but not exercised rights to purchase shares of Common Stock, the following terms and conditions shall apply. (a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the Optionee's service as a director, or upon the Optionee's death or disability giving the Optionee, or the Optionee's legal representative, rights to exercise the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall, within thirty days immediately following the date on which the Corporation learns of the Optionee's death, disability, or the date on which the Optionee's service as a director terminates, give to the Optionee or the Optionee's legal representative, as the case may be, a signed notice in writing, either delivered by hand, or mailed by registered or certified mail, to the Optionee's last known address: (i) stating that the Corporation has the first right to purchase the Common Stock subject to the Option; (ii) designating the number of shares of the Common Stock which the Optionee or the Optionee's legal representative has a right to purchase under the Option and the option price per share under this Agreement; (iii) naming the buy-back price per share in cash which the Optionee or the Optionee's legal representative is obligated to sell the shares subject to the Option, as determined herein; and (iv) stating whether the Corporation will exercise its right to repurchase the Common Stock if the Optionee or the Optionee's legal representative exercised the Option. (b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK. The Optionee or the Optionee's legal representative may exercise the Option within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as the case may be, by giving the Corporation notice of exercise of the Option under Section 3(c) hereof. However, such notice need not be accompanied by tender of payment if the Corporation has elected to exercise its right to repurchase. Upon receipt of the notice of exercise from the Optionee or the Optionee's legal representative within the applicable time period, the Corporation shall pay the Optionee or the Optionee's legal representative for each share an amount equal to the buy-back price per share less the option price per share. If the Corporation does not exercise its right to repurchase under Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the provisions for exercising the Option under Section 3(c) shall apply. (c) COMBINING NOTICES. If the Optionee, or the Optionee's legal representative, has both shares of Common Stock and a right to exercise the Option as to additional shares of Common Stock, then the Corporation may deliver one notice to the Optionee or the Optionee's legal representative to satisfy the provisions of Section 4(b)(i) hereof and Section 5(a) hereof provided the information required to be contained in each notice under such sections are contained in the single notice. 6. Failure by the Corporation to exercise its rights to repurchase the Common Stock upon termination of service as a director of the Optionee shall not be a waiver of the Corporation's right to repurchase on a subsequent sale, transfer or other disposition of Common Stock. 7. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 8. The number and Option Price of shares of Common Stock subject to this Option may be adjusted or substituted as follows: (a) In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8(a), in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8(a) shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. (b) Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 9. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 10. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 11. If the Corporation registers any of its shares of common stock under the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4 and Section 5 hereof shall terminate on the day the registration statement becomes effective. The Common Stock issued upon exercise of the Option shall thereupon be free of any restriction imposed hereby, except for the restriction requiring transfer pursuant to the Act if such registration does not include the Common Stock, and neither the Corporation nor the Optionee shall have any further rights or obligations under Section 4 or Section 5 hereof, except the Corporation's obligation to complete payments, under Section 4(b) hereof, for the Common Stock previously repurchased. 12. This Agreement shall be interpreted according to the laws of the State of Georgia. 13. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 14. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ---------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Gordon Walker - ----------------------------- ----------------------------- Secretary Gordon Walker EXHIBIT A ______________________________________________________ Address of Person Exercising Option _____________________ Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ______________________________ Gordon Walker AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted by the following resolution of the Board of Directors dated as of February 2, 1998: RESOLVED: that the Board of Directors, acting as the committee to administer the American Card Technology, Inc. 1996 Nonemployee Directors' Stock Option Plan (the "Directors' Plan"), amend the Directors' Plan as follows: (a) By deleting Paragraph 6(a) in its entirety and substituting the following in lieu thereof: "(a) an Option to purchase 2,500 shares of Common Stock will be granted to each Participant on February 2, 1998 (b) By deleting the references to "1997" in Paragraph 6(c) and substituting "1999" in lieu therefor. (c) By deleting the first sentence of Paragraph 7(a) and substituting the following in lieu therefor: "The exercise price of each Director's Option shall be at least one hundred percent (100%) of the fair market value of the shares subject to such Option on the date of grant." and the Directors' Plan is hereby so amended. EX-10.8-6 23 EXHIBIT 10.8.6 EXHIBIT 10.8.6 AMERICAN CARD TECHNOLOGIES, INC. 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN (1) ESTABLISHMENT. There is hereby established the American Card Technologies, Inc. 1996 Nonemployee Directors' Stock Option Plan (the "Directors' Plan") pursuant to which certain directors of American Card Technologies, Inc. (the "Corporation") may be granted options to purchase shares of common stock, par value $.001 per share ("Common Stock"), and thereby share in the future growth of the business. The purpose of the Directors' Plan is to attract and retain the services of non-employee members of the Board of Directors and to provide them with increased motivation and incentive to exert their best efforts on behalf of the Corporation by enlarging their personal stake in the Corporation. (2) STATUS OF OPTIONS. The options to be issued pursuant to this Directors' Plan ("Options") shall not constitute incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). (3) ELIGIBILITY. All directors of the Corporation who are not employees of the Corporation or any of its subsidiaries (collectively, the "Participants") shall be eligible to be granted Options under this Directors' Plan. (4) NUMBER OF SHARES COVERED BY OPTIONS; NO PREEMPTIVE RIGHTS. The total number of shares which may be issued and sold pursuant to Options granted under this Directors' Plan shall be 30,000 shares of Common Stock (or the number and kind of shares of stock or other securities which, in accordance with paragraph 8 of this Directors' Plan, shall be substituted for such shares of Common Stock or to which said shares shall be adjusted; hereinafter, all references to shares of Common Stock are deemed to be references to said shares or shares so adjusted). The issuance of shares upon exercise of an Option shall be free from any preemptive or preferential right of subscription or purchase on the part of any stockholder. If any outstanding Option granted under this Directors' Plan is terminated for any reason, the shares of Common Stock subject to the unexercised portion of the Option will again be available for Options issued under this Directors' Plan. (5) ADMINISTRATION (a) The Directors' Plan shall be administered by a committee consisting of from two (2) to five (5) individuals who are members of the Board. The Committee shall be appointed by the Board, which may at any time, and from time to time, remove any member of the Committee, with or without cause, appoint additional members to the Committee and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum and all determinations of the committee shall be made by a majority of such quorum. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. A Participant may receive Options under this Directors' Plan whether or not such Participant also serves as a member of the Committee. (b) Options shall be automatically granted to Participants in accordance with paragraph 6 hereof and shall be issued upon the terms and conditions set forth in paragraph 7 hereof. Accordingly, the persons to whom Options shall be granted, the number of shares subject thereto, and the material terms and conditions governing the Options, will not be subject to the discretion of the Committee. However, if any questions of interpretation of this Directors' Plan or of any Options issued hereunder shall arise, they shall be determined by the Committee and such determination shall be final and binding upon all persons having an interest in the Directors' Plan. (6) NON-DISCRETIONARY GRANTS. Subject to approval of the Plan by the stockholders of the Corporation, Options shall be automatically granted to Participants as follows: (a) an Option to purchase 2,500 shares of Common Stock will be granted to each Participant on the effective date of the Corporation's registration statement on Form SB-2 relating to an initial public offering of the Company's Common Stock (the "IPO"); (b) an Option to purchase 2,500 shares of Common Stock will be granted to each Participant who was not granted Options pursuant to paragraph 6(a) herein upon their initial election or appointment as a director of the Corporation; and (c) an additional Option to purchase 2,500 shares of Common Stock will be granted to each Participant at each Annual Meeting of the Board immediately following the Annual Meeting of Stockholders in each year, commencing with the first Annual Meeting following the consummation of the IPO, during the term of this Directors' Plan. If the number of shares remaining in the Directors' Plan on any such date is insufficient to grant each Participant an Option to purchase 2,500 shares of Common Stock, each Participant will automatically receive an Option to purchase a number of shares of Common Stock to be determined by dividing the total number of shares remaining in this Directors' Plan by the number of Participants at that time and, if necessary, rounding down to the nearest whole number of shares. (7) TERMS AND CONDITIONS OF OPTIONS; STOCK OPTION AGREEMENTS. Each Option granted pursuant to this Directors' Plan shall be evidenced by a written agreement between the participant and the Corporation which shall contain the following terms: (a) OPTION PRICE. The exercise price of each Director's Option shall be one hundred percent (100%) of the fair market value of the shares subject to such Option on the date of grant. For purposes of this paragraph, the fair market value of the shares of Common Stock on any day shall be (i) in the event the Common Stock is not publicly traded, the fair market value on such day as determined in good faith by the Committee or (ii) in the event the Common Stock is publicly traded, the last sale price of a share of Common Stock as reported by the principal quotation service on which the Common Stock is listed, if available, or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices of a share of Common Stock as reported by such principal quotation service, or, if there is no such report by such quotation service for such day, such fair market value shall be the average of (i) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next preceding such day for which there was a report and (ii) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next succeeding such day for which there was a report, or as otherwise determined by the Committee in its discretion pursuant to any reasonable method contemplated by Section 422 of the Code and any regulations issued pursuant to that Section. (b) MEDIUM AND TIME OF PAYMENT. The exercise price of the shares to be purchased (2) pursuant to an Option shall be paid (i) in full in cash or by check, (ii) by delivery of shares of Common Stock of the Corporation then owned by the Participant with a fair market value at the time of the exercise of the Option equal to the exercise price, or (iii) by a combination of (i) and (ii). (c) TERM AND EXERCISE OF OPTIONS. The term of each Option shall commence on the date it is granted and, unless sooner terminated as set forth herein, shall expire ten (10) years after its date of grant unless extended as set forth herein. In the event a Participant shall cease to be a director of the Corporation for any reason other than death or disability, the Option shall terminate on the earlier to occur of (i) the later of ninety (90) days after the date of termination of service or six (6) months and ten (10) days after such Participant's last purchase or sale of shares of Common Stock prior to his termination of service as a director, or (ii) the expiration date of the Option. If the Participant shall die or become disabled within the meaning of Section 22(e)(3) of the Code while still serving as a director or prior to the termination of the Option in accordance with the preceding sentence, the Option shall terminate on the first anniversary of the Participant's death or disability, as the case may be. In the event of the Participant's death, the Option may be exercised by the person or persons entitled to do so under the Participant's will or, if the Participant shall fail to make testamentary disposition of the Option, or shall die intestate, by the Participant's legal representative. (d) TRANSFERABILITY. Each Option shall be non-transferable by the Participant except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order, and shall be exercisable only by the Participant. (e) INVESTMENT PURPOSE. Each Participant shall represent and warrant that he is acquiring the Option and, in the event the Option is exercised, the shares of Common Stock issuable thereunder, for investment, for his own account and not with a view to the distribution thereof, and that he will not offer or sell the shares unless a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities law is in effect, or unless counsel satisfactory to the Corporation renders a reasoned opinion that the proposed sale is exempt from the registration requirements of the Securities Act and such state securities act. The Corporation shall not be obligated to issue or deliver any shares upon exercise of an Option if to do so would violate the Securities Act or any state securities law, and the Corporation shall have no obligation to file any registration statement or take any other action required or permitted by any such law. (8) ADJUSTMENT OF NUMBER OF SHARES (a) In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to any Option granted hereunder, and the number of shares reserved for issuance pursuant to this Directors' Plan but not yet covered by an Option, shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to any such Option and for each share of Common Stock reserved for issuance pursuant to this Directors' Plan but not yet covered by an Option, the number and kind of shares (3) of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Company shall sell all or substantially all of its assets, the Company shall use reasonable efforts to effect some other adjustment of each then outstanding Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this paragraph 8(a), in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares theretofore reserved for issuance pursuant to the Directors' Plan but not yet covered by an Option and of the shares then subject to an Option or Options, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Directors' Plan and of each stock option agreement. In the case of any such substitution or adjustment as provided for in this paragraph, the option price in each stock option agreement for each share covered thereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this paragraph 8. No adjustment or substitution provided for in this paragraph shall require the Corporation, in any stock option agreement, to sell a fractional share; and the total substitution or adjustment with respect to each stock option agreement shall be limited accordingly. (b) In the event that the Corporation shall effect a distribution, other than a normal and customary cash dividend, upon shares of Common Stock, the Committee may, in order to prevent significant diminution in the value of options as a result of any such distribution, take such measures as it deems fair and equitable, including, without limitation, the adjustment of the Option Price per share for Shares not issued and sold hereunder prior to the record date for said distribution. (9) EFFECTIVE DATE AND TERM OF PLAN. This Directors' Plan shall become effective as of the date of its adoption by the stockholders of the Corporation. Except to the extent necessary to govern outstanding Options issued, this Directors' Plan shall terminate on, and no additional Options shall be granted after, the tenth anniversary of its effective date unless earlier terminated by the Board of Directors in accordance with paragraph 10 hereof. (10) AMENDMENT OF THE PLAN. This Directors' Plan may be terminated or amended from time to time by vote of the Committee; PROVIDED, HOWEVER, that no such termination or amendment shall materially adversely affect or impair any then outstanding Directors' Option without the consent of the Participant. The approval of the Corporation's stockholders is required in respect of any amendment which would (i) increase the maximum number of shares subject to this Directors' Plan; or (ii) change the designation of the Participants eligible to receive Options under this Directors' Plan. (4) EX-10.8-7 24 EXHIBIT 10.8.7 EXHIBIT 10.8.7 AMERICAN CARD TECHNOLOGIES, INC. 1996 STOCK OPTION PLAN (1) ESTABLISHMENT. There is hereby established the American Card Technologies, Inc. 1996 Stock Option Plan (the "Plan"), pursuant to which employees (including officers), directors, consultants, and other persons who perform substantial services for or on behalf of American Card Technologies, Inc. (the "Company"), any subsidiaries of the Company and certain other entities may be granted options to purchase shares of common stock of the Company, par value $.001 per share ("Common Stock"), and thereby share in the future growth of the business. The subsidiaries of the Company included in this Plan (the "Subsidiaries") shall be any subsidiary of the Company as defined in Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"). (2) STATUS OF OPTIONS. The options which may be granted pursuant to this Plan will constitute either incentive stock options within the meaning of Section 422 of the Code ("Incentive Stock Options") or options which are not Incentive Stock Options ("Non-Incentive Stock Options"). Incentive Stock Options and Non-Incentive Stock Options shall be collectively referred to herein as "Options." (3) ELIGIBILITY. All employees (including officers, whether or not they are members of the Board of Directors) of the Company or any of its Subsidiaries who are employed at the time of the adoption of this Plan or thereafter, any directors of the Company, and any consultants and other persons who perform substantial services for or on behalf of the Company, any of its Subsidiaries or affiliates, or any entity in which the Company has an interest (collectively, the "Grantees") shall be eligible to be granted Non-Incentive Stock Options under this Plan. All employees (including officers, whether or not they are members of the Board of Directors) of the Company or any of its Subsidiaries who are employed at the time of adoption of this Plan or thereafter shall be eligible to be granted Incentive Stock Options under this Plan. (4) NUMBER OF SHARES COVERED BY OPTIONS; NO PREEMPTIVE RIGHTS. The total number of shares which may be issued and sold pursuant to Options granted under this Plan shall be 270,000 shares of Common Stock (or the number and kind of shares of stock or other securities which, in accordance with paragraph 9 of this Plan, shall be substituted for such shares of Common Stock or to which said shares shall be adjusted; hereinafter, all references to shares of Common Stock are deemed to be references to said shares or shares so adjusted). The issuance of shares upon exercise of an Option shall be free from any preemptive or preferential right of subscription or purchase on the part of any shareholder. If any outstanding Option granted under this Plan expires or is terminated, for any reason, the shares of Common Stock subject to the unexercised portion of the Option will again be available for Options issued under this Plan. (5) ADMINISTRATION (a) This Plan shall be administered by the committee (the "Committee") referred to in paragraph (b) of this paragraph 5. Subject to the express provisions of this Plan, the Committee shall have complete authority, in its discretion, to interpret this Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements(which need not be identical), to determine the Grantees to whom, and the times and the prices at which, Options shall be granted, the option periods, the number of shares of the Common Stock to be subject to each Option and whether each Option shall be an Incentive Stock Option or a Non-Incentive Stock Option, and to make all other determinations necessary or advisable for the administration of the Plan. Each Option shall be clearly identified at the time of grant as to its status. In making such determinations, the Committee may take into account the nature of the services rendered by the respective Grantees, their present and potential contributions to the success of the Company, and such other factors as the Committee, in its discretion, shall deem relevant. Nothing contained in this Plan shall be deemed to give any Grantee any right to be granted an Option to purchase shares of Common Stock except to the extent and upon such terms and conditions as may be determined by the Committee. The Committee's determination on all of the matters referred to in this paragraph 5 shall be conclusive. (b) The Committee shall consist of from two (2) to five (5) individuals who are members of the Board of Directors. Each member of the Committee shall be a person who, at the time of his appointment to, and at all times during his service as a member of, the Committee is a "Non-Employee Director" as that term is then defined under Regulation 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any successor statute or regulation regarding the same subject matter. The Committee shall be appointed by the Board of Directors, which may at any time, and from time to time, remove any member of the Committee, with or without cause, appoint additional members to the Committee, and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum and all determinations of the Committee shall be made by a majority of such quorum. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. (c) The Committee may at its election provide in any option agreement covering the grant of Options under this Plan that, upon the exercise of such Options, the Company will loan to the holder thereof such amount as shall equal the purchase price of the shares of Common Stock issuable upon such exercise, such loan to be on terms and conditions deemed appropriate by the Committee. (d) Notwithstanding any provision hereof to the contrary, the Committee shall have sole and exclusive authority with respect to the grant of Options to directors. (6) TERMS OF INCENTIVE STOCK OPTIONS. Each Incentive Stock Option granted under this Plan shall be evidenced by an Incentive Stock Option Agreement which shall be executed by the Company and by the person to whom such Incentive Stock Option is granted, and shall be subject to the following terms and conditions: (a) The price at which shares of Common Stock covered by each Incentive Stock Option may be purchased pursuant thereto shall be determined in each case on the date of grant by the Committee, but shall be an amount not less than the par value of such shares and not less than the fair market value of such shares on the date of grant. For purposes of this paragraph and paragraph 7, the fair market value of shares of Common Stock on any day shall be (i) in the event the Common Stock is not publicly traded, the fair market value on such day as determined in good faith by the Committee or (ii) in the event the Common Stock is publicly traded, the last sale price of a share of Common Stock as reported by the principal quotation service on which the Common Stock is listed, if available, or, if last sale prices (2) are not reported with respect to the Common Stock, the mean of the high bid and low asked prices of a shares of Common Stock as reported by such principal quotation service, or, if there is no such report by such quotation service for such day, such fair market value shall be the average of (i) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next preceding such day for which there was a report and (ii) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next succeeding such day for which there was a report, or as otherwise determined by the Committee in its discretion pursuant to any reasonable method contemplated by Section 422 of the Code and any regulations issued pursuant to that Section. (b) The option price of the shares to be purchased pursuant to each Incentive Stock Option shall be paid in full in cash, or by delivery (i.e., surrender) of shares of Common Stock of the Company then owned by the Grantee, at the time of the exercise of the Incentive Stock Option. Shares of Common Stock so delivered will be valued on the day of delivery for the purpose of determining the extent to which the option price has been paid thereby, in the same manner as provided for the purchase price of Incentive Stock Options as set forth in paragraph (a) of this paragraph 6, or as otherwise determined by the Committee, in its discretion, pursuant to any reasonable method contemplated by Section 422 of the Code and any regulations issued pursuant to that Section. (c) Each Incentive Stock Option Agreement shall provide that such Incentive Stock Option may be exercised by the Grantee, in such parts and at such times as may be specified in such Agreement, within a period not exceeding ten years after the date on which the Incentive Stock Option is granted (hereinafter called the "Incentive Stock Option Period") and, in any event, only during the continuance of the employee's employment by the Company or any of its Subsidiaries or during the period of three months after the termination of such employment to the extent that the right to exercise such Incentive Stock Option had accrued at the date of such termination; PROVIDED, HOWEVER, that if Incentive Stock Options as to 100 or more shares are held by a Grantee, then such Incentive Stock Options may not be exercised for less than 100 shares at any one time, and if Incentive Stock Options for less than 100 shares are held by a Grantee, then Incentive Stock Options for all such shares must be exercised at one time; and PROVIDED, FURTHER, that if the Grantee, while still employed by the Company or any of its Subsidiaries, shall die within the Incentive Stock Option Period, the Incentive Stock Option may be exercised, to the extent specified in the Incentive Stock Option Agreement, and as herein provided, but only prior to the first to occur of: (i) the expiration of the period of one year after the date of the Grantee's death, or (ii) the expiration of the Incentive Stock Option Period, by the person or persons entitled to do so under the Grantee's will, or, if the Grantee shall fail to make testamentary disposition of said Incentive Stock Option, or shall die intestate, by the Grantee's legal representative or representatives. (d) Each Incentive Stock Option granted under this Plan shall by its terms be non-transferable by the Grantee except by will or by the laws of descent and distribution, and each (3) Incentive Stock Option shall by its terms be exercisable during the Grantee's lifetime only by him. (e) Notwithstanding the foregoing, if an Incentive Stock Option is granted to a person at any time when such person owns, within the meaning of Section 424(d) of the Code, more than 10% of the total combined voting power of all classes or stock of the employer corporation (or a parent or subsidiary of such corporation within the meaning of Section 424 of the Code), the price at which each share of Common Stock covered by such Incentive Stock Option may be purchased pursuant to such Incentive Stock Option shall not be less than 110% of the fair market value (determined as in paragraph (a) of this paragraph 6) of the shares of Common Stock at the time the Incentive Stock Option is granted, and such Incentive Stock Option must be exercised within a period specified in the Incentive Stock Option Agreement which does not exceed five years after the date on which such Incentive Stock Option is granted. (f) The Incentive Stock Option Agreement entered into pursuant hereto may contain such other terms, provisions, and conditions not inconsistent herewith as shall be determined by the Committee, including, without limitation, provisions (i) requiring the giving of satisfactory assurances by the Grantee that the shares are purchased for investment and not with a view to resale in connection with a distribution of such shares, and will not be transferred in violation of applicable securities laws, (ii) restricting the transferability of such shares during a specified period, and (iii) requiring the resale of such shares to the Company at the option price if the employment of the employee terminates prior to a specified time. In addition, the Committee, in its discretion, may afford to holders of Incentive Stock Options granted under this Plan the right to require the Company to cause to be registered under the Securities Act of 1933, as amended, for public sale by the holders thereof, shares of Common Stock subject to such Incentive Stock Options upon such terms and subject to such conditions as the Committee may determine to be appropriate. (g) In the discretion of the Committee, a single Stock Option Agreement may include both Incentive Stock Options and Non-Incentive Stock Options, or those Options may be included in separate stock option agreements. (7) TERMS OF NON-INCENTIVE STOCK OPTIONS. Each Non-Incentive Stock Option granted under this Plan shall be evidenced by a Non-Incentive Stock Option Agreement which shall be executed by the Company and by the person to whom such Non-Incentive Stock Option is granted, and shall be subject to the following terms and conditions: (a) The price at which shares of Common Stock covered by each Non-Incentive Stock Option may be purchased pursuant thereto shall be an amount not less than the par value of such shares and not less than the fair market value of such shares on the date of grant. (b) Each Non-Incentive Stock Option Agreement shall provide that such Non-Incentive Stock Option may be exercised by the Grantee, in such parts and at such times as may be specified in such Agreement, within a period of up to and including ten years after the date on which the Non-Incentive Stock Option is granted. (c) Each Non-Incentive Stock Option granted under this Plan shall by its terms be non-transferable by the optionee except by will or by the laws of descent and distribution, and each (4) Non-Incentive Stock Option shall by its terms be exercisable during the Grantee's lifetime only by him. (d) The Non-Incentive Stock Option Agreement entered into pursuant hereto may contain such other terms, provisions, and conditions not inconsistent herewith as shall be determined by the Committee, in its sole discretion, including, without limitation, the terms, provisions, and conditions set forth in paragraph 6(f) with respect to Incentive Stock Option Agreements. (8) LIMIT ON OPTION AMOUNT. Notwithstanding any provision contained herein, the aggregate fair market value (determined under paragraph 6(a) as of the time Incentive Stock Options are granted) of the shares of Common Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all stock option plans of the employee's employer corporation and its parent and subsidiary corporation within the meaning of Section 424 of the Code) shall not exceed $100,000. If an Incentive Stock Option exceeds this $100,000 limitation, the portion of such Option which is exercisable for shares of Common Stock in excess of the $100,000 limitation shall be treated as a Non-Incentive Stock Option. The limit in this paragraph shall not apply to Options which are designated as Non-Incentive Stock Options, and, except as otherwise provided herein, there shall be no limit on the amount of such Options which may be first exercisable in any year. (9) (a) ADJUSTMENT OF NUMBER OF SHARES. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to any Option granted hereunder, and the number of shares reserved for issuance pursuant to this Plan but not yet covered by an Option, shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such share had been outstanding on the date fixed for determining the shareholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to any such Option and for each share of Common Stock reserved for issuance pursuant to the Plan but not yet covered by an Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Company shall sell all or substantially all of its assets, the Company shall use reasonable efforts to effect some other adjustment of each then outstanding Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this paragraph 9(a), in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares theretofore reserved for issuance pursuant to the Plan but not yet covered by an Option and of the shares then subject to an Option or Options, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Plan and of each stock option agreement. Notwithstanding the foregoing, if any adjustment in the number of shares which may be issued and sold pursuant to Options is required by the Code or regulations issued pursuant thereto to be approved by the shareholders in order to enable the Company to issue Incentive Stock Options pursuant to this Plan, then no such adjustment shall be made (5) without the approval of the shareholders. In the case of any such substitution or adjustment as provided for in this paragraph 9(a), the option price in each stock option agreement for each share covered thereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this paragraph 9. No adjustment or substitution provided for in this paragraph 9 shall require the Company, in any stock option agreement, to sell a fractional share, and the total substitution or adjustment with respect to each stock option agreement shall be limited accordingly. Notwithstanding the foregoing, in the case of Incentive Stock Options, if the effect of the adjustments or substitution is to cause the Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option or to cause a modification, extension, or renewal of such Incentive Stock Option within the meaning of Section 424 of the Code, the Board of Directors shall use reasonable efforts to effect such other adjustment of each then outstanding option as the Board of Directors, in its sole discretion, shall deem equitable. (b) In the event that the Company shall effect a distribution, other than a normal and customary cash dividend, upon shares of Common Stock, the Committee may, in order to prevent significant diminution in the value of Options as a result of any such distribution, take such measures as it deems fair and equitable, including, without limitation, the adjustment of the option price per share for shares not issued and sold hereunder prior to the record date for said distribution. (10) AMENDMENTS. This Plan may be terminated or amended from time to time by vote of the Committee; PROVIDED, HOWEVER, that no such termination or amendment shall materially adversely affect or impair any then outstanding Option without the consent of the Grantee thereof and no amendment which shall (i) change the total number of shares which may be issued and sold pursuant to Options granted under this Plan, or (ii) change the designation or class of employees or other persons eligible to receive Incentive Options or Non-Incentive Options, shall be effective without the approval of the shareholders. Notwithstanding the foregoing, the Plan may be amended by the Committee to incorporate any amendments made to the Code or regulations promulgated thereunder which the Committee deems to be necessary or desirable to preserve (i) incentive stock option status for outstanding Incentive Stock Options and the ability to issue Incentive Stock Options pursuant to this Plan, and (ii) the deductibility by the Company pursuant to Section 162(m) of the Code of amounts taxed to Plan participants as ordinary compensation income. (11) EFFECTIVE DATE AND TERMINATION. This Plan shall become effective on the date its adoption is approved by the shareholders of the Company. Except to the extent necessary to govern outstanding Options, this Plan shall terminate on, and no additional Options shall be granted after, ten years from the date the Plan is adopted, or ten years from the date the Plan is approved by the shareholders, whichever is earlier. (6) EX-10.8-8 25 EXHIBIT 10.8.8 EXHIBIT 10.8.8 DIRECTOR LOAN AGREEMENT THIS AGREEMENT made as of the 12th day of February, 1998, by and between HAROLD ROTHSTEIN, of Boca Raton, Florida ("Lender"), and AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Company is this day closing on the sale of units of notes (the "Bridge Notes") and securities in the Company offered pursuant to a Confidential Private Placement Memorandum dated February 3, 1998 (the "Private Placement"); and WHEREAS, in connection with the Private Placement, and as a condition to the closing thereof, Lender has agreed to make available to the Company on an unconditional basis loans to the Company in the original principal amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) (the "Loans") to be used at the Company's discretion for working capital and certain expenses to be incurred in connection with an anticipated initial public offering of the Company's securities; WHEREAS, in partial consideration for making the Loans, Lender is being tendered 12,500 shares of common stock, par value $.001 per share, in the Company (the "Common Stock") to be transferred by Lilly Beter Capital Group. Ltd., a consultant to the Company, and to grant to Lender a warrant to purchase 12,500 shares of Common Stock at an exercise price of 80% of the per share market value of the Common Stock on the date of exercise. NOW, THEREFORE, in consideration of the foregoing and in further consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. REPRESENTATIONS AND WARRANTIES. the Company represents and warrants to Lender that: (a) the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with all the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted and is duly qualified and in good standing in every jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary; (b) The execution and delivery of this Agreement and each and every other agreement, instrument or document required to be executed and delivered to Lender by the Company pursuant to the terms hereof, have been duly authorized, are each valid, legal and binding upon it and enforceable in accordance with their respective terms; (c) The execution and delivery of this Agreement and each and every other agreement, instrument or document required to be executed and delivered to Lender by the Company pursuant to the terms hereof, the consummation of the transactions herein contemplated, the fulfillment of or compliance with the terms and provisions hereof and of each and every other instrument, agreement or document required to be executed and delivered to Lender by the Company pursuant to the terms hereof, are within its powers, are not in contravention of any provisions of its certificate of incorporation or any amendments thereto, or of its by-Laws. 2. AMOUNT AND TERMS OF LOANS. Pursuant to the terms of this Agreement, Lender shall make Loans to the Company, upon its request and within three (3) business days of such request, which in the aggregate do not exceed Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00). The Loans and each of them shall be made upon the following terms and conditions: (a) The maximum aggregate principal amount of the Loans shall be in the amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00), and shall be evidenced by a promissory grid note (the "Note") with appropriate insertions of names, dates and amounts. The Loans shall bear interest at a rate per annum equal to ten percent (10.00%). Interest shall be charged on the principal balance from time to time outstanding on the basis of the actual number of days elapsed computed on the basis of a three hundred sixty (360) day year. Interest shall be due and payable, in arrears on the Maturity Date (as hereinafter defined); (b) The Loans made by Lender to the Company pursuant to this Paragraph 2 shall be recorded in an account on the books of Lender bearing the Company's name (the "Company's Account"). There shall also be recorded in the Company's Account all payments made by the Company on the Loans and interest accrued thereon. (c) The outstanding principal amount owed hereunder, together with all accrued but unpaid interest thereon, shall be due and payable in full on the earlier of (i) the closing of an initial public offering of the Company's securities and (ii) March 3, 2002 (the "Maturity Date"); (d) Maker shall have the right to prepay the outstanding principal amount of this Note, in whole or in part at any time. (e) The provisions of this Paragraph 2 shall continue in effect until the Maturity Date, PROVIDED, HOWEVER, that Lender's obligations to advance Loans to the Company pursuant to the provisions of this Paragraph 2 shall cease upon the occurrence of an Event of Default (as defined in Paragraph 3 hereof) until such time as said Event of Default is cured. 3. DEFAULT PROVISIONS. Any one or more of the following shall constitute an Event of Default under this Agreement and the Note: (a) the institution of any bankruptcy proceedings against the Company and a failure to have such proceedings dismissed within a period of sixty (60) days; (b) the institution of any voluntary bankruptcy proceedings by the Company; (c) the Company ceases to do business; or (d) the Company dissolves or otherwise terminates its corporate existence. 2 4. GENERAL PROVISIONS. (a) This Agreement shall survive until the Loans have been paid in full; (b) This Agreement is an integrated document and all terms and provisions are embodied herein and shall not be varied by parol; (c) It is the specific desire and intention of the parties that it shall in all respects be construed under the laws of the State of Georgia; (d) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that the Company shall not assign, voluntarily, by operation of law or otherwise, any of its rights hereunder without the prior written consent of Lender and any such attempted assignment without such consent shall be null and void. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals, and to a duplicate instrument of the same tenor, the day and year first above written. SIGNED, SEALED, AND DELIVERED IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC. - ---------------------------- By /s/ Lawrence O. Perl ------------------------- - ---------------------------- Its Chief Executive Officer - ---------------------------- /s/ Harold Rothstein --------------------------- Harold Rothstein - ---------------------------- 3 HAROLD ROTHSTEIN 650 BOCA MARINA COURT BOCA RATON, FLORIDA 33487 - ------------------------------------------------------------------------------- February 12, 1998 Cohn & Birnbaum P.C. 100 Pearl Street Hartford, Connecticut 06103-4500 Re: American Card Technology, Inc. (the "Company") Attention: Richard J. Shea, Jr., Esq. Ladies and Gentlemen: The undersigned is simultaneously with the execution of this letter entering into (i) a Letter Agreement dated as of the date hereof by and between the undersigned and the Company (the "Letter Agreement") whereby the undersigned is lending funds to the Company as a Closing Loan, as defined in the Letter Agreement, and (ii) a Director Loan Agreement dated as of the date hereof by and between the undersigned and the Company (the "Loan Agreement") whereby the undersigned shall make loans (the "Director Loans") to the Company. In connection with the Closing Loan, the undersigned has wired $400,000.00 into an escrow account for the benefit of the Company. The undersigned hereby authorizes Cohn & Birnbaum P.C., as Escrow Agent, to complete the Letter Agreement by filling in the dollar amount of the Closing Loan in an amount not to exceed $400,000.00. The undersigned further authorizes Cohn & Birnbaum P.C. to release to the Company from escrow the amount necessary to fund the undersigned's Closing Loan in such amount to the Company. Furthermore, the undersigned hereby authorizes Cohn & Birnbaum P.C. to release to the Company the difference between $400,000.00 and such Closing Loan amount as an advance to the Company pursuant to the Loan Agreement, which amount shall be treated as a Director Loan. Very truly yours, Harold Rothstein April 23, 1998 Page 2 DIRECTOR LOAN PROMISSORY GRID NOTE $450,000.00 NEW YORK, NEW YORK FEBRUARY 12, 1998 FOR VALUE RECEIVED, AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation ("Maker"), promises to pay to the order of HAROLD ROTHSTEIN ("Holder"), at such place as may be designated in writing from time to time by Holder, the maximum aggregate principal sum of up to Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00), or such lesser amount as may from time to time be outstanding under this Note, together with interest accruing on the unpaid balance of this Note, before or after demand or judgment, at a fixed rate per annum equal to ten percent (10.00%). Interest shall be charged on the principal balance from time to time outstanding on the basis of the actual number of days elapsed computed on the basis of a three hundred sixty (360) day year. Interest shall be due and payable in arrears on the Maturity Date, as hereinafter defined. The outstanding principal amount, together with interest accrued thereon, shall be due and payable in full on the earlier of (i) the closing of an initial public offering of the Company's securities and (ii) March 3, 2002 (the "Maturity Date"). The principal amount of this Note shall be advanced by Holder upon request of Maker and within three (3) business days of such request. Advances and payments under this Note shall be evidenced by a ledger maintained by Holder and attached hereto which shall set forth, among other things, the principal amount of any advances and payments therefor. This Note is subject in all respects to the terrns and conditions of that certain Director Loan Agreement dated this date between Maker and Holder, including, without limitation, Events of Default, repayment terms and the termin ion date set forth therein Maker hereof further promises to pay, in addition to said principal sum and interest, all taxes assessed upon this Note, and all reasonable costs and expenses, including, without limitation, attorneys' fees, incurred in the collection of this Note. Maker shall have the right to prepay the principal amount of this Note and interest accrued thereon in whole or in part at any time. Any partial prepayments shall be applied first to accrued and unpaid interest and second to the principal outstanding under this Note. Maker waives diligence, demand, presentment for payment, notice of nonpayment, protest and notice of protest, and notice of any renewals or extensions of this Note, and all rights under any statute of limitations, and agrees that the time for payment of this Note may be extended at Holder's sole discretion, without impairing Maker's liability thereon. This Note shall be governed by and construed in accordance with the laws of the State of Georgia. AMERICAN CARD TECHNOLOGY, INC. By /s/ Lawrence O. Perl -------------------------------- Lawrence 0. Perl Its' Chief Executive Officer ALLONGE ENDORSEMENT TO PROMISSORY NOTE DATED APRIL 30, 1998 IN THE ORIGINAL PRINCIPAL AMOUNT OF $450,000.00 MADE BY AMERICAN CARD TECHNOLOGY, INC. TO THE ORDER OF HAROLD ROTHSTEIN Allonge annexed to and made a part of that certain Director Loan Promissory Grid Note (the "Note") in the original principal amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) dated February 12, 1998 made by American Card Technology, Inc. ("Maker") in favor of Harold Rothstein ("Holder"). Holder and Maker hereby agree that the Maturity Date of the Note is amended to the earlier of (i) the closing of debt financing negotiated by Lilly Beter Capital Group subsequent to the closing of the Maker's initial public offering or (ii) January 1, 2001. All other provisions of said Note, except those amended hereby, shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the undersigned has caused this Allonge to be executed as of the 30th day of April, 1998. AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. -------------------------------- Its President HOLDER: /s/ Harold Rothstein ----------------------------------- Harold Rothstein EX-10.8-9 26 EXHIBIT 10.8.9 EXHIBIT 10.8.9 DIRECTOR LOAN AGREEMENT THIS AGREEMENT made as of the 12th day of February, 1998, by and between RAYMOND RONCARI, of Windsor Locks, Connecticut ("Lender"), and AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Company is this day closing on the sale of units of notes (the "Bridge Notes") and securities in the Company offered pursuant to a Confidential Private Placement Memorandum dated February 3, 1998 (the "Private Placement"); and WHEREAS, in connection with the Private Placement, and as a condition to the closing thereof, Lender has agreed to make available to the Company on an unconditional basis loans to the Company in the original principal amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) (the "Loans") to be used at the Company's discretion for working capital and certain expenses to be incurred in connection with an anticipated initial public offering of the Company's securities; WHEREAS, in partial consideration for making the Loans, Lender is being tendered 12,500 shares of common stock, par value $.001 per share, in the Company (the "Common Stock") to be transferred by Lilly Beter Capital Group. Ltd., a consultant to the Company, and to grant to Lender a warrant to purchase 12,500 shares of Common Stock at an exercise price of 80% of the per share market value of the Common Stock on the date of exercise. NOW, THEREFORE, in consideration of the foregoing and in further consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. REPRESENTATIONS AND WARRANTIES. the Company represents and warrants to Lender that: (a) the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with all the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted and is duly qualified and in good standing in every jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary; (b) The execution and delivery of this Agreement and each and every other agreement, instrument or document required to be executed and delivered to Lender by the Company pursuant to the terms hereof, have been duly authorized, are each valid, legal and binding upon it and enforceable in accordance with their respective terms; (c) The execution and delivery of this Agreement and each and every other agreement, instrument or document required to be executed and delivered to Lender by the Company pursuant to the terms hereof, the consummation of the transactions herein contemplated, the fulfillment of or compliance with the terms and provisions hereof and of each and every other instrument, agreement or document required to be executed and delivered to Lender by the Company pursuant to the terms hereof, are within its powers, are not in contravention of any provisions of its certificate of incorporation or any amendments thereto, or of its by-Laws. 2. AMOUNT AND TERMS OF LOANS. Pursuant to the terms of this Agreement, Lender shall make Loans to the Company, upon its request and within three (3) business days of such request, which in the aggregate do not exceed Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00). The Loans and each of them shall be made upon the following terms and conditions: (a) The maximum aggregate principal amount of the Loans shall be in the amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00), and shall be evidenced by a promissory grid note (the "Note") with appropriate insertions of names, dates and amounts. The Loans shall bear interest at a rate per annum equal to ten percent (10.00%). Interest shall be charged on the principal balance from time to time outstanding on the basis of the actual number of days elapsed computed on the basis of a three hundred sixty (360) day year. Interest shall be due and payable, in arrears on the Maturity Date (as hereinafter defined); (b) The Loans made by Lender to the Company pursuant to this Paragraph 2 shall be recorded in an account on the books of Lender bearing the Company's name (the "Company's Account"). There shall also be recorded in the Company's Account all payments made by the Company on the Loans and interest accrued thereon. (c) The outstanding principal amount owed hereunder, together with all accrued but unpaid interest thereon, shall be due and payable in full on the earlier of (i) the closing of an initial public offering of the Company's securities and (ii) March 3, 2002 (the "Maturity Date"); (d) Maker shall have the right to prepay the outstanding principal amount of this Note, in whole or in part at any time. (e) The provisions of this Paragraph 2 shall continue in effect until the Maturity Date, PROVIDED, HOWEVER, that Lender's obligations to advance Loans to the Company pursuant to the provisions of this Paragraph 2 shall cease upon the occurrence of an Event of Default (as defined in Paragraph 3 hereof) until such time as said Event of Default is cured. 3. DEFAULT PROVISIONS. Any one or more of the following shall constitute an Event of Default under this Agreement and the Note: (a) the institution of any bankruptcy proceedings against the Company and a failure to have such proceedings dismissed within a period of sixty (60) days; (b) the institution of any voluntary bankruptcy proceedings by the Company; (c) the Company ceases to do business; or (d) the Company dissolves or otherwise terminates its corporate existence. 4. GENERAL PROVISIONS. (a) This Agreement shall survive until the Loans have been paid in full; (b) This Agreement is an integrated document and all terms and provisions are embodied herein and shall not be varied by parol; (c) It is the specific desire and intention of the parties that it shall in all respects be construed under the laws of the State of Georgia; (d) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that the Company shall not assign, voluntarily, by operation of law or otherwise, any of its rights hereunder without the prior written consent of Lender and any such attempted assignment without such consent shall be null and void. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals, and to a duplicate instrument of the same tenor, the day and year first above written. SIGNED, SEALED, AND DELIVERED IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC. - ------------------------------ By /s/ Lawrence O. Perl ------------------------ - ------------------------------ Its Chief Executive Officer - ------------------------------ /s/ Raymond Rancari ------------------------ Raymond Roncari - ------------------------------ DIRECTOR LOAN PROMISSORY GRID NOTE $450,000.00 NEW YORK, NEW YORK FEBRUARY 12,1998 FOR VALUE RECEIVED, AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation ("Maker"), promises to pay to the order of RAYMOND A. RONCARI ("Holder"), at such place as may be designated in writing from time to time by Holder, the maximum aggregate principal sum of up to Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00), or such lesser amount as may from time to time be outstanding under this Note, together with interest accruing on the unpaid balance of this Note, before or after demand or judgment, at a fixed rate per annum equal to ten percent (10.00%). Interest shall be charged on the principal balance from time to time outstanding on the basis of the actual number of days elapsed computed on the basis of a three hundred sixty (360) day year. Interest shall be due and payable in arrears on the Maturity Date, as hereinafter defined. The outstanding principal amount, together with interest accrued thereon, shall be due and payable in full on the earlier of (i) the closing of an initial public offering of the Company's securities and (ii) March 3, 2002 (the "Maturity Date"). The principal amount of this Note shall be advanced by Holder upon request of Maker and within three (3) business days of such request. Advances and payments under this Note shall be evidenced by a ledger maintained by Holder and attached hereto which shall set forth, among other things, the principal amount of any advances and payments therefor. This Note is subject in all respects to the terms and conditions of that certain Director Loan Agreement dated this date between Maker and Holder, including, without limitation, Events of Default, repayment terms, and the termination date set forth therein. Maker hereof further promises to pay, in addition to said principal sum and interest, all taxes assessed upon this Note, and all reasonable costs and expenses, including, without limitation, attorneys' fees, incurred in the collection of this Note. Maker shall have the right to prepay the principal amount of this Note and interest accrued thereon in whole or in part at any time. Any partial prepayments shall be applied first to accrued and unpaid interest and second to the principal outstanding under this Note. Maker waives diligence, demand, presentment for payment, notice of nonpayment, protest and notice of protest, and notice of any renewals or extensions of this Note, and all rights under any statute of limitations, and agrees that the time for payment of this Note may be extended at Holder's sole discretion, without impairing Maker's liability thereon. This Note shall be governed by and construed in accordance with the laws of the State of Georgia. AMERICAN CARD TECHNOLOGY, INC. By /s/ Lawrence O. Perl ------------------------ Lawrence 0. Perl Its' Chief Executive Officer ALLONGE ENDORSEMENT TO PROMISSORY NOTE DATED APRIL 30, 1998 IN THE ORIGINAL PRINCIPAL AMOUNT OF $450,000.00 MADE BY AMERICAN CARD TECHNOLOGY, INC. TO THE ORDER OF RAYMOND A. RONCARI Allonge annexed to and made a part of that certain Director Loan Promissory Grid Note (the "Note") in the original principal amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) dated February 12, 1998 made by American Card Technology, Inc. ("Maker") in favor of Raymond A. Roncari ("Holder"). Holder and Maker hereby agree that the Maturity Date of the Note is amended to the earlier of (i) the closing of debt financing negotiated by Lilly Beter Capital Group subsequent to the closing of the Maker's initial public offering or (ii) January 1, 2001. All other provisions of said Note, except those amended hereby, shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the undersigned has caused this Allonge to be executed as of the 30th day of April, 1998. AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ------------------------------ Its President HOLDER: /s/ Raymond A. Roncari --------------------------------- Raymond A. Roncari EX-10.9-1 27 EXHIBIT 10.9.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 10.9.1 TECHNOLOGY PURCHASE AGREEMENT by and between SOFTCHIP ISRAEL LTD. and AMERICAN CARD TECHNOLOGY, INC. Dated as of March 7th, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TECHNOLOGY PURCHASE AGREEMENT THIS TECHNOLOGY PURCHASE AGREEMENT ("Agreement") is made and entered into as of the 7th day of March, 1998, between SOFTCHIP ISRAEL LTD. a corporation organized under the laws of Israel ("Seller"), and AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation ("Buyer"). WITNESSETH: WHEREAS, Seller owns that certain DVK-1 Chip Operating System (the "DVK-1 System") and development environment; and WHEREAS, Seller desires to sell and assign and Buyer desires to purchase and acquire the DVK-1 System and development environment; and NOW THEREFORE, in consideration of the foregoing and of the mutual promises, covenants, and conditions set forth below, the parties hereby agree as follows: (1) CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below. "Affiliate" shall mean, with respect to any Person, any shareholder, subsidiary, officer, director or partner of such Person and any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. "Agreement" shall mean this Technology Purchase Agreement and all Exhibits hereto, as the same may from time to time be amended. "Closing" shall mean the closing of the transactions contemplated by this Agreement to be held at the offices of Cohn & Birnbaum P.C., 100 Pearl Street, Hartford Connecticut, on the Closing Date or in such other place as may be agreed to by the parties to this Agreement. "Closing Date" shall mean the earlier of (i) September 15, 1998 or (ii) the closing of an initial public offering of securities of the Buyer. "Intellectual Property Rights" shall mean and include all of the Seller's right, title and interest in and to the DVK-1 System and names "DVK-1," "DVK," and any other trade names used by the Seller with respect to the DVK-1 System and development environment, together with all trademarks, copyrights, patents, rights of privacy and all other intellectual property owned by the Seller in connection with the DVK-1 System and development environment. "Litigation Expense" shall mean any expenses reasonably incurred in connection with investigating, defending or asserting any claim, action, suit or proceeding incident to any matter indemnified against under this Agreement, including, without limitation, court filing fees, court costs, arbitration fees or costs, witness fees, and fees and disbursements of legal counsel, investigators, expert witnesses, accountants and other professionals. "Loss" shall mean any loss, obligation, claim, liability, settlement payment, award, judgment, fine, penalty, interest charge, expense, damage or deficiency or other charge, other than Litigation Expense. "Major Enhancement" shall mean a change to the DVK-1 silicon mask ROM code that (i) adds functionality, (ii) changes communication protocols or (iii) involves downloading EEPROM code of over one kilobyte that implements (i) or (ii) above. "Minor Enhancement" shall mean (i) any change to the software drivers in the host computer; (ii) porting host computer software to a different host computer operating system; (iii) porting host computer software to a different host computer central processing unit ("CPU"); (iv) downloading EEPROM code of less than one kilobyte that implements a Major Enhancement; or (v) downloading any amount of code to EEPROM for technical feasibility tasks, PROVIDED, HOWEVER, that if such amount is greater than one kilobyte, the intellectual property rights of such downloaded code shall, unless otherwise agreed to by the parties, remain those of the Seller, and the results of any such feasibility studies shall belong solely to the Buyer. "Minor Mask Release" shall mean porting the DVK-1 silicon mask ROM code to another chip, either with the same or different CPU type or memory configuration, provided protocols are preserved and functionality is preserved or reduced. "Person" shall mean and include an individual, a corporation, a partnership, a limited liability company, a limited liability partnership, a joint venture, a trust, an unincorporated association, a government or political subdivision or agency thereof or any other entity. "Purchased Assets" shall mean all of the assets of the Seller described in Section 3(a) hereof and more specifically set forth in EXHIBIT A hereto. 2) ACKNOWLEDGEMENTS. Buyer hereby acknowledges that the Seller has previously provided to Buyer the DVK-1 System which Buyer has fully examined and has found to be to its full satisfaction. Buyer hereby waives any claim of unsuitability and acknowledges that the DVK-1 System as delivered is fully in accordance with all representations of Seller regarding suitability and fully in keeping with the specifications set out in its accompanying documentation. 3) SALE OF ASSETS; LIMITATIONS. (a) Subject to the terms and conditions set forth in this Agreement, at the Closing, in consideration of the payment of the Purchase Price, as defined in Section 4 below, the Seller shall sell, transfer, assign, convey and deliver to the Buyer, and the Buyer shall purchase, accept and acquire from the Seller, all of the following assets and properties of the Seller (collectively, the "Purchased Assets"): (i) the DVK-1 System and development environment, including, without limitation, all source code, object code, derivative mask, and documentation; and (ii) all Intellectual Property Rights. (2) (b) Upon the Closing, Buyer shall have the sole and exclusive worldwide rights to develop, use, manufacture, modify, upgrade, improve and enhance, and license, the DVK-1 System (including, without limitation, making any Minor Enhancements thereto) and Seller shall have no further rights therein. Notwithstanding the foregoing, Buyer hereby acknowledges and agrees that Buyer shall not make any Major Enhancement or alter the code of the DVK-1 System in order to create a derivative mask (other than a Minor Mask Release) which differs from that embedded in the DVK-1 System. (c) The Buyer hereby agrees not to convey, transfer, or sell, (except to a purchaser of all or substantially all of the assets of Buyer other than a competitor of Seller), the DVK-1 System, Intellectual Property Rights or DVK-1 source code to any third party without the prior written consent of Seller, which consent shall not be unreasonably withheld. Withholding of consent of sale to a competitor of Seller shall not be deemed unreasonable. 4) PURCHASE PRICE. The aggregate purchase price to be paid by the Buyer for the Purchased Assets (the "Purchase Price") shall be One Hundred Thousand and 00/100 Dollars ($100,000.00), payable at the Closing in the manner described in Section 5(b) hereof. 5) INSTRUMENTS OF TRANSFER; PAYMENT OF PURCHASE PRICE; FURTHER ASSURANCES (a) SELLER'S DELIVERIES. At the Closing, the Seller shall deliver the following to the Buyer, each of which shall be in form reasonably satisfactory to the Buyer: (i) Bill of Sale for the Purchased Assets; (ii) instruments of transfer reasonably necessary to transfer to the Buyer all of the Seller's rights to any Intellectual Property Rights included as Purchased Assets, including any instruments of assignment to assign Seller's interest in such rights to be filed with the United States Patent and Trademark Office or the equivalent governmental office of any other country at Buyer's option; (iii) Director's Certificate regarding resolutions authorizing this transaction and the due authority of persons executing documents on behalf of the Seller; (iv) legal opinions of the Seller's counsel in form and substance satisfactory to Buyer and Buyer's counsel; (v) a Certificate as to the Seller's compliance with Sections 10(a) and (b) of this Agreement; (vi) Evidence reasonably satisfactory to the Buyer, of the Seller's ownership of and authority to convey the Purchased Assets; and (vii) Such other instrument or instruments of transfer, in such form as shall be reasonably necessary or appropriate to vest in the Buyer all of the Seller's right, interest and title to the Purchased Assets. (3) (b) BUYER'S DELIVERIES. At the Closing, the Buyer shall deliver the following to the Seller, each of which shall be in form reasonably satisfactory to the Seller: (i) bank checks or wire transfers of immediately available funds for an aggregate amount equal to the Purchase Price; (ii) a certificate as to the Buyer's compliance with Sections 9(a) and (b) of this Agreement; (iii) Secretary's Certificate regarding resolutions authorizing this transaction and the due authority of persons executing documents on behalf of the Buyer; and (iv) an opinion of counsel to the Buyer in form and substance satisfactory to Seller and Seller's counsel; and (v) such further instruments as the Seller may reasonably request to evidence the consummation of the transactions contemplated by this Agreement. (6) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and warrants to the Buyer as follows: (a) ORGANIZATION; GOOD STANDING; POWER. The Seller is a duly organized, validly existing corporation in good standing under the laws of the State of Israel. The Seller has the corporate power, authority and capacity to own, lease and operate its properties, and to carry on its business as and where the same is now being conducted. (b) AUTHORIZATION; EFFECTIVE AGREEMENT. The Seller has the requisite corporate power, authority and capacity to enter into this Agreement and to perform all of its obligations hereunder. All corporate proceedings required to be taken by the Seller to authorize the execution and delivery of this Agreement and the performance of the Seller's obligations hereunder have been duly taken, and this Agreement constitutes the legal, valid and binding obligation of the Seller, enforceable against it in accordance with its terms. The execution, delivery and performance of this Agreement by the Seller does not and will not conflict with, violate or result in the breach of any of the terms or conditions of, or constitute a default under, the Articles of Incorporation or By-Laws of the Seller or any indenture, mortgage, pledge, note, bond, license, permit or other agreement, commitment or lease to which the Seller is a party or by which the Seller or its assets are bound or affected, or any law, regulation, ordinance or decree to which the Seller or its assets are subject, except for such violations of any law, regulation, ordinance or decree which would not have a material adverse effect on the Purchased Assets. (c) CONSENTS. No permit, consent, approval, or authorization of any governmental authority or any other Person on the part of the Seller is required in connection with the execution or delivery by the Seller of this Agreement or the consummation of the transactions contemplated hereby. (d) ADEQUACY OF AND TITLE TO PURCHASED ASSETS. The Seller has good and marketable title to all of the Purchased Assets, none of which are subject to a mortgage, pledge, lien, security interest, lease, charge, encumbrance or conditional sale or other title retention agreement. (4) (e) INTELLECTUAL PROPERTY RIGHTS. The Seller is the sole and exclusive owner of any and all intellectual property rights in and to the Purchased Assets, including, without limitation, any and all trademarks, patents, copyrights, rights of privacy, and trade secrets. The Seller acknowledges, however, that the names "DVK-1" and "DVK" are not registered trademarks. The Seller has the sole and exclusive right to use all such intellectual property rights, the Seller's use of such intellectual property rights does not conflict with the intellectual property rights of any other party, and all such intellectual property rights are fully assignable to the Buyer without the consent of any third party and, to the best of Seller's knowledge, without infringing or violating the rights of any third party. (f) SELLER ACTIONS. The Seller has not sold, assigned, licensed, transferred, or otherwise conveyed any rights in any of the Purchased Assets, or entered into any agreements with any third party to do so. (g) LITIGATION, ETC. There is no suit, action or litigation, administrative hearing, arbitration, labor controversy, warranty claim, governmental inquiry, investigation or other proceeding or claim pending or, to the Seller's knowledge, threatened against or relating to the Seller with respect to the Purchased Assets. There are no judgments, consent decrees or injunctions against, affecting or binding upon the Seller with respect to the Purchased Assets. The Seller is in compliance with all laws, ordinances, requirements, orders and regulations applicable to it, the violation of which would have a material adverse effect on the Purchased Assets or on the ability of the Seller to consummate the transactions contemplated hereby. (h) DELIVERIES. The Seller has delivered or made available to the Buyer true, correct and complete copies of the by-laws, articles of incorporation and organizational documents of the Seller and if embodied in written form, all Intellectual Property Rights and other information or data referred to in this Section 7. (i) INACCURACIES. Neither this Agreement nor any certificate or statement furnished by or on behalf of the Seller at the Closing in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading; and there is no fact known to the Seller in connection with this Agreement which might reasonably be expected to materially adversely affect the ability of the Seller to consummate the transactions contemplated hereby which has not been set forth herein or in a certificate or statement furnished to the Buyer at the Closing by the Seller. (7) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and warrants to the Seller as follows: (a) ORGANIZATION; GOOD STANDING; POWER. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Buyer has the requisite power, authority and capacity to own, lease and operate its properties and to carry on its intended business. (b) AUTHORIZATION. The Buyer has the requisite power, authority and capacity to enter into this Agreement and to perform all of its obligations hereunder. The Buyer has duly taken all necessary action to approve this Agreement and the performance of its obligations hereunder. This Agreement (5) constitutes the legal, valid and binding obligation of the Buyer enforceable against it in accordance with its terms. (c) EFFECTIVE AGREEMENT. The execution, delivery and performance of this Agreement by the Buyer do not and will not (i) conflict with, violate or result in the breach of any of the terms or conditions of, or constitute a default under, the articles of organization or operating agreement of the Buyer, or any contract, agreement, commitment, indenture, mortgage, pledge, note, bond, license, permit or other instrument or obligation to which the Buyer is a party or by which the Buyer or its assets are bound or affected, or any law, regulation, ordinance or decree to which the Buyer or its assets are subject, or (ii) result in the creation or imposition of any lien, security interest, charge, encumbrance, restriction or right, including rights of termination or cancellation, in or with respect to, or otherwise materially adversely affect, any of the properties, assets or business of the Buyer. (d) CONSENTS. No permit, consent, approval or authorization of, or designation, declaration or filing with, any governmental authority or any other Person on the part of the Buyer is required in connection with the execution or delivery by the Buyer of this Agreement or the consummation of the transactions contemplated hereby, except where the failure to obtain such consent would not materially adversely affect the Buyer's ability to consummate the transactions contemplated by this Agreement. (e) SHAREHOLDERS. Attached hereto as EXHIBIT B is a list setting forth the names of shareholders of the Buyer. The Buyer agrees to give the Seller notice of any changes to such list within thirty (30) days of the effective date of any such changes, PROVIDED, HOWEVER, that Buyer's obligation to provide such information to the Seller terminates upon the closing of an initial public offering of securities of the Buyer. (f) LITIGATION. There is no suit, action or litigation, administrative hearing, governmental inquiry, investigation, arbitration or other proceeding pending or, to the Buyer's knowledge, threatened against or relating to the Buyer. There are no judgments, consent decrees or injunctions against, affecting or binding upon the Buyer. The Buyer is in compliance with all laws, ordinances, requirements, orders and regulations applicable to it, the violation of which would have a material adverse effect on its ability to consummate the transactions contemplated by this Agreement, and the Buyer has not received notice of any claimed violation with respect to any of the foregoing, and none of the foregoing will be affected by the consummation of the transactions contemplated by this Agreement. (8) USE OF NAME. The Seller agrees that from and after the Closing Date, neither the Seller nor any person under the control of the Seller shall use the name "DVK-1" or "DVK" for any computer chip operating system or software source documents, or any devices otherwise used in computer systems. Notwithstanding the foregoing, Seller may acknowledge that Seller created the DVK-1 System in advertisements and promotional material to which Buyer has given its prior written consent, which consent shall not be unreasonably withheld. (9) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER. All obligations of the Seller under this Agreement are subject to the fulfillment, at or prior to the Closing Date, of each of the following conditions, which conditions may be waived only by the Seller: (6) (a) The representations and warranties of the Buyer herein contained shall be true and correct as of the date hereof. (b) The Buyer shall have performed or complied with all the obligations, agreements and covenants of the Buyer herein contained to be performed by it prior to or as of the Closing Date. (c) The Seller shall have received a certificate of the Buyer as to compliance with paragraphs (a) and (b) of this Section 9. (d) No action, suit or proceeding by or before any court or any governmental or regulatory authority shall have been commenced or threatened, and no investigation by any governmental or regulatory authority shall have been commenced or threatened, seeking to restrain, prevent or change the transactions contemplated hereby or seeking judgments against the Seller or the Buyer awarding substantial damages in respect of the transactions contemplated hereby. (e) All deliveries required to be made under this Agreement to the Seller at or before the Closing Date shall have been received by the Seller. (10) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER. All obligations of the Buyer under this Agreement are subject to the fulfillment, at or prior to the Closing Date, of each of the following conditions, which conditions may be waived only by the Buyer. (a) The representations and warranties of the Seller herein contained shall be true and correct as of the date hereof. (b) The Seller shall have performed or complied with all the obligations, agreements and covenants herein contained to be performed by them prior to or as of the Closing Date. (c) The Buyer shall have received a certificate from the Seller as to compliance with paragraphs (a) and (b) of this Section 10. (d) No action, suit or proceeding by or before any court or any governmental or regulatory authority shall have been commenced or threatened, and no investigation by any governmental or regulatory authority shall have been commenced or threatened, seeking to restrain, prevent or change the transactions contemplated hereby or seeking judgments against the Seller or the Buyer awarding substantial damages in respect of the transactions contemplated hereby. (e) All deliveries required to be made under this Agreement to the Buyer on or before the Closing Date shall have been received by the Buyer. (11) INDEMNIFICATION; SURVIVAL (a) INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify and save harmless the Seller, officers and directors of the Seller and their respective successors and assigns from, against, for and in respect of: (7) (i) any Loss incurred or required to be paid because of the breach of any representation, warranty, covenant or agreement of the Buyer in this Agreement; and (ii) any Litigation Expense incurred or required to be paid in connection with any matter indemnified against in Section 11(a)(i) hereof. (b) INDEMNIFICATION BY THE SELLER. The Seller shall indemnify and save harmless the Buyer, the Affiliates of the Buyer, employees, officers, and directors of the Buyer, and their respective successors and assigns from, against, for and in respect of: (i) any Loss incurred or required to be paid because of the breach of any representation, warranty, covenant or agreement of the Seller in this Agreement; (ii) any claims raised between the date of Closing and five years thereafter, to the extent they are based upon any claimed infringement or violation of any third party's copyright, patent, trademark or other property right by any of the Purchased Assets, except to the extent the claim is a result of the combination of the Purchased Assets with other software or equipment which is not included in the Purchased Assets. In the event that Buyer receives notice of any such claim, Buyer shall (i) promptly notify Seller of the claim, (ii) permit Seller to assume the defense of such claim or any negotiations related thereto at Seller's expense (though no settlement of such claim may be entered into without Buyer's approval which shall not be unreasonably withheld), and (iii) provide such information and assistance as is requested by Seller in connection with the defense of such claim. In addition to defending such claim as provided in the foregoing (regardless of the outcome), Seller will pay any amount finally awarded in a proceeding to the extent based upon such a claim (including attorney's fees, if any, in such award), provided that such award is based upon a finding that Seller knew or should have known of the infringement or violation of such third party's rights. Should any such claims be made or brought to the attention of the parties or either of them prior to the Closing, either party shall have the option to cancel this Agreement by written notice to the other prior to Closing, in which case the parties shall have no further obligations whatsoever to each other hereunder. If neither party elects to so cancel, Seller shall be obligated to act in accordance with this Section. (iii) any Litigation Expense incurred or required to be paid in connection with any matter indemnified against in Section 11(b)(i) or Section 11(b)(ii) hereof. (c) SURVIVAL. The representations, warranties, covenants and agreements of the parties hereto (including indemnification obligations of the parties hereunder with respect to all Losses and Litigation Expense incurred or required to be paid) shall survive the execution and delivery of this Agreement. (d) NOTICE. The indemnified party shall use its best efforts to give prompt written notice to the indemnifying party or parties of any claim or event known to it which does or may give rise to a claim by the indemnified party against the indemnifying party or parties based on this Agreement, stating the nature and basis of said claims or events and the amounts thereof, to the extent known. (e) DEFENSE OF CLAIMS OR ACTIONS. In the event any claim, action, suit or proceeding is made or brought by third parties with respect to which a party may be entitled to indemnity hereunder, the (8) indemnified parties shall given written notice of such claim, action, suit or proceeding and a copy of the claim, process and all legal pleadings with respect thereto to the indemnifying parties within ten (10) business days of being served with such claim, process or legal pleading. Such notice shall not be a condition precedent to any liability of the indemnifying parties under this Agreement unless the failure to give such notice results in any prejudice to the indemnifying parties. The indemnifying parties shall have the right to assume the defense of any such claim or action. If the indemnifying parties wish to assume the defense of such claim or action, such assumption shall be evidenced by written notice to the indemnified parties. After such notice, the indemnifying parties shall engage independent legal counsel of reputable standing selected by them to assume the defense and may contest, pay, settle or compromise any such claim or action on such terms and conditions as the indemnifying parties may determine. If the indemnifying parties assume the defense of any such claim, action, suit or proceeding, the indemnified parties shall have the right to employ their own counsel, at their own expense, and if the indemnified parties shall have reasonably concluded and specifically notified the indemnifying parties either that there may be specific defenses available to them which are different from or additional to those available to the indemnifying parties or that such claim, action, suit or proceeding involves or could have a material adverse effect upon them with respect to matters beyond the scope of the indemnity provided hereunder, then the counsel representing them, to the extent made necessary by such defenses, shall have the right to direct such defenses of such claim, action, suit or proceeding in its behalf at the indemnified party's expense. In the event that the indemnifying parties shall not agree in writing to assume the defense of such claim or action, the indemnified parties may engage independent counsel of reputable standing selected by them to assume the defense and may contest, pay, settle or compromise any such claim or action on such terms and conditions as the indemnified parties may determine; PROVIDED, HOWEVER, that the indemnified parties shall not settle or compromise any claim or action without the prior consent of the indemnifying parties (which consent shall not be unreasonably withheld). The fees and expenses of such counsel shall constitute Litigation Expenses. The indemnified parties and the indemnifying parties shall cooperate in good faith in connection with such defense, and all such parties shall have the right to employ their own counsel; but, except as provided above, the fees and expenses of their counsel shall be at their own expense. The indemnified parties or the indemnifying parties, as the case may be, shall be kept fully informed of such claim, action, suit or proceeding at all stages thereof, whether or not they are represented by their own counsel. (f) COOPERATION. The parties hereto agree to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any claim, action, suit or proceeding brought by any third party. Where independent counsel has been selected by the indemnifying parties or by the indemnified parties pursuant to Section 11(e) hereof, the indemnifying parties or the indemnified parties, as the case may be, shall be entitled to rely upon the reasonable advice of such counsel in the reasonable conduct of the defense, and no indemnifying party shall be relieved of liability hereunder by reason of such reliance or the defense conducted by such counsel. (g) THE BUYER'S RIGHT OF OFFSET. Without limiting in any way the rights of the Buyer to be indemnified under this Section 11 for Losses and Litigation Expense (or the measure of amounts of loss and Litigation Expense for which the Buyer may be entitled to indemnification), the Buyer shall have a right to offset against the amounts due under Section 5 hereof and against the amounts due under Section 11 hereof for the amount of any Loss or Litigation Expenses incurred by the Buyer. (9) (12) RESTRICTIVE COVENANTS. The parties hereto acknowledge that (i) the Seller has developed trade secrets and confidential information concerning the Purchased Assets, and (ii) in the course of dealing with each other, the parties have acquired confidential information about the business, activities, operations, technical information, and trade secrets of each other, and (iii) the agreements and covenants contained in this Section 12 are essential to protect each of the parties following the consummation of the transactions contemplated hereby or in the event (i) of a failure to consummate such transactions, or (ii) this Agreement is terminated for any reason. Accordingly, each party covenants and agrees as follows: (a) CONFIDENTIAL INFORMATION. Each party shall keep secret and retain in strictest confidence, and shall not use, in competition with or in a manner otherwise detrimental to the interests of the other, for the benefit of itself or others other than the other party hereto, any confidential information, including, without limitation, any confidential technology, "know-how," trade secrets, processes, designs, specifications, inventions, methods, developmental work, improvements, unpublished patent applications, development tools, software programs, software source documents, licenses, customer lists, customer personnel information, details of client or consultant contracts, pricing policies, operational methods, marketing plans or strategies, or product development techniques or plans related to the Purchased Assets or the other party hereto ("Confidential Information"). Notwithstanding the foregoing, nothing herein shall prohibit Buyer from using the Purchased Assets in any manner whatsoever so long as such use is not in violation of this Agreement. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, (i) information concerning either Seller or Buyer that becomes generally available to the public other than as a result of a disclosure by the other party or any agent or other representative thereof after the Closing Date, and (ii) general business methods applicable to the Purchased Assets. The parties shall have no obligation hereunder to keep confidential any of the Confidential Information to the extent disclosure of any thereof is required by law, or determined in good faith by the disclosing party to be necessary or appropriate to comply with any legal or regulatory order, regulation or requirement; PROVIDED, HOWEVER, that in the event disclosure is required by law, the disclosing party shall use best efforts to provide the other party with prompt advance notice of such requirement so that the other party may seek an appropriate protective order. (b) RIGHTS AND REMEDIES UPON BREACH. In the event a party breaches, or threatens to commit a breach of, any of the provisions of this Section 12 or Section 3(c) hereof (the "Restrictive Covenants"), the non-breaching party may have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the non-breaching party and that money damages would not provide an adequate remedy to the non-breaching party. Such rights and remedies, shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the non-breaching party at law or in equity. (c) SEVERABILITY OF COVENANTS. Each party acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. (10) (d) ENFORCEABILITY IN JURISDICTIONS. The parties hereto intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of the State of Georgia, U.S.A. (and the Buyer and the Seller hereby consent to the jurisdiction of such courts). (13) TERMINATION; BREACH. Notwithstanding anything to the contrary herein, this Agreement may be terminated and the transactions contemplated hereby may be abandoned: (a) by the Buyer if there exists a breach of any material representation, warranty, covenant or agreement made to the Buyer under this Agreement (which breach cannot be cured or is not cured upon fifteen (15) days' written notice); (b) by the Seller if there exists a breach of any representation, warranty, covenant or agreement made to the Seller under this Agreement (which breach cannot be cured or is not cured upon fifteen (15) days' written notice); (c) by the Seller or the Buyer, provided that the terminating party is not then in breach of any of its material representations, warranties, covenants or agreements set forth in this Agreement, if the Closing has not been consummated by the earlier of (i) September 15, 1998 or (ii) the closing of the initial public offering of securities of the Buyer, or such extended date as may be agreed to in writing by the parties. Upon the termination of this Agreement under Section 13(c), no party hereto shall have any further liability or obligation to any other party hereunder, except for the obligation of each party to pay its own expenses as set forth in Section 16 hereof and (ii) return to the Seller the DVK-1 System previously provided to Buyer, together with all modifications, upgrades, improvements and enhancements thereof made by Buyer or on Buyer's behalf. Upon the termination of this Agreement under Sections 13(a) or 13(b), the terminating party shall be entitled, in addition to pursuing other remedies, to recover its actual damages (including costs of enforcement and reasonable attorneys' fees), arising from the breach by the non-terminating party. In the event of a breach by the Seller of any material representation, warranty, covenant or agreement made by the Seller under this Agreement, the Buyer may, in lieu of exercising its right to terminate the Agreement, bring an action to enforce the terms of this Agreement by decree of specific performance, it being agreed that the property to be conveyed hereunder is unique and not readily available in the open market and, in any such event, the Seller hereby further agrees to waive any and all defenses against any such action for specific performance on the grounds that there is an adequate remedy for money damages available. (14) LIMITATION ON LIABILITY. Notwithstanding any provision of this Agreement, the liability of the Seller for damages, for any cause whatsoever, shall be limited to an amount equal to the amount which Seller has actually received in payment under the terms of this Agreement, provided, however that the foregoing limitation shall not apply with respect to damages resulting from any fraud, willful misconduct or intentional misrepresentation by Seller, and further provided that, in the event of indemnification of the Buyer pursuant to Section 11(b)(ii) hereof, Seller shall make pay annual payments in advance to the Buyer, amortized over a five-year period. (11) (15) AMENDMENTS. This Agreement may be amended, modified and supplemented only by written agreement of the parties hereto at any time prior to the Closing Date with respect to any of the terms contained herein. (16) EXPENSES. Except as otherwise provided in this Agreement, each party hereto shall bear all of its own expenses, including, without limitation, the fees and disbursements of its counsel. (17) NOTICES, ETC. All notices, consents, demands, requests, approvals and other communications which are required or may be given hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered personally, (b) if sent by facsimile, when receipt thereof is acknowledged at the facsimile number below, (c) the second day following the day on which the same has been delivered prepaid to a national air courier service, or (d) three (3) business days following deposit in the mails registered or certified, postage prepaid, in each case, addressed as follows: if to the Seller: Softchip Israel Ltd. 418/3 Frankfurter Street Jerusalem, Israel Attention: Mr. Mickey Cohen with a copy to: Wine, Misheiker & Ernstoff Law Offices 12 Moshe Hess Street 94185 Jerusalem, Israel Attention: Brian D. Wine, Advocate if to the Buyer: American Card Technology, Inc. 1355 Terrell Mill Road Building 146, Suite 200 Marietta, Georgia 30067 Attention: President with a copy to: Cohn & Birnbaum P.C. 100 Pearl Street, 12th Floor Hartford, Connecticut 06103-4500 Attention: Richard J. Shea, Jr., Esq. or to such other Person or Persons at such address or addresses as may be designated by written notice hereunder. (18) ASSIGNMENT. No party may assign or convey this Agreement or any of their respective rights or obligations hereunder to any other party. Notwithstanding the foregoing, the Buyer may assign its rights and obligations hereunder to any purchaser of all or substantially all of its assets. (19) APPLICABLE LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Georgia without giving effect to conflict of laws principles thereof. (20) CURRENCY. All sums of money payable hereunder are to be paid in U.S. dollars. (12) (21) ENTIRE AGREEMENT. This Agreement and all Exhibits hereto embody the entire agreement and understanding of the parties hereto and supersede any prior agreement or understanding between the parties. (22) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. (23) HEADINGS. Headings of the Sections in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect. (24) BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, administrators, executors, successors and assigns; PROVIDED, HOWEVER, that nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto or their respective successors and assigns, any rights and remedies, obligations or liabilities under or by reason of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written. SELLER: SOFTCHIP ISRAEL LTD. By /s/ Michael Cohen --------------------------------------- Its Managing Director BUYER: AMERICAN CARD TECHNOLOGY, INC. By /s/ Raymond Findley, Jr. --------------------------------------- Its President (13) TABLE OF CONTENTS (1) CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . (1) (2) ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . (2) (3) SALE OF ASSETS; LIMITATIONS. . . . . . . . . . . . . . . . . . . . (3) (4) PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (5) INSTRUMENTS OF TRANSFER; PAYMENT OF PURCHASE PRICE; FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (6) REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . (4) (7) REPRESENTATIONS AND WARRANTIES OF THE BUYER. . . . . . . . . . . . (6) (8) USE OF NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (9) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER. . . . . . . (7) (10) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER . . . . . . . (8) (11) INDEMNIFICATION; SURVIVAL. . . . . . . . . . . . . . . . . . . . . (8) (12) RESTRICTIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . .(11) (13) TERMINATION; BREACH. . . . . . . . . . . . . . . . . . . . . . . .(12) (15) AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .(13) (16) EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(13) (17) NOTICES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . .(13) (18) ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .(14) (19) APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . .(14) (20) CURRENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(14) (21) ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .(14) (22) COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . .(14) (23) HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(14) (24) BINDING EFFECT; BENEFITS . . . . . . . . . . . . . . . . . . . . .(14) (i) EXHIBIT A PURCHASED ASSETS EXHIBIT B SHAREHOLDERS Joseph Basch Bruce R. Bonadies Salvatore Cartagine Chapman Group LLC Lloyd R. Davis and Patricia P. Davis Robert Dixon Raymond Findley, Jr. Neil Greenbaum Barbara Hamill John Hamill Sidney O. Harriel Lawrence O. Perl The 1994 Perl Trust Indenture Harold Rothstein The Rothstein Family Trust Raymond A. Roncari Ronald Seplowitz Richard Shelton Susan Shelton Joseph Sweedler EX-10.9-2 28 EXHIBIT 10.9.2 EXHIBIT 10.9.2 TECHNICAL SERVICES AGREEMENT THIS TECHNICAL SERVICES AGREEMENT ("Agreement") is made and entered into as of the 7th day of March, 1998, between SOFTCHIP TECHNOLOGIES (3000) LTD., a corporation organized under the laws of Israel ("SoftChip"), and AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation ("ACT"). WITNESSETH: WHEREAS, ACT has entered into a Purchase and Sale Agreement (the "Purchase Agreement") to purchase that certain DVK-1 Chip Operating System (the "DVK-1 System") and development environment from Softchip Israel Ltd. ("SoftChip Israel"); and WHEREAS, in connection with the purchase of the DVK-1 System, ACT desires to engage SoftChip, and SoftChip desires to be so engaged, to provide technical services to ACT with respect to the DVK-1 System. NOW THEREFORE, in consideration of the foregoing and of the mutual promises, covenants, and conditions set forth below, the parties hereby agree as follows: 1. ENGAGEMENT. ACT hereby engages SoftChip, and SoftChip hereby accepts such engagement, to assist ACT with the development, design, programming, modification, upgrading, improvement, enhancement, and testing of Error Corrections, Minor Enhancements (but not Major Enhancements) and Minor Mask Releases of the DVK-1 System (collectively, "Technical Support") pursuant to the terms and conditions contained herein. During the Term (as hereinafter defined) of this Agreement, SoftChip (or an affiliate of SoftChip) shall provide Technical Support as requested by ACT, which Technical Support shall be provided by personnel of SoftChip reasonably acceptable to ACT. For the purposes of this Agreement: (a) "Error" shall mean any failure of the DVK-1 software to conform with the functional specifications, as agreed in writing between the parties, resulting from code developed by SoftChip, SoftChip Israel (or any affiliate thereof), or on behalf of any of the foregoing (collectively, the "Developer"), when used in an environment approved by the Developer, however, nonconformity as a result of misuse, improper use, alteration, or damage of the DVK-1 software by ACT or the combination or merging of the DVK-1 software by ACT with hardware or software not supplied by or identified by the Developer as compatible shall not be an Error hereunder. (b) "Error Correction" shall mean (i) a modification or addition that, when made or added to the DVK-1 System, established material conformity of the DVK-1 System with the functional specifications, or (ii) a procedure or routine that, when observed in the regular operation of the DVK-1 System, eliminates the practical adverse effect of such nonconformity. (c) "Major Enhancement" shall mean a change to the DVK-1 silicon mask ROM code that (i) adds functionality, (ii) changes communication protocols or (iii) involves downloading EEPROM code of over one kilobyte that implements (i) or (ii) above. 1 (d) "Minor Enhancement" shall mean (i) any change to the software drivers in the host computer, (ii) porting host computer software to a different host computer operating system, (iii) porting host computer software to a different host computer central processing unit ("CPU"), (iv) downloading EEPROM code of less than one kilobyte that implements a Major Enhancement, or (v) downloading any amount of code to EEPROM for technical feasibility tasks, PROVIDED, HOWEVER, that if such amount is greater than one kilobyte, the intellectual property rights of such downloaded code shall, unless otherwise agreed to by the parties, remain those of SoftChip, and the results of any such feasibility studies shall belong solely to ACT. (e) "Minor Mask Release" shall mean porting the DVK-1 silicon mask ROM code to another chip, either with the same or different CPU type or memory configuration, provided protocols are preserved and functionality is preserved or reduced. 2. COMPENSATION. (a) ACT shall pay SoftChip an annual fee ("Fee") in the amount of Two Hundred Twenty-five Thousand and 00/100 Dollars ($225,000.00) in payment of the first two (2) years of Technical Support, payable annually in advance on the Engagement Date, as hereinafter defined, and on the anniversary of the Engagement Date. On the Engagement Date, ACT shall deposit the Fee due on the anniversary of the Engagement Date with an escrow agent designated by the parties (the "Escrow Agent"). Pursuant to an escrow agreement among ACT, SoftChip and the Escrow Agent, the Escrow Agent shall release the Fee from escrow in four (4) equal payments and distribute the Fee to SoftChip commencing on the anniversary of the Engagement Date and continuing every three (3) months thereafter, provided, however, in the event ACT has given notice to the Escrow Agent that this Agreement has been terminated by reason of a material or essential default by SoftChip, such Fee shall not be released from escrow. The Escrow Agent shall send a copy of such notice received from ACT to SoftChip as herein provided, and if SoftChip does not object within 45 days of such notice being sent, the Escrow Agent shall return the unpaid Fee to ACT. Should SoftChip claim within such period the termination of this Agreement by ACT was wrongful, then failing agreement between the parties hereto, the Escrow Agent shall file a Bill of Interpleader with the court having jurisdiction and serve notice thereof on both parties. The Fee is nonrefundable after payment even if this Agreement is terminated for any reason other than by reason of a material or essential default by SoftChip, and in the event this Agreement is terminated by reason of a material or essential default by SoftChip, then a pro-rated portion of the Fee shall be refunded to ACT. (b) As additional compensation, ACT shall pay to SoftChip a fee (each a "Card Fee") of Twelve and one-half Cents ($0.125) for each (i) smart card incorporating (A) a Motorola SC21 chip and (B) the DVK-1 System, or (ii) smart card incorporating (A) a chip other than a Motorola SC21 chip and (B) the DVK-1 System sold by ACT, up to a total of one million two hundred thousand (1,200,000) of such smart cards sold during each annual period for which ACT pays a Fee, and Twenty-five Cents ($0.25) for each additional such smart card sold, during the period commencing on the Engagement Date and ending three (3) years after the later of (A) the third anniversary of the Engagement Date or (B) last Minor Mask Release prepared hereunder. Nothing herein shall obligate ACT to pay Card Fees for smart cards sold by ACT which do not incorporate the DVK-1 System, nor shall obligate ACT to incorporate the DVK-1 System in its smart cards. For purposes hereof, smart cards subject to Card Fees shall be considered as sold when payment for the same has been received by ACT. For every One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00) in Card Fees paid to SoftChip, SoftChip shall provide one (1) additional year of Technical Support. b (c) ACT shall pay to SoftChip, within forty-five (45) days from that date which is the end of each such annual period, the amount of Card Fees accrued during such annual period. (d) Within ten (10) days after receipt, ACT shall reimburse SoftChip for travel and equipment expenses incurred in providing support requested by ACT (other than Technical Support) at a rate of one hundred twenty percent (120%) of the actual amount of such expense, upon submission of evidence of such expense. 3. TERM OF AGREEMENT. (a) Unless otherwise terminated or cancelled as provided herein, the term of this Agreement shall commence on that date which is the closing of the purchase of the DVK-1 System by ACT (such date is hereinafter referred to as the "Engagement Date") pursuant to that certain Technology Purchase Agreement of even date herewith between SoftChip Israel Ltd. and ACT of even date herewith (the "Purchase Agreement") and shall continue for two (2) years thereafter (the "Term"), unless terminated pursuant to Section 9 hereof. (b) Upon termination of the Term of this Agreement, the Agreement shall irrevocably expire and the parties hereto shall have no further rights hereunder, excepting only the right of SoftChip to continue to receive Card Fees pursuant to Sections 2(b), 2(c), 14, 15, and 20 hereof, which shall continue to apply until the right of SoftChip to receive Card Fees lapses pursuant to Section 2(b). (c) Any termination of this Agreement whatsoever shall not affect any accrued rights or liabilities of either party. (d) In the event that the Purchase Agreement is terminated prior to Closing thereunder for any reason, this Agreement shall terminate at the same time and upon such termination neither party shall have any further rights or obligations hereunder. 4. REPRESENTATIONS AND WARRANTIES. (a) SoftChip represents and warrants to ACT as follows: (i) SoftChip is a duly organized, validly existing corporation in good standing under the laws of the State of Israel and has the corporate power, authority and capacity to enter into this Agreement and to perform all of its obligations hereunder. All corporate proceedings required to be taken by SoftChip to authorize the execution and delivery of this Agreement and the performance of Softchip's obligations hereunder have been duly taken, and this Agreement constitutes the legal, valid and binding obligation of SoftChip, enforceable against it in accordance with its terms. The execution, delivery and performance of this Agreement by SoftChip does not and will not conflict with, violate or result in the breach of any of the terms or conditions of, or constitute a default under, the Articles of Incorporation or By-Laws of SoftChip or any indenture, mortgage, pledge, note, bond, license, permit or other agreement, commitment or lease to which SoftChip is a party or by which SoftChip is bound, or any law, regulation, ordinance or decree to which SoftChip is subject. (ii) SoftChip holds all licenses, permits, and registrations necessary to conduct its business as it is presently being conducted and to carry out its obligations under the terms of 3 this Agreement. (iii) SoftChip shall render to ACT all Technical Support as requested by ACT in a timely fashion, and shall dedicate adequate personnel and resources to providing Technical Support to ACT (b) ACT represents and warrants to SoftChip that ACT is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power, authority and capacity to enter into this Agreement and to perform all of its obligations hereunder. ACT has duly taken all necessary action to approve this Agreement and the performance of its obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of ACT enforceable against it in accordance with its terms. 5. INDEMNIFICATIONS. (a) SoftChip agrees to indemnify and hold harmless ACT from any and all costs, debts, claims, demands, damages, losses, liabilities, actions or causes of action, including legal fees, arising out of the breach of this Agreement by SoftChip. (b) ACT agrees to indemnify and hold harmless SoftChip from any and all costs, debts, claims, demands, damages, losses, liabilities, actions or causes of action, including legal fees, arising out of any breach of this Agreement by ACT. (c) Without limiting in any way the rights of ACT to be indemnified under this Section 5, ACT shall have a right to offset against the amounts due under Section 2 hereof for the amount of any such expenses incurred by ACT. 6. WAIVERS. A waiver (whether express or implied) by one of the parties of any of the provisions of this Agreement or of any breach of or default by the other party in performing any of those provisions shall not constitute a continuing waiver and that waiver shall not prevent the waiving party from subsequently enforcing any of the provisions of this Agreement not waived or from acting on any subsequent breach of or default by the other party under any of the provisions of this Agreement. Payment or acceptance of any sum shall not constitute a waiver. 7. SEVERABILITY. The invalidity, illegality, or unenforceability of any of the provisions of this Agreement shall not affect the validity, legality, and enforceability of the remaining provisions of this Agreement. 8. RESTRICTIVE COVENANTS. Each of the parties hereto acknowledges that during the course of this Agreement, the parties shall acquire confidential information about the business, activities, operations, technical information, and trade secrets of the other party, and the agreements and covenants contained in this Section 8 are essential to protect the other party during the Term and following termination of this Agreement. Accordingly, each party covenants and agrees as follows: (a) Each party shall keep secret and retain in strictest confidence, and shall not use, in competition with or in a manner otherwise detrimental to the interests of the other, for the benefit of itself or others other than the other party hereto, any confidential information, including, without limitation, any confidential technology, "know-how," trade secrets, processes, designs, specifications, inventions, methods, 4 developmental work, improvements, unpublished patent applications, development tools, software programs, software source documents, licenses, customer lists, customer personnel information, details of client or consultant contracts, pricing policies, operational methods, marketing plans or strategies, or product development techniques or plans related to the DVK-1 System or the other party hereto ("Confidential Information"). Notwithstanding the foregoing, nothing herein shall prohibit Buyer from using the DVK-1 System in any manner whatsoever so long as such use is not in violation of this Agreement. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, (i) information concerning either SoftChip or ACT that becomes generally available to the public other than as a result of a disclosure by the other party or any agent or other representative thereof after the date hereof, and (ii) general business methods applicable to the DVK-1 System. The parties shall have no obligation hereunder to keep confidential any of the Confidential Information to the extent disclosure of any thereof is required by law, or determined in good faith by the party to whom the Confidential Information was disclosed (the "receiving party") to be necessary or appropriate to comply with any legal or regulatory order, regulation or requirement; PROVIDED, HOWEVER, that in the event disclosure is required by law, the receiving party shall use best efforts to provide the other party with prompt advance notice of such requirement so that the other party may seek an appropriate protective order. (b) In the event a party breaches, or threatens to commit a breach of, any of the provisions of this Section 8 (the "Restrictive Covenants"), the non-breaching party may have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the non-breaching party and that money damages would not provide an adequate remedy to the non-breaching party. Such rights and remedies, shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the non- breaching party at law or in equity. (c) Each party acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. (d) The parties hereto intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of the State of Georgia, U.S.A. (and ACT and Softchip hereby consent to the jurisdiction of such courts). (e) Notwithstanding anything contained herein to the contrary, the provisions of this Section 8 shall survive the termination of this Agreement for any reason. 9. TERMINATION; BREACH. Notwithstanding anything to the contrary herein, this Agreement may be terminated and the transactions contemplated hereby may be abandoned: (a) by ACT if there exists a breach of any material representation, warranty, covenant or agreement made to ACT under this Agreement (which breach cannot be cured or is not cured upon fifteen (15) days' written notice); (b) by Softchip if there exists a breach of any material representation, warranty, covenant or agreement made to Softchip under this Agreement (which breach cannot be cured or is not cured upon fifteen (15) days' written notice); 5 (c) by Softchip or ACT, provided that the terminating party is not then in breach of any of its material representations, warranties, covenants or agreements set forth in this Agreement, if the Term has not commenced by the later of (i) April 30, 1998 or (ii) the closing of the initial public offering of securities of ACT, or such extended date as may be agreed to in writing by the parties. Upon the termination of this Agreement under Section 9(c), no party hereto shall have any further liability or obligation to any other party hereunder, except for the obligation of each party to pay its own expenses as set forth in Section 11 hereof. Upon the termination of this Agreement under Sections 9(a) or 9(b), the terminating party shall be entitled, in addition to pursuing other remedies, to recover its actual damages (including costs of enforcement and reasonable attorneys' fees), arising from the breach by the non- terminating party. Notwithstanding any termination of this Agreement, the right of SoftChip to receive Card Fees hereunder shall continue to apply until such right lapses pursuant to Section 2(b) hereof. 10. LIMITATION ON LIABILITY. Notwithstanding anything contained herein to the contrary, SoftChip's liability hereunder shall be limited to such amounts as SoftChip has received from ACT under the terms of this agreement during the twelve months preceding the claim, and shall have no liability whatsoever with respect to any claim made two years or more after the date on which the services which gave rise to the claim were last provided. The foregoing limitation on liability shall not apply with respect to any fraud, willful misconduct or intentional misrepresentation by SoftChip. 11. AMENDMENTS. This Agreement may be amended, modified and supplemented only by written agreement of the parties hereto. 12. EXPENSES. Except as otherwise provided in this Agreement, each party hereto shall bear all of its own expenses, including, without limitation, the fees and disbursements of its counsel. 13. NOTICES, ETC. All notices, consents, demands, requests, approvals and other communications which are required or may be given hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered personally, (b) if sent by facsimile, when receipt thereof is acknowledged at the facsimile number below, (c) the second day following the day on which the same has been delivered prepaid to a national air courier service, or (d) three (3) business days following deposit in the mails registered or certified, postage prepaid, in each case, addressed as follows: if to Softchip: Softchip Technologies (3000) Ltd. 38 Nerot Shabbat Street Jerusalem, Israel Attention: Mr. Mickey Cohen with a copy to: Wine, Misheiker & Ernstoff Law Offices 12 Moshe Hess Street 94185 Jerusalem, Israel Attention: Brian D. Wine, Advocate 6 if to ACT: American Card Technology, Inc. 1355 Terrell Mill Road Building 146, Suite 200 Marietta, Georgia 30067 Attention: President with a copy to: Cohn & Birnbaum P.C. 100 Pearl Street, 12th Floor Hartford, Connecticut 06103-4500 Attention: Richard J. Shea, Jr., Esq. or to such other person or persons at such address or addresses as may be designated by written notice hereunder. 14. ASSIGNMENT. No party may assign or convey this Agreement or any of their respective rights or obligations hereunder to any other party, except that ACT may assign or transfer its interests and obligations in this Agreement to any affiliated entity or to any purchaser of substantially all of the assets of ACT. Notwithstanding the foregoing, ACT shall not assign, transfer, or sell the DVK-1 System unless such assignee or successor-in-interest undertakes to make the payments due to SoftChip under Sections 2(b) and 2(c) hereof and will be liable to SoftChip for any breach of such undertaking. 15. APPLICABLE LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Georgia without giving effect to conflict of laws principles thereof. 16. CURRENCY. All sums of money payable hereunder are to be paid in U.S. dollars. 17. ENTIRE AGREEMENT. This Agreement and all Exhibits hereto embody the entire agreement and understanding of the parties hereto and supersede any prior agreement or understanding between the parties. 18. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. 19. HEADINGS. Headings of the Sections in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect. 20. BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, administrators, executors, successors and assigns; PROVIDED, HOWEVER, that nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights and remedies, obligations or liabilities under or by reason of this Agreement. 7 IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written. SOFTCHIP TECHNOLOGIES (3000) LTD. By /s/ Michael Cohen ----------------------------- Its Managing Director AMERICAN CARD TECHNOLOGY, INC. By /s/ Raymond Findley, Jr. ------------------------------ Its President 8 EX-10.9-3 29 EXHIBIT 10.9.3 EXHIBIT 10.9.3 OPTION AGREEMENT STOCK OPTION NOT UNDER A PLAN AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation (the "Company"), and SHREVEPORT ACQUISITION CORP., a Connecticut corporation (the "Optionee"), DO HEREBY AGREE as follows: 1. GRANT. The Company grants to the Optionee an option (the "Option") to purchase 100,000 shares (the "Shares") of the Company's Common Stock, par value $.001 per share ("Common Stock") at the purchase price of $5.00 a share (the "Exercise Price"). The date of grant of the Option is December 11, 1996 (the "Date of Grant"). The grant is not made pursuant to any of the Company's stock option plans. 2. PURCHASE OF SHARES. The Company shall not be obligated to issue or deliver any Shares upon exercise of the Option if to do so would violate the Securities Act of 1933, as amended (the "Securities Act"), or any state securities law. Unless a registration statement with respect to the Shares to be purchased upon exercise of the Option is in effect under the Securities Act and any applicable state securities law, the Optionee's right to purchase such Shares shall be subject to the condition that the Company shall have received such assurance as it may reasonably request that such purchase will be in accordance with an applicable exemption from the registration requirements of each such law. The Company shall have no obligation to file any such registration statement or to take any other action required or permitted by any such law. However, the Company shall give the Optionee and its counsel access to such information as may reasonably be requested to enable such counsel to express an opinion as to the availability of an exemption from such registration requirements. 3. SALE OF SHARES. The Optionee shall not be entitled to transfer the Shares except pursuant to (i) an effective registration statement under the Securities Act, or (ii) if there is no registration statement in effect, pursuant to a specific exemption from registration under the Securities Act. Prior to offering or selling the Shares upon claim of exemption, the Optionee shall obtain a written opinion from counsel reasonably satisfactory to the Company to the effect that such exemption is available and that registration of the Shares with the Securities and Exchange Commission is not required, or shall deliver a "no-action" letter from the Securities and Exchange Commission with respect to the proposed sale, transfer or distribution of the Shares. 4. TERMS OF EXERCISE. This Option may be exercised, in whole or in part, commencing on the earlier of (i) that date which is three (3) months after the closing of the Company's initial public offering or (ii) January 1, 1998. Notwithstanding the foregoing, the Optionee agrees not to sell, pledge, hypothecate, encumber, or otherwise dispose of the Shares for a period of twelve (12) months following the effective date of the Company's initial public offering, subject to earlier release at the discretion of the underwriter of such initial public offering. 5. EXPIRATION OF OPTION. This Option is not exercisable after the expiration of ten years from the Date of Grant. 6. EXERCISE AND PAYMENT. The Option shall be exercised by delivery to the Company at its principal executive office (Attention: Richard J. Shea, Jr., Secretary) of (i) a signed written notice of exercise setting forth the number of Shares to be purchased and (ii) payment in full of the option price for the Shares to be purchased. The option price to be paid upon the exercise of this Option may be made by either of the following methods: (a) payment in cash in the full amount of the option price; or (b) in lieu of cash payment, at any time until the expiration of this Option, the holder of this Option ("Holder") may, at its option, exchange the Option represented by this Option Agreement, in whole or in part (an "Option Exchange"), into the number of Shares determined in accordance with this paragraph 6(b), by surrendering this Option Agreement at the principal office of the Company accompanied by a notice stating such Holder's intent to effect such exchange, the number of Shares to be exchanged, and the date on which the Holder requests that such Option Exchange occur (the "Notice of Exchange"). The Option Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the Shares issuable upon such Option Exchange and, if applicable, a new Option Agreement (a "Remainder Option Agreement") of like tenor evidencing the Shares which were subject to the surrendered Option Agreement and not included in the Option Exchange, shall be issued as of the Exchange Date and delivered to the Holder within three (3) business days following the Exchange Date. In connection with any Option Exchange, the Holder's Option Agreement shall represent the right to subscribe for and acquire (I) the number of Shares (rounded to the next highest integer) equal to (A) the number of Shares specified by the Holder in its Notice of Exchange (the "Total Share Number") less (B) the number of Shares equal to the quotient obtained by dividing (i) the product of the Total Share Number and the existing Exercise Price per Share by (ii) the current Market Price (as hereinafter defined) of a Share of Common Stock, and (II) a Remainder Option Agreement, if applicable. "Market Price" at any date shall be deemed to be the average of the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or as reported in the NASDAQ National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ National Market System, the closing bid price as furnished by the National Association of Securities Dealers, Inc. through NASDAQ or similar organization if NASDAQ is no longer reporting such information, or if the Common Stock is not quoted on NASDAQ, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it for the day immediately preceding the Exchange Date, the day of the Exchange Date, and the day immediately after the Exchange Date. 7. RIGHTS. The Optionee shall not, by reason of the granting to it of this Option, have or thereby acquire any rights of a shareholder of the Company with respect to any Shares covered by this Option unless and until a certificate for such Shares shall have been issued and delivered to it. 8. ADJUSTMENT AND SUBSTITUTION OF SHARES. If a dividend or other distribution shall be declared upon the Common Stock payable in shares of the Common Stock, the number of shares of the Common Stock then subject to the Option may be adjusted by adding thereto the number of shares which would have been distributable thereon if such shares had been outstanding on the date fixed for determining the shareholders entitled to receive such stock dividend or distribution. 2 If the outstanding shares of the Common Stock shall be changed into or exchangeable for a different number or kind of shares of stock or other securities of the Company or another corporation, whether through reorganization, reclassification, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of the Common Stock then subject to the Option the number and kind of shares of stock or other securities into which each outstanding share of the Common Stock shall be so changed or for which each such share shall be exchangeable. In case of any adjustment or substitution as provided for in this paragraph 8, the aggregate option price for all shares subject to the Option prior to such adjustment or substitution shall be the aggregate option price for all shares of stock or other securities (including any fraction) to which such shares shall have been adjusted or which shall have been substituted for such shares. The adjusted price for each share or other security shall be carried to at least three decimal places with the last decimal place rounded upward to the nearest whole number. No adjustment or substitution provided for in this paragraph 8 shall require the Company to issue or sell a fraction of a share or other security. Accordingly, all fractions of a share or other security which result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution. All references in this Agreement to Shares shall, where the context so requires, be deemed to be references to such Shares as adjusted pursuant to this paragraph 8. 9. AMENDMENT. This Agreement may be amended unilaterally by the Company in order to comply with federal and state laws regulating options and the issuance and sale of the Company's securities. 10. INTERPRETATION. Any question which shall arise under or in any way relate to the interpretation or construction of this Option Agreement shall be resolved by the Board, and its decision shall be final, binding and conclusive for all purposes. WITNESS, the signatures of an authorized officer of the Optionee and an authorized officer of the Company as of the 11th day of December, 1996. Signed, Sealed, and Delivered in the Presence of: AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley - ----------------------------------- -------------------------------- Its President - ----------------------------------- SHREVEPORT ACQUISITION CORP. By: /s/ Lawrence Perl - ----------------------------------- -------------------------------- Its Vice President - ----------------------------------- 3 AMENDMENT TO OPTION AGREEMENT STOCK OPTION NOT UNDER A PLAN THIS AMENDMENT TO OPTION AGREEMENT, dated as of the 2nd day of January, 1998, by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation (the "Company"), and RAYMOND RONCARI, of Windsor Locks, Connecticut (the "Optionee"). WITNESSETH: WHEREAS, the Company and Shreveport Acquisition Corp., a Connecticut corporation ("Shreveport"), entered into an Option Agreement dated as of December 11, 1996 (the "Option Agreement") whereby the Company granted to Optionee an option (the "Option") to purchase 100,000 shares (the "Shares") of the Company's Common Stock, par value $.001 per share ("Common Stock") at the purchase price of $5.00 a share (the "Exercise Price"); and WHEREAS, Shreveport has assigned the Option to Optionee as of December 31, 1997; and WHEREAS, the Option restricts Optionee from transferring or disposing of any Shares for a period of twelve (12) months following the effective date of the Company's initial public offering, subject to earlier release at the discretion of the underwriter of such initial public offering. WHEREAS, the Company has entered into an agreement with an underwriter to pursue an initial public offering of Common Stock (an "IPO"); and WHEREAS, such underwriter has indicated that the IPO shall require that certain terms and conditions of the Option be adjusted so that the Option is not an impediment to the IPO; and NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Option Agreement is hereby amended as follows: (a) Paragraph 1 of the Option Agreement is hereby deleted in its entirety and the following substituted in lieu therefor: "1. GRANT. The Company grants to the Optionee an option (the "Option") to purchase 100,000 shares (the "Shares") of the Company's Common Stock, par value $.001 per share ("Common Stock") at the purchase price of $12.00 a share (the "Exercise Price"). The date of grant of the Option is December 11, 1996 (the "Date of Grant"). The grant is not made pursuant to any of the Company's stock option plans." (b) Paragraph 4 of the Option Agreement is hereby deleted in its entirety and the following substituted in lieu therefor: "4. TERMS OF EXERCISE. This Option may be exercised, in whole or in part, commencing on the earlier of (i) that date which is three (3) months after the closing of the Company's initial public offering or (ii) January 1, 1999. Notwithstanding the foregoing, the Optionee agrees not to sell, pledge, hypothecate, encumber, or otherwise dispose of the Shares for a period of twelve (12) months following the effective date of the Company's initial public offering, subject to earlier release at the discretion of the underwriter of such initial public offering." (c) Paragraph 5 of the Option Agreement is hereby deleted in its entirety and the following substituted in lieu therefor: "5. EXPIRATION OF OPTION. This Option is not exercisable after the expiration of five years from the Date of Grant." 2. Except as modified hereby, the Option Agreement remains in full force and effect and is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above written. Signed, Sealed, and Delivered in the Presence of: AMERICAN CARD TECHNOLOGY, INC. By: /s/ Lawrence O. Perl - ------------------------------ -------------------------------- Its Chief Executive Officer - ------------------------------ /s/ Raymond Roncari - ------------------------------ -------------------------------- Raymond Roncari - ------------------------------ EX-10.9-4 30 EXHIBIT 10.9.4 EXHIBIT 10.9.4 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and ROBERT DIXON (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to certain employees, consultants, and other persons who perform substantial services for the Corporation or any of its subsidiaries or affiliates, as determined by the Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee"). The Board or Committee has authorized the awarding of an option under the Plan to the Optionee. The options issued under the Plan may in some cases be entitled to favorable tax treatment afforded to "incentive stock options" under Sections 421 and 422 of the Internal Revenue Code (such an option being hereinafter sometimes referred to as an "Incentive Stock Option"). Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries or affiliates. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 50,000 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option granted herein shall constitute an Incentive Stock Option. 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00). (b) EXERCISE OF OPTION. No portion of the Option shall be exercisable prior to the consummation of an initial public offering of Common Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as follows: (i) At any time after the IPO, the Option may be exercised to the extent of one-fourth of the aggregate number of shares of Common Stock. (ii) At any time after the expiration of the next three successive anniversaries of the IPO, the first such date being one year after the date of the IPO, the Option may be exercised to the extent of an additional one-fourth of the aggregate number of shares originally covered by the Option, and the Option may also be exercised to the extent to which the right to exercise shall theretofore have accrued and not been exercised. (iii) No portion of the Option shall be exercisable after the tenth anniversary of the date of its grant, and after that date the Option shall lapse with respect to any shares of Common Stock not theretofore purchased. (iv) The Option may not be exercised for less than one hundred (100) shares of Common Stock at any one time, unless fewer than one hundred (100) shares of Common Stock remain covered by the Option, in which event the Option must be exercised for all such shares. (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full by cash or certified or bank check. No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be terminated by the Corporation or by the Optionee, with or without cause, for whatever reason other than by death, the Optionee shall have the right within three months after such termination to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of such a termination of employment, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said three months shall lapse. (f) DEATH OF OPTIONEE. (i) If the Optionee shall die, the Option shall lapse and neither the Optionee nor the Optionee's heirs or legal representatives shall have any further rights under this Agreement relating to any Option with respect to which the right to exercise shall not have accrued prior to the date of the Optionee's death. (ii) If the Optionee shall die while employed by the Corporation, or within the three-month period specified in Section 3(e) hereof, the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of death, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be transferable only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this 2 certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. 5. The Optionee acknowledges that special rules must be complied with in order to ensure that the Option remains eligible for favorable tax treatment accorded Incentive Stock Options under Section 421 of the Internal Revenue Code, and that the Optionee, in addition to conferring with appropriate representatives of the Corporation, may wish to consult with his or her personal tax adviser. 6. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 7. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8, in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8 shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 8. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be 3 imposed by law. 9. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 10. This Agreement shall be interpreted according to the laws of the State of Georgia. 11. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 12. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ------------------------ Its President Attest: /s/ Richard J. Shea, Jr. /s/ Robert Dixon - ------------------------------ ---------------------- Secretary Robert Dixon EXHIBIT A ------------------------------------------------------------ Address of Person Exercising Option -------------------------- Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: --------------------------------------------- --------------------------------------------- --------------------------------------------- _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: --------------------------------------------- --------------------------------------------- --------------------------------------------- [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: ----------------------------------------- ----------------------------------------- ----------------------------------------- D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ------------------------------------------- Robert Dixon 2 EX-10.9-5 31 EXHIBIT 10.9.5 EXHIBIT 10.9.5 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and MICHAEL PATE (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to certain employees, consultants, and other persons who perform substantial services for the Corporation or any of its subsidiaries or affiliates, as determined by the Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee"). The Board or Committee has authorized the awarding of an option under the Plan to the Optionee. The options issued under the Plan may in some cases be entitled to favorable tax treatment afforded to "incentive stock options" under Sections 421 and 422 of the Internal Revenue Code (such an option being hereinafter sometimes referred to as an "Incentive Stock Option"). Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries or affiliates. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 15,000 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option granted herein shall constitute an Incentive Stock Option. 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00). (b) EXERCISE OF OPTION. No portion of the Option shall be exercisable prior to the consummation of an initial public offering of Common Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as follows: (i) At any time after the IPO, the Option may be exercised to the extent of one-fourth of the aggregate number of shares of Common Stock. (ii) At any time after the expiration of the next three successive anniversaries of the IPO, the first such date being one year after the date of the IPO, the Option may be exercised to the extent of an additional one-fourth of the aggregate number of shares originally covered by the Option, and the Option may also be exercised to the extent to which the right to exercise shall theretofore have accrued and not been exercised. (iii) No portion of the Option shall be exercisable after the tenth anniversary of the date of its grant, and after that date the Option shall lapse with respect to any shares of Common Stock not theretofore purchased. (iv) The Option may not be exercised for less than one hundred (100) shares of Common Stock at any one time, unless fewer than one hundred (100) shares of Common Stock remain covered by the Option, in which event the Option must be exercised for all such shares. (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full by cash or certified or bank check. No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be terminated by the Corporation or by the Optionee, with or without cause, for whatever reason other than by death, the Optionee shall have the right within three months after such termination to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of such a termination of employment, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said three months shall lapse. (f) DEATH OF OPTIONEE. (i) If the Optionee shall die, the Option shall lapse and neither the Optionee nor the Optionee's heirs or legal representatives shall have any further rights under this Agreement relating to any Option with respect to which the right to exercise shall not have accrued prior to the date of the Optionee's death. (ii) If the Optionee shall die while employed by the Corporation, or within the three-month period specified in Section 3(e) hereof, the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of death, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be transferable only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. 5. The Optionee acknowledges that special rules must be complied with in order to ensure that the Option remains eligible for favorable tax treatment accorded Incentive Stock Options under Section 421 of the Internal Revenue Code, and that the Optionee, in addition to conferring with appropriate representatives of the Corporation, may wish to consult with his or her personal tax adviser. 6. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 7. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8, in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8 shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 8. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 9. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 10. This Agreement shall be interpreted according to the laws of the State of Georgia. 11. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 12. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ---------------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Michael Pate - ------------------------------- -------------------------------- Secretary Michael Pate EXHIBIT A ----------------------------------------------- Address of Person Exercising Option -------------------------- Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $____________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ____________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ----------------------------------- Michael Pate EX-10.9-6 32 EXHIBIT 10.9.6 EXHIBIT 10.9.6 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and ROBERT PATTEN (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to certain employees, consultants, and other persons who perform substantial services for the Corporation or any of its subsidiaries or affiliates, as determined by the Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee"). The Board or Committee has authorized the awarding of an option under the Plan to the Optionee. The options issued under the Plan may in some cases be entitled to favorable tax treatment afforded to "incentive stock options" under Sections 421 and 422 of the Internal Revenue Code (such an option being hereinafter sometimes referred to as an "Incentive Stock Option"). Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries or affiliates. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 10,000 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option granted herein shall constitute an Incentive Stock Option. 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00). (b) EXERCISE OF OPTION. No portion of the Option shall be exercisable prior to the consummation of an initial public offering of Common Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as follows: (i) At any time after the IPO, the Option may be exercised to the extent of one-fourth of the aggregate number of shares of Common Stock. (ii) At any time after the expiration of the next three successive anniversaries of the IPO, the first such date being one year after the date of the IPO, the Option may be exercised to the extent of an additional one-fourth of the aggregate number of shares originally covered by the Option, and the Option may also be exercised to the extent to which the right to exercise shall theretofore have accrued and not been exercised. (iii) No portion of the Option shall be exercisable after the tenth anniversary of the date of its grant, and after that date the Option shall lapse with respect to any shares of Common Stock not theretofore purchased. (iv) The Option may not be exercised for less than one hundred (100) shares of Common Stock at any one time, unless fewer than one hundred (100) shares of Common Stock remain covered by the Option, in which event the Option must be exercised for all such shares. (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full by cash or certified or bank check. No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be terminated by the Corporation or by the Optionee, with or without cause, for whatever reason other than by death, the Optionee shall have the right within three months after such termination to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of such a termination of employment, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said three months shall lapse. (f) DEATH OF OPTIONEE. (i) If the Optionee shall die, the Option shall lapse and neither the Optionee nor the Optionee's heirs or legal representatives shall have any further rights under this Agreement relating to any Option with respect to which the right to exercise shall not have accrued prior to the date of the Optionee's death. (ii) If the Optionee shall die while employed by the Corporation, or within the three-month period specified in Section 3(e) hereof, the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of death, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be transferable only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. 5. The Optionee acknowledges that special rules must be complied with in order to ensure that the Option remains eligible for favorable tax treatment accorded Incentive Stock Options under Section 421 of the Internal Revenue Code, and that the Optionee, in addition to conferring with appropriate representatives of the Corporation, may wish to consult with his or her personal tax adviser. 6. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 7. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8, in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8 shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 8. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 9. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 10. This Agreement shall be interpreted according to the laws of the State of Georgia. 11. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 12. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ----------------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Robert Patten - --------------------------------- ------------------------------- Secretary Robert Patten EXHIBIT A ______________________________________________________ Address of Person Exercising Option _____________________ Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the __________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, -------------------------------- Robert Patten EX-10.9-7 33 EXHIBIT 10.9.7 EXHIBIT 10.9.7 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and SHAWN NIXON (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to certain employees, consultants, and other persons who perform substantial services for the Corporation or any of its subsidiaries or affiliates, as determined by the Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee"). The Board or Committee has authorized the awarding of an option under the Plan to the Optionee. The options issued under the Plan may in some cases be entitled to favorable tax treatment afforded to "incentive stock options" under Sections 421 and 422 of the Internal Revenue Code (such an option being hereinafter sometimes referred to as an "Incentive Stock Option"). Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries or affiliates. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 10,000 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option granted herein shall constitute an Incentive Stock Option. 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00). (b) EXERCISE OF OPTION. No portion of the Option shall be exercisable prior to the consummation of an initial public offering of Common Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as follows: (i) At any time after the IPO, the Option may be exercised to the extent of one-fourth of the aggregate number of shares of Common Stock. (ii) At any time after the expiration of the next three successive anniversaries of the IPO, the first such date being one year after the date of the IPO, the Option may be exercised to the extent of an additional one-fourth of the aggregate number of shares originally covered by the Option, and the Option may also be exercised to the extent to which the right to exercise shall theretofore have accrued and not been exercised. (iii) No portion of the Option shall be exercisable after the tenth anniversary of the date of its grant, and after that date the Option shall lapse with respect to any shares of Common Stock not theretofore purchased. (iv) The Option may not be exercised for less than one hundred (100) shares of Common Stock at any one time, unless fewer than one hundred (100) shares of Common Stock remain covered by the Option, in which event the Option must be exercised for all such shares. (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full by cash or certified or bank check. No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be terminated by the Corporation or by the Optionee, with or without cause, for whatever reason other than by death, the Optionee shall have the right within three months after such termination to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of such a termination of employment, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said three months shall lapse. (f) DEATH OF OPTIONEE. (i) If the Optionee shall die, the Option shall lapse and neither the Optionee nor the Optionee's heirs or legal representatives shall have any further rights under this Agreement relating to any Option with respect to which the right to exercise shall not have accrued prior to the date of the Optionee's death. (ii) If the Optionee shall die while employed by the Corporation, or within the three-month period specified in Section 3(e) hereof, the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of death, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be transferable only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. 5. The Optionee acknowledges that special rules must be complied with in order to ensure that the Option remains eligible for favorable tax treatment accorded Incentive Stock Options under Section 421 of the Internal Revenue Code, and that the Optionee, in addition to conferring with appropriate representatives of the Corporation, may wish to consult with his or her personal tax adviser. 6. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 7. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8, in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8 shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 8. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 9. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 10. This Agreement shall be interpreted according to the laws of the State of Georgia. 11. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 12. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. --------------------------------- Its President Attest: /s/ Richard J. Shea, Jr. /s/ Shawn Nixon - --------------------------------- ---------------------------- Secretary Shawn Nixon EXHIBIT A ______________________________________________________ Address of Person Exercising Option _____________________ Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ______________________________ Shawn Nixon EX-10.9-8 34 EXHIBIT 10.9.8 EXHIBIT 10.9.8 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067 (hereinafter called the "Corporation"), and JEREMY ZELA (hereinafter called the "Optionee"). The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be used to award options to purchase shares of its common stock to certain employees, consultants, and other persons who perform substantial services for the Corporation or any of its subsidiaries or affiliates, as determined by the Board of Directors of the Corporation (the "Board") or a special committee of the Board (the "Committee"). The Board or Committee has authorized the awarding of an option under the Plan to the Optionee. The options issued under the Plan may in some cases be entitled to favorable tax treatment afforded to "incentive stock options" under Sections 421 and 422 of the Internal Revenue Code (such an option being hereinafter sometimes referred to as an "Incentive Stock Option"). Wherever the context so requires, the "Corporation" shall be deemed to refer to any or all of the Corporation's subsidiaries or affiliates. NOW, THEREFORE, in consideration of the premises contained herein, it is hereby agreed as follows: 1. The Corporation hereby grants to the Optionee as of the date of this Agreement the right and option to purchase (hereinafter called the "Option") all or any part of an aggregate of 5,000 shares of the Corporation's common stock, with a par value of $.001 per share (hereinafter called the "Common Stock"), on the terms and conditions herein set forth. 2. The Option granted herein shall constitute an Incentive Stock Option. 3. The Optionee's right to exercise the Option shall be subject to the following terms and conditions: (a) OPTION PRICE. The price per share with respect to the Option shall be Twelve and 00/100 Dollars ($12.00). (b) EXERCISE OF OPTION. No portion of the Option shall be exercisable prior to the consummation of an initial public offering of Common Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as follows: (i) At any time after the IPO, the Option may be exercised to the extent of one-fourth of the aggregate number of shares of Common Stock. (ii) At any time after the expiration of the next three successive anniversaries of the IPO, the first such date being one year after the date of the IPO, the Option may be exercised to the extent of an additional one-fourth of the aggregate number of shares originally covered by the Option, and the Option may also be exercised to the extent to which the right to exercise shall theretofore have accrued and not been exercised. (iii) No portion of the Option shall be exercisable after the tenth anniversary of the date of its grant, and after that date the Option shall lapse with respect to any shares of Common Stock not theretofore purchased. (iv) The Option may not be exercised for less than one hundred (100) shares of Common Stock at any one time, unless fewer than one hundred (100) shares of Common Stock remain covered by the Option, in which event the Option must be exercised for all such shares. (c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee shall exercise the Option by giving a written notice of exercise, in the form attached to this Agreement as EXHIBIT A, to the President of the Corporation, indicating the number of shares of Common Stock to be purchased, and tendering payment in full by cash or certified or bank check. No shares shall be issued or delivered until full payment therefor has been made. The Optionee shall have none of the rights of a shareholder, in respect of the Common Stock, except with respect to shares actually issued to the Optionee. (d) NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the Optionee's lifetime, only the Optionee may exercise the Option. (e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be terminated by the Corporation or by the Optionee, with or without cause, for whatever reason other than by death, the Optionee shall have the right within three months after such termination to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of such a termination of employment, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said three months shall lapse. (f) DEATH OF OPTIONEE. (i) If the Optionee shall die, the Option shall lapse and neither the Optionee nor the Optionee's heirs or legal representatives shall have any further rights under this Agreement relating to any Option with respect to which the right to exercise shall not have accrued prior to the date of the Optionee's death. (ii) If the Optionee shall die while employed by the Corporation, or within the three-month period specified in Section 3(e) hereof, the executor or administrator of the estate of the Optionee, or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution, shall have the right within one year from the date of the Optionee's death to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of death, except to the extent the Option shall have been exercised or shall have expired. Any portion of the Option not exercised within said one-year period shall lapse. 4. Shares of Common Stock issued upon the exercise of any portion of the Option granted under this Agreement shall be transferable only pursuant to an effective registration or exemption from registration under the Securities Act of 1933, as amended. Stock certificates representing shares of Common Stock shall bear a legend in substantially the following form: The shares of the Corporation's common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except pursuant to an effective registration, or exemption from registration, under said Act. 5. The Optionee acknowledges that special rules must be complied with in order to ensure that the Option remains eligible for favorable tax treatment accorded Incentive Stock Options under Section 421 of the Internal Revenue Code, and that the Optionee, in addition to conferring with appropriate representatives of the Corporation, may wish to consult with his or her personal tax adviser. 6. Subject to the restrictions of this Agreement, the Optionee shall have all the rights of a shareholder in respect of the Common Stock issued hereunder, beginning with the date of issuance of the Common Stock. The Common Stock shall be fully paid and non-assessable. 7. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to this Option shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger, or consolidation, then there shall be substituted for each share of Common Stock subject to this Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Corporation shall sell all or substantially all of its assets, the Corporation shall use reasonable efforts to effect some other adjustment of this Option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8, in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares then subject to this Option, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Option. In the case of any such substitution or adjustment as provided for in this paragraph, the Option Price in this Option for each share covered hereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this Section 8 shall require the Corporation to sell a fractional share; and the total substitution or adjustment with respect to this Option shall be limited accordingly. Any of the foregoing adjustments or substitutions in the shares subject to the Option shall not limit applicability of the restrictions hereunder and such restrictions shall automatically apply to all Common Stock or other securities issued by the Corporation and at any time held by the Optionee by virtue of having exercised the Option. 8. The Optionee represents and agrees to represent and agree at the time of the exercise of the Option that any and all Common Stock purchased pursuant to the exercise of the Option will be purchased for investment and not with a view to the distribution or resale thereof, and that the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in this Agreement or as may be imposed by law. 9. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 10. This Agreement shall be interpreted according to the laws of the State of Georgia. 11. 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 Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. 12. This Agreement and the Plan which is hereby incorporated by reference herein contain the entire agreement of the parties with respect to the Common Stock. All prior agreements and understandings are merged herein. No amendment or modification hereof shall be binding unless in writing and signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year as first above written. Seal AMERICAN CARD TECHNOLOGY, INC. By: /s/ Raymond Findley, Jr. ------------------------------------ Its President Attest: /s/ Richard J. Shea, Jr. /s/ Jeremy Zela - ----------------------------- ------------------------------------ Secretary Jeremy Zela EXHIBIT A ______________________________________________________ Address of Person Exercising Option _____________________ Date American Card Technology, Inc. 1355 Terrell Mill Road - Suite 200 Marietta, Georgia 30067 Attention: President Dear Sirs: I hereby elect to exercise the Option to purchase shares of Common Stock of the Corporation awarded to me on February 2, 1998. A. The number of shares being purchased: ________ shares at $12.00 per share. B. I desire to follow Procedure 1 or Procedure 2, as indicated below: [CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT PROCEDURE ONLY]. _____ PROCEDURE 1: A certified or bank cashier's check payable to the order of the Corporation in the amount of $_______________ [insert the full purchase price of the shares being purchased] is attached. The certificate or certificates should be mailed or delivered to: _____________________________________________ _____________________________________________ _____________________________________________ _____ PROCEDURE 2: Payment of $_______________, being the full purchase price of the shares being purchased, is to be made by certified or bank cashier's check payable to the order of the Corporation at the office of the Corporation, 1355 Terrell Mill Road - Suite 200, Marietta, Georgia, against delivery of a certificate or certificates representing such shares to me or my representative, on the ______________ [here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth] business day from the date of this notice is received by the Corporation. Please advise me of the exact date and time when payment and delivery will take place. I will [check one] _____ appear personally to make payment and accept delivery _____ be represented by: _____________________________________________ _____________________________________________ _____________________________________________ [here insert name and address of bank or other representative authorized to act for you]. C. The certificate or certificates for the shares being purchased should be registered and the name and address to be shown on the Corporation's stock records should be as follows: _____________________________________________ _____________________________________________ _____________________________________________ D. I represent and agree that the shares as to which I am hereby exercising an option are being purchased for investment and not with a view to the distribution or resale thereof, and the Common Stock will not be sold except in accordance with the restrictions or limitations set forth in the Stock Option Agreement or as may be imposed by law. Sincerely yours, ______________________________ Jeremy Zela EX-23.1 35 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS American Card Technology, Inc. We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report (which contains an explanatory paragraph regarding uncertainties about the Company continuing as a going concern) dated March 10, 1998, relating to the financial statements of American Card Technology, Inc. which is contained in that Prospectus. We also consent to the reference to us under the captions "Experts" and "Selected Financial Data" in the Prospectus. /s/ BDO Seidman ----------------------- BDO Seidman, LLP New York, New York May 1, 1998 EX-23.2 36 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF LEGAL COUNSEL We hereby consent to the filing of this opinion of counsel, dated May 4, 1998, with the Securities and Exchange Commission as an exhibit to the Offering Statement. /s/ Bartz & Bartz ----------------------- BARTZ & BARTZ Edina, MN. May 4, 1998 EX-23.3 37 EXHIBIT 23.3 EXHIBIT 23.3 UNDERWRITERS CONSENT AND CERTIFICATION -------------------------------------- The sales of this offering will be through Regulation S-B, Form SB-2. The Underwriter (Rockcrest Securities, LLC.) will receive ten percent commission from the sales of this offering. This offering will only be sold by the following: ROCKCREST SECURITIES, LLC. 3626 N. HALL STREET, SUITE 920 DALLAS, TX. 75219 CONSENT AND CERTIFICATION BY UNDERWRITER - ---------------------------------------- 1. The undersigned hereby consents to being named as underwriter in an offering statement filed with the Securities and Exchange Commission and the following States; Illinois, Texas, Massachusetts, Colorado, California, Florida, Louisiana, Kansas, Nevada, Oklahoma, Oregon, Idaho, Washington, Connecticut and the Georgia Securities Division by [AMERICAN CARD TECHNOLOGY, INC.] pursuant to Regulation S-B, in connection with a proposed offering of [COMMON STOCK] to the public. 2. The undersigned hereby certifies that it furnished the statements and information set forth in the offering statement with respect to the undersigned, its directors and officers or partners, that such statements and information are accurate, complete and fully responsive to the requirements of Disclosure Document and Exhibits of the Offering Statement thereto, and do not omit any information required to be stated therein with respect of any such persons, or necessary to make the statements and information therein with respect to any of them not misleading. 3. If Preliminary Offering Circulars are distributed, the undersigned hereby undertakes to keep an accurate and complete record of the name and address of each person furnished a Preliminary Offering Circular and, if such Preliminary Offering Circular is inaccurate or inadequate in any material respect, to furnish a revised Preliminary Offering Circular or a Final Offering Circular to all persons to whom the securities are to be sold at least 48 hours prior to the mailing of any confirmation of sale to such persons, or to send such a circular to such persons under circumstances that it would normally be received by them 48 hours prior to their receipt of confirmation of the sale. Rockcrest Securities, LLC. - ----------------------------------- (Underwriter) By: /s/ James S. Harris Date: 4 \ 30\ 98 --------------------- ------------------- President (d) All written consents shall be dated and signed manually signed. IN WITNESS WHEREOF I have hereunto set my hand and official seal /s/ Michael Kosloske [SEAL] ----------------------------------- MICHAEL W. KOSLOSKE Notary Public NOTARY PUBLIC-MINNESOTA HENNEPIN My Commission Expires: 1/31/2000 My Comm. Exp. January 31, 2000 ------------- EX-27.0 38 EXHIBIT 27.0
5 YEAR 3-MOS DEC-31-1997 DEC-31-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 MAR-31-1998 27,203 155,437 0 0 6,730 26,603 0 0 3,918 1,735 77,736 272,908 161,097 167,844 (69,692) (78,538) 594,536 890,440 4,144,316 3,617,452 0 1,250,000 0 0 0 0 2,625 2,525 (3,552,405) (3,979,537) 594,536 890,440 76,912 59,589 76,912 59,589 86,995 74,507 86,995 74,507 1,436,885 728,587 0 0 1,065,240 283,727 (2,512,208) (1,027,232) 0 0 (2,512,208) (1,027,232) 0 0 0 0 0 0 (2,512,208) (1,027,232) (.96) (.40) (.96) (.40)
EX-99.1 39 EXHIBIT 99.1 EXHIBIT 99.1 United States Patent (19) (11) Patent Number: 5,629,508 (45) Date of Patent: May 13, 1997 FINDLEY, JR. ET AL. [54] DUAL SMART CARD ACCESS CONTROL ELECTRONIC DATA STORAGE RETRIEVAL SYSTEM AND METHODS. [75] Inventors: Raymond Findlev, Jr.: Robert Dixon. both of Marietta. GA. [73] Assignee: American Card Technology, Inc., Marietta. GA. [21] Appl. No.: 383,937 [22] Filed: Feb. 6, 1995 Related U.S. Application Data [63] Continuation of Ser. No. 352,837, Dec. 2. 1994. abandoned [51] Int. CL G06K 5/00 [52] U.S. Cl. 235/38 R. 235/380 [58] Field of Search 235/380. 375. 235/382. 492. 487; 283/900, 380/3. 4. 23 [56] References Cited U.S. PATENT D0CUMENTS 4,677,604 6/1937 Selby, III..................235/462 4,709,136 11/1987 Watanabe.................5/38O X 5.065,429 11/1991 Lang.........................380/4 5,.316,993 5/1994, Okuno .....................235/380 5,367,150 11/1994 Kitta et al. ..............235/380 5.,513,169 4/1996 Fite et a1. ..................380/3 Primary Examiner-Donald T. Hajec Assistant EXAMINER-Thien Minh Le Attorney, Agent, or Firm-Shoemaker and Mattare Ltd. [57] ABSTRACT The present invention pertains to an electronic data access and retrieval system comprising at least first and second smart cards, a first card being encoded with digital data fields representative of predetermined information and a second card including authorization codes for enabling access to and authorized retrieval of selected information from digital data fields of the first card. and includes computer means including display means for displaying the access data. A method is also disclosed of operating an electronic secured access verification. display system for displaying an indication of permissible and non-permissible access to a facility of authorized personnel and for verifying the identity of such personnel by providing IDENTITY SMART CARDS. one for each authorized person, and an ACCESS SMART CARD to each authorized operator of the system. 5 Claims, 10 Drawing Sheets AUTHORIZED RACING SYSTEM [PICTURE] U.S. Patent May 13, 1997 Sheet 1 of 10 5,629,508 FIGURE 1 AUTHORIZED RACING SYSTEM [PICTURE] U.S. Patent May 13, 1997 Sheet 2 of 10 5,629,508 FIGURE 2 UNAUTHORIZED SYSTEM-NO ACCESS CARD [PICTURE] U.S. Patent May 13, 1997 Sheet 3 of 10 5,629,508 FIGURE 3 UNAUTHORIZED SYSTEM-WRONG ACCESS CARD [PICTURE] U.S. Patent May 13, 1997 Sheet 4 of 10 5,629,508 FIGURE 4 AUTHORIZED DRIVERS LICENSE SYSTEM [PICTURE] U.S. Patent May 13, 1997 Sheet 5 of 10 5,629,508 FIGURE 5C MASTER CARD [PICTURE] FIGURE 5A ACCESS CARD [PICTURE] FIGURE 5B IDENTITY CARD [PICTURE] U.S. Patent May 13, 1997 Sheet 6 of 10 5,629,508 FIGURE 6 DISPLAY IDENTITY (LICENSE) CARD DATA [PICTURE] U.S. Patent May 13, 1997 Sheet 7 of 10 5,629,508 FIGURE 7 ISSUE LICENSE CARD [PICTURE] U.S. Patent May 13 1997 Sheet 8 of, 10 5,629,508 FIGURE 8 ISSUING ACC SS CARDS [PICTURE] U.S. Patent May 13, 1997 Sheet 9 of 10 5,629,508 FIGURE 9 DUAL-CARD ACCESS CARD ISSUING STATION [PICTURE] U.S. Patent May 13, 1997 Sheet 10 of 10 5,629,508 FIGURE 10 DUAL-CARD LICENSE CARD ISSUE/UPDAT STATION [PICTURE] 5,629,508 1 DUAL SMART CARD ACCESS CONTROL ELECTRONIC DATA STORAGE AND RETRIEVAL SYSTEM AND METHODS This application is a continuation of U.S. application Ser. No. 08/352.837, filed on Dec. 2. 1994. now abandoned entitled as set forth above. A portion of the disclosure of this patent document contains material, which is subject to copyright or mask work protection. The copyright or mask work owner has no objection to the facsimile reproduction by anyone of the patent document or the patent disclosure, as it appears in the Patent and Trademark Office patent file or records, but otherwise reserves all copyright or mask work rights whatsoever. INCORPORATION BY REFERENCE The software utilized in the system and methods of the invention has been registered in the U.S. Copyright Office under Copyright Registration No. TX 3-639-032, which includes "Microsoft Access" under Microsoft License Agreement. The registered deposit for this copyright registration is available to die public for inspection and copy at the U.S. Copyright Office. Applicants and their Assignee hereby incorporate herein by reference said copyrighted software (non-patent publication). FIELD OF THE INVENTION It is most advantageous to have an automatic system and methods for identifying people or personnel and providing secured access to a facility of authorized personnel upon verifying the identity of such personnel. What is clearly needed is a means of and methods for providing automatic rapid and positive verification of persons who previously have been authorized access to secured areas. The present invention system and methods have various market applications one being a race track facility operation having various types of employees and participants, such as pari-mutuel employees, gaming employees. Jockeys. Animal owners (thoroughbred. greyhound. etc.) and others, and it is desirous to license these people so that you can control their respective access to various respective secured areas of the race track facility. Accordingly the present invention provides methods of operating an electronic secured access verification display system for displaying an indication of permissible and non-permissible to a facility of authorized personnel and for verifying the identity of such personnel. comprising the steps of: a) Providing a plurality of IDENTITY smart cards one for each authorized person each encoded with digital data representative of personal identity and including official information and a digitized photograph indicative of each authorized person; b) Providing an ACCESS smart card to each authorized operator of the system each ACCESS card being encoded with control data elements mandatory to operate the system to display permissible and non-permissible access to the facility of each authorized person having an IDENTITY smart card indicative of the identity of each authorized person; and c) Inserting into the display system an ACCESS smart card and one of die plurality of IDENTITY smart cards to display permissible and non-permissible access to the facility. Furthermore the following method steps are also incorporated into the invention: 5 a) upon the occurrence of insertion into the system of both the ACCESS card and IDENTITY card electronically reading the ACCESS card and determining which fields of data of the IDENTITY card are to be displayed reading such determined fields of data from the IDENTITY card and displaying the determined fields of data of the IDENTITY card along with die digitized photograph; 10 b) determining if die IDENTITY card inserted into die system is allowed access to the facility by comparing secured area assignment data contained in the ACCESS card with secured area assignment dam contained within the IDENTITY card, and 15 c) displaying permissible access and non-permissible access messages dependent upon verifying both the identity of the IDENTITY card holder and the acceptance of the IDENTIT'Y card by the ACCESS card of the authorized operator of the system. 20 The method invention further includes the step of encoding each ACCESS card with authorization codes for enabling retrieval of selected data field information from the IDENTITY card. 25 A long-felt need also exists to provide an electronic data access and retrieval system and a method for accessing and retrieving digital data information from persons by authorized operator/officials of a secured access facility and for various other purposes. Accordingly the present invention further provides an electronic data access and retrieval 30 system comprising: At least first and second smart cards a first card being encoded with digital data fields representative of pre-determined information and a second card including authorization codes for enabling retrieval of selected information from die first card; 35 computer means including display means for displaying accessed data and having at least first and second smart card read/write means operatively connected to the computer means for reading data fields from and writing data fields to the first and second smart cards; and whereby when the first smart card is placed into the first read/write means and the second smart card is placed into the second read/write means, authorized retrieval of at least some of the data fields contained in the first card is enabled and displayed. 40 45 The inventive method of the above-referenced accessing and retrieving digital data information system comprises die steps of: 50 a) encoding a first smart card with digital data fields representative of predetermined information. b) Encoding a second smart card with authorization codes for enabling authorized retrieval of selected data field information from die first card; c) Electronically reading the authorization codes from die second smart card and retrieving selected information from digital data fields contained in the first smart card, and d) Displaying the selected information. 60 The foregoing and other objects, features and advantages of the invention will be apparent from the following more detailed description of preferred embodiments and methods of the invention as illustrated in die accompanying drawings. 65 Fore the sake of brevity, a brief Summary of the Invention system and methods is presented hereinbefore and is not presented separately. BRIEF DESCRIPTION OF THE DRAWINGS FIG. 1 shows a preferred embodiment of the system invention applicable to an authorized racing track operation. FIG. 2 depicts the FIG. 1 system, which cannot be operatively enabled without the use of an ACCESS card. FIG. 3 illustrates a FIG. 1 system operation display message, which occurs when an unauthorized ACCESS card is used with an authorized card. FIG. 4 shows a system embodiment applicable to an authorized Driver's License information access and retrieval operation. FIG. 5A, 5B, 5C graphically depict in exemplary form an ACCESS smart card A. an INDENTITY (License) SMART card B. and a MASTER smart card C, each of which incorporate firmware shown a A1 B1 and C1. Respectively. FIG. 6 is a flow chart diagram showing a system operation to display IDENTITY card data. FIG. 7 is a flow chart diagram showing a system operation for issuing IDENT1TY (License) cards. FIG. 8 is a flow chart diagram showing a system operation to issue ACCESS cards. FIG. 9 depicts, in graphic form a dual-card ACCESS smart card issuing station. FIG. 10 depicts in graphic form a dual-card IDENTITY smart card issue/update station the updating function being almost identical to that of FIG. 7 except the system checks that the identity card has been written to. DESCRIPTION OF INVENTION SYSTEM AND MET'HODS The dual-card inventive concept of ACCESS cards and IDENTITY (license) cards are utilized in tandem to supply the functionality of the system. FIG. 1 shows a preferred embodiment of the system invention applicable to an authorized racing track operation. Wherein computer 10 includes a display 20, ACCESS card reader 30 for ACCESS card A is connected via communication link (line) to computer 10 via a parallel port means, and IDENTITY card reader 40 for IDENTITY card B is connected via communication Link/line 60 to computer 10 via the parallel port means. The system of a preferred embodiment constructed in accordance with the present invention and methods, and described with reference to the respective drawings, can be constructed from the following Table, which lists examples of the depicted components: TABLE A COMPONENT DESCRIPTION PC COMPUTERSTATION 10 Gateway 2000 486/dx2/66V having two RS-232 Serial Ports and a Parallel Port Two 9600P Smart Card New Datacom 9600P Readers 30 and 40 ACCESS Smart Card A Smart Card with Motorola SC-21 chip INDENTITY Smart Card B Smart Card with Motorola SC-11 chip The invention system and methods utilize smart card technology components, which may be defined as a card component that incorporates an integrated circuit chip Therein (IC chip) as set forth above with respect to ACCESS smart card A and IDENTITY smart card B. An accepted industry-wide definition of a "smart card" is a credit card size device/component containing an embedded microprocessor chip that 5 stores information for retrieval, which information has previously been written therein. The ACCESS card A is the key to writing and reading all information gored in the IDENTITY card B. Without a suitable ACCESS card. Updated information cannot be stored in the IDENTITY card and existing information is inaccessible. 10 ACCESS cards are tailored to die information requirements of the individual issuing the IDENTITY cards and each operator of the system has an ACCESS card which determines which fields that operator is able to write to and 15 read from the IDENTITY card such card issuing procedures being described in further detail hereinafter along with a MASTER card feature. 20 For each secured area access, a plurality of IDENTITY smart cards are issued one for each authorized person. And each is encoded with digital data representative of personal identity and including official information and a digitized photograph indicative of each authorized person. Also, a photograph of the authorized person can be imprinted on or affixed to the face of an IDENTITY card. 25 An ACCESS smart card is issued to each authorized operator of the system station located at the secured access area and each ACCESS card is encoded with control data elements mandatory to operate the system station to display 30 permissible and non-permissible access to the secured area of each authorized person having an IDENTITYY card indicative of the identity of each authorized person. The ACCESS card A importantly includes authorization codes for enabling retrieval of selected information from a compatible IDENTITY card B. 35 When the ACCESS card is inserted into read/write component 30 and the IDENTITY card B is inserted into INDENTITY read/write component 40. and these cards are compatible with each other as to accessible fields of data, the 40 authorized information is read from the IDENTITY card and displayed on display means 20. Depending on the type of accessible fields of data information, or profile, of an individual's ACCESS card. The user/holder of the ACCESS card can be limited to the fields of data that are to be written to 45 or read from the IDENTITY card. The controlling "profile" resides in the ACCESS card. Thus as shown in FIG. 1, compatible ACCESS and IDENTITY cards have been inserted into the respective readers and the system is enabled to retrieve selected information from the IDENTITY card 50 that is displayed on display means 20. One of die features of the system invention pertains to having an ACCESS card encoded with control data elements mandatory to operate the system station to display permissible and non-permissible access to a secured area. These 55 control data elements of the card's operating system that reside in the ACCESS card are encoded data containing information on how to read and write to the IDENTITY card which also allows activation of a set of instructions that can reside in the ACCESS card, in the hardware, in the 60 software in the computer 10, or any combination thereof. A different ACCESS card will be able to read different data fields in an IDENTITY card if it is programmed to do so. Now with respect to FIG. 2, for each system operation a first attempt is made to mad the ACCESS card, and. if no 65 ACCESS card is inserted into the ACCESS card reader 30, then system operation is not enabled, thus, the information contained in the IDENTITY card cannot be read and Displayed, and a display message of "insert ACCESS card" occurs on the display. With the inventive system the authorized operator of the computer 10 station located at the entrance to a secured s area is able to peruse personal or history data contained in the signed, data fields of the IDENTITY smart card. In the racing track application the authorized operator can view information encoded on the IDENTITY card, which could include information as to the various states in which the holder of the IDENTITY card is licensed, as well as any penalty information that that person has received in regard to racing, and other information including date of birth. Height, weight, address of the IDENTITY card holder. FIG. 3 depicts a FIG. 1 system operation display message, which occurs when an unauthorized ACCESS card is used with an authorized. IDENTITY card. Accordingly, when the ACCESS card and IDENTITY card conflict not matching correct fields, an error message appears describing the mismatch and only inserting the matching cards allows activation of the system station. FIG. 4 shows a system embodiment applicable to an authorized Driver's License information access and retrieval operation. Another application of the present system and method. Thus, by changing and appropriately programming an ACCESS card means. The entire Card Operating System can be changed without any hardware modifications, which affords easy functionality and added capabilities. Now with respect to FIG. 5, an exemplary showing of smart cards utilized in the present system and methods each of the cards incorporate firmware Al. B1, and Cl, respectively for the ACCESS. IDENTITY and MASTER cards, the Later of which will be described hereinafter. FIG. 6 provides disclosure of a flow chart diagram showing a system operation to display IDENTITY card dam as shown. An ACCESS card is inserted and an IDENTITY card is inserted the ACCESS card is interrogated to be compatible or non-compatible with the inserted IDENTITY and, if compatible field definitions and assignment and authorization code fields are read from the ACCESS card, an access decision is made and. if allowed selected information from the digital data fields of the IDENTITY card are displayed. Various advantages are created and are available within the invention system and methods, some of which are as follows. ACCESS control cards permit or deny access to the data contained within an IDENTITY card. These parameters arc established by the person who owns and/or administers the system Dual-card access control allows an administrator graduations of authority to thereby provide various levels of security and access to various operators, employees, etc. An individual's ACCESS card allows variable levels of security. This is permits access to certain data stored on the card defined by die administrator. For example a security guard may only see a picture for positive ID (identification) of an IDENTITIY card bolder and determines whether the individual card holder has permission to enter an area However, the supervisor of a security guard may have a differently encoded ACCESS card with a higher level of security, which would allow the supervisor to view on the display not only the picture of the IDENTITY card holder and access permitted. But also a display may be obtained of all IDENTITY card holder's personal data, such as address. Phone, rulings, etc. which are on file in the IDENTITY card data fields all of this occurring when die supervisor places 5,629,508 His particularly programmed ACCESS card into the invention system. Such capacity therefore, satisfies various issues as to personal privacy and this feature of the invention can thus provide a plurality of different ACCESS cards each one 5 of which may contain different levels of security access to the information contained within an IDENTITY card carried or worn by persons, employees, etc. The invention system also allows the communication of messages through the system on a one-to-one or group basis. 10 and a message list can specify which messages are to be displayed when an individual's IDENTITY card is inserted into the respective reader component. From the foregoing, one can clearly imagine various other applications of the system and methods provided herein. 15 such as licensing professionals providing medical histories inclusive of allergy perimeters for each cardholder, patron tracking, and any other kind of licensing or personal history data information. 20 FIG. 7 is a flow chart diagram showing a system operation for issuing IDENTITY (License) cards. As shown therein, an ACCESS card is used to issue a license card and upon insertion of both cards a password is entered and, if the password is 25 acceptable, a query is made for "Are fields writable?" and, if so, a decision is made as to the acceptance of the IDENTITY card and if OK, data fields of information are written to the IDENTITY card such being checked for any errors or problems; and, if yes the error is displayed; and if no, a display results and the operation is terminated. 30 FIG. 8 depicts a flow chart diagram showing a system operation to issue ACCESS cards and. as shown, a MASTER card is utilized. The MASTER card contains information on how to program the ACCESS card and, without a MASTER card, no ACCESS cards can be issued. 35 Accordingly both the MASTER and ACCESS cards are inserted an appropriate password is entered a decision is made as to the acceptance of the ACCESS card and if not, a display error occurs, and if the ACCESS card is accepted then data fields including authorization codes are written to 40 the ACCESS card, whereafter the written fields arc checked for error and, if yes, the error is displayed and, if no problems are found, the display renders a successful message. FIG. 9 depicts, in graphic form, a dual-card ACCESS 45 smart card issuing station within which a system function of FIG. 8 is accomplished. As shown in FIG. 9. the MASTER card and ACCESS card are inserted, into their respective reader components A and B. which are respectively connected to the COM1 and COM2 serial ports of computer 10. 50 AP/Verifier included in computer 10 represents "Application programming Interface/Verifier" which constitutes software residing in the PC computer 10 for the Card Operating System. FIG. 10 depicts in graphic form a dual-card IDENTITY 55 card issue/update station the updating function being almost identical to issuing IDENTITY cards, except that the depicted system checks that the IDENTITY card has been written to. The disclosure set forth hereinabove with reference to the 60 drawings and the incorporation by reference to the copyrighted system program will enable any person Skilled in the to which this invention pertains to assemble and operate the system in accordance with the inventive methods provided herein. It should also be obvious to one skilled in the 65 art that even though communications links/lines 50 and 60 have been depicted as wired lines various other communication link equivalence could be utilized. 5,629,508 Thus it is apparent that there has been provided in accordance with the system invention and methods an electronic data access and retrieval system and a method of accessing and retrieving digital data information which is applicable to the operation of an electronic secured access verification display system and that fully satisfies the objectives and advantages set forth above. It is also further apparent that system operations for issuing IDENTITY cards. ACCESS cards and dual-card ACCESS or IENDTITY smart card issuing stations have been shown and disclosed. While the invention system has been described in conjunction with specific embodiments thereof. It is evident that many alternatives, modifications, variations and applications will be apparent to those skilled in the art in light of the foregoing description. Accordingly it is intended to embrace all such alternatives modifications and variations which fall within the spirit and scope of the appended system and method claim We Claim: 1. An electronic data access and retrieval system comprising: At least first and second smart cards a first card being encoded with digital data fields representative of predetermined information and a second card including authorization codes for enabling access to and authorized retrieval of selected information from said digital data fields of said first card; Computer means including display means for displaying the accessed data and having at least first and second smart card read/write means operatively connected to said computer means for reading data fields from and writing data fields to said first and second smart cards; Whereby when the said first smart card is placed into said first read/write means and the said second smart card is placed into said second read/write means access to and authorized retrieval of at least some of the data fields contained in the said first card is enabled and displayed. 2. A method of accessing and retrieving digital data information comprising the steps of. a) Encoding a first smart card with digital data fields representative of predetermined information; b) Encoding a second smart card with authorization codes for enabling access to and authorized retrieval of selected data field information from said digital data fields of said first card, c) Electronically reading said authorization codes from said second smart card and retrieving said selected information from said digital data fields contained in said first smart card; and d) Displaying the said selected information. 3. Method of operating an electronic secured access verification display system for displaying an indication of permissible and non-permissible access to a facility of 5 authorized personnel and for verifying the identity of such personnel comprising the steps of. a) Providing a plurality of IDENTITY smart cards one for each authorized person each encoded with digital data representative of personal identity and including official 10 information and a digitized photograph indicative of said each authorized person; b) Providing an ACCESS smart card to each authorized operator of said system each ACCESS card being 15 encoded with control data elements mandatory to operate said system to display permissible and non-permissible access to said facility of each authorized person having an IDENTITY smart card indicative of the identity of said each authorized person; c) Inserting into said display system an ACCESS smart card and one of said plurality of IDENTITY smart cards to display permissible and non-permissible access to said facility. 4. The method as defined in claim 3 further including the steps of: 25 a) upon the occurrence of insertion into said system of both said ACCESS card and said IDENTITY card electronically reading the said ACCESS card and determing which fields of data of the said IDENTITY card 30 are authorized to be displayed reading such determined and authorized fields of data from said IDENTITY card and displaying the determined fields of data of said IDENTITY card along with said digitized photograph; b) Determining if the said IDENTITY card inserted into said system is allowed access to said facility by comparing secured area assignment data contained in said ACCESS card with secured area assignment data contained within said IDENTTIY card; 40 c) displaying permissible access and non-permissible access messages dependent upon verifying both the identity of the IDENTITY card holder and the acceptance of the said IDENTITY card by said ACCESS card 45 of said authorized operator of the said system 5. The method as defined in claim 3 further including the step of encoding each 50. ACCESS card with authorization codes for enabling retrieval of selected data field information from the said IDENTITY card. EX-99.2 40 EXHIBIT 99.2 EXHIBIT 99.2 HAROLD ROTHSTEIN 650 BOCA MARINA COURT BOCA RATON, FLORIDA 33487 - ------------------------------------------------------------------------------- April 15, 1998 American Card Technology, Inc. 2470 Windy Hill Road, Suite 300 Marietta, Georgia 30067 Re: Bank Loans to American Card Technology, Inc. Ladies and Gentlemen: I refer to (i) a Line of Credit to American Card Technology, Inc. (the "Company") from Fleet National Bank ("Fleet") in the maximum principal amount of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00), as evidenced by a promissory note in said amount dated June 28, 1996 (the "Fleet Loan"), and (ii) a Business Installment Loan in the amount of One Hundred Thousand and 00/100 Dollars ($100,000.00) to the Company from The Chase Manhattan Bank ("Chase," and together with Fleet, sometimes collectively referred to herein as the "Banks"), as evidenced by a promissory note in said amount dated October 28, 1996 (the "Chase Loan," and together with the Fleet Loan, sometimes collectively referred to herein as the "Loans"). I hereby represent to the Company that, as of the date hereof, I have a net worth in excess of One Million and 00/100 Dollars ($1,000,000.00). For good and valuable consideration, I hereby agree to do either of the following, at my option, if demand is made on the Company by Fleet and/or Chase with respect to the Fleet Loan and/or the Chase Loan prior to the earlier of (i) the net proceeds disbursed pursuant to the Company's initial public offering (the "IPO") equal or exceed $5,100,000.00 or (ii) the closing of a subsequent debt financing negotiated by Lilly Beter Capital Group ("LBCG"). American Card Technology, Inc. April 15, 1998 Page 2 1. Secure replacement financing to pay off the demanded Loan from another lender on the same terms and conditions as the demanded Loan(s) was originally made, except that such new loan shall not be due and payable until the earlier of (i) the net proceeds disbursed pursuant to the IPO equal or exceed $5,100,000.00, or (ii) the closing of a subsequent debt financing negotiated by LBCG, or (iii) January 1, 2001; or 2. Satisfy the demanded Loan in full, either through the collateral security I have previously pledged to the Bank with respect to the demanded Loan or through some other means satisfactory to the Banks. In the event that I personally provide satisfaction of a Loan, the Company hereby agrees and acknowledges that I shall be subrogated to all rights of the Bank with respect to that Loan, so that I shall be treated in the same manner as the Bank would have been treated had the Loan not been satisfied, including, without limitation, repayment of all amounts I paid to the Bank on behalf of the Company with respect to the Loan, on the earlier of (i) the net proceeds disbursed pursuant to the IPO equal or exceed $5,100,000.00, or (ii) the closing of a subsequent debt financing negotiated by LBCG, or (iii) January 1, 2001. If the Company is in agreement with the foregoing, please so indicate by countersigning below. Sincerely yours, /s/ Harold Rothstein ------------------------------ Harold Rothstein ACCEPTED AND AGREED TO AS OF THE 15TH DAY OF APRIL, 1998: AMERICAN CARD TECHNOLOGY, INC. By: /s/ Lawrence O. Perl ------------------------------ Its Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----