U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
Nevada 84-1483138
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
701 Automation Drive, Windsor, Colorado 80550
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(Address of Principal Offices) (Zip Code)
(970) 686-2444
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(Issuer's Telephone Number)
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Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which to be so Registered Each Class is to be Registered ------------------- ------------------------------ |
Securities to be registered under Section 12(g) of the Act:
TABLE OF CONTENTS
PART I
Item 1: Description of Business................................................................. 1
Item 2: Management's Discussion and Analysis or Plan of Operation............................... 11
Item 3: Description of Property................................................................. 16
Item 4: Security Ownership of Certain Beneficial Owners and Management.......................... 16
Item 5: Directors, Executive Officers, Promoters and Control Persons............................ 18
Item 6: Executive Compensation.................................................................. 19
Item 7: Certain Relationships and Related Transactions.......................................... 21
Item 8: Description of Securities............................................................... 22
PART II
Item 1: Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.................................................. 24
Item 2: Legal Proceedings....................................................................... 25
Item 3: Changes in and Disagreements with Accountants........................................... 25
Item 4: Recent Sales of Unregistered Securities................................................. 25
Item 5: Indemnification of Directors and Officers............................................... 26
PART F/S
Index to Financial Statements..................................................................... 28
PART III
Item 1: Index to and Description of Exhibits.................................................... 29
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FORWARD LOOKING STATEMENTS
The statements contained in this Form 10-SB that are not historical facts are "forward-looking statements" which can be identified by the use of forward-looking terminology, such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader of the forward-looking statements, that such statements, which are contained in this Form 10-SB, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employee, and general business factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
(1) the availability of additional funds to successfully pursue our business plan;
(2) our ability to maintain, attract and integrate internal management, technical information and management information systems;
(3) our ability to generate customer demand for our products;
(4) the acceptance and general usage of smart cards and other "smart" devices by governmental entities, the business community and consumer;
(5) the intensity of competition; and
(6) general economic conditions.
All written and oral forward-looking statements made in connection with this Form 10-SB that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, prospective investors are cautioned not to place undue reliance on such forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
We were recently organized to take advantage of the opportunities that exist for designing, manufacturing and distributing smart cards using a state-of-the-art, proprietary production process. A "smart card" is a small device that resembles a credit card with an embedded microprocessor memory chip that stores encoded information. Unlike standard credit cards, which operate by storing a series of letters or numbers on a strip of magnetic tape, smart cards have the ability to retain, change and process information by using whatever applications are stored on the integrated microprocessor chip located within it. The application placed in the embedded integrated circuit chip allows the smart card higher levels of security, data capacity and multi-application capabilities. The chip protects the card from duplication, tampering and damage now associated with the standard magnetic strip cards.
We believe that our proprietary production process, know as the Reaction Assisted Molded Process ("RAMP"), will enable us to rapidly gain customers and market share as the smart card industry develops. Using the RAMP process, we are able to securely encapsulate an integrated circuit and/or antenna within a plastic card similar in size and shape to a standard credit card. Our production process embeds the microchip and electronic circuitry completely within the card, as compared to on the surface of the card, as is the case for all other smart card manufacturing processes known to us and currently in use today. As a result, we believe that our process produces a card with greater physical flexibility and durability that will extend card life by a factor of three or four times over cards currently produced through lamination and other manufacturing processes, making us the lowest-cost card producer in the industry.
We intend initially to focus on the manufacture of contactless radio frequency identification access control cards and contacted combination cards for various major full-line integrators and end-users. We currently provide contract-manufacturing services, which includes card production, card design and high-speed printing with reduced delivery time. In addition, we plan to manufacture and license card production systems to existing card manufacturers and systems integrators. By implementing this licensing strategy, we believe that we will be able to increase revenues through equipment sales, up-front set-up charges and recurring usage fees.
We are developing a new, proprietary production process for the manufacture of smart cards and other intelligent-type products using virtually any substrate, including paper, that will significantly reduce our overall production costs and, in the opinion of management, provide us with a competitive advantage over those companies using the lamination method for producing smart cards and other smart products. The new reel-to-reel system is capable of producing 358,000 cards or similar-sized tags per hour. Development is currently underway for extending the system's capability to produce contacted cards. We are currently in preliminary discussions with several key organizations in the smart industry regarding possible joint venture projects.
We were incorporated on March 16, 1996 under the laws of the State of Nevada under the name International Interchange Corporation. From February 1996 to September 1998, we were engaged in only limited business operations, and in September 1998 had minimal assets and liabilities. In September 1998, pursuant to an agreement and plan of reorganization, we acquired all of the assets and assumed all of the liabilities of CardXX, LLC, a limited liability company organized under the laws of the State of Colorado on August 16, 1996, in exchange for shares of our common stock. In connection with such acquisition, we changed our name from International Interchange Corporation to CardXX, Inc.
Our principal executive offices are located at 701 Automation Drive, Windsor, Colorado 80550, and our telephone number at that address is (970) 686-2444.
THE SMART CARD INDUSTRY
The concept of the smart card emerged following the invention of the computer chip in the 1960's, and to date has been developed principally in Europe rather than the United States. The first plastic credit card embedded with a chip was developed in 1968, and in 1974, the first smart card patents were issued to a French inventor who patented the concept of placing a microprocessor chip within a card for securing a personal identification number (PIN). The telecommunications and banking industries in Europe, which did not have the low-cost credit card telephone authorization, credit and debit card programs that were then widely used throughout the United States, were the leading proponents of the smart card concept over the next 20 years, and developed and promoted smart card technologies and applications that are the foundations of the industry today. The use of the smart card in the United States has only recently begun, and numerous pilot programs using smart card technologies are underway for, among other purposes, telephone and highway toll collection systems, secure identification systems and retail debit programs.
CHARACTERIZATION OF SMART CARDS. Smart cards can generally be categorized by technology and by capability. From a technical standpoint, smart cards are generally characterized as "contacted" cards, which have contact points on the surface of the card that physically touch contact points on the card reader or other computer hardware to transfer data or other information, or "contactless" cards, which have no contacts on the surface of the card and data from the microprocessor chip is transferred by means of radio frequency transmission via an antenna embedded within or on the surface of the card. Contactless cards can be read from a distance whether or not they are physically visible to the card reader.
From a capability standpoint, smart cards can be characterized into two levels. The more powerful of the two types of cards is called the "intelligent" card, which contains a microprocessor semiconductor chip that contains microcode that defines a command structure, a datafile structure and a security structure for the card. The chip in these cards typically has read/write capabilities, enables information to be updated and stored and can be programmed to make decisions. The second type of card is the "memory" card, which will store and retrieve serial "streams" of data that are sent to or received from the semiconductor chip. Memory cards can be either disposable or reloadable, and may require a secret code or "PIN" number and/or
other form of personalized identity to be entered before the serial stream of data can be sent to or received from the semiconductor chip.
Memory cards today are generally used to store monetary value, which is money that can be spent. The disposable cards do not require any identification and can be used by anyone. The reloadable stored value smart cards can have additional value, or money, added to them. Most have an embedded off-line verifiable PIN number, which does away with the requirement for on-line telephone verification customarily required for credit card purchases in the United States. With the reloadable stored-value smart cards, the memory is generally capable of keeping a record of purchase amounts that have been drawn against the dollar amount on the card, and additional dollar amounts can be added at the point-of-sale. A lost or stolen reloadable stored-value smart card can easily be replaced.
"Hybrid" cards are also being produced that have a credit card stripe for high-value purchases, a credit and debit stripe for lower value transactions and an integrated chip holding stored value and other data for low-value items and other data storage purposes. Other hybrid cards may contain both contacted and contactless functionality.
SMART CARD APPLICATIONS. Smart cards are being used throughout the world in many exciting ways. A Frost & Sullivan report indicates that 676 million smart cards were in use in 1996, and that the market for smart cards will increase from $974 million in 1996 to over $5 billion in 2003. Dataquest has projected the number of smart cards in use to increase at a 30% near-term growth rate and the number of cards in use to increase to 3.4 billion by 2001. Gemplus has projected a 38% growth rate between 1997 and 2003 with 6.3 billion cards in use by 2003.
The United States is now beginning to catch up to the rest of the world in the use of the smart card and its applications. According to a study performed by Schlumberger Ltd., smart cards in the United States markets totaled only 13 million units in 1996, and have been projected to reach 243 million units by 2001 and 543 million units by 2005. In 1995, only 2% of manufactured integrated chip cards were shipped to the United States while approximately 90% were shipped to Europe. Dataquest estimates that by 2001, 20% of all smart card production will be directed to the United States, 40% to Europe and 25% to Asia. The expected growth is said to be primarily in alliances between banks, financial services and telecommunications companies.
To businesses, governments and other organizations, the benefits of the smart card include faster and easier verifiable consumer off-line identification, the ease of cross-referencing authorized payments and entitlements, and the reduction of fraud and theft. The benefits to the consumer include increased security and privacy and the ease of using one card for making purchases and storing data. By way of example, the following outlines the principal benefits to certain industries:
Banking and Finance. Electronic services in banking and finance are receiving rapid acceptance, which the Company believes will eventually lead to widespread use of the smart card as an "electronic wallet" that can be used for electronic payments, electronic cash and electronic commerce. Smart
cards will enable users to make financial transactions at any time or location using personal or portable computers or mobile telephones to pay bills, change money between accounts or make purchases, all without the necessity of having to put the card directly into a bank's cash machine or a retailer's card reader that is connected to a host system. For the consumer, smart cards will reduce the need to carry cash, eliminate the possibility of being shortchanged, increase the speed of transactions and provide a record of all transactions.
Businesses and Corporations. In addition to the benefits of electronic commerce discussed above, smart cards will offer to businesses and corporations enhanced employee security, simplified expense and financial record keeping, easy access and updating of data and files, and secure documents delivery and receipt. Employee personnel and benefit records, medical histories, security clearances and other data can all be stored on security-coded smart cards furnished to the employee, enabling the employee to confirm the status of corporate payments and reimbursements, gain access to restricted locations and data based on applicable clearances and receive other corporate communications. Different corporate departments or personnel will be provided with access only to that information as the employer designates.
Education. The smart card is replacing the use of magnetic stripe cards on many universities and college campuses. By providing the student with one card that can be used for, among other things, identification, security clearance, on and off-campus purchases, immediate access to grades, tuition and emergency health information, library access and withdrawals, meals and food purchases and secure PC, CD-ROM, Internet and email access, students no longer are required to carry multiple cards and cash, and can gain access to secured buildings and areas and significant data with the ease of carrying a single card.
Government. Government agencies continue to represent one of the largest user segments for advanced smart card technology. State and local governments are studying numerous possibilities for smart card usage, including combining driver's licenses, passports, benefits cards, automobile registrations and voter registration cards into a single smart card. In addition, with the federal mandate that all federal government payments eventually be made electronically, state and local governments are also looking into electronic benefits transfer. It is expected that governmental use of smart cards will reduce fraud, errors and the possibility of theft, and eliminate the waste, currently experienced with the manual and labor intensive paper-based systems that are currently in place.
Transportation. The convenience of smart card usage to the frequent traveler is making the transportation industry one of the largest potential smart
card markets. Smart card applications are currently in use or being developed to enable travelers to pay tolls, parking and public transportation fares, purchase gas, store vehicle maintenance information, provide off-line identification, take advantage of ticketless public transit travel, accelerate entry and exit at boarder closings and accumulate bonus points for loyalty awards. Employers with large automobile fleets have also implemented programs using smart cards to store historical vehicle maintenance and service information and to facilitate employee reimbursement for maintenance, mileage and road expenses.
STRATEGY
We believe that our proprietary RAMP manufacturing process is the principal factor that will differentiate us from our competitors. However, we are aware that smart card end users will also evaluate potential vendors according to factors such as product quality, price, responsiveness and customer service. Our long-term strategy is to respond to these factors in an effort to position ourselves as a preferred supplier in the highly competitive industry in which we operate. In addition, we plan to manufacture and license turn-key card production systems to existing card manufacturers and systems integrators. The key elements of the our strategy is as follows:
o High Quality and Uniform Products. We believe that a commitment to quality will be a key component of our success. Our management believes our prospective customers typically will expect a low product defect rate and high durability. In the smart card industry, a high defect rate can mean a delay in product shipment and higher production costs while poor durability will shorten the life cycle of the customer's outstanding cards and require more frequent replacement. We believe that we can differentiate ourselves from our competitors through the utilization of our RAMP manufacturing process that produces a long-lasting, durable product conforming to the customer's design specifications. We believe that we will be able to maintain product quality, reduce defects and thereby increase demand for our products by (i) using technologically advanced machinery and production techniques in our RAMP process, (ii) employing advanced testing equipment and methods, and (iii) offering graphics capability that ensures that the product's printing and graphics comply with our customer's aesthetic demands.
o Flexible and Customized Service. Our management intends to structure our operations in a manner that promotes rapid responsiveness to constantly changing customer needs by providing customers direct access to our key operations personnel. Since many smart card manufacturers market similar product lines, we believe that customers will often select suppliers on the basis of service factors. We believe that as the smart card industry grows, the largest card manufacturers may be unwilling or unable to react quickly and responsively to the varying demands of many
customers. This will create opportunities for us to increase market share by catering to the service expectations of these customers. Our graphics capability should afford us the ability to incorporate a customer's last-minute design changes and still meet our customer's production needs.
o Low Delivered Cost. In addition to the cost savings that our customers will achieve as a result of the durability of our smart card products, which will significantly reduce the average replacement cycle for the customers outstanding cards, we will strive to achieve a low delivered cost to our customers. We intend to locate our manufacturing operations in areas with high quality and relatively low-cost labor and intend to equip our facilities with technologically-advanced, cost-effective machinery. In a further effort to reduce costs, our engineering department has designed its production machinery to achieve high production speed, and will continue to evaluate the production process in an effort to reduce costs and improve production speed.
o Focus on Market Opportunities. We believe that our advanced technological manufacturing techniques and industry experience will afford us the ability to respond quickly to changing market opportunities and to develop new products. We intend to evaluate customer demand on an on-going basis in an effort to apply our experience to introduce selected new products. We are currently researching potential opportunities in the smart tag industry.
o System Sales and License Revenues. In addition to manufacturing and selling smart cards on a contract basis or directly to end users, after reaching certain levels of market penetration, we intend to license our proprietary RAMP manufacturing process to other smart card manufacturers or systems integrators. In connection with any such licenses, we intend to design, manufacture and sell to our licensees turn-key manufacturing and production systems consisting of state-of-art machinery and equipment necessary for the manufacture of smart cards using the RAMP technology. We believe that employment of a licensing strategy will enable us to reach higher levels of market penetration without the requirement of gaining greater market share, and to increase operating margins above those that can be achieved solely by the sale of smart cards.
THE CARDXX MANUFACTURING PROCESS
Our smart cards are produced through a cost-efficient proprietary Reaction Assisted Molded Process (RAMP) that securely encapsulates an integrated circuit within a plastic card similar in size and shape to a standard credit card. The RAMP process combines certain physical processes used in the thermal set process with certain concepts commonly utilized in the typical
injection molding process. The result is a room temperature, chemical reaction process that permits an electrical device to be embedded during formation between two layers of plastic, paper products or other card surfaces. The resulting product is a highly secure card of monolithic construction with greater flexibility and durability than the standard credit card produced in the six-layered lamination processes used today by most other manufacturers.
Our RAMP technology combines a number of readily available materials using a proprietary ratio and mix to create an end product known as a urethane elastomer. In the manufacturing process, the ratio and mix of core elements can be achieved using very low pressures and temperatures (approximately 85 degrees Fahrenheit) that induces a chemical change to create an end product elastomer that has a viscosity similar to that of heavy alcohols and emits relatively little heat. Due to the relatively low levels of heat generated in the process and the low viscosity, fragile electronic devices may be embedded in the elastomer without damage or degradation as would be the case in a typical high pressure and high temperature lamination process.
In our manufacturing process, smart cards are punched out of a thin sheet that consists of two skins that create the outside surfaces of the cards, and the elastomer that has been bonded to them. To manufacture a card to a customer's specifications, the customer's implants or electronic devices are strategically attached or preprinted on one of the surface sheets, which is then placed with a second sheet into a mold that will give the cards an accurate and repeatable physical thickness, much like injection molding. The elastomer is then injected between the two sheets using a patented process that completely fills the sheet without any air entrapment or voids. As the chemical reaction in the RAMP process generates little heat, the elastomer cures within a fraction of a second. Our ability to combine multiple molds that can be injected at high cycle rates, to punch multiple cards from one sheet and to achieve rapid cure rates affords us significant economies of scale in our manufacturing process.
We are developing a new, proprietary production process for the manufacture of smart cards and other intelligent-type products using virtually any substrate, including paper, that will significantly reduce our overall production costs and, in the opinion of management, provide us with a competitive advantage over those companies using the lamination method for producing smart cards and other smart products. The new reel-to-reel system is capable of producing 358,000 cards or similar-sized tags per hour. Development is currently underway for extending the system's capability to produce contacted cards. We are currently in preliminary discussions with several key organizations in the smart industry regarding possible joint venture projects.
The following is a summary of the advantages of our proprietary RAMP technology over the standard lamination process used by most other smart card manufacturers:
o Single Step Process. Most smart cards today are manufactured using a multi-step lamination process that requires six layers of PVC to be milled, glued and laminated together under extremely high temperature and pressure. As a result, the process is highly variable and results in
reject levels ranging from 15% to 25%. As discussed above, our RAMP technology is a single step process that significantly reduces the possibility for error and results in reject levels of less than 5%.
o Encapsulation of Electronic Components. In the manufacturing process of a standard smart card, the extreme high temperatures and pressure mandate that the electronic circuitry be glued to the surface of the card late in the production process in an effort to avoid damage or degradation to the circuits. Despite these precautionary efforts, manufacturers still encounter high levels of costly electronic device rejects. In addition, the chip can easily be removed from the outer surface, which can lead to information counterfeiting. In our RAMP process, all electronic circuitry is embedded in the elastomer between the two surfaces of the card, making it impossible to remove the device without damaging the card and the device itself. In addition, because our process requires relatively low levels of temperature and pressures, we have experienced extremely low levels of electronic device rejections.
o High Production Rates. Because our RAMP process is a single step process requiring significantly lower levels of temperature and pressure, it is a high speed, repeatable process that enables us to produce contactless smart cards at the rate of approximately 8,640 per hour. In contrast, the standard multi-step lamination process can produce contactless smart cards at the rate of only 1,500 to 2,000 per hour.
o Crack Sensitivity. Due to the rigidity of the PVC used in the standard laminated smart cards, users frequently experience cracking in the card around the areas where the card is notched or inadvertently bent in ordinary usage. The center core material of our smart cards is a member of the urethane family that has a flexural modulus that is ten times greater than standard rigid PVC, and is significantly more resistant to cracking under ordinary usage.
o Long Card Life. Most standard laminated smart cards have an average life of 18 to 24 months. As a result of the significantly superior physical properties, our smart cards have a minimum life span of five years.
o Low Capital Investment. We believe that the standard lamination process requires a capital expenditure of approximately $5 million to $8 million to assemble and equip a single production line. In contrast,
we can assemble a turn-key production line for the production of our smart cards for approximately $3 million.
MARKETING
We currently have two employees with primary responsibility for marketing and sales. We are currently in negotiations with an independent sales organization that has a significant presence within the smart card community with a view to retaining such sales organization to market our products.
We are currently working with major system integrators seeking alternative supply sources for their cards. In connection with such efforts, we are attempting to qualify its cards for a number of programs developed by large system integrators that involve many different embedded device configurations. As part of its development and marketing strategy, we have encapsulated on a test basis a number of devices of differing geometrics that meet or exceed ISO card specifications. We are in the process of targeting a customer base that we believe will offer the highest probability of achieving short-term profitability and long-term growth.
FACILITIES AND PRODUCTION CAPABILITY
We lease a 3,500-square-foot manufacturing and office facility located at 701 Automation Drive, Windsor, Colorado. This facility currently is equipped with one state-of-the-art System T-9 manufacturing system that is capable of producing up to 8,640 smart cards per hour using our RAMP production process.
PATENTS AND INTELLECTUAL PROPERTY
Our success is dependent upon our proprietary technology. We rely upon trade secret laws and more recently upon patent law protection, to establish and maintain proprietary rights in our technologies and products.
We currently hold two issued patents in the United States, and have two U.S. patent applications pending. We have taken steps necessary to preserve our rights to pursue foreign patent protection for the technology underlying one of our existing patents and each of the two pending patents by filing Patent Cooperation Treaty ("PCT") applications in the U.S. Patent Office. Following the receipt of any patents on our proprietary technology, we may seek to license it, as well as our patents, to manufacturers in other geographic areas.
Although we have existing patents in the United States, have filed applications for a number of additional patents in the United States and have filed PCT applications in an effort to preserve our rights to file patents in a number of foreign countries, there can be no assurance as to the degree of protection offered by these patents or as to the likelihood that patents will be issued for pending applications or applications to be filed in foreign jurisdictions.
Competitors in the United States and foreign countries, many of which have substantially greater resources and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with our ability to manufacture and sell some of our products. Although we believe our manufacturing processes and products do not infringe the patents or other proprietary rights of third parties, there can be no assurance that other third parties will not assert infringement claims against us or that such claims will not be successful. Nor can there be any assurance that competitors will not be able to develop means of by-passing claims covered by one or more of our patents.
We also rely upon trade secret protection for our confidential and proprietary information. We routinely enter into confidentiality agreements with our employees and consultants. There can be no assurance, however, that these arrangements will provide meaningful protection of our trade secrets, know-how or other proprietary information in the event of the unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information.
RESEARCH AND DEVELOPMENT
We believe a strong development capability is essential to delivering responsive products to the emerging market for smart cards and other intelligent-type products, and we intend to continually improve the quality and functionality of our current products and enhancing our core technology. To date, most of our research and development activities have been conducted by Harry J. Tiffany III, our President and Chief Operating Officer, or contracted out to Icon Industries, Inc., a corporation owned by Mr. Tiffany. We spent approximately $140,350, $900,000, $576,000 and $246,500 on research and development during the years ended June 30, 1997, 1998 and 1999 and the six months ended December 31, 1999, respectively.
To successfully implement our business strategy, we have to manufacture smart cards and other smart-type products that meet the demands of our customers and prospective customers. We expect that competitive factors will create a continuing need for us to improve and add to our smart products. We will have to, among other things, expend significant funds and engineering and other resources to continue to improve our products, and properly anticipate and respond to consumer and industry preferences and demands. The addition of new products will also require that we continue to improve the manufacturing technology underlying our products. If we fail to expand the breadth of our product offerings quickly in response to customer needs, or our products fail to achieve market acceptance, our business will suffer significantly.
COMPETITION
The markets for our products are highly competitive. We are subject to substantial competition from both established competitors and potential new market entrants. Significant competitive factors include: product functionality, performance, size, flexibility and cost, market presence, customer satisfaction and customer support capabilities, and breadth of product line. We believe that we will be able to compete favorably on the basis of each of these factors.
Competition in the development, manufacture and sale of smart cards is currently concentrated in approximately 12 to 15 manufacturers worldwide, although we believe that Schlumberger Ltd., Gemplus S.C.A., Motorola, Oberthur Smart Cards USA, Inc., Orga Cards Systems, Inc. and GPT Holdings Ltd., all of which are substantially larger than us and have significantly greater resources than we have, currently control approximately 82% of the market.
We expect our competitors to continue to improve the design and performance of their smart card products. There can be no assurance that our competitors will not develop enhancements to, or future generations of, competitive products that will offer superior price or performance features or that new processes or technologies will not emerge that render our products less competitive or obsolete. There can be no assurance that we will be able to successfully compete in the future.
EMPLOYEES
At March 31, 2000, we had four employees, of whom three were in management and one was in production. We believe that our relationship with our employees is satisfactory.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
When used in this Form 10-SB and in our future filings with the Securities and Exchange Commission, the words or phrases "will likely result," "management expects," or "we expect," "will continue," "is anticipated," "estimated" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. These statements are subject to risks and uncertainties, some of which are described below. Actual results may differ materially from historical earnings and those presently anticipated or projected. We have no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect anticipated events or circumstances occurring after the date of such statements.
SELECTED FINANCIAL DATA
Because we continue to develop our products and sales efforts and are still in the earlier stages of our development, selected financial data would not be meaningful. Reference is made to our financial statements included elsewhere in this Form 10-SB. Our fiscal year ends on June 30. In this Form 10-SB are our audited financial statements for the twelve-month periods ending June 30, 1999 and 1998 and un-audited financial statements for the six-month periods ending December 31, 1999 and 1998.
QUALIFIED REPORT OF ACCOUNTANTS
The independent auditors' report of Moore Stephens, P.C. contains a going concern opinion on the audited financial statements for the two years ended June 30, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CardXX, LLC was formed on August 12, 1996 under the laws of the State of Colorado; however, its operations commenced in April 1997. Our principal business activity has been the design, manufacture and distribution of smart cards using a state-of-the art proprietary production process known as the Reaction Assisted Molded Process (RAMP). On September 11, 1998, an agreement and plan of reorganization was made between CardXX, LLC and International Interchange Corporation ("IIC"), whereby IIC acquired all the assets and assumed all the liabilities of CardXX, LLC in exchange for a total of 4,715,234 shares of common stock of IIC, including 2,076,630 shares issued on stockholders' debt conversion. For accounting purposes, this was treated as a reverse acquisition with CardXX, LLC as the acquiror. Our financial statements reflect the operations of CardXX, LLC and IIC from September 11, 1998 onward. The financial statements prior to September 11, 1998 reflect the operations and financial position of CardXX, LLC only. Pursuant to the reorganization, CardXX, LLC changed its name to CardXX, Inc. on September 14, 1998.
To date, we have generated minimal sales and devoted our efforts primarily to developing our products, developing our business strategy and raising working capital through debt and equity financings.
Our financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate our continuation as a going concern and realization of assets and settlement of liabilities and commitments in the normal course of business.
We incurred a net loss of approximately $1,133,000 and utilized cash of approximately $879,000 for operations for the year ended June 30, 1999. It is anticipated this trend will continue through fiscal 2000 since minimal revenue recognition is planned to be realized. This trend has continued for the six months ended December 31, 1999, during which period we sustained a net loss of approximately $715,000 and utilized cash of approximately $321,000 for operations. Our inability to generate cash from operations, considering currently available funds, and to continue to successfully raise working capital, create an uncertainty about our ability to continue as a going concern. Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
We provide contract-manufacturing services, which include card production, card design and high-speed printing with reduced delivery time. We plan to manufacture and license card production systems to existing card manufacturers and systems integrators. Our business plan
targets as our main source of revenue stream the potential fees derived from our planned licensing arrangements with clients. By implementing this licensing strategy, we believe we will be able to earn revenues through:
o equipment sales;
o up-front set-up charges;
o recurring usage fees; and
o other fees earned from the access to limited card production to a
select group of clients.
In addition, we are exploring additional equity and debt financing. Our continuation as a going concern is dependent upon the success of these plans.
There can be no assurances that our plans to reduce recurring operating losses and to continue to obtain additional financing to fund operations will be successful. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event we cannot continue in existence.
OPERATING RESULTS
Our net losses for the years ended June 30, 1999 and 1998 were approximately $1,133,000 and $515,600, respectively. Our net losses were primarily attributable to minimal revenues being realized to date. Our expenses for the years ended June 30, 1999 and 1998 were approximately $994,400 and $411,500, respectively, of which approximately 50% to 60% of our expenses were salaries, related taxes, and consulting and professional fees. In addition, interest costs amounted to approximately $22,000 and $104,000 for the years ended June 30, 1999 and 1998, respectively.
Our net losses for the six month period ended December 31, 1999 and 1998 amount to approximately $715,000 and $512,000, respectively. During each of these interim periods, we realized minimal revenues while incurring normal fixed overhead and debt service costs. For the six months ended December 31, 1999, we commenced recording amortization expense for our product development costs of $250,000. There was no amortization expense in 1998. This operating trend is projected to continue for at least the remaining period of fiscal 2000. With our principal smart card product in the later stages of being fully developed, we intend to focus our short-term efforts toward marketing our product in the second half of fiscal 2000.
We plan to generate minimal gross profit of approximately $500,000 from the projected sales in fiscal 2000 and to streamline certain variable costs and expenses. We are negotiating with two foreign companies who are interested in purchasing two smart card production systems for approximately $1,600,000 each. However, there can be no assurance that we will be able to reach agreement with either party with respect to the sale of a system. To fund fiscal 2000 operations, we believe our projected cash balance, which includes certain anticipated proceeds from equity and debt financing, will be adequate to fund our operations and provide for our working capital needs through June 2000. See "Liquidity and Capital Resources." In January
2000, we received a purchase order for approximately 615,000 smart cards; however, financing will need to be in place to fulfill this order. We intend to structure planned sales orders using a customer billing structure, whereby the direct costs related to the sale are funded up front by the customer. However, we may experience significant fluctuations in operating results in future periods due to a variety of factors, including but not limited to, the following risk factors which are discussed at more length elsewhere in this Form 10-SB:
o We have a limited operating history on which to base estimates of future performance;
o We will need to obtain additional financing in order to carry out our business plans;
o Our market is highly competitive;
o The market in which we operate is subject to rapid technological change, which could render our products and services obsolete; and
o We may experience difficulty in managing growth.
As part of our fiscal 2000 business strategy, we target initial estimated sales orders to range from $6,000,000 to $8,000,000 based on preliminary discussions with certain potential customers. We believe our gross profit will be approximately 40% of anticipated revenues. Based on the estimated timeframe for completing these planned sales orders, the anticipated gross profits from these sales orders will be not be recognized in our statement of operations until fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had an insufficient cash balance of approximately $5,000 and a negative working capital position of approximately $1,002,000. During fiscal 1999, our primary source of cash and working capital was derived from net proceeds of $875,500 from the issuance of 270,000 shares of common stock, $462,500 from related party bridge lenders and $235,000 from a bank line of credit. We utilized these funds of approximately $1,600,000 in fiscal 1999 to fund operations for approximately $900,000 and for investing activities for approximately $800,000.
At December 31, 1999, we continued to operate with an insufficient cash balance of approximately $18,000 and a negative working capital position of approximately $1,223,000. During the period July 1, 1999 through December 31, 1999, we raised approximately $585,000 in additional equity financing and $65,000 in debt financing from related parties to assist in the funding of our fiscal 2000 operations. In the six month period ended December 31, 1999, we incurred an additional $493,000 in product development costs and received $163,000 from related parties.
We believe in fiscal 2000, we will spend for investing activities approximately $400,000 for patent costs and approximately $800,000 for product development costs, all or a portion of which may be paid to Icon Industries, Inc., which is a related party.
On January 27, 2000, our Board of Directors adopted a plan for retirement of debt. This plan included paying approximately $675,500 to related parties on a pro rata basis with the proceeds of the recapitalization and the issuance of additional shares of common stock and warrants at a rate of one dollar for each share for bridge loans of approximately $507,500 plus unpaid interest of approximately $95,000.
In addition, Harry Tiffany, III, our President and Chief Operating Officer, has assigned to us certain intellectual property developed him in consideration for 700,000 shares of common stock and $600,000 cash payable on or before March 31, 2001, and an additional $200,000 on or before January 1, 2001. The $800,000 obligation is secured by a security interest in the technology, inventions and trade secrets transferred pursuant to such assignment.
In February 2000, we commenced a private placement of 60 units, each unit consisting of 50,000 shares of common stock and warrants to purchase 25,000 shares of common stock. The offering price is $50,000 per unit. The offering terminates on April 30, 2000, unless extended by us for up to an additional 30 days. If the maximum offering is completed, we anticipate net proceeds of approximately $2,650,000.
In January and February 2000, we received a total of $100,000 from two investors for an aggregate of 110,000 shares of common stock and 110,000 warrants for shares of common stock. In addition, we issued 93,000 shares of common stock and warrants for 150,000 shares of common stock for future financial public relations services to be performed.
Given our capital raising plans and other management initiative actions, we believe our future cash levels will be adequate to fund our operations and provide for our working capital needs during fiscal 2000.
We had a $1,600,000 convertible note payable to one of our stockholders at June 30, 1998. The note was payable in 12 equal consecutive monthly installments of principal and interest commencing, March 5, 1999. All accrued interest and unpaid principal was due in full no later than March 5, 2000. The note carried an interest rate of 11% per annum. The note was secured by one of our patent applications. In July 1998, the stockholder converted the $1,600,000 convertible promissory note into an ownership interest of CardXX, LLC. Upon the merger of CardXX, LLC into IIC, 2,076,630 shares of our common stock were issued for the converted ownership interest on behalf of the stockholder and two other parties.
We entered into a lease agreement with a company owned by Harry Tiffany,
III. The lease commenced October 1, 1998 and expires on September 3, 2000,
unless terminated sooner under the terms of the lease. The lease has a minimum
monthly rent of approximately $3,700. Under the terms of the lease, we are
responsible for all personal property taxes and other assessments or charges
applicable to the occupancy of the building.
During April 1999, we secured a credit facility for borrowings up to $250,000. We had utilized for working capital needs $235,000 of the line of credit as of June 30, 1999. Interest is calculated at a variable rate, which is based on the prime rate, which was 7.75% as of June 30,
1999. The line of credit, which matured on October 5, 1999, was extended until May 5, 2000. Certain principal shareholders of the Company have guaranteed the repayment of this debt obligation.
ITEM 3. DESCRIPTION OF PROPERTY.
We lease a 3,500-square-foot manufacturing and office facility located at 701 Automation Drive, Windsor, Colorado under a lease with Andersen/Tiffany Construction, LLC, a limited liability company owned by Harry J. Tiffany, III. The lease provides for monthly rental payments of $3,664.21, plus the tenant's proportionate share (approximately 33.8%) of the building's operating costs, including maintenance and repair costs, real property taxes and utilities. The lease expires on September 30, 2000, subject to our right to extend the lease on an annual basis for up to four additional years.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of April 3, 2000 certain information regarding the beneficial ownership of our common stock by (a) each person who is known us to be the beneficial owner of more than five percent (5%) of the common stock, (b) each of our director and executive officers and (c) all of our directors and executive officers as a group. Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, except to the extent such power may be shared with a spouse.
PERCENTAGE
SHARES OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS(1) OWNED SHARES
------------------------------------ ------------- -----------
Harry J. Tiffany, III............... 1,833,714(3) 21.1%
14247 Country Road X
Weldona, Colorado 80653
Frank A. Leo........................ 1,600,729(2) 18.2
44 Minebrook
Colt Neck, New Jersey 07702
James H. Andersen................... 992,169 11.5
1519 Ticonderoga Drive
Fort Collins, Colorado 85025
Cordan, Ltd......................... 904,007(4) 10.3
c/o AMS Trust
595 rue de Neudorf
L-2220 Luxembourg
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PERCENTAGE
SHARES OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS(1) OWNED SHARES
------------------------------------ ------------- -----------
Harbourside Services Ltd............ 503,134(5) 5.8
c/o AMS Trust
595 rue de Neudorf
L-2220 Luxembourg
Phil A. Worack...................... 293,000(6) 3.3
5245 S. Danube Street
Aurora, Colorado 80115
Directors and executive officers as
a group (three persons)........... 3,727,443 42.6
-----------------
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* Less than one percent.
(1) For purposes of this table, information as to the beneficial ownership of shares of common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes general voting power and/or investment power with respect to securities. Except as otherwise indicated, all shares of our Common Stock are beneficially owned, and sole investment and voting power is held, by the person named. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of common stock which such person has the right to acquire within 60 days after the date of this Memorandum. For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares which such person or persons has the right to acquire within 60 days after the date of this Form 10-SB is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of such shares listed beneficially owned does not constitute an admission of beneficial ownership.
(2) Includes 500,000 shares of common stock owned by The Kall Group, Inc., of which Mr. Leo and his family own all of the outstanding shares of voting common stock. The principal offices of The Kall Group, Inc. are located at 44 Minebrook, Colt Neck, New Jersey 07702. Also includes 210,000 shares issuable upon the exercise of outstanding warrants to purchase shares of common stock.
(3) Includes 67,500 shares issuable upon the exercise of outstanding warrants to purchase shares of common stock.
(4) Includes 210,000 shares issuable upon the exercise of outstanding warrants to purchase shares of common stock.
(5) Includes 20,000 shares issuable upon the exercise of outstanding warrants to purchase shares of common stock.
(6) Includes 218,000 shares, including 100,000 shares issuable upon the exercise of outstanding warrants to purchase shares of common stock, beneficially owned by L.K.S. Corporation, of which Mr. Worack is a 50% shareholder. Also includes 50,000 shares issuable upon the exercise of outstanding warrants to purchase shares of common stock.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth certain information with respect to each of our executive officers or directors.
NAME AGE POSITION ---- --- -------- Harry J. Tiffany, III......... 54 President, Chief Operating Officer and Director Phil A. Worack................ 43 Director |
Harry J. Tiffany, III. Mr. Tiffany has served as our President, Chief Operating Officer and has been a Director since August 1996. Mr. Tiffany has over 35 years of mechanical engineering and design, machine design, robotics and manufacturing experience. Since 1996, Mr. Tiffany has served as the Chief Executive Officer of Icon Industries, Inc., a company engaged in the engineering and manufacturing business ("ICON"). ICON was formed in 1996 as a result of a merger between Tackle Incorporated, a company then owned by Mr. Tiffany, and Westek, Inc., a company then owned by James Andersen, a former officer and Director of the Company. From 1991 to 1996, Mr. Tiffany owned and operated Tackle Incorporated, a company engaged in the machine-design and fabrication business. Mr. Tiffany's experience also includes engineering and design management, project management, sales management and product development for several manufacturers, including Parker Brothers, Fisher Body, Ford Motor Company, Chrysler Motor Company, Kenner, Owens-Corning, Johns-Manville Corp. and Tachnistar, Inc. Mr. Tiffany has a Bachelors of Science in Mechanical Engineering from The Laurence Institute of Technology.
Phil A. Worack. Mr. Worack was elected as a Director in February 2000. Since July 1992, Mr. Worack has been the President and a principal shareholder of L.K.S. Corporation, a financial public relations consulting firm located in Englewood, Colorado that specializes in financial market awareness programs for small and medium-sized businesses. Mr. Worack has a Bachelors of Science in Finance from Northern Illinois University.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 1999, the board of directors met, or took action by unanimous written consent, on seven occasions. All the members of the board of directors attended the meetings. The board of directors has established no committees. Directors serve for a term of one year after election or until their earlier resignation or their successor is elected or appointed and qualified.
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table summarizes the compensation we paid or accrued during the indicated fiscal years to each of our executive officers.
SUMMARY COMPENSATION TABLE
Name and Fiscal Year Other
Principal Position Ended June 30 Salary Bonus Compensation
------------------ ------------- ------ ----- ------------
Harry J. Tiffany, III 1999 $ 62,500 $ -- $ --
President and Chief Operating 1998 27,500 -- --
Officer 1997 -- -- --
Frank A. Leo(1) 1999 57,500 -- --
Chairman of the Board and 1998 27,500 -- --
Chief Executive Officer 1997 -- -- --
James H. Andersen(2) 1999 10,000 -- --
Executive Vice President and 1998 27,500 -- --
Chief Financial Officer 1997 -- -- --
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(1) Mr. Leo resigned his employment in April 2000.
(2) Mr. Andersen resigned his employment in March 1999.
DIRECTORS' COMPENSATION
Our directors are reimbursed for expenses incurred in attending meetings of the Board of Directors. Directors generally are not paid any separate fees for serving as directors.
EMPLOYMENT AGREEMENT
Effective January 1, 2000, we entered into a three-year employment agreement with Harry J. Tiffany, III, pursuant to which Mr. Tiffany will be paid an annual base salary of $120,000 during the employment term. If Mr. Tiffany is terminated without cause (as defined), he will be entitled to receive continued payment of his base salary for the remaining term of the agreement.
In his employment agreement, Mr. Tiffany has agreed that during the term of his employment agreement, and for a period of one year thereafter (in the event of termination of employment by us without "cause" or by Mr. Tiffany due to a breach by us of the terms of the
agreement) or two years thereafter (in the event of termination of employment by us for "cause" or by Mr. Tiffany without good reason), he will not compete with us by engaging in any capacity with any business that is comparable to the business activities engaged in by us in any geographic area in which we are is conducting or have conducted or solicited business at any time during the employment term or for two years prior thereto. In addition, Mr. Tiffany has agreed not to disclose any confidential and proprietary information of ours, or to solicit any of our employees, during such periods. Such restrictions shall terminate, however, in the event we shall fail to pay to Mr. Tiffany when due the amounts payable under the assignment of technology entered into by Mr. Tiffany in January 2000. See "Certain Transactions."
STOCK OPTION PLAN
Effective December 1, 1998, we adopted the CardXX, Inc. 1998 Stock Option Plan for the purpose of attracting, retaining and maximizing the performance of executive officers and key employees and consultants. We have reserved 1,200,000 shares of common stock for issuance under the option plan. The option plan has a term of ten years. The option plan provides for the grant of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory stock options, stock appreciation rights and restricted stock awards. It is contemplated that the option plan will eventually be administered by a compensation committee of the Board of Directors, which committee has not yet been created. The exercise price for non-statutory stock options may be equal to or less than 100 percent of the fair market value of shares of common stock on the date of grant. The exercise price for incentive stock options may not be less than 100 percent of the fair market value of shares of common stock on the date of grant (110 percent of fair market value in the case of incentive stock options granted to employees who hold more than ten percent of the voting power of our issued and outstanding shares of common stock).
Options granted under the option plan may not have a term of more than a ten-year period (five years in the case of incentive stock options granted to employees who hold more than ten percent of the voting power of the common stock) and generally vest over a three-year period. Options generally terminate three months after the optionee's termination of employment by us for any reason other than death, disability or retirement, and are not transferable by the optionee other than by will or the laws of descent and distribution.
The option plan also provides for grants of stock appreciation rights ("SARs"), which entitle a participant to receive a cash payment, equal to the difference between the fair market value of a share of common stock on the exercise date and the exercise price of SAR. The exercise price of any SAR granted under the option plan will be determined by the Board of Directors in its discretion at the time of the grant. SARs granted under the option plan may not be exercisable for more than a ten year period. SARs generally terminate one month after the grantee's termination of employment by us for any reason other than death, disability or retirement. Although the Board of Directors has authority to grant SARs, it does not have any present plans to do so.
Restricted stock awards, which are grants of shares of common stock that are subject to a restricted period during which such shares may not be sold, assigned, transferred, made subject to a gift, or otherwise disposed of, or mortgaged, pledged or otherwise encumbered, may also be made under the option plan. At this time, the Board of Directors has not granted, and does not have any plans to grant, restricted shares of common stock.
As of March 31, 2000, ten-year options to purchase an aggregate of 100,000 shares of common stock at an exercise price of $3.50 per share have been granted under the option plan to certain of our non-management employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We lease our facilities in Windsor, Colorado under a lease with Andersen/Tiffany Construction, LLC, a limited liability company owned by Harry J. Tiffany, III. The lease provides for monthly rental payments of $3,664.21, plus the tenant's proportionate share (approximately 33.8%) of the building's operating costs, including maintenance and repair costs, real property taxes and utilities. The lease expires on September 30, 2000, subject to our right to extend the lease on an annual basis for up to four additional years.
We have engaged Icon Industries, Inc., a corporation owned by Harry J. Tiffany, III ("Icon"), to fabricate, manufacture and assemble certain manufacturing machinery used by us in the manufacture of smart cards and to perform certain other consulting services for us. During the fiscal years ended June 30, 1998 and 1999 and the six months ended December 31, 1999, we accrued fees payable to Icon in the amount of $836,000, $1,181,000 and $493,000, respectively, of which approximately $593,030 remains our obligation. Future transactions, if any, between Icon and us will be on terms no less favorable to us than would be obtained from independent third parties and will be approved by a majority of our independent, disinterested directors.
Since September 1998, we have relied upon bridge loans from certain of its principal stockholders to fund its working capital requirements. In September 1998, we borrowed $100,000 from Cordan Ltd. In February 1999, we borrowed $20,000 from each of Cordan Ltd., Harbourside Services, Ltd., Harry J. Tiffany, III, James H. Andersen and Frank A. Leo. Messrs. Andersen and Leo are former executive officers and directors of the Company. In February 1999, we borrowed $10,000 from each of Frank A. Leo and Harry J. Tiffany, III. In March 1999, we borrowed $130,000 from Frank A. Leo. All of such loans were evidenced by promissory notes bearing interest at the rate of 10% per annum. In January 2000, we satisfied such debt obligations (other than indebtedness to Mr. Andersen), including all accrued interest thereon, through the issuance for each $1.00 of outstanding indebtedness, including accrued interest, of one share of common stock and one five-year stock option to purchase a share of common stock at a purchase price of $1.00 per share. As a result of such issuances, we issued shares of common stock and stock options as follows:
Lender No. of Shares No. of Options
------ ------------- --------------
Cordan, Ltd. ............................ 232,533 210,000
Frank A. Leo ............................ 226,318 210,000
Harry J. Tiffany, III ................... 74,045 67,500
Harbourside Services, Ltd. .............. 21,660 20,000
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In September 1998, Frank A. Leo converted a $1,600,000 convertible promissory note of CardXX, LLC into 2,076,630 shares of common stock in connection with our merger with CardXX, LLC. Accrued interest on such promissory note in the amount of $45,500 was recorded during the year ended June 30, 1998 and remained unpaid at December 31, 1999. In January 2000, we issued to Mr. Leo 45,500 shares of common stock in full payment of all amounts due in respect of such accrued and unpaid interest.
On November 3, 1998, we entered into a one-year consulting agreement with L.K.S. Corporation ("LKS") pursuant to which LKS agreed to provide various consulting and financial public relations services to us in consideration for the issuance to LKS of 50,000 shares of common stock. On January 1, 2000, we entered into a similar one-year agreement with LKS in consideration for the issuance to LKS of an additional 50,000 shares of common stock and warrants to purchase up to 100,000 shares of common stock for a purchase price of $1.00 per share. Phil A. Worack, the President and a 50% shareholder of LKS, was elected to our Board of Directors in February 2000.
In January 2000, Harry J. Tiffany, III transferred to us certain technology, inventions and trade secrets relating to smart cards, smart tags and other uses of smart technology in consideration for 700,000 shares of common stock and $800,000, of which $600,000 is payable by us on or prior to May 1, 2000 and the balance as payable by us or prior to January 31, 2001. Our $800,000 payment obligation is secured by a security interest in the technology, inventions and trade secrets transferred by Mr. Tiffany to us.
ITEM 8. DESCRIPTION OF SECURITIES.
Our authorized capital stock consists of 40,000,000 shares of common stock, par value $.001 per share. As of April 3, 2000, we had 8,605,232 shares of common stock outstanding and 977,500 shares of common stock reserved for issuance pursuant to outstanding options and warrants.
The holders of shares of our common stock are entitled to one vote for each share on all matters on which the holders of common stock are entitled to vote. There is no cumulative voting for the election of directors. Subject to the rights of any outstanding shares of preferred stock, the holders of our common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. Holders of our
common stock are entitled to share ratably in our net assets upon liquidation or dissolution after payment or provision for all liabilities and the preferential liquidation rights of any shares of preferred stock then outstanding. Our holders of common stock have no pre-emptive rights to purchase any shares of any class of our stock. All outstanding shares of common stock are, and our shares of common stock to be issued pursuant hereto will be, upon payment therefor, fully paid and non-assessable.
The stock transfer agent for the common stock is American Register & Transfer Company, 342 East 900 South, P.O. Box 1798, Salt Lake City, Utah 84110.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS.
Our common stock was traded on the OTC Bulletin Board from December 11, 1998 to November 3, 1999, on which date it was delisted due to our failure to comply with Nasdaq's requirement that all listed issues be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Since November 3, 1999, our common stock has been traded on the "pink sheets" published by the National Quotation Bureau, Inc. Our common stock is traded under the symbol "CXCX."
The following table sets forth the closing prices for our common stock, as reported on the OTC Bulletin Board prior to November 3, 1999 and on the "pink sheets" published by the National Quotation Bureau, Inc. since November 3, 1999.
FISCAL 1999 LOW HIGH ----------- --- ---- Third Quarter (commencing December 11)................... $ 5.2500 $ 5.9375 Fourth Quarter........................................... 3.6250 5.8750 FISCAL 2000 ----------- First Quarter............................................ 4.0000 6.2500 Second Quarter........................................... 2.2500 3.5000 Third Quarter............................................ 0.5000 3.0000 Fourth Quarter (through April 6)......................... 1.1250 1.5000 |
Our common stock is traded on only a limited or sporadic basis, which should not be deemed to constitute an established public trading market. There is no assurance that the common stock will be actively traded in the future. Therefore, there can be no assurance that there will be liquidity in the common stock.
As of March 31, 2000, our common stock was held of record by approximately 325 holders. Registered ownership includes nominees who may hold securities on behalf of multiple beneficial owners.
ITEM 2. LEGAL PROCEEDINGS.
We are not currently involved in any legal proceedings, nor is our property subject to any such proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no changes in or disagreements with accountants regarding accounting and financial disclosure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following discussion describes all the securities we have sold within the past three fiscal years without registration:
On September 11, 1998, we issued an aggregate of 4,715,234 shares of common stock to CardXX, LLC in connection with our purchase of the assets of CardXX, LLC pursuant to an agreement and plan of reorganization and the conversion of certain indebtedness to equity. The issuance of such shares was exempt from registration under the Securities Ace of 1933 pursuant to Sections 3(b) and 4(2) of the Securities Act of 1933 as a private transaction not involving a public distribution.
On November 3, 1998, we issued 50,000 shares of common stock to a consultant for services rendered on our behalf valued at approximately $150,000. The issuance of such shares was exempt from registration under the Securities Act of 1933 pursuant to Sections 3(b) and 4(2) of the Securities Act of 1933 as a private transaction not involving a public distribution.
In November 1998, we sold an aggregate of 262,857 shares of common stock to approximately 20 purchasers for an aggregate sales price of $920,000. Such sales were made pursuant to Rule 504 under the Securities Act of 1933. No underwriting discounts or commissions were paid in this offering. However, in connection with such sales, we paid finders' fees in the aggregate amount of $70,000 to individuals that introduced us to the purchasers.
In August 1999, we sold 142,857 shares of common stock to one purchaser for a sales price of $250,000. Such sale was made pursuant to Rule 506 under the Securities Act of 1933. No underwriting discounts or commissions were paid in this offering.
In October 1999, we sold an aggregate of 185,915 shares of common stock to two purchasers for an aggregate sales price of $325,000. Such sales were made pursuant to Rule 506 under the Securities Act of 1933. No underwriting discounts or commissions were paid in this offering.
In December 1999, we sold an aggregate of 35,000 shares of common stock and warrants to purchase 35,000 shares of common stock for a purchase price of $1.00 per share to three purchasers for an aggregate sales price of $35,000. Such sales were made pursuant to Rule 506 under the Securities Act of 1933. No underwriting discounts or commissions were paid in this offering.
On January 27, 2000, we issued 118,000 shares of common stock and warrants
to purchase 100,000 shares of common stock for a purchase price of $1.00 per
share to a consultant for future services. Such issuance was made pursuant to
Section 4(2) under the Securities Act of 1933. In addition, on such date we
issued 25,000 shares of common stock and warrants to purchase 50,000 shares of
common stock for a purchase price of $1.00 per share to another consultant for
future services.
On January 24, 2000 and February 7, 2000, we sold an aggregate of 110,000 shares of common stock and warrants to purchase 110,000 shares of common stock for a purchase price of $1.00 per share to one purchaser for an aggregate sales price of $100,000. Such sales were made pursuant to Rule 506 under the Securities Act of 1933. No underwriting discounts or commissions were paid in this offering.
In January 2000, we issued an aggregate of 554,556 shares of common stock and warrants to purchase an aggregate of 507,500 shares of common stock at a purchase price of $1.00 per share in satisfaction of indebtedness in the aggregate amount of $554,556, including accrued interest, owed to four lenders. The issuance of such shares was exempt from registration under the Securities Act of 1933 pursuant to Sections 3(b) and 4(2) of the Securities Act of 1933 as a private transaction not involving a public distribution.
In January 2000, we issued 700,000 shares of common stock to Harry J. Tiffany, III as partial payment for certain technology, inventions and trade secrets we purchased. The issuance of such shares was exempt from registration under the Securities Act of 1933 pursuant to Sections 3(b) and 4(2) of the Securities Act of 1933 as a private transaction not involving a public distribution.
In January 2000, we issued 45,500 shares of common stock to Frank A. Leo in satisfaction of indebtedness in the amount of $45,500 owed to Mr. Leo. The issuance of such shares was exempt from registration under the Securities Act of 1933 pursuant to Sections 3(b) and 4(2) of the Securities Act of 1933 as a private transaction not involving a public distribution.
In March and April 2000, we issued 150,000 shares of common stock and warrants to purchase 150,000 shares of common stock for a purchase price of $2.00 per share to two purchasers for an aggregate sales price of $150,000. Such sales were made pursuant to Rule 506 under the Securities Act of 1933. No underwriting discounts or commissions were paid in this offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Neither our Articles of Incorporation nor our bylaws provide for the indemnification of a present or former director or officer. However, pursuant to Nevada Revised Statutes Section 78.750 and 751 we must indemnify any of our directors, officers, employees or agents who are successful on the merits or otherwise in defense on any action or suit. Such indemnification shall include, expenses, including attorney's fees actually or reasonably incurred by him. Nevada law
also provides for discretionary indemnification for each person who serves as or at our request as one of our officers or directors. We may indemnify such individuals against all costs, expenses and liabilities incurred in a threatened, pending or completed action, suit or proceeding brought because such individual is one of our directors or officers. Such individual must have conducted himself in good faith and reasonably believed that his conduct was in, or not opposed to, our best interests. In a criminal action, he must not have had a reasonable cause to believe his conduct was unlawful.
PART F/S
CARDXX, INC. ------------------------------------------------------------------------------------------------------------ INDEX TO FINANCIAL STATEMENTS ------------------------------------------------------------------------------------------------------------ Report of Independent Auditors.................................................................... F-1 Balance Sheets as of June 30, 1999 [Audited] and December 31, 1999 [Unaudited].................................................................................. F-2 Statements of Operations for the years ended June 30, 1999 and 1998 [Audited], the six months ended December 31, 1999 and 1998 [Unaudited], for the period from August 12, 1996 [date of inception] through June 30, 1999 [Audited], and for the period from August 12, 1996 [date of inception] through December 31, 1999 [Unaudited].................................... F-3 Statements of Stockholder's Equity for the years ended June 30, 1999 and 1998 [Audited], the six months ended December 31, 1999 and 1998 [Unaudited], for the period from August 12, 1996 [date of inception] through June 30, 1999 [Audited], and for the period from August 12, 1996 [date of inception] through December 31, 1999 [Unaudited]......................... F-4 Statements of Cash Flows for the years ended June 30, 1999 and 1998 [Audited], the six months ended December 31, 1999 and 1998 [Unaudited], for the period from August 12, 1996 [date of inception] through June 30, 1999 [Audited], and for the period from August 12, 1996 [date of inception] through December 31, 1999 [Unaudited].................................... F-5 - F-6 Notes to Financial Statements..................................................................... F-7 - F-14 |
. . . . . . . .
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
CARDXX, INC.
Windsor, Colorado
We have audited the accompanying balance sheet of CARDXX, INC. [a development stage company] as of June 30, 1999, and the related statements of operations, stockholders' equity, and cash flows for the years ended June 30, 1999 and 1998, and for the period from August 12, 1996 [date of inception] through June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 CARDXX, INC. [a development stage company] as of June 30, 1999, and the results of its operations and its cash flows for the years ended June 30, 1999 and 1998, and for the period from August 12, 1996 [date of inception] through June 30, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that CARDXX, INC. will continue as a going concern. As discussed in Note 8 to the financial statements, CARDXX, INC. has incurred recurring losses from operations and has negative working capital, that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
August 5, 1999
[Except for Notes 9A and B as to
which the date is October 29, 1999,
Note 9C as to which the date is November 26, 1999,
Note 9D as to which the date December 23, 1999,
and Notes 9E and F as to which the date is
January 27, 2000]
CARDXX, INC.
[A DEVELOPMENT STAGE COMPANY]
----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
------------ --------
1 9 9 9 1 9 9 9
------- -------
[UNAUDITED]
ASSETS:
CURRENT ASSETS:
Cash $ 18,257 $ 5,418
Accounts Receivable 27,364 57,152
Employee Advances 5,927 --
------------ ------------
TOTAL CURRENT ASSETS 51,548 62,570
PROPERTY AND EQUIPMENT - AT COST - [NET OF ACCUMULATED
DEPRECIATION OF $42,011 AND $31,961 AS OF DECEMBER 31,
1999 AND JUNE 30, 1999, RESPECTIVELY] 57,676 67,726
PRODUCT DEVELOPMENT COSTS - RELATED PARTY [NET OF ACCUMULATED
AMORTIZATION OF $250,000 AS OF DECEMBER 31, 1999] 2,517,805 2,274,797
PATENTS - [NET OF ACCUMULATED AMORTIZATION OF $7,749 AND $5,549
AS OF DECEMBER 31, 1999 AND JUNE 30, 1999, RESPECTIVELY] 66,469 68,669
DEFERRED CONSULTING COSTS - [NET OF AMORTIZATION OF $150,000 AND $75,000 AS OF
DECEMBER 31, 1999 AND JUNE 30, 1999,
RESPECTIVELY] -- 75,000
------------ ------------
TOTAL ASSETS $ 2,693,498 $ 2,548,762
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Bank Line of Credit $ 247,300 $ 235,000
Accounts Payable and Accrued Expenses 190,684 194,632
Accrued Interest Payable - Related Parties 90,371 65,171
Payroll Taxes Payable 30,212 18,100
Due to Related Parties 715,530 551,900
------------ ------------
TOTAL CURRENT LIABILITIES 1,274,097 1,064,803
------------ ------------
BRIDGE NOTES PAYABLE 527,500 462,500
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, Par Value $.001, Authorized 40,000,000 Shares,
Issued and Outstanding of 6,545,547 Shares as of December 31,
1999 and 6,188,918 Shares as of June 30, 1999 6,546 6,189
Paid-in Capital 3,304,359 2,719,311
Deficit Accumulated During the Development Stage (2,419,004) (1,704,041)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 891,901 1,021,459
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,693,498 $ 2,548,762
============ ============
|
See Notes to Financial Statements.
CARDXX, INC.
[A DEVELOPMENT STAGE COMPANY]
------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 12, AUGUST 12,
1996 [DATE OF 1996 [DATE OF
INCEPTION] INCEPTION]
SIX MONTHS ENDED YEARS ENDED THROUGH THROUGH
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
------------ -------- ------------ --------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 9
------- ------- ------- ------- ------- -------
[UNAUDITED] [UNAUDITED] [UNAUDITED]
----------- ----------- -----------
REVENUES $ 42,743 $ 200 $ 59,560 $ -- $ 102,303 $ 59,560
COST OF SALES 22,756 58,404 176,480 -- 199,236 176,480
-------------- -------------- -------------- -------------- -------------- ----------------
GROSS PROFIT [LOSS] 19,987 (58,204) (116,920) -- (96,933) (116,920)
-------------- -------------- -------------- -------------- -------------- ----------------
COSTS AND EXPENSES:
Salaries and Payroll Taxes 72,692 77,061 209,699 24,647 309,568 236,876
Advertising 1,381 8,957 20,702 1,304 23,434 22,053
Depreciation and
Amortization 12,200 10,052 21,846 15,550 49,710 37,510
Amortization of Consulting
Contract 75,000 -- 75,000 -- 150,000 75,000
Amortization of Product
Development Costs -
Related Party 250,000 -- -- -- 250,000 --
Contract Work -- 52,245 72,943 23,284 96,227 96,227
Consulting Fees - Related
Parties 40,348 112,500 212,233 133,735 386,316 345,968
Insurance [Includes
Medical] 13,333 3,557 26,418 1,802 42,045 28,712
Settlement Fees -- -- -- 55,000 55,000 55,000
Office Expenses 9,450 3,543 6,998 7,283 30,873 21,423
Rent - Related Party 21,986 21,985 47,791 43,971 124,741 102,755
Legal and Professional 159,633 38,872 125,331 45,759 330,723 171,090
Telephone 3,756 4,128 11,662 4,225 20,464 16,708
Travel and Entertainment 11,764 68,436 104,313 42,318 166,737 154,973
Other 29,268 38,784 59,452 12,660 121,325 92,057
-------------- -------------- -------------- -------------- -------------- ----------------
TOTAL COSTS AND EXPENSES 700,811 (440,120) 994,388 411,538 2,157,163 1,456,352
-------------- -------------- -------------- -------------- -------------- ----------------
[LOSS] FROM OPERATIONS (680,824) (498,324) (1,111,308) (411,538) (2,254,096) (1,573,272)
OTHER EXPENSES:
Interest Expense - Related
Parties 25,200 12,000 20,094 104,099 153,959 128,759
Interest Expense - Other 8,939 1,685 2,010 -- 10,949 2,010
-------------- -------------- -------------- -------------- -------------- ----------------
NET [LOSS] $ (714,963) $ (512,009) $ (1,133,412) $ (515,637) $ (2,419,004) $ (1,704,041)
============== ============== ============== ============== ============== ================
NET [LOSS] PER SHARE $ (.11) $ (.09) $ (.19) $ (.14)
============== ============== ============== ==============
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 6,296,718 6,003,918 6,071,418 3,792,288
============== ============== ============== ==============
|
See Notes to Financial Statements.
CARDXX, INC.
[A DEVELOPMENT STAGE COMPANY]
---------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE TOTAL
---------------------------- PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
--------- --------------- ------------ -------------- -----------
Cash Contributions - April 1, 1997 -- $ -- $ 100,000 $ -- $ 100,000
Shares Issued in Merger [1] 2,638,604 2,639 (2,639) -- --
Net [Loss] for the period from
August 12, 1996 [Date of
Inception] through June 30,
1997 -- -- -- (54,992) (54,992)
--------- --------------- ------------ -------------- -----------
BALANCE AT JUNE 30, 1997 2,638,604 2,639 97,361 (54,992) 45,008
Net [Loss] for the year ended
June 30, 1998 -- -- -- (515,637) (515,637)
------------ --------------- ------------ -------------- -----------
BALANCE AT JUNE 30, 1998 2,638,604 2,639 97,361 (570,629) (470,629)
Acquired Equity [Deficit] of IIC
in September of 1998 [1] 1,153,684 1,154 (1,154) -- --
Debt to Equity Conversion -
July 1998 [4C] 2,076,630 2,076 1,597,924 -- 1,600,000
Net Proceeds from Issuance of
Common Stock - October -
December 1998 [5A] 270,000 270 875,230 -- 875,500
Stock Issued in November of 1998
for Consulting and Public
Relations Consulting Contract [5C] 50,000 50 149,950 -- 150,000
Net [Loss] for the year ended
June 30, 1999 -- -- -- (1,133,412) (1,133,412)
------------ --------------- ------------ -------------- -----------
BALANCE AT JUNE 30, 1999 6,188,918 6,189 2,719,311 (1,704,041) 1,021,459
Net Proceeds from Issuance of
Common Stock - July 1999 -
August 1999 [9A] 135,714 136 224,864 -- 225,000
Net Proceeds from Issuance of
Common Stock - October -
December 1999 [9D] 220,915 221 360,184 -- 360,405
Net [Loss] for the six months
ended December 31, 1999 -- -- -- (714,963) (714,963)
------------ --------------- ------------ -------------- -----------
BALANCE AT DECEMBER 31,
1999 [UNAUDITED] 6,545,547 $ 6,546 $ 3,304,359 $ (2,419,004) $ 891,901
============ =============== ============ ============== ===========
|
See Notes to Financial Statements.
CARDXX, INC.
[A DEVELOPMENT STAGE COMPANY]
------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 12, AUGUST 12,
1996 [DATE OF 1996 [DATE OF
YEARS ENDED INCEPTION] INCEPTION]
SIX MONTHS ENDED ----------- THROUGH THROUGH
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, -------
------------ -------- ------------ --------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 9
------- ------- ------- ------- ------- -------
[UNAUDITED] [UNAUDITED] [UNAUDITED]
----------- ----------- -----------
OPERATING ACTIVITIES:
Net [Loss] $ (714,963) $ (512,009) $ (1,133,412) $ (515,637) $ (2,419,004) $ (1,704,041)
-------------- -------------- -------------- -------------- -------------- ----------------
Adjustments to Reconcile
Net [Loss] to Net Cash
[Used for] Provided by
Operating Activities:
Depreciation and
Amortization 12,200 10,052 21,846 15,550 49,710 37,510
Amortization of Product
Development Costs 250,000 -- -- -- 250,000 --
Amortization of Consulting
Contract 75,000 -- 75,000 -- 150,000 75,000
Changes in Assets and Liabilities:
[Increase] Decrease in:
Employee Advances (5,927) -- 5,472 (5,472) (5,927) --
Accounts Receivable 29,788 -- (57,152) -- (27,364) (57,152)
Increase [Decrease] in:
Accounts Payable and
Accrued Expenses (3,948) 75,039 175,606 14,781 190,684 194,632
Payroll Taxes Payable 12,112 10,403 14,028 3,891 30,212 18,100
Accrued Interest Payable -
Related Parties 25,200 3,666 19,641 40,964 90,371 65,171
-------------- -------------- -------------- -------------- -------------- ----------------
Total Adjustments (394,425) 99,160 254,441 69,714 727,686 333,261
-------------- -------------- -------------- -------------- -------------- ----------------
NET CASH - OPERATING
ACTIVITIES - FORWARD (320,538) (412,849) (878,971) (445,923) (1,691,318) (1,370,780)
-------------- -------------- -------------- -------------- -------------- ----------------
INVESTING ACTIVITIES:
Product Development
Costs - Related Party (493,008) (515,450) (1,180,917) (835,738) (2,691,898) (2,198,890)
Due to Related Party 163,630 32,961 475,993 75,907 639,623 475,993
Intangible Assets -- (5,566) (33,208) (29,400) (74,218) (74,218)
Property and Equipment 50 (22,243) (33,996) (65,691) (99,637) (99,687)
-------------- -------------- -------------- -------------- -------------- ----------------
NET CASH - INVESTING
ACTIVITIES - FORWARD $ (329,328) $ (510,298) $ (772,128) $ (854,922) $ (2,226,130) $ (1,896,802)
|
See Notes to Financial Statements.
CARDXX, INC.
[A DEVELOPMENT STAGE COMPANY]
------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 12, AUGUST 12,
1996 [DATE OF 1996 [DATE OF
YEARS ENDED INCEPTION] INCEPTION]
SIX MONTHS ENDED ----------- THROUGH THROUGH
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, -------
------------ -------- ------------ --------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 9
------- ------- ------- ------- ------- -------
[UNAUDITED] [UNAUDITED] [UNAUDITED]
----------- ----------- -----------
NET CASH - OPERATING
ACTIVITIES - FORWARDED $ (320,538) $ (412,849) $ (878,971) $ (445,923) $ (1,691,318) $ (1,370,780)
-------------- -------------- -------------- -------------- -------------- ----------------
NET CASH - INVESTING
ACTIVITIES - FORWARDED (329,328) (510,298) (772,128) (854,922) (2,226,130) (1,896,802)
-------------- -------------- -------------- -------------- -------------- ----------------
FINANCING ACTIVITIES:
Proceeds from Note
Payable - Related Party -- -- -- 1,700,000 2,000,000 2,000,000
Payments of Note
Payable - Related Party -- -- -- (400,000) (400,000) (400,000)
Proceeds from Bank Line
of Credit 12,300 -- 235,000 -- 247,300 235,000
Net Proceeds from Issuance
of Common Stock 585,405 875,500 875,500 -- 1,460,905 875,500
Net Proceeds from Issuance
of Bridge Notes 65,000 -- 462,500 -- 527,500 462,500
Issuance of Membership
Interest -- -- -- -- 100,000 100,000
-------------- -------------- -------------- -------------- -------------- ----------------
NET CASH - FINANCING
ACTIVITIES 662,705 875,500 1,573,000 1,300,000 3,935,705 3,273,000
-------------- -------------- -------------- -------------- -------------- ----------------
NET INCREASE [DECREASE]
IN CASH 12,839 (47,647) (78,099) (845) 18,257 5,418
CASH - BEGINNING OF
PERIODS 5,418 83,517 83,517 84,362 -- --
-------------- -------------- -------------- -------------- -------------- ----------------
CASH - END OF PERIODS $ 18,257 $ 35,870 $ 5,418 $ 83,517 $ 18,257 $ 5,418
============== ============== ============== ============== ============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ 10,000 $ 5,600 $ 2,000 $ 62,000 $ 74,000 $ 64,000
|
SUPPLEMENTAL INFORMATION OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During
July 1998, a promissory note for $1,600,000 was converted to equity
[See Note 4C].
See Notes to Financial Statements.
[1] NATURE OF OPERATIONS
CARDXX, LLC was formed on August 12, 1996, under the laws of the State of Colorado, however operations commenced in April 1997. On September 11, 1998, an agreement and plan of reorganization was made between CARDXX, LLC and International Interchange Corporation, ["IIC"] a Nevada corporation whereby IIC acquired all the assets and assumed all the liabilities of CARDXX, LLC in exchange for a total of 4,715,234 shares of common stock of IIC, including 2,076,630 shares issued on stockholders' debt conversion [See Note 4C]. For accounting purposes, this was treated as a reverse acquisition with CARDXX, LLC as the acquiror. The financial statements of the Company reflect the operations of CARDXX, LLC and IIC from September 11, 1998 onward. The financial statements prior to September 11, 1998 reflect the operations and financial position of CARDXX, LLC only. Pursuant to the reorganization, CARDXX, LLC changed its name to CARDXX, Inc. [the "Company"] on September 14, 1998. The Company's principal business activity has been the designing, manufacturing and distributing of smart cards using a state-of-the art proprietary production process known as the Reaction Assisted Molded Process ["RAMP"]. The use of smart cards in the United States has only recently begun. The Company anticipates international sales will account for a significant portion of revenues in the future.
The Company is located in Windsor, Colorado. The Company is in the development stage, as defined in Financial Accounting Standards Board Statement No. 7, "Accounting and Reporting for Development Stage Companies."
To date, the Company has generated minimal sales and devoted its efforts primarily to developing its product, developing its business strategy and raising working capital through equity and debt financing [See Notes 4C, 4E, 5A, 9A, 9D, 9E and 11].
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company has no such investments at December 31, 1999 and June 30, 1999.
The Company does not require collateral on other security to support financial instruments subject to credit risk.
PROPERTY AND EQUIPMENT - Property and equipment, which consists of office equipment and leasehold improvements are recorded at cost. Depreciation and amortization are provided by use of the straight-line method over the estimated useful lives of the assets of approximately five years.
Depreciation and amortization expense amounted to approximately $18,800 and $13,100 for the years ended June 30, 1999 and 1998, respectively. Depreciation and amortization expense amounted to approximately $10,000 and $8,000 for the six months ended December 31, 1999 and 1998, respectively.
Routine maintenance and repair costs are charged to expense as incurred and renewals and improvements that extend the useful life of the assets are capitalized.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
INTANGIBLE ASSETS - The Company's intangible assets consist of patents. The patents are being amortized on a straight-line basis over their legal life, which is seventeen years. Amortization for the years ended June 30, 1999 and 1998 amounted to approximately $3,000 and $2,500, respectively [See Note 7B]. Amortization for the six months ended December 31, 1999 and 1998 amounted to approximately $2,200 and $1,200, respectively.
REVENUE RECOGNITION - Revenues from the sale of smart cards and related equipment are recognized when delivered.
NET [LOSS] PER SHARE -The FASB issued SFAS No. 128, "Earnings Per Share," in February 1997. SFAS No. 128 simplifies the earnings per share ["EPS"] calculations required by Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations, by replacing the presentation of primary EPS with a presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS by entities with complex capital structures. The Company is required to present only basic EPS. Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, earlier application is not permitted. The Company has adopted SFAS No. 128, prior period EPS data has been restated. The Company has potentially dilutive securities that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented. Such securities may dilute EPS in future years [See Notes 4, 5, 9 and 11].
STOCK ISSUED TO EMPLOYEES - The Company adopted Statement of Financial Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation" for financial note disclosure purposes and will continue to apply the intrinsic value method of Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees" for financial reporting purposes. Pro forma information regarding net loss and loss per share as calculated under the provisions of SFAS No. 123, are disclosed in Note 5C.
ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Total advertising costs charged to expenses for the years ended June 30, 1999 and 1998, amounted to approximately $20,700 and $1,300, respectively. Advertising costs amounted to approximately $1,400 and $8,000 for the six months ended December 31, 1999 and 1998, respectively.
IMPAIRMENT - Certain long-term assets of the Company are reviewed when changes
in circumstances require as to whether their carrying value has become impaired,
pursuant to guidance established in Statement of Financial Accounting Standards
["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Management considers assets to be impaired
if the carrying value exceeds the future projected cash flows from related
operations [undiscounted and without interest charges]. If impairment is deemed
to exist, the assets will be written down to fair value. Management also
reevaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of December 31,
1999 and June 30, 1999, management expects these assets to be fully recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. In assessing the fair value of these financial instruments, the Company has used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time. For all instruments, including cash, accounts receivables, accounts payable and accrued expenses and debt, it was estimated that the carrying amount approximated fair value for these financial instruments as of December 31, 1999 and June 30, 1999.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
INCOME TAXES - Prior to fiscal 1999, the Company elected to be treated as a L.L.C. [a limited liability company] for income tax purposes whereby income and losses are passed through to the members of the Company. As part of an agreement and plan of reorganization [See Note 1], the Company elected to be treated as a C Corp for income tax purposes for fiscal 1999.
Pursuant to SFAS No. 109, "Accounting for Income Taxes," income tax expense [or benefit] for the year is the sum of deferred tax expense [or benefit] and income taxes currently payable [or refundable]. Deferred tax expense [or benefit] is the change during the year in a company's deferred tax liabilities and assets. Deferred tax liabilities and assets are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for deferred tax assets not expected to be realized.
[3] BANK LINE OF CREDIT AND OPERATING LEASE [RELATED PARTY]
During April 1999, the Company secured a credit facility for borrowings up to $250,000. The Company has utilized, for working capital needs, $235,000 of the line of credit as of June 30, 1999. Interest is calculated at a variable rate which is based on the prime rate [7.75% as of June 30, 1999].
The line of credit matured on October 5, 1999 and was classified as a current liability [See Note 9C].
Certain principal shareholders of the Company have guaranteed the repayment of this debt obligation.
The Company entered into a lease agreement with a related party company owned directly by a principal shareholder in CARDXX, Inc. The lease commences October 1, 1998 and was extended in September 1999 until September 3, 2000, unless terminated sooner under the terms of the lease. The lease has a minimum monthly rent of approximately $3,700. Under the terms of the lease, the Company is responsible for all personal property taxes and other assessments or charges applicable to the occupancy of the building [See Note 4D].
Rent expense for the years ended June 30, 1999 and 1998 was approximately $47,800 and $44,000, respectively. The Company owed the affiliated company approximately $15,000 as of June 30, 1999 and approximately $18,000 as of December 31, 1999.
Future minimum rentals under the agreement are as follows:
Year ending
June 30, Amount
----------- ------
2000 $ 44,400
==============
|
[4] RELATED PARTY TRANSACTIONS
[A] The Company capitalized production costs related to research and development activities acquired from an affiliated company, directly owned by a principal shareholder, of CARDXX, Inc., during the years ended June 30, 1999 and 1998 for approximately $1,181,000 and $836,000, respectively. The Company owes the affiliated company approximately $447,700 at June 30, 1999 for these production costs [See 9E].
During the six months ended December 31, 1999, the Company capitalized additional production costs of approximately $493,000. Effective for the first six months of fiscal 2000, management commenced amortization of such costs over an estimated useful life of five years. Amortization expense amounted to $250,000 for the six months ended December 31, 1999, which was charged to operations.
[B] Consulting fees, totaling approximately $212,200 and $133,700 for the years ended June 30, 1999 and 1998, respectively, were accrued to officers, stockholders, or entities controlled by the stockholders of the Company and were charged to operations in those periods. As of June 30, 1999, unpaid consulting fees amounted to $90,000. Consulting fees amounted to $40,000 and $112,500 for the six month period ended December 31, 1999 and 1998, respectively, which were charged to operations in those periods. As of December 31, 1999, unpaid consulting fees amounted to $122,500 [See Note 9E].
[C] The Company had a $1,600,000 convertible note payable with a stockholder of the Company at June 30, 1998. The note was payable in twelve equal consecutive monthly installments of principal and interest commencing March 5, 1999. All accrued interest and unpaid principal was due in full no later than March 5, 2000. The note carried an interest rate of 11% per annum. Accrued interest of approximately $45,500 was recorded and charged to operations during the year ended June 30, 1998 and remains unpaid as of June 30, 1999 [See Note 9E]. The note was secured by a certain patent application. In accordance with the terms of a subscription agreement for membership interest in CARDXX, LLC and the Second Amended and Restated Operating Agreement [the "Operating Agreement"], in July 1998, the stockholder converted the $1,600,000 convertible promissory note into an ownership interest of CARDXX, LLC. Upon the merger [Note 1] 2,076,630 shares of the Company's common stock were issued for the converted ownership interest on behalf of the member and two other parties.
[D] The Company entered into a lease agreement with a Company whose shareholders had a membership interest in CARDXX, LLC. The lease commences October 1, 1998 and expires on September 3, 2000, unless terminated sooner under the terms of the lease. The lease has a minimum monthly rent of approximately $3,700. Under the terms of the lease, the Company is responsible for all personal property taxes and other assessments or charges applicable to the occupancy of the building [See Note 3].
[E] During fiscal 1999, the Company received $462,500 from the issuance of two year bridge notes with accrued interest at 10%. Interest expense of approximately $19,700 was accrued and outstanding on these notes as of June 30, 1999 [See Note 9E].
During the first quarter of fiscal 2000, the Company received $65,000 from the issuance of additional two year bridge notes with interest at 10%. Additional interest expense for the period July 1, 1999 through December 31, 1999 was approximately $25,000 on the total bridge loans of $527,500 [See Note 9E].
[5] CAPITAL STOCK
[A] During the period October 1, 1998 through December 31, 1998, the Company received net proceeds of $875,500 [offering costs of $70,000] from the sale of 270,000 shares of the Company's common stock at $3.50 per share [See Note 9A].
[B] Effective December 1, 1998, the Board of Directors approved a stock option plan, for the reserve of 1,200,000 shares of common stock for issuance and sale to directors, officers, employees, and consultants of the Company upon exercise of such options at an exercise price not less than 100% of the fair market value of a share of Company stock on the date of grant for an expiration period of up to ten years. On December 1, 1998, the Company granted options under this plan to six employees for 100,000 shares of the Company's common stock exercisable at $3.50 per share. These options are exercisable over three years.
The weighted average fair value of the options granted was approximately $3.00.
[C] The following table summarizes information about stock options outstanding at June 30, 1999:
Options Outstanding
--------------------------------------------------------------------
Remaining
Number Contractual Life Weighted-Average
Exercise Price Outstanding of Options Outstanding Exercise Price
-------------- ----------- ---------------------- ----------------
$ 3.50 100,000 4.4 Years $ 3.50
|
The Company applies APB Opinion 25 in accounting for its stock issued to employees. Accordingly, there was no compensation cost recognized in income for the year ended June 30, 1999.
Had compensation cost been determined on the basis of fair value pursuant to FASB Statement No. 123, net loss and loss per share would have been recorded as follows for the year ended June 30, 1999:
Net Loss: As Reported $ (1,133,412) Pro Forma $ (1,451,536) Loss Per Share: As Reported $ (.19) Pro Forma $ (.24) |
The fair value of each option granted is estimated on the grant date using an option pricing model which takes into account, as of the grant date, the exercise price and the expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the expected term of the option. The following is the average of the data used for the following items:
Risk-Free Expected Expected
Interest Rate Expected Life Volatility Dividends
------------- ------------- ---------- ---------
4.42% 3 Years 137% N/A
|
[D] In November of 1998, the Company entered into a one year consulting agreement with an entity for various consulting and financial public relation services to be rendered in consideration for 50,000 shares of the Company's common stock. The Company valued the services to be performed at $150,000 and amortized $75,000 in each of the six month periods ended June 30, 1999 and December 31, 1999 [See Note 11C].
[6] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and how it is designated, for example, gain or losses related to changes in the fair value of a derivative not designated as a hedging instrument is recognized in earnings in the period of the change, while certain types of hedges may be initially reported as a component of other comprehensive income [outside earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Initial application of SFAS No. 133 should be as of the beginning of a fiscal quarter; on that date, hedging relationships must be designated anew and documented pursuant to the provisions of SFAS No. 133. Earlier application of all of the provisions of SFAS No. 133 is encouraged, but it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is not to be applied retroactively to financial statements of prior periods. The Company does not currently have any derivative instruments and is not currently engaged in any hedging activities.
In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ["SOP"] 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs, and requires that such costs to be expensed as incurred. SOP 98-5 applies to all nongovernmental entities and is generally effective for fiscal years beginning after December 15, 1998. The Company's current policy is in accordance with SOP 98-5.
The Financial Accounting Standards Board ["FASB"] has had on its agenda a
project to address certain practice issues regarding Accounting Principles Board
["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The FASB
plans on issuing various interpretations of APB Opinion No. 25 to address these
practice issues. The proposed effective date of these interpretations would be
the issuance date of the final Interpretation, which is expected to be in
September 1999. If adopted, the Interpretation would be applied prospectively
but would be applied to plan modification and grants that occur after December
15, 1998. The FASB's tentative interpretations are as follows:
The FASB's tentative conclusions relating to its project addressing certain practice issues regarding APB Opinion No. 25, Accounting for Stock Issued to Employees, was to limit the definition of an employee to individuals who met the common law definition of an employee. Thus, anyone who did not meet this definition, including outside members of the Board of Directors, would be excluded from the scope of APB Opinion No. 25. Accordingly, the cost of issuing stock options to outside members of the Board of Directors would have had to be determined in accordance with FASB Statement No. 123, Accounting for Stock-Based Compensation, usually resulting in an expense in the period of the grant [the service period could be prospective, however, see EITF 96-18]. At its August 11, 1999, Board meeting, however, the FASB decided to reverse its prior tentative conclusion in this regard and to continue to extend APB Opinion No. 25 accounting treatment to options granted to outside directors for their services as directors. Accordingly, as long as the stock option exercise price is equal to or greater than the fair value of the underlying stock at the measurement date [usually date of grant], no expense needs to be recorded for the issuance of stock options to outside members of the Board of Directors.
The FASB, however, is apparently not reversing itself on requiring companies that reprice their employee "fixed" stock options to expense any subsequent increases in the value of those options [i.e., variable grant accounting].
[7] SIGNIFICANT RISKS AND UNCERTAINTIES
[A] PURCHASE CONCENTRATIONS - The Company incurred product development costs from a related party [See Note 4A] used to produce the smart cards to be sold to end users.
Most of the raw materials used in the Company's products are available from multiple sources. However, several raw materials used in the Company's products are currently obtained from single sources. An extended interruption in the supply of any of the raw materials or a reduction in their quality would have a material adverse effect on the Company's operating results. There can be no assurance that severe shortages of raw materials will not occur in the future that could increase the cost or delay the shipment of the Company's products and have a material adverse effect on the Company's operating results.
[B] PATENTS - The Company's ability to compete effectively with other companies will depend, in part, on its ability to maintain the proprietary nature of its technology. There can be no assurance as to the degree of protection offered by any patents issued to or licensed by the Company, or as to the likelihood that pending patents will be issued.
[C] The Company anticipates that international sales will account for a significant portion of net sales in the future. International operations are subject to certain risks, including unexpected changes in regulatory requirements, exchange rates, tariffs and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in managing distributors or representatives, difficulties in staffing and managing foreign subsidiary operations and potentially adverse tax consequences.
[8] GOING CONCERN
The accompany financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern and realization of assets and settlement of liabilities and commitments in the normal course of business.
The Company incurred a net loss of approximately $1,133,000 and utilized cash of approximately $879,000 for operations for the year ended June 30, 1999. It is anticipated this trend will continue through fiscal 2000 since minimal revenue recognition is planned to be realized. This trend is anticipated to continue for the six months ended December 31, 1999 with the Company anticipating a net loss of approximately $700,000 and utilization of cash of approximately $350,000 for operations. The inability of the Company to generate cash from operations, considering currently available funds, creates an uncertainty about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company provides contract-manufacturing services, which include card production, card design and high-speed printing with reduced delivery time. The Company plans to manufacture and license card production systems to existing card manufacturers and systems integrators.
The Company's business plan targets as its main source of revenue stream the potential fees derived from its planned licensing arrangements with clients. By implementing this licensing strategy, the Company believes it will be able to earn revenues through equipment sales, up-front set-up charges, recurring usage fees and other fees earned from the access to limited card production to a select group of clients. In addition, the Company is exploring additional equity and debt financing. The continuation of the Company as a going concern is dependent upon the success of these plans.
There can be no assurances that management's plans to reduce recurring operating losses and to continue to obtain additional financing to fund operations will be successful. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
[9] SUBSEQUENT EVENTS
[A] EQUITY FINANCING - The Company received net proceeds of approximately $250,000 from the issuance of 142,857 shares of common stock during the first quarter of fiscal 2000.
During July 1999, one investor cancelled a fiscal 1999 common stock subscription in the amount of $25,000 [7,143 shares].
[B] BRIDGE FINANCING - The Company received loans from two shareholders during first quarter of fiscal 2000 aggregating $62,500.
[C] LINE OF CREDIT - On November 26, 1999, the Company received an extension on the $250,000 line of credit from its lender until April 5, 2000.
[D] ADDITIONAL EQUITY FINANCING - During the second quarter of fiscal 2000, the Company received net proceeds of $360,405 from the issuance of 220,915 shares and warrants for 35,000 shares of the Company's common stock.
[E] PLAN FOR RETIREMENT OF CORPORATE DEBT AND ASSIGNMENT OF INTELLECTUAL
PROPERTY - On January 27, 2000, the Board of Directors adopted a plan for
retirement of debt. This plan included paying approximately $675,500 to related
parties with the proceeds of the recapitalization on a prorata basis and the
issuance of additional shares and warrants of the Company's common stock at a
rate of one dollar for each share for bridge loans of approximately $507,500
plus unpaid interest of approximately $95,000.
In addition, the Chief Operating Officer of the Company has assigned to the Company certain intellectual property developed by him in consideration for 700,000 shares of common stock and $600,000 cash payable on or before May 1, 2000 and an additional $200,000 on or before January 1, 2001. The $800,000 obligation is secured by the security interest in the technology, inventions and trade secrets transferred pursuant to such assignment.
[F] EMPLOYMENT AGREEMENT - On January 27, 2000, the Company entered into a three year employment agreement with the chief operating officer for an annual base salary of $120,000 commencing January 1, 2000.
[10] UNAUDITED INTERIM STATEMENTS
The financial statements as of December 31, 1999 and 1998 and for the periods
then ended are unaudited; however, in the opinion of management, all adjustments
[consisting solely of normal recurring adjustments] necessary in order to make
the financial statements for the interim periods not misleading have been made.
The results of the interim period are not necessarily indicative of the results
to be obtained for a full fiscal year.
[11] SUBSEQUENT EVENTS [UNAUDITED]
[A] PRIVATE PLACEMENT MEMORANDUM - The Company is distributing in February 2000 a private placement memorandum of 60 units whereby each unit consists of 50,000 shares of common stock and warrants to purchase 25,000 shares of common stock at an exercise price of $2.00 per share on or before to March 31, 2003. The offering price is $50,000 per unit. The memorandum terminates April 30, 2000 unless extended by the Company for up to an additional 30 days. If the maximum offering is completed, the Company anticipates net proceeds of approximately $2,650,000.
[11] SUBSEQUENT EVENTS [UNAUDITED] [CONTINUED]
[B] ADDITIONAL EQUITY FINANCING - In January and February of 2000, the Company received a total of $100,000 from one investor for a total of 110,000 shares and warrants to purchase 110,000 shares of the Company's common stock exercisable at $1.00 per share.
In March and April of 2000, the Company received a total of $150,000 from two investors for a total of 150,000 shares of common stock and warrants to purchase 75,000 shares of the Company's common stock exercisable at $2.00 per share.
[C] CONSULTING CONTRACT - RELATED PARTY - On January 1, 2000, the Company entered into another one year consulting agreement with an entity, whereby its President and 50% shareholder was elected to the Company's Board of Directors in February 2000. The Company in consideration of this contract issued an additional 118,000 shares of the Company's common stock and issued warrants to purchase up to 100,000 shares of the Company's common stock for a purchase price of $1.00 per share for future services with an estimated value of $100,000 [See Note 5D].
In addition, the Company issued 25,000 shares of its common stock and warrants for 50,000 shares of the Company's common stock exercisable at $1.00 to another consultant for future services.
. . . . . . . . . .
PART III
ITEM 1. INDEX TO EXHIBITS.
Exhibit Number Description
-------------- -----------
2.1 Articles of Incorporation of the Registrant, as amended.
2.2 Bylaws of the Registrant
10.1 1998 Stock Option Plan
10.2 Lease of Commercial Property dated October 1, 1998 between
Andersen/Tiffany Construction, LLC and the Registrant
10.3 Employment Agreement dated as of January 1, 2000 of
Harry J. Tiffany, III
10.4 Security Agreement for Intellectual Property dated January 27,
2000 between Harry J. Tiffany, III and the Registrant
10.5 Assignment of Intellectual Property dated January 27, 2000 from
Harry J. Tiffany, III to the Registrant
|
SIGNATURES
In accordance with Section 12 of the Securities of Exchange Act of 1934, as amended, the Registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 13, 2000 CARDXX, INC.
By: /s/ Harry J. Tiffany, III
-------------------------------
Name: Harry J. Tiffany, III
Title: President and Chief
Operating Officer
|
Signature Title Date --------- ----- ---- /s/ Harry J. Tiffany III President, Chief Operating Officer April 13, 2000 ----------------------------- and Director Harry J. Tiffany, III /s/ Phil A. Worack Director April 13, 2000 ---------------------------- Phil A. Worack |
EXHIBIT 2.1
ARTICLES OF INCORPORATION
OF
INTERNATIONAL INTERCHANGE CORPORATION
The undersigned, natural person of eighteen years or more of age, acting as incorporator of a Corporation (the "Corporation") under the Nevada Revised Statutes, adopts the following Articles of Incorporation for the Corporation:
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is International Interchange Corporation.
ARTICLE II
SHARES
The amount of the total authorized capital stock of the Corporation is 40,000,000 shares of common stock, par value $.001 per share. Each share of common stock shall have one (1) vote. Such stock may be issued from time to time without any action by the stockholders for such consideration as may be fixed from time to time by the Board of Directors, and shares so issued, the full consideration for which has been paid or delivered, shall be deemed the full paid up stock, and the holder of such shares shall not be liable for any further payment thereof. Said stock shall not be subject to assessment to pay the debts of the Corporation, and no paid-up stock and no stock issued as fully paid, shall ever be assessed or assessable by the Corporation.
The Corporation is authorized to issue 40,000,000 shares of common stock, par value $.001 per share.
ARTICLE III
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Corporation is 1025 Ridgeview, Suite 400, Reno, Nevada 89509, and the name of its initial registered agent at such address is Michael J. Morrison.
ARTICLE IV
INCORPORATOR
The name and address of the incorporator is:
NAME ADDRESS
Anita Patterson 215 South State #1100
Salt Lake City, Utah 84111
|
ARTICLE V
DIRECTORS
The members of the governing board of the Corporation shall be known as directors, and the number of directors may from time to time be increased or decreased in such manner as shall be provided by the bylaws of the Corporation, provided that the number of directors shall not be reduced to less than one (1). The name and post office address of the first board of directors, which shall be one in number, is as follows:
NAME ADDRESS
Cameron Carpenter 870 East 9400 South #205
Sandy, Utah 84094
|
ARTICLE VI
GENERAL
A. The board of directors shall have the power and authority to make and alter, or amend, the bylaws, to fix the amount in cash or otherwise, to be reserved as working capital, and to authorize and cause to be executed the mortgages and liens upon the property and franchises of the Corporation.
B. The board of directors shall, from time to time, determine whether, and to what extent, and at which times and places, and under what conditions and regulations, the accounts and books of this Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have the right to inspect any account, book or document of this Corporation except as conferred by the Statutes of Nevada, or authorized by the directors or any resolution of the stockholders.
C. No sale, conveyance, transfer, exchange or other disposition of all or substantially all of the property and assets of this Corporation shall be made unless approved by the vote or written consent of the stockholders entitled to exercise two-thirds (2/3) of the voting power of the Corporation.
D. The stockholders and directors shall have the power to hold their meetings, and keep the books, documents and papers of the Corporation outside of the State of Nevada, and at
such place as may from time to time be designated by the bylaws or by resolution of the board of directors or stockholders, except as otherwise required by the laws of the State of Nevada.
E. The Corporation shall indemnify each present and future officer and director of the Corporation and each person who serves at the request of the Corporation as an officer or director of the Corporation, whether or not such person is also an officer or director of the Corporation, against all costs, expenses and liabilities, including the amounts of judgments, amounts paid in compromise settlements and amounts paid for services of counsel and other related expenses, which may be incurred by or imposed on him in connection with any claim, action, suit, proceeding, investigation or inquiry hereafter made, instituted or threatened in which he may be involved as a party or otherwise by reason of any past or future action taken or authorized and approved by him or any omission to act as such officer or director, at the time of the incurring or imposition of such costs, expenses, or liabilities, except such costs, expenses or liabilities as shall relate to matters as to which he shall in such action, suit or proceeding. be finally adjudged to be liable by reason of his negligence or willful misconduct toward the Corporation or such other Corporation in the performance of his duties as such officer or director, as to whether or not a director or officer was liable by reason of his negligence or willful misconduct toward the Corporation or such other Corporation in the performance of his duties as such officer or director, in the absence of such final adjudication of the existence of such liability, the board of directors and each officer and director may conclusively rely upon an opinion of legal counsel selected by or in the manner designed by the board of directors. The foregoing right of indemnification shall not be exclusive of other rights to which any such officer or director may be entitled as a matter of law or otherwise, and shall inure to the benefit of the heirs, executors, administrators and assigns of each officer or director.
F. To the fullest extent permitted by Nevada Revised Statute or any other applicable law as now in effect or as it may hereafter be amended, a director of this Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for any action taken or any failure to take any action, as a director except for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law or the payment of distributions in violation of Nevada Revised Statute section 78.300.
The undersigned being the individual named in Article III, above, as the initial registered agent of the Corporation, hereby consents to such appointment.
/s/ Michael J. Morrison ------------------------- MICHAEL J. MORRISON |
The undersigned incorporator executed these Articles of Incorporation, certifying that the facts herein stated are true this 25th day of January, 1996.
/s/ Anita Patterson ----------------------------- ANITA PATTERSON |
STATE OF UTAH )
ss.
COUNTY OF SALT LAKE )
|
On this 25th day of January, 1996, personally appeared before me Anita Patterson, personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is signed on the preceding document, and acknowledged to me that she signed it voluntarily for its stated purpose.
/s/ Christy McCarthy ---------------------------- NOTARY PUBLIC |
ARTICLES OF MERGER FOR
INTERNATIONAL INTERCHANGE CORPORATION, A NEVADA
CORPORATION
Pursuant to the provisions of Section 92A.200 of the Nevada Revised Statutes, International Interchange Corporation, a Nevada corporation ("IIC NV"), hereby adopts and files the following Articles of Merger as the surviving corporation to the merger of International Interchange Corporation, a Utah corporation ("IIC UT"), with and into IIC NV:
FIRST: The name and place of incorporation of each corporation which is a party to this merger is as follows:
Name Place of Incorporation ---- ---------------------- International Interchange Corporation Utah (the acquired corporation) International Interchange Corporation Nevada (the acquiring corporation) |
SECOND: The Agreement and Plan of Merger (the "Plan") governing the merger between the IIC NV and IIC UT, has been adopted by the Board of Directors of IIC NV and IIC UT.
THIRD: The approval of the shareholders of IIC NV and IIC UT was required to effectuate the merger. The number of shares of stock outstanding in each of the corporations (and the number of votes entitled to be cast) as of the date of the adoption of the Plan was as follows:
Entity Type of Shares Number of Shares Outstanding ------ -------------- ---------------------------- International Interchange Corp. (Utah) Common 15,332,892 |
International Interchange Corp. Common 100 (Nevada) |
The number of shares of stock of each corporation which voted for and against the Plan was as follows:
Entity Type of Shares For Against ------ -------------- --- ------- International Interchange Corp. (Utah) Common 9,221,462 0 International Interchange Common 100 0 Corp. (Nevada) |
FOURTH: The number of votes cast for the Plan by each voting group entitled to vote was sufficient for approval of the merger by each such voting group.
FIFTH: Following the merger there are no amendments to the Articles of Incorporation of the surviving company.
SIXTH: The complete executed Plan is on file at the registered office or other place of business of the Corporation.
SEVENTH: A copy of the Plan will be furnished by the Corporation, on request and without cost, to any shareholder of either corporation which is a party to the merger.
EIGHTH: The merger is effective upon the filing of these articles of merger.
DATED this 13 day of March, 1996
INTERNATIONAL INTERCHANGE CORP.,
a Nevada Corporation
By /s/ John Clayton --------------------------------------- John Clayton, President |
STATE OF UTAH )
) ss:
COUNTY OF SALT LAKE )
|
On this 13 day of March, 1996, personally appeared before me John Clayton, personally known to me or proved to me on the basis of satisfactory evidence, and who, being by me duly sworn, did say that he is the President of International Interchange Corporation, and that said document was signed by him in behalf of said corporation by authority of its bylaws, and said John Clayton acknowledged to me that said corporation executed the same.
/s/ Connie L. Collins
------------------------------------
NOTARY PUBLIC
By: /s/ Anita Patterson
-------------------------------------
Anita Patterson Secretary
|
STATE OF UTAH )
) ss:
COUNTY OF SALT LAKE )
|
On this 13 day of March, 1996, personally appeared before me Anita Patterson, personally known to me or proved to me on the basis of satisfactory evidence, and who, being by me duly sworn, did say that she is the Secretary of International Interchange Corporation, and that said document was signed by him in behalf of said corporation by authority of its bylaws, and said Anita Patterson acknowledged to me that said corporation executed the same.
/s/ Connie L. Collins ------------------------------------ NOTARY PUBLIC |
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
INTERNATIONAL INTERCHANGE CORPORATION
We the undersigned as President and Secretary of International Interchange Corporation do hereby certify:
That the Board of Directors of said Corporation at a meeting duly convened and held on September 16, 1997 adopted a Resolution to amend the original Articles as follows:
A. Delete Article IV in its entirety and substitute in its place the following:
ARTICLE IV.
The total authorized capitalization of this Corporation shall be and is the sum of 20,000,000 shares of Common Stock par value of $.01 per share. Said stock to carry full voting power, and the said shares shall be issued fully paid at such times as the Board of Directors may designate in exchange for cash, property or services, the stock of the other corporations or other values, rights or things, and the judgment of the Board of Directors as to the value thereof shall be conclusive.
Before this Amendment, 50,000,000 shares of Common Stock with a $.01 par value were authorized and of those authorized 15,332,892 were issued and outstanding. After the Amendment and reverse split, 20,000,000 shares of Common Stock with a par value of $.01.
After the change 1 share of the Common Stock which represents the sole class of stock authorized by the Corporation will be exchanged for 200 shares of the outstanding Common stock. Any fractional shares created by the reverse split shall be rounded up to the nearest whole share of Common Stock.
The said Amendment and reverse split have been consented to and approved by a majority vote of the stockholders holding at least a majority of the sole class of Common Stock outstanding and entitled to vote thereon by written consent. The change is effective upon filing.
/s/ John Clayton ------------------------------------ JOHN CLAYTON President /s/ Anita Patterson ------------------------------------ ANITA PATTERSON Secretary |
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
|
On this 29th day of September, 1997, personally appeared before me John Clayton and Anita Patterson, personally known to me or proved to me on the basis of satisfactory evidence to be the persons whose names are signed on the preceding document, and acknowledged to me that they signed it voluntarily for its stated purpose.
/s/ M. Jeanne Ball -------------------------------------------- NOTARY PUBLIC |
CERTIFICATE OF AMENDMENT TO
THE ARTICLES OF INCORPORATION OF
INTERNATIONAL INTERCHANGE CORPORATION
We the undersigned as President and Secretary of International Interchange Corporation do hereby certify:
That the Board of Directors of said Corporation at a International Interchange Corporation meeting duly convened on the 11th day of September, 1998 adopted a Resolution to amend the original Articles as follows:
A. Delete Article I in its entirety and substitute in its place the following:
Article One. The name of the Corporation is CardXX, Inc.
Said amendment has been consented to and approved by the owners of majority of the duly issued and outstanding shares of common stock which represent a majority of the sole class of common stock outstanding and entitled to vote thereon. The change is effective immediately upon the filing of this Certificate.
/s/ John Clayton ------------------------------------ John Clayton, President /s/ Anita Patterson ------------------------------------ Anita Patterson, Secretary/Treasurer |
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
|
On this 11th day of September, 1998, personally appeared before me John Clayton and Anita Patterson, personally known to me or provided to me on the basis of satisfactory evidence to be the persons whose names are signed on the preceding document, and acknowledged to me that they signed it voluntarily for its stated purpose.
/s/ John W. Peters ----------------------------------------- NOTARY PUBLIC |
ARTICLES OF SHARE EXCHANGE FOR
CARDXX, INC.
A NEVADA CORPORATION
Pursuant to the provisions of Section 78.458 of the Nevada Revised Statutes, CardXX, Inc., a Nevada corporation (the "Corporation") and CardXX, LLC, a Colorado limited liability company ("CardXX"), hereby adopts and files the following Articles of Share Exchange:
FIRST: The name and place of incorporation of each corporation which is a party to this share exchange is as follows:
NAME PLACE OF INCORPORATION CardXX, Inc. (the acquiring corporation) Nevada CardXX, LLC (the acquired company) Colorado |
SECOND: The Plan of Reorganization (the "Plan") governing the share exchange between the Corporation and CardXX, has been adopted by the Board of Directors of the Corporation and the managing member of CardXX.
THIRD: The Plan has been consented to by the shareholders of the Corporation owning a majority of the issued and outstanding shares of the sole class of voting common stock of the Corporation and all of the members of CardXX. The number of shares of stock outstanding in the Corporation and CardXX (and the number of votes entitled to be cast) as of the date of the adoption of the Plan was as follows:
ENTITY TYPE OF SHARES NUMBER OF SHARES OUTSTANDING CardXX, Inc. Common 1,253,684 CardXX, LLC Units 4,614,736 |
The number of shares of stock of each corporation which voted for or consented to the Plan was as follows:
ENTITY TYPE OF SHARES FOR AGAINST CardXX, Inc. Common 1,092,216 0 CardXX, LLC Units 4,614,736 0 |
FOURTH: The number of votes cast for or consenting to the Plan by each voting group entitled to vote was sufficient for approval of the share exchange by each such voting group.
FIFTH: The complete executed Plan is on file at the registered office or other place of business of the Corporation.
SIXTH: A copy of the Plan will be furnished by the Corporation, on request and without cost, to any shareholder of either corporation which is a party to the share exchange.
SEVENTH: The share exchange is effective upon filing.
DATED this 14th day of September, 1998.
/s/ John Clayton ------------------------------------ President /s/ Anita Patterson ------------------------------------ Secretary |
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
|
On this 14th day of September, 1998, personally appeared before me John Clayton and Anita Patterson, personally known to me or proved to me on the basis of satisfactory evidence, and whom, being by me duly sworn, did say they are the President and Secretary, respectively, of CardXX, Inc., and that said document was signed by them in behalf of said corporation by authority of its bylaws, and said John Clayton and Anita Patterson acknowledged to me that said corporation executed the same.
/s/ John W. Peters ----------------------------------------- NOTARY PUBLIC |
EXHIBIT 2.2
BYLAWS
OF
INTERNATIONAL INTERCHANGE CORPORATION
ARTICLE 1. OFFICES
1.1 Business Office. The principal office of the corporation shall be located at any place either within or outside the State of Nevada as designated in the corporation's most recent document on file with the Nevada Secretary of State, Division of Corporations. The corporation may have such other offices, either within or without the State of Nevada as the board of directors may designate or as the business of the corporation may require from time to time.
1.2 Registered Office. The registered office of the corporation shall be located within the State of Nevada and may be, but need not be, identical with the principal office. The address of the registered office may be changed from time to time.
ARTICLE 2. SHAREHOLDERS
2.1 Annual Shareholder Meeting. The annual meeting of the shareholders shall be held on the 15th day of March in each year, beginning with the year 19_ at the hour of 2:00 p.m., or at such other time on such other day within such month as shall be fixed by the board of directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Nevada, such meeting shall be held on the next succeeding business day.
2.2 Special Shareholder Meeting. Special meetings of the shareholders, for any purpose or purposes described in the meeting notice, may be called by the president, or by the board of directors, and shall be called by the president at the request of the holders of not less than one-fourth of all outstanding votes of the corporation entitled to be cast on any issue at the meeting.
2.3 Place of Shareholder Meeting. The board of directors may designate any place, either within or without the State of Nevada, as the place of meeting for any annual or any special meeting of the shareholders, unless by written consent, which may be in the form of waivers of notice or otherwise, all shareholders entitled to vote at the meeting designate a different place, either within or without the State of Nevada, as the place for the holding of such meeting. If no designation is made by either the directors or unanimous action of the voting shareholders, the place of meeting shall be at 870 East 9400 South #205, Sandy, Utah 84094.
2.4 Notice of Shareholder Meeting. Written notice stating the date, time, and place of any annual or special shareholder meeting shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the
President, the board of directors, or other persons calling the meeting, to each shareholder of record entitled to vote at such meeting and to any other shareholder entitled by the Nevada Revised Statutes (the "Statutes") or the articles of incorporation to receive notice of the meeting. Notice shall be deemed to be effective at the earlier of: (1) when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid; (2) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; (3) when received; or (4) 3 days after deposit in the United States mail, if mailed postpaid and correctly addressed to an address other than that shown in the corporation's current record of shareholders.
If any shareholder meeting is adjourned to a different date, time or place, notice need not be given of the new date, time and place, if the new date, time and place is announced at the meeting before adjournment. But if the adjournment is for more than 30 days or if a new record date for the adjourned meeting is or must be fixed, then notice must be given pursuant to the requirements of the previous paragraph, to those persons who are shareholders as of the new record date.
2.5 Waiver of Notice. A shareholder may waive any notice required by the Statutes, the articles of incorporation, or these bylaws, by a writing signed by the shareholder entitled to the notice, which is delivered to the corporation (either before or after the date and time stated in the notice) for inclusion in the minutes or filing with the corporate records.
A shareholder's attendance at a meeting:
(a) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting because of lack of notice or effective notice; and
(b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
2.6 Fixing of Record Date. For the purpose of determining shareholders of any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any distribution, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date. Such record date shall not be more than 70 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is so fixed by the board for the determination of shareholders entitled to notice of, or to vote at a meeting of shareholders, the record date for determination of such shareholders shall be at the close of business on the day the first notice is delivered to shareholders. If no record date is fixed by the board for the determination of shareholders entitled to receive a distribution, the record date shall be the date the board authorizes the distribution. With respect to actions taken
in writing without a meeting, the record date shall be the date the first shareholder signs the consent.
When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
2.7 Shareholder List. After fixing a record date for a shareholder meeting, the corporation shall prepare a list of the names of its shareholders entitled to be given notice of the meeting. The shareholder list must be available for inspection by any shareholder, beginning on the earlier of 10 days before the meeting for which the list was prepared or 2 business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, and any adjournment thereof. The list shall be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held.
2.8 Shareholder Ouorum and Voting Requirements.
2.8.1 Quorum. Except as otherwise required by the Statutes or the articles of incorporation, a majority of the outstanding shares of the corporation, represented by person or by proxy, shall constitute a quorum at each meeting of the shareholders. If a quorum exists, action on a matter, other than the election of directors, is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or the Statutes require a greater number of affirmative votes.
2.8.2 Voting of Shares. Unless otherwise provided in the articles of incorporation or these bylaws, each outstanding share, regardless of class, is entitled to one vote upon each matter submitted to a vote at a meeting of shareholders.
2.9 Quorum and Voting requirements of Voting Groups. If the articles of incorporation or the Statutes provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group.
Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation or the Statutes provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.
If the articles of incorporation or the Statutes provide for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.
If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or the Statutes require a greater number of affirmative votes.
2.10 Greater Quorum or Voting Requirements. The articles of incorporation may provide for a greater quorum or voting requirement for shareholders, or voting groups of shareholders, than is provided for by these bylaws. An amendment to the articles of incorporation that adds, changes, or deletes a greater quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
2.11 Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy which is executed in writing by the shareholder or which is executed by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the corporation or other person authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy. All proxies are revocable unless they meet specific requirements of irrevocability set forth in the Statutes. The death or incapacity of a voter does not invalidate a proxy unless the corporation is put on notice. A transferee for value who receives shares subject to an irrevocable proxy, can revoke the proxy if he had no notice of the proxy.
2.12 Corporation's Acceptance of Votes.
2.12.1 If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, proxy appointment, or proxy appointment revocation and give it effect as the act of the shareholder.
2.12.2 If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, proxy appointment, or proxy appointment revocation and give it effect as the act of the shareholder if:
(a) the shareholder is an entity as defined in the Statutes and the name signed purports to be that of an officer or agent of the entity;
(b) the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;
(c) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment, or proxy appointment revocation; or
(d) the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation; or
(e) two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-tenants or fiduciaries.
2.12.3 If shares are registered in the names of two or more persons, whether fiduciaries, members of a partnership, co-tenants, husband and wife as community property, voting trustees, persons entitled to vote under a shareholder voting agreement or otherwise, or if two or more persons (including proxy holders) have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation or other officer or agent entitled to tabulate votes is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:
(a) if only one votes, such act binds all;
(b) if more than one votes, the act of the majority so voting bind all;
(c) if more than one votes, but the vote is evenly split on any particular matter, each fraction may vote the securities in question proportionately.
If the instrument so filed or the registration of the shares shows that any tenancy is held in unequal interests, a majority or even split for the purpose of this Section shall be a majority or even split in interest.
2.12.4 The corporation is entitled to reject a vote, consent, waiver, proxy appointment or proxy appointment revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
2.12.5 The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, proxy appointment or proxy appointment revocation in good faith and in
accordance with the standards of this Section are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
2.12.6 Corporate action based on the acceptance or rejection of a vote, consent, waiver, proxy appointment or proxy appointment revocation under this Section is valid unless a court of competent jurisdiction determines otherwise.
2.13 Action by Shareholders Without a Meeting.
2.13.1 Written Consent. Any action required or permitted to be taken
at a meeting of the shareholders may be taken without a meeting and without
prior notice if one or more consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares 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 shareholders entitled to vote with respect to
the subject matter thereof were present and voted. Action taken under this
Section has the same effect as action taken at a duly called and convened
meeting of shareholders and may be described as such in any document.
2.13.2 Post-Consent Notice. Unless the written consents of all shareholders entitled to vote have been obtained, notice of any shareholder approval without a meeting shall be given at least ten days before the consummation of the action authorized by such approval to (i) those shareholders entitled to vote who did not consent in writing, and (ii) those shareholders not entitled to vote. Any such notice must be accompanied by the same material that is required under the Statutes to be sent in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.
2.13.3 Effective Date and Revocation of Consents. No action taken pursuant to this Section shall be effective unless all written consents necessary to support the action are received by the corporation within a sixty-day period and not revoked. Such action is effective as of the date the last written consent is received necessary to effect the action, unless all of the written consents specify an earlier or later date as the effective date of the action. Any shareholder giving a written consent pursuant to this Section may revoke the consent by a signed writing describing the action and stating that the consent is revoked, provided that such writing is received by the corporation prior to the effective date of the action.
2.13.4 Unanimous Consent for Election of Directors. Notwithstanding subsection (a), directors may not be elected by written consent unless such consent is unanimous by all shares entitled to vote for the election of directors.
2.14 Voting for Directors. Unless otherwise provided in the articles of incorporation, every shareholder entitled to vote for the election of directors has the right to cast, in person or by proxy, all of the votes to which the shareholder's shares are entitled for as many persons as there are directors to be elected and for whom election such shareholder has the right to vote. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
ARTICLE 3. BOARD OF DIRECTORS
3.1 General Powers. Unless the articles of incorporation have dispensed with or limited the authority of the board of directors by describing who will perform some or all of the duties of a board of directors, all corporate powers shall be exercised by or under the authority, and the business and affairs of the corporation shall be managed under the direction, of the board of directors.
3.2 Number, Tenure and Qualification of Directions. The authorized number of directors shall be three (3); provided, however, that if the corporation has less than three shareholders entitled to vote for the election of directors, the board of directors may consist of a number of individuals equal to or greater than the number of those shareholders. The current number of directors shall be within the limit specified above, as determined (or as amended form time to time) by a resolution adopted by either the shareholders or the directors. Each director shall hold office until the next annual meeting of shareholders or until the director's earlier death, resignation, or removal. However, if his term expires, he shall continue to serve until his successor shall have been elected and qualified, or until there is a decrease in the number of directors. Directors do not need to be residents of Nevada or shareholders of the corporation.
3.3 Regular Meetings of the Board of Directors. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders, for the purpose of appointing officers and transacting such other business as may come before the meeting. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.
3.4 Special Meetings of the Board of Directors. Special meetings of the board of directors may be called by or at the request of the president or any director. The person authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors.
3.5 Notice of, and Waiver of Notice for, Special Director Meeting. Unless the articles of incorporation provide for a longer or shorter period, notice of the date, time, and place of any special director meeting shall be given at least two days previously thereto either orally or in writing. Any director may waive notice of any meeting. Except as provided in the next sentence, the waiver must be in writing and signed by the director entitled to the notice. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business and at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting. Unless required by the articles of incorporation, neither the business to be transacted at, nor the purpose of, any special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.
3.6 Director Quorum and Voting.
3.6.1 Quorum. A majority of the number of directors prescribed by resolution shall constitute a quorum for the transaction of business at any meeting of the board of directors unless the articles of incorporation require a greater percentage.
Unless the articles of incorporation provide otherwise, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless: (1) the director objects at the beginning of the meeting (or promptly upon his arrival) to holding or transacting business at the meeting and does not thereafter vote for or assent to any action taken at the meeting; and (2) the director contemporaneously requests his dissent or abstention as to any specific action be entered in the minutes of the meeting; or (3) the director causes written notice of his dissent or abstention as to any specific action be received by the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.
3.7 Director Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if all the directors consent to such action in writing. Action taken by consent is effective when the last director signs the consent, unless, prior to such time, any director has revoked a consent by a signed writing received by the corporation, or unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be described as such in any document.
3.8 Resignation of Directors. A director may resign at any time by giving a written notice of resignation to the corporation. Such resignation is effective when the notice is received by the corporation, unless the notice specifies a later effective date.
3.9 Removal of Directors. The shareholders may remove one or more directors at a meeting called for that purpose if notice has been given that a purpose of the meeting is such removal. The removal may be with or without cause unless the articles of incorporation provide that directors may only be removed with cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. A director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him.
3.10 Board of Director Vacancies. Unless the articles of incorporation provide otherwise, if a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, the shareholders may fill the vacancy. During such time that the shareholders fail or are unable to fill such vacancies then and until the shareholders act:
(a) the board of directors may fill the vacancy; or
(b) if the board of directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
If the vacant office was held by a director elected by a voting group of shareholders:
(a) if there are one or more directors elected by the same voting group, only such directors are entitled to vote to fill the vacancy if it is filled by the directors; and
(b) only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.
A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.
3.11 Director Compensation. By resolution of the board of directors, each director may be paid his expenses, if any, of attendance at each meeting of the board of directors and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the board of directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
3.12 Director Committees.
3.12.1 Creation of Committees. Unless the articles of incorporation provide otherwise, the board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have one or more members, who shall serve at the pleasure of the board of directors.
3.12.2 Selection of Members. The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the articles of incorporation to take such action.
3.12.3 Required Procedures. Those Sections of this Article 3 which govern meetings, actions without meetings, notice and waiver of notice, quorum and voting requirements of the board of directors, apply to committees and their members.
3.12.4 Authority. Unless limited by the article of incorporation, each committee may exercise those aspects of the authority of the board of directors which the board of directors
confers upon such committee in the resolution creating the committee. Provided, however, a committee may not:
(a) authorize distributions;
(b) approve or propose to shareholders action that the Statutes require be approved by shareholders;
(c) fill vacancies on the board of directors or on any of its committees;
(d) amend the articles of incorporation pursuant to the authority of directors to do so;
(e) adopt, amend or repeal bylaws;
(f) approve a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
(h) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the board of directors may authorize a committee (or an officer) to do so within limits specifically prescribed by the board of directors.
ARTICLE 4. OFFICERS
4.1 Number of Officers. The officers of the corporation shall be a president, a secretary and a treasurer, each of whom shall be appointed by the board of directors. Such other officers and assistant officers as may be deemed necessary, including any vice presidents, may also be appointed by the board of directors. If specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation.
4.2 Appointment and Term of Office. The officers of the corporation shall be appointed by the board of directors for a term as determined by the board of directors. If no term is specified, they shall hold office until the first meeting of the directors held after the next annual meeting of shareholders. If the appointment of officers shall not be made at such meeting, such appointment shall be made as soon thereafter as is convenient. Each officer shall hold office until his successor shall have been duly appointed and shall have qualified until his death, or until he shall resign or is removed.
The designation of a specified term does not grant to the officer any contract rights, and the board may remove the officer at any time prior to the termination of such term.
4.3 Removal of Officers. Any officer or agent may be removed by the board of directors at any time, with or without cause. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Appointment of an officer or agent shall not of itself create contract rights.
4.4 Resignation of Officers. Any officer may resign at any time, subject to any rights or obligations under any existing contracts between the officers and the corporation, by giving notice to the president or board of directors. An officer's resignation shall take effect at the time specified therein, and the acceptance of such resignation shall not be necessary to make it effective.
4.5 President. Unless the board of directors has designated the chairman of the board as chief executive officer, the president shall be the chief executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation. Unless there is a chairman of the board, the president shall, when present, preside at all meetings of the shareholders and of the board of directors. The president may sign, with the secretary or any other proper officer of the corporation thereunder authorized by the board of directors, certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board f directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time.
4.6 Vice Presidents. If appointed, in the absence of the president or in the event of his death, 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 designate at the time of their election, or in the absence of any designation, then in the order of their appointment) 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.
4.7 Secretary. The secretary shall: (a) keep the minutes of the proceedings
of the shareholders, the board of directors, and any committees of the board in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these bylaws or as required by law;
(c) be custodian of the corporate records; (d) when requested or required,
authenticate any records of the corporation; (e) keep a register of the post
office address of each shareholder which shall be furnished to the secretary by
such shareholder; (f) sign with the president, or a vice president, certificates
for shares of the corporation, the issuance of which shall have been authorized
by resolution of the board of directors; (g) have general charge of the stock
transfer books of the corporation; and (h) in general perform all duties
incident to the office of secretary and such other duties as from time to
time may be assigned by the president or by the board of directors. Assistant secretaries, if any, shall have the same duties and powers, subject to the supervision of the secretary.
4.8 Treasurer. The treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such bank, trust companies, or other depositaries as shall be selected by the board of directors; and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors shall determine. Assistant treasurers, if any, shall have the same powers and duties, subject to the supervision of the treasurer.
4.9 Salaries. The salaries of the officers shall be fixed from time to time by the board of directors.
ARTICLE 5. INDEMNIFICATION OF DIRECTORS,
OFFICERS, AGENTS, AND EMPLOYEES
5.1 Indemnification of Directors. Unless otherwise provided in the articles of incorporation, the corporation shall indemnify any individual made a party to a proceeding because the individual is or was a director of the corporation, against liability incurred in the proceeding, but only if such indemnification is both (i) determined permissible and (ii) authorized, as such are defined in subsection (a) of this Section 5.1.
5.1.1 Determination of Authorization. The corporation shall not indemnify a director under this Section unless:
(a) a determination has been made in accordance with the procedures set forth in the Statutes that the director met the standard of conduct set forth in subsection (b) below, and
(b) payment has been authorized in accordance with the procedures set forth in the Statutes based on a conclusion that the expenses are reasonable, the corporation has the financial ability to make the payment, and the financial resources of the corporation should be devoted to this use rather than some other use by the corporation.
5.1.2 Standard of Conduct. The individual shall demonstrate that:
(a) he or she conducted himself in good faith; and
(b) he or she reasonably believed:
(i) in the case of conduct in his official capacity with the corporation, that his conduct was in its best interests;
(ii) in all other cases, that his conduct was at least not opposed to its best interests; and
(iii) in the case of any criminal proceeding, he or she had no reasonable cause to believe his conduct was unlawful.
5.1.3 Indemnification in Derivative Actions Limited. Indemnification permitted under this Section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.
5.1.4 Limitation on Indemnification. The corporation shall not indemnify a director under this Section of Article 5:
(a) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
(b) in connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in his or her official capacity, in which he or she was adjudged liable on the basis that personal benefit was improperly received by the director.
5.2 Advance of Expenses for Directors. If a determination is made following the procedures of the Statutes, that the director has met the following requirements, and if an authorization of payment is made following the procedures and standards set forth in the Statutes, then unless otherwise provided in the articles of incorporation, the corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding, if:
(a) the director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in this section;
(b) the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct;
(c) a determination is made that the facts then known to those making the determination would not preclude indemnification under this Section or the Statutes.
5.3 Indemnification of Officers. Agents and Employees Who Are Not Directors. Unless otherwise provided in the articles of incorporation, the board of directors may indemnify and advance expenses to any officer, employee, or agent of the corporation, who is not a director of the corporation, to the same extent as to a director, or to any greater extent consistent with public policy, as determined by the general or specific actions of the board of directors.
5.4 Insurance. By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance on behalf of a person who is or was a director, officer, employee, fiduciary or agent of the corporation, against any liability asserted against or incurred by such person in that capacity or arising from such person's status as a director, officer, employee, fiduciary, or agent, whether or not the corporation would have the power to indemnify such person under the applicable provisions of the Statutes.
ARTICLE 6. STOCK
6.1 Issuance of Shares. The issuance or sale by the corporation of any shares of its authorized capital stock of any class, including treasury shares, shall be made only upon authorization by the board of directors, unless otherwise provided by statute. The board of directors may authorize the issuance of shares for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts or arrangements for services to be performed, or other securities of the corporation. Shares shall be issued for such consideration expressed in dollars as shall be fixed from time to time by the board of directors.
6.2 Certificates for Shares.
6.2.1 Content. Certificates representing shares of the corporation shall at minimum, state on their face the name of the issuing corporation and that it is formed under the laws of the State of Nevada; the name of the person to whom issued; and the number and class of shares and the designation of the series, if any, the certificate represents; and be in such form as determined by the board of directors. Such certificates shall be signed (either manually or by facsimile) by the president or a vice president and by the secretary or an assistant secretary and may be sealed with a corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified.
6.2.2 Legend as to Class or Series. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences and limitations applicable to each class and the variations in rights, preferences and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.
6.2.3 Shareholder List. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation.
6.2.4 Transferring Shares. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a
like number of shares shall have been surrendered and canceled, except that in cash of a lost, destroyed, or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe.
6.3 Shares Without Certificates.
6.3.1 Issuing Shares Without Certificates. Unless the articles of incorporation provide otherwise, the board of directors may authorize the issue of some or all the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.
6.3.2 Information Statement Required. Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement containing, at a minimum, the information required by the Statutes.
6.4 Registration of the Transfer of Shares. Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the owner, the person in whose name shares stand in the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.
6.5 Restrictions on Transfer or Registration of Shares. The board of directors or shareholders may impose restrictions on the transfer or registration of transfer of shares (including any security convertible into, or carrying a right to subscribe for or acquire shares). A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of or otherwise consented to the restriction.
A restriction on the transfer or registration of transfer of shares may be authorized:
(a) to maintain the corporation's status when it is dependent on the number or identity of its shareholders;
(b) to preserve entitlements, benefits or exemptions under federal or local laws; and
(c) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(a) obligate the shareholder first to offer the corporation or other persons (separately, consecutively or simultaneously) an opportunity to acquire the restricted shares;
(b) obligate the corporation or other persons (separately, consecutively or simultaneously) to acquire the restricted shares;
(c) require as a condition to such transfer or registration, that any one or more persons, including the holders of any of its shares, approve the transfer or registration if the requirement is not manifestly unreasonable; or
(d) prohibit the transfer or the registration of transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this Section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by this Article 6 with regard to shares issued without certificates. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
6.6 Corporation's Acquisition of Shares. The corporation may acquire its own shares and the shares so acquired constitute authorized but unissued shares.
If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation, which amendment may be adopted by the shareholders or the board of directors without shareholder action. The articles of amendment must be delivered to the Secretary of State and must set forth:
(a) the name of the corporation;
(b) the reduction in the number of authorized shares, itemized by class and series;
(c) the total number of authorized shares, itemized by class and series, remaining after reduction of the shares; and
(d) a statement that the amendment was adopted by the board of directors without shareholder action and that shareholder action was not required.
ARTICLE 7. DISTRIBUTIONS
7.1 Distributions to Shareholders. The board of directors may authorize, and the corporation may make, distributions to the shareholders of the corporation subject to any restriction sin the corporation's articles of incorporation and in the Statutes.
7.2 Unclaimed Distributions. If the corporation has mailed three successive distributions to a shareholder at the shareholder's address as shown on the corporation's current record of shareholders and the distributions have been returned as undeliverable, no further attempt to deliver distributions to the shareholder need be made until another address for the shareholder is made known to the corporation, at which time all distributions accumulated by reason of this Section, except as otherwise provided by law, be mailed to the shareholder at such other address.
ARTICLE 8. MISCELLANEOUS
8.1 Inspection of Records by Shareholders and Directors. A shareholder or director of a corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, any of the records of the corporation required to be maintained by the corporation under the Statutes, if such person gives the corporation written notice of the demand at least five business days before the date on which such a person wishes to inspect and copy. The scope of such inspection right shall be as provided under the Statutes.
8.2 Corporate Seal. The board of directors may provide a corporate seal which may be circular in form and have inscribed thereon any designation including the name of the corporation, the state of incorporation, and the words "Corporate Seal."
8.3 Amendments. The corporation's board of directors may amend or repeal the corporation's bylaws at any time unless:
(a) the articles of incorporation or the Statutes reserve this power exclusively to the shareholders in whole or part; or
(b) the shareholders in adopting, amending, or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw; or
(c) the bylaw either establishes, amends, or deletes, a greater shareholder quorum or voting requirement.
Any amendment which changes the voting or quorum requirement for the board must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever are greater.
EXHIBIT 10.1
CARDXX INC.
1998 STOCK OPTION PLAN
Adopted and Effective as of December 1, 1998
CARDXX INC. 1998 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This CARDXX Inc. 1998 Stock Option Plan is intended to promote the interests of the Company and its shareholders by providing the Company's officers, directors, key employees and consultants, on whose judgment, initiative, and efforts the successful conduct of the business of the Company depends, and who are responsible for the management, growth, and protection of the business, with appropriate incentives and rewards to encourage them to continue in the employ of the Company and to maximize their performance.
2. DEFINITIONS.
As used in the Plan, the following definitions apply to the terms indicated below:
(a) "Board of Directors" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean, when used in connection with the termination of a
Participant's employment, the termination of the Participant's employment on
account of: (i) the willful and continued failure by the Participant
substantially to perform his or her duties and obligations to the Company (other
than any such failure resulting from incapacity due to physical or mental
illness), (ii) the willful violation by the Participant of (A) any federal or
state law or (B) any rule of the Company, which violation would materially
reflect on the Participant's character, competence, or integrity, (iii) a breach
by a Participant of the Participant's duty of loyalty to the Company such as
Participant's solicitation of customers or employees of the Company on behalf of
any other person, (iv) the Participant's unauthorized removal from the Company's
premises of any document (in any medium or form) relating to the Company, its
business, or its customers, provided, however, that no such removal shall be
deemed "unauthorized" if it is in furtherance of an individual's duties and
obligations to the Company and such removal is a common practice at the Company,
(v) the Participant's unauthorized disclosure to any person of any confidential
information regarding the Company, (vi) the willful engaging by the Participant
in any other misconduct which is materially injurious to the Company or (vii)
any event that constitutes "cause" (or any similar term that constitutes the
basis on which the Company may terminate the employee's employment with the
Company) for purposes of an employment agreement between the Participant and the
Company. For purposes of this
Section 2(b), no act, or failure to act, on a Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that the action or omission was in the best interests of the Company. Any rights the Company may have hereunder in respect of the events giving rise to Cause shall be in addition to the rights the Company may have under any other agreement with the Participant or at law or in equity. If, subsequent to the termination of a Participant's employment without Cause, it is determined by the Board of Directors that the Participant's employment could have been terminated for Cause, such Participant's employment shall, at the election of the Committee in its sole discretion, be deemed to have been terminated for Cause.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Compensation Committee of the Board; provided, however, the Compensation Committee shall not take any action under the Plan unless it is at all times composed solely of not less than three "Non-Employee Directors" within the meaning of Rule 16b-3, as promulgated under the Securities Exchange Act of 1934, as amended. In the event the Compensation Committee is not composed of three Non-Employee Directors when the Company is subject to the Securities Act, or, in the event the Committee is unable to act, the Board shall take any and all actions required or permitted to be taken by the Committee under the Plan and shall serve as the Committee.
(e) "Company" shall mean CARDXX Inc., a Nevada corporation.
(f) "Company Stock" shall mean the common stock, par value $.001 per share, of the Company.
(g) "Disability" shall mean any physical or mental condition as a result of which a Participant is disabled within the meaning of Section 422(c)(6) of the Code.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(i) "Fair Market Value" with respect to a share of Company Stock on any relevant date shall be determined in accordance with the following provisions:
(1) If, at the time an Option is granted under the Plan, the Company is publicly traded, "Fair Market Value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior
to the date such Option is granted and shall mean (i) the closing selling price per share on that date of the Company Stock on the principal national securities exchange on which the Company Stock is traded, if the Company Stock is then traded on a national securities exchange; or (ii) the closing selling price per share on that date of the Company Stock on the NASDAQ National Market List, if the Company Stock is not then traded on a national securities exchange; or (iii) the closing bid price per share last quoted on that date by an established quotation service for over-the-counter securities, if the Company Stock is not reported on the NASDAQ National Market List.
(2) If the Company Stock is not publicly traded at the time an Option is granted under the Plan, "Fair Market Value" shall be deemed to be the fair value of the Company Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Company Stock in private transactions negotiated at arm's length.
(j) "Incentive Award" shall mean an Option, a SAR, a Restricted Stock, or Stock Bonus Award granted pursuant to the terms of the Plan.
(k) "Incentive Stock Option" shall mean an Option that is an "incentive stock option" within the meaning of Section 422 of the Code and that is identified as an Incentive Stock Option in the agreement by which it is evidenced.
(l) "Issue Date" shall mean the date established by the Committee on which certificates representing shares of Restricted Stock shall be issued by the Company pursuant to the terms of Section 8(d) hereof.
(m) "Non-Qualified Stock Option" shall mean an Option that is not an Incentive Stock Option.
(n) "Option" shall mean an option to purchase shares of Company Stock granted pursuant to Section 6 hereof. Each Option, or portion thereof, shall be identified as either an Incentive Stock Option or a Non-Qualified Stock Option in the agreement by which such Option is evidenced.
(o) "Participant" shall mean an employee, officer, director or outside director of the Company or any subsidiary of the Company or a consultant to the Company or any subsidiary of the Company selected to participate in the Plan and to whom an Incentive Award is granted pursuant to the Plan, and, upon his or her death, that person's successors, heirs, executors, and administrators, as the case may be.
(p) "Person" shall mean a "person," such as term is used in Sections 13(d) and 14(d) of the Exchange Act.
(q) "Plan" shall mean this CARDXX Inc. 1998 Stock Option Plan, as it may be amended from time to time.
(r) "Restricted Stock" shall mean a share of Company Stock that is granted pursuant to the terms of Section 8 hereof and that is subject to the restrictions set forth in Section 8(c) hereof for as long as such restrictions continue to apply to such share.
(s) "Retirement" shall mean a Participant's termination of employment (other than by reason of death or Disability and other than a termination that is (or is deemed to have been) for Cause) on or after the later of (i) the date the Participant attains age 65 and (ii) the date the Participant has completed five years of service with the Company.
(t) "Securities Act" shall mean the Securities Act of 1933, as amended.
(u) "SAR" shall mean a stock appreciation right granted pursuant to Section 7 hereof.
(v) "Stock Bonus" shall mean a grant of a bonus payable in shares of Company Stock pursuant to Section 9 hereof.
(w) "Vesting Date" shall mean the date and/or dates established by the Committee on which an Incentive Award may vest. In the absence of provisions in an individual grant agreement to the contrary, Options shall vest ratably over a three (3) year period, at thirty-three and one-third (33 1/3%) percent per year.
3. STOCK SUBJECT TO THE PLAN.
(a) Plan Awards.
Under the Plan, the Committee may, in its sole and absolute discretion, grant any or all of the following types of Incentive Awards to a Participant: an Option, a SAR, a Restricted Stock, or Stock Bonus Award.
(b) Individual Awards.
Incentive Awards granted under the Plan may be made up entirely of one type of Incentive Award or any combination of types of Incentive Awards available under the Plan, in the Committee's sole discretion.
(c) Aggregate Plan Share Reserve.
The total number of shares of Company Stock available for grants of Incentive Awards under the Plan shall be 1,200,000 subject to adjustment in accordance with Section 10 of the Plan. These shares may be either authorized but unissued, newly issued shares, or reacquired shares of Company Stock. If an Incentive Award or portion thereof shall expire or terminate for any reason without having been exercised in full, the unexercised shares covered by such Incentive Award shall be available for future grants of Incentive Awards under the Plan.
4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Committee. The Committee shall from time to time designate the employees, officers, directors and outside directors of the Company or any subsidiary of the Company or consultants to the Company or any subsidiary of the Company who shall be granted Incentive Awards and the amount and type of such Incentive Awards.
The Committee shall have the full authority and discretion to administer the Plan, including authority to interpret and construe any provision of the Plan and the terms of any Incentive Award issued under the Plan. The Committee may also adopt any rules and regulations for administering the Plan as it may deem necessary or appropriate. Decisions of the Committee shall be final and binding on all parties.
The Committee may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option or SAR granted under the Plan becomes exercisable or otherwise adjust any of the terms of such Option or SAR (except that no such adjustment shall, without the consent of a Participant,
reduce the Participant's rights under any previously granted and outstanding Incentive Award), (ii) accelerate the Vesting Date or Issue Date of any share of Restricted Stock issued under the Plan, or waive any condition imposed thereunder, and (iii) otherwise adjust or waive any condition imposed on any Incentive Award made hereunder.
In addition, the Committee may, in its absolute discretion and without amendment to the Plan, grant Incentive Awards of any type to Participants on the condition that such Participants surrender to the Committee for cancellation such other Incentive Awards of the same or any other type (including, without limitation, Incentive Awards with higher exercise prices or values) as the Committee specifies. Notwithstanding Section 3(c) herein, prior to the surrender of such other Incentive Awards, Incentive Awards granted pursuant to the preceding sentence of this Section 4 shall not count against the limit set forth in such Section 3(c).
Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Committee, subject to applicable laws.
No member of the Committee shall be liable for any action, omission or determination relating to the Plan, and the Company (and any affiliate that may adopt the Plan), jointly and severally, shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company (or affiliate) to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination unless such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company and its affiliates, as the case may be.
5. ELIGIBILITY.
The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be those employees, officers, directors and outside directors of the Company or consultants to the Company who are responsible for the management, growth, and protection of the business of the Company; provided, however, that only employees of the Company shall be eligible to receive Incentive Awards consisting of Incentive Stock Options.
6. STOCK OPTION AWARDS.
The Committee may grant Options pursuant to the Plan. Such Options shall be evidenced by agreements in such form as the Committee shall from time to time approve. Options shall comply with and be subject to the following terms and conditions:
(a) Identification of Options.
All Options granted under the Plan shall be clearly identified in the agreement evidencing such Options as either Incentive Stock Options or as Non-Qualified Stock Options or a combination of both.
(b) Exercise Price.
The exercise price of any Non-Qualified Stock Option granted under the Plan shall be such price as the Committee shall determine, which may be equal to or less than the Fair Market Value of a share of Company Stock on the date such Non-Qualified Stock Option is granted; provided, that such price may not be less than the minimum price required by law. The exercise price of any Incentive Stock Option granted under the Plan shall be not less than 100% of the Fair Market Value of a share of Company Stock on the date on which such Incentive Stock Option is granted.
(c) Term and Exercise of Options.
(i) Each Option shall be exercisable on such date or dates, during such period, and for such number of shares of Company Stock as shall be determined by the Committee on the day on which such Option is granted and set forth in the Option agreement with respect to such Option; provided, however that no Option shall be exercisable after the expiration of ten years from the date such Option was granted; and, provided, further, that each Option shall be subject to earlier termination, expiration or cancellation as provided in the Plan.
(ii) Each Option shall be exercisable in whole or in part. The partial exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof. Upon the partial exercise of an Option, the agreement evidencing such Option, marked with such notations as the Committee may deem appropriate to evidence such partial exercise, shall be returned to the Participant exercising such Option together with the delivery of the certificates described in Section 6(e) hereof.
(iii) An Option shall be exercised by delivering a written notice to the Company's principal office to the attention of its Secretary. Such notice shall specify the number of shares of Company Stock with respect to which the Option
is being exercised, shall be signed by the Participant, and shall be accompanied by the agreement (or agreements) evidencing the Option and payment in full of the applicable exercise price for shares of Company Stock purchased in any combination of the forms specified below:
(A) in cash, by certified check, bank cashier's check, or wire transfer,
(B) subject to the approval of the Committee, in shares of Company Stock owned by the Participant and valued at their Fair Market Value on the date of such exercise,
(C) subject to the approval of the Committee, pursuant to a
"cashless exercise" pursuant to procedures adopted by the Committee whereby the
Participant, by a properly written notice, directs (a) an immediate market sale
or margin loan respecting all or a part of the shares of Company Stock to which
the Participant is entitled upon exercise pursuant to an extension of credit by
the Company to the Participant of the exercise price, (b) the delivery of the
shares of the Company Stock from the Company directly to the brokerage firm, and
(c) the delivery of the exercise price from the sale or margin loan proceeds
from the brokerage firm directly to the Company, or
(D) such other methods as the Committee may approve, from time to time.
Any payments in shares of Company Stock shall be effected by the delivery of such shares to the Secretary of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary of the Company shall require from time to time
(d) Nonassignability.
During the lifetime of a Participant, each Option granted to him or her shall be exercisable only by him or her. No Option shall be assignable or transferable otherwise than by will or by the laws of descent and distribution.
(e) Issuance of Certificates.
Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of the Participant or his or her beneficiary, as the case may be, and delivered to the Participant or his or her beneficiary, as the case may be, as soon as practicable following the date on which the Option is exercised.
(f) Limitations on Grant of Incentive Stock Options.
(i) The aggregate Fair Market Value of shares of Company Stock with respect to which Incentive Stock Options granted hereunder are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company (or any "subsidiary corporation" of the Company within the meaning of Section 424 of the Code) shall not exceed $100,000. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. In the event that the aggregate Fair Market Value of shares of Company Stock with respect to such Incentive Stock Options exceeds $100,000, then Incentive Stock Options granted hereunder to such Participant shall, to the extent and in the order in which they were granted, automatically be deemed to be Non-Qualified Stock Options, but all other terms and provisions of such Incentive Stock Options shall remain unchanged.
(ii) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its "subsidiary corporations" (within the meaning of Section 424 of the Code), unless (I) the exercise price of such Incentive Stock Option is at least 110% of the Fair Market Value of a share of Company Stock at the time such Incentive Stock Option is granted and (II) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted.
(iii) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual is not an employee of the Company.
(g) Effect of Termination of Employment.
(i) In the event the employment of a Participant with the Company shall terminate (as determined by the Committee in its sole discretion) for any reason other than Retirement, Disability, death or for Cause, (A) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until 90 days after the date of such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no Option shall be exercisable after the expiration of its term.
(ii) In the event that the employment of a Participant with the Company shall terminate on account of the Retirement, Disability or death of the
Participant, (A) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of their term and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The effect of exercising any Incentive Stock Option on a day that is more than 90 days after the date of such termination (or, in the case of a termination of employment on account of Disability, on a day that is more than one year after the date of such termination) will be to cause such Incentive Stock Option to be treated as a Non-Qualified Stock Option.
(iii) In the event of the termination of a Participant's employment for Cause, all outstanding Options granted to such Participant shall automatically expire at the commencement of business as of the date of such termination.
7. SARS.
The Committee may grant SARs pursuant to the Plan, which SARs shall be evidenced by agreements in such form as the Committee shall from time to time approve. SARs shall comply with and be subject to the following terms and conditions:
(a) Exercise Price.
The exercise price of any SAR granted under the Plan shall be determined by the Committee in its discretion at the time of the grant of such SAR.
(b) Benefit Upon Exercise.
(i) The exercise of a SAR with respect to any number of shares of Company Stock shall entitle a Participant to a cash payment, for each such share, equal to the excess of (A) the Fair Market Value of a share of Company Stock on the exercise date over (B) the exercise price of the SAR (subject to applicable withholding payment requirements).
(ii) All payments under this Section 7(b) shall be made as soon as practicable, but in no event later than five business days, after the date of the exercise.
(c) Term and Exercise of SARs.
(i) Each SAR shall be exercisable on such date or dates, during such period, and for such number of shares of Company Stock as shall be
determined by the Committee and set forth in the SAR agreement with respect to such SAR; provided, however, that no SAR shall be exercisable after the expiration of ten years from the date such SAR was granted; and provided, further, however, that each SAR shall be subject to earlier termination, expiration or cancellation as provided in the Plan.
(ii) Each SAR may be exercised in whole or in part. The partial exercise of a SAR shall not cause the expiration, termination or cancellation of the remaining portion thereof. Upon the partial exercise of a SAR, the agreement evidencing such SAR, marked with such notations as the Committee may deem appropriate to evidence such partial exercise, shall be returned to the Participant exercising such SAR together with the payment described in Section 7(b) or 7(b)(ii) hereof.
(iii) A SAR shall be exercised by delivering written notice to the Company's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable agreement (or agreements) evidencing the SAR, shall specify the number of shares of Company Stock with respect to which the SAR is being exercised, and shall be signed by the Participant. The date upon which such written notice is received by the Company shall be the exercise date for the SAR.
(iv) During the lifetime of a Participant, each SAR granted to him or her shall be exercisable only by him or her. No SAR shall be assignable or transferable otherwise than by will or by the laws of descent and distribution.
(d) Termination of Employment.
(i) In the event that the employment of a Participant with the Company shall terminate (as determined by the Committee in its sole discretion) for any reason other than Retirement, Disability, death or for Cause, (A) SARs granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the 30th day after such termination, on which date they shall expire and (B) SARs granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no SAR shall be exercisable after the expiration of its term.
(ii) In the event that the employment of a Participant with the Company shall terminate on account of the Retirement, Disability or death of the Participant, (A) SARs granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of their term and (B) SARs granted to such Participant, to the extent
that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination.
(iii) In the event of the termination of the Participant's employment for Cause, all outstanding SARs granted to such Participant shall automatically expire at the commencement of business as of the date of such termination.
(e) Tandem SARs.
SARs may be granted in tandem with Options (or on a stand-alone basis). To the extent SARs are granted in tandem with Options and SARs are exercised, the related Options shall be cancelled. Similarly, if the Options are exercised, the related SARs shall be cancelled.
8. RESTRICTED STOCK.
The Committee may grant shares of Restricted Stock pursuant to the Plan. Each grant of shares of Restricted Stock shall be evidenced by an agreement in such form as the Committee shall from time to time approve. Each grant of shares of Restricted Stock shall comply with and be subject to the following terms and conditions:
(a) Issue Date and Vesting Date.
At the time of the grant of shares of Restricted Stock, the Committee shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares. The Committee may divide such shares into classes and assign a different Issue Date and/or Vesting Date for each class. Except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the Issue Date with respect to a share of Restricted Stock, a share of Restricted Stock shall be issued in accordance with the provisions of Section 8(d) hereof. Provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to Section 8(b) hereof are satisfied, and except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, such share shall vest and the restrictions of Section 8(c) hereof shall cease to apply to such share.
(b) Conditions to Vesting.
At the time of the grant of shares of Restricted Stock, the Committee may impose such restrictions or conditions, not inconsistent with the provisions hereof, to the vesting of such shares as it, in its absolute discretion, deems appropriate. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any shares of Restricted
Stock, that the Participant or the Company achieve such performance criteria as the Committee may specify at the time of the grant of such shares.
(c) Restrictions on Transfer Prior to Vesting.
Prior to the vesting of a share of Restricted Stock, no transfer of a Participant's rights to such share, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest, or right in, or with respect to, such share, but immediately upon any attempt to transfer such rights, such share, and all the rights related thereto, shall be forfeited by the Participant and the transfer shall be of no force or effect.
(d) Issuance of Certificates.
(i) Except as provided in Sections 8(c) or 8(f) hereof, reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the Company shall cause to be issued a stock certificate, registered in the name of the Participant to whom such shares were granted, evidencing such shares, provided, that the Company shall not cause to be issued such stock certificate unless it has received a stock power duly endorsed in blank with respect to such shares. Each such stock certificate shall bear the following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS, AND CONDITIONS (INCLUDING FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE CARDXX INC. 1998 STOCK OPTION AND PLAN AND INCENTIVE AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND CARDXX INC. A COPY OF THE PLAN AND AGREEMENT IS ON FILE IN THE OFFICE OF THE SECRETARY OF CARDXX INC., 701 AUTOMATION DRIVE, WINDSOR, COLORADO 80550.
Such legend shall not be removed from the certificate evidencing such shares until such shares vest pursuant to the terms hereof.
(ii) Each certificate issued pursuant to Section 8(d)(i) hereof, together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be deposited by the Company with a custodian designed by the Company. The Company shall cause such custodian to issue to the Participant a receipt evidencing the certificates held by it which are registered in the name of the Participant.
(e) Consequences Upon Vesting.
Upon the vesting of a share of Restricted Stock pursuant to the terms hereof, the restrictions of Section 8(c) hereof shall cease to apply to such share. Reasonably promptly after a share of Restricted Stock vests pursuant to the terms hereof, the Company shall cause to be issued and delivered to the Participant to whom such shares were granted, a certificate evidencing such share, free of the legend set forth in Section 8(d)(i) hereof, together with any other property of the Participant held by the custodian pursuant to Section 8(d)(ii) hereof.
(f) Effect of Termination of Employment.
(i) In the event that the employment of a Participant with the Company shall terminate for any reason other than Cause prior to the vesting of shares of Restricted Stock granted to such Participant, shall be forfeited on the date of such termination, provided however, that the Committee may, in its sole and absolute discretion, vest the Participant in all or any portion of shares of Restricted Stock which would otherwise be forfeited pursuant to the provisions of this Section.
(ii) In the event of the termination of a Participant's employment for Cause, all shares of Restricted Stock granted to such Participant which have not vested as of the date of such termination shall immediately be forfeited.
9. STOCK BONUSES.
The Committee may grant Stock Bonuses in such amounts as it shall determine from time to time. A Stock Bonus shall be paid at such time and subject to such conditions as the Committee shall determine at the time of the grant of such Stock Bonus. Certificates for shares of Company Stock granted as a Stock Bonus shall be issued in the name of the Participant to whom such grant was made and delivered to such Participant as soon as practicable after the date on which such Stock Bonus is required to be paid.
10. ADJUSTMENT UPON CHANGES IN COMPANY STOCK.
(a) Shares Available for Grants.
In the event of any change in the number of shares of Company Stock outstanding by reason of any stock dividend or split, reverse stock split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum number of shares of Company Stock
with respect to which the Committee may grant Options, SARs, shares of Restricted Stock, and Stock Bonuses under Section 3 hereof shall be appropriately adjusted by the Committee. In the event of any change in the number of shares of Company Stock outstanding by reason of any other event or transaction, the Committee may, but need not, make such adjustments in the number of shares of Company Stock with respect to which Options, SARs, shares of Restricted Stock, and Stock Bonuses may be granted under Section 3 hereof as the Committee may deem appropriate.
(b) Outstanding Restricted Stock.
Unless the Committee in its absolute discretion otherwise determines,
any securities or other property (including dividends paid in cash) received by
a Participant with respect to a share of Restricted Stock, the Issue Date with
respect to which occurs prior to such event, but which has not vested as of the
date of such event, as a result of any dividend, stock split, reverse stock
split, recapitalization, merger, consolidation, combination, exchange of shares
or similar corporate exchange will not vest until such share of Restricted Stock
vests and shall be promptly deposited with the custodian designated pursuant to
Section 8(d)(ii) hereof.
The Committee may, in its absolute discretion, adjust any grant of shares of Restricted Stock, the Issue Date with respect to which has not occurred as of the date of the occurrence of any of the following events, to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change as the Committee may deem appropriate to prevent the enlargement or dilution of rights of Participants under the grant.
(c) Outstanding Options and SARs - Increase or Decrease in Issued Shares Without Consideration.
Subject to any required action by the shareholders of the Company, in the event of any increase or decrease in the number of issued shares of Company Stock resulting from a subdivision or consolidations of shares of Company Stock or the payment of a stock dividend on the shares of Company Stock, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company, the Company shall proportionally adjust the number of shares of Company Stock subject to each outstanding Option and SAR, and the exercise price per share of Company Stock of each such Option and SAR.
(d) Outstanding Options and SARs - Certain Mergers.
Subject to any required action by the shareholders of the Company, in the event that the Company shall be the surviving corporation in any merger or consolidation (except a merger or consolidation as a result of which the holders of shares of Company Stock receive securities of another corporation), each Option and SAR outstanding on the date of such merger or consolidation shall pertain to and apply to the securities which a holder of the number of shares of Company Stock subject to such Option or SAR would have received in such merger or consolidation.
(e) Outstanding Options, SARs - Certain Other Transactions.
In the event of a dissolution or liquidation of the Company; a sale of substantially all of the Company's assets, a merger or consolidation involving the Company in which the Company is not the surviving corporation; or a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Company Stock receive securities of another corporation and/or other property, including cash, the Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such event, each Option and SAR outstanding immediately prior to such event (whether or not then exercisable), and, in full consideration of such cancellation, pay to the Participant to whom such Option or SAR was granted an amount in cash, for each share of Company Stock subject to such Option or SAR, respectively, equal to the excess of (A) the value, as determined by the Committee in its absolute discretion, of the property (including cash) received by the holder of a share of Company Stock as a result of such event over (B) the exercise price of such Option or SAR (subject to applicable withholding payment requirements); or
(ii) provide for the exchange of each Option and SAR outstanding immediately prior to such event (whether or not then exercisable) for an option on or stock appreciation right with respect to, as appropriate, some or all of the property for which such Option or SAR is exchanged and, incident thereto, make an equitable adjustment as determined by the Committee in its absolute discretion in the exercise price of the option or stock appreciation right, or, if appropriate, provide for a cash payment to the Participant to whom such Option or SAR was granted in partial consideration for the exchange of the Option or SAR.
(f) Outstanding Options and SARs - Other Changes.
In the event of any change in the capitalization of the Company or a corporate change other than those specifically referred to in Section 10(c),(d) or (e) hereof, the Committee may in its absolute discretion, make such adjustments in the number of shares subject to Options or SARs outstanding on the date on which such change occurs and in the per share exercise price of each such Option and SAR as the Committee may consider appropriate to prevent dilution or enlargement or rights.
(g) No Other Rights.
Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of Company Stock, the payment of any dividend, any increase or decrease in the number of shares of Company Stock or any dissolution, liquidation, merger or consolidation of the Company or any other corporation. Except as expressly provided in the Plan, no issuance by the Company of Company Stock, or securities convertible into shares of Company Stock, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Company Stock subject to an Incentive Award or the exercise price of any Option or SAR.
11. RIGHTS AS A STOCKHOLDER.
(a) No Rights as a Stockholder.
No person shall have any rights as a stockholder with respect to any shares of Company Stock covered by or relating to any Incentive Award granted pursuant to the Plan until the date the person becomes the owner of record with respect to such shares. Except as otherwise expressly provided in Section 10 hereof, no adjustment to any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued.
(b) Accrual of Dividends.
Whenever Restricted Shares are paid to a Participant or beneficiary under the Plan, such Participant or beneficiary shall also be entitled to receive, with respect to each Restricted Share paid, an amount equal to any cash dividends, and number of shares of Company Stock equal to any stock dividends, declared and paid with respect to a share of Company Stock between the date the relevant Restricted Share award was granted and the date the Restricted Shares are being distributed. At the discretion of the Committee,
interest may be paid on the amount of cash dividends withheld, including cash dividends on stock dividends, at a rate and subject to such terms as determined by the Committee.
12. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHTS TO INCENTIVE AWARD.
(a) No Special Employment Rights.
Nothing contained in the Plan or any Incentive Award shall confer upon any Participant any right with respect to the continuation of his or her employment by or service with the Company or any subsidiary of the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment or consulting agreement to the contrary, at any time to terminate such employment or service or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Incentive Award.
(b) No Rights to Incentive Awards.
No person shall have any claim or right to receive an Incentive Award hereunder. The Committee's granting of an Incentive Award to a Participant at any time shall neither require the Committee to grant an Incentive Award to such Participant or any other Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other Participant or other person.
13. SECURITIES MATTERS.
(a) The Company shall be under no obligation to effect the registration pursuant to the Securities Act of any interests in the Plan or any shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority, and the requirements of NASDAQ and any other securities exchange on which shares of Company Stock are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing shares of Company Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements, and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of shares of Company Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authority, and the requirements of NASDAQ and any other securities exchange on which shares of Company Stock are traded. The Committee may, in its sole discretion, defer the effectiveness of any exercise of an Option granted hereunder in order to allow the issuance of shares of Company Stock pursuant thereto to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of an Option granted hereunder. During the period that the effectiveness of the exercise of an Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain a refund of any amount paid with respect thereto.
(c) All Company Stock issued pursuant to the terms of the Plan shall constitute "restricted securities," as that term is defined in Rule 144 promulgated pursuant to the Securities Act, and may not be transferred except in compliance with the registration requirements of the Securities Act or an exemption therefrom.
(d) Certificates for shares of Company Stock, when issued, may have substantially the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERD FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE STATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE APPLICATE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Company Stock issued pursuant to an effective registration statement under the Securities Act and in accordance with applicable state securities laws.
14. WITHHOLDING TAXES.
(a) Cash Remittance.
Whenever shares of Company Stock are to be issued upon the exercise of an Option, the occurrence of the Issue Date or Vesting Date with respect to a share of Restricted Stock or the payment of a Stock Bonus, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy federal, state, and local withholding tax requirements, if any, attributable to such exercise, occurrence or payment prior to the delivery of any certificate or certificates for such shares. In addition, upon the exercise of an SAR, the Company shall have the right to withhold from any cash payment required to be made pursuant thereto an amount sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise or grant.
(b) Stock Remittance.
Subject to Section 14(c) hereof, at the election of the Participant, subject to the approval of the Committee, when shares of Company Stock are to be issued upon the exercise of an Option, the occurrence of the Issue Date or the Vesting Date with respect to a share of Restricted Stock, or the grant of a Stock Bonus, in lieu of the remittance required by Section 14(a) hereof, the Participant may tender to the Company a number of shares of Company Stock determined by such Participant, the Fair Market Value of which at the tender date the Committee determines to be sufficient to satisfy the minimum federal, state and local withholding tax requirements, if any, attributable to such exercise, occurrence or grant and not greater than the Participant's estimated total federal, state and local tax obligations associated with such exercise, occurrence or grant.
(c) Stock Withholding.
The Company shall have the right, when shares of Company Stock are to be issued upon the exercise of an Option, the occurrence of the Issue Date or the Vesting Date with respect to a share of Restricted Stock or the grant of a Stock Bonus, in lieu of requiring the remittance required by Section 14(a) hereof, to withhold a number of such shares, the Fair Market Value of which at the exercise date the Committee determines to be sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise, occurrence or grant and is not greater than the Participant's estimated total, federal, state and local tax obligations associated with such exercise, occurrence or grant.
15. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part, or amend it in such respects as the Board may deem appropriate. No amendment, suspension or termination of the Plan shall, without the Participant's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Participant under the Plan. The Board may amend the Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Incentive Awards meeting the requirements of future amendments or issued regulations, if any, to the Code or to the Exchange Act.
16. NO OBLIGATION TO EXERCISE.
The grant to a Participant of an Option or a SAR shall impose no obligation upon such Participant to exercise such Option or SAR.
17. TRANSFERS UPON DEATH.
Upon the death of a Participant, outstanding Incentive Awards granted to such Participant may be exercised only by the executors or administrators of the Participant's estate or by any person or persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. No transfer by will or the laws of descent and distribution of any Incentive Award, or the right to exercise any Incentive Award, shall be effective to bind the Company unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Incentive Award. Except as provided in this Section 17, no Incentive Award shall be transferable, and shall be exercisable only by a Participant during the Participant's lifetime.
18. EXPENSES AND RECEIPTS.
The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company in connection with any Incentive Award will be used for general purposes.
19. FAILURE TO COMPLY.
In addition to the remedies of the Company elsewhere provided for herein, a failure by a Participant (or beneficiary) to comply with any of the terms and conditions of the Plan or the agreement executed by such Participant (or beneficiary) evidencing an Incentive Award, unless such failure is remedied by such Participant (or beneficiary) within ten days after having been notified of such failure by the Committee, shall be grounds for the cancellation and forfeiture of such Incentive Award, in whole or in part, as the Committee, in its absolute discretion may determine.
20. ADOPTION AND EFFECTIVE DATE OF PLAN.
The Plan was adopted by unanimous written consent of the Board of Directors of the Company, in lieu of a meeting of the Board, effective as of December 1, 1998 and the Plan was subsequently ratified and approved through action taken by the written consent of a majority of the shareholders of the Company dated effective as of December 1, 1998, in lieu of a meeting of such shareholders, all as permitted under Nevada law.
21. TERM OF THE PLAN.
The right to grant Incentive Awards under the Plan will terminate upon the expiration of ten years from the date the Plan was initially adopted.
22. APPLICABLE LAW.
Except to the extent preempted by an applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of Nevada, without reference to the principles of conflicts of law.
EXHIBIT 10.2
LEASE AGREEMENT
TABLE OF CONTENTS
Page
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ARTICLE 1.00 - GRANT OF LEASE ............................................ 1
1.01 - Grant ..................................................... 1
1.02 - Premises .................................................. 1
1.03 - Quiet Enjoyment ........................................... 1
1.04 - Covenants of Landlord and Tenant .......................... 1
ARTICLE 2.00 - TERM AND POSSESSION
2.01 - Term ...................................................... 1
2.02 - Acceptance of Premises .................................... 1
ARTICLE 3.00 - RENT AND ADDITIONAL CHARGES
3.01 - Rent ...................................................... 1
3.02 - Operating Costs ........................................... 2
3.03 - Personal Property Taxes ................................... 3
3.04 - Security Deposit .......................................... 3
3.05 - Utilities ................................................. 3
3.06 - Late Fees ................................................. 3
ARTICLE 4.00 - USE OF PREMISES
4.01 - Designated Use ............................................ 3
4.02 - Compliance with Law ....................................... 3
4.03 - Condition of Premise ...................................... 3
4.04 - Insurance Cancellation .................................... 4
4.05 - Nuisance .................................................. 4
ARTICLE 5.00 - MAINTENANCE, REPAIR AND ALTERATIONS BY LANDLORD
5.01 - Landlord's Obligations .................................... 4
5.02 - Tenant's Obligations ...................................... 4
5.03 - Alterations and Additions ................................. 5
5.04 - Access .................................................... 6
ARTICLE 6.00 - SIGNAGE
6.01 - Signs ..................................................... 6
ARTICLE 7.00 - INSURANCE, INDEMNITY
7.01 - Liability Insurance ....................................... 6
7.02 - Property Insurance ........................................ 7
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7.03 - Insurance Policies ........................................ 7
7.04 - Waiver of Subrogation ..................................... 7
7.05 - Hold Harmless ............................................. 7
7.06 - Exemption of Landlord from Liability ...................... 8
ARTICLE 8.00 - DAMAGE OR DESTRUCTION
8.01 - Partial Damage - Insured .................................. 8
8.02 - Damage - Uninsured ........................................ 8
8.03 - Total Destruction ......................................... 9
8.04 - Damage Near End of Term ................................... 9
8.05 - Abatement of Rent ......................................... 9
8.06 - Restoration ............................................... 10
8.07 - Prorations ................................................ 10
ARTICLE 9.00 - ASSIGNMENT AND SUBLETTING
9.01 - Landlord's Consent Required ............................... 10
9.02 - No Release of Tenant ...................................... 10
ARTICLE 10.00 - DEFAULTS; REMEDIES
10.01 - Defaults .................................................. 10
10.02 - Remedies in Default ....................................... 11
10.03 - No Implied Termination .................................... 12
10.04 - Landlord's Lien ........................................... 13
ARTICLE 11.00 - GENERAL PROVISIONS
11.01 - Waivers ................................................... 13
11.02 - Recording ................................................. 13
11.03 - Condemnation .............................................. 13
11.04 - Holding Over .............................................. 13
11.05 - Cumulative Remedies ....................................... 14
11.06 - Covenants and Conditions .................................. 14
11.07 - Binding Effect: Choice of Law ............................. 14
11.08 - Subordination ............................................. 14
11.09 - Attorney's Fees ........................................... 14
11.10 - Landlord's Access ......................................... 14
EXHIBIT A - Legal Description of Property ................................. 16
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LEASE OF COMMERCIAL PROPERTY
This commercial lease is made and entered into this 1st day of October, 1998, between ANDERSEN/TIFFANY CONSTRUCTION, LLC (the "landlord") and CARDXX, INC. (the "tenant"). The landlord and tenant, in consideration of the covenants herein contained, agree as follows:
ARTICLE 1.00
GRANT OF LEASE
1.01 Grant. Landlord hereby demises and leases the premises to tenant and tenant hereby leases and accepts the premises from the landlord, to have and to hold during the term, subject to the terms and conditions of this lease.
1.02 Premises. The premises hereby leased is certain real property situated in the County of Weld, State of Colorado and described on Exhibit A hereto, also known as 701 Automation Drive, Windsor, Colorado.
1.03 Quiet Enjoyment. Landlord shall defend tenants title to the premises and to such extent does hereby warrant the quiet enjoyment and possession of the premises during the term, subject to the terms and conditions of this lease.
1.04 Covenants of Landlord and Tenant. Landlord covenants to observe and perform all of the terms and conditions to be observed and performed by landlord under this lease. tenant covenants to pay the rent when due under this lease, and to observe and perform all of the terms and conditions to be observed and performed by tenant under this lease.
ARTICLE 2.00
TERM AND POSSESSION
2.01 Term. The term of this lease shall be sixty (60) months beginning on the 1st day of October, 1998, and ending on the 3rd day of September, 2003, unless terminated earlier as provided in this lease.
2.02 Acceptance of Premises. Taking possession of all or any portion of the premises by tenant shall constitute tenant's acceptance of the premises as being in satisfactory condition.
ARTICLE 3.00
RENT AND ADDITIONAL CHARGES
3.01 Rent.
(a) Tenant shall pay to landlord as rent for the premises the sum of Two Hundred Nineteen Thousand Eight Hundred Fifty-Two Dollars ($219,852.00) in monthly installments of Three Thousand Six Hundred Sixty-Four Dollars and Twenty-One Cents ($3,664.21) on the first day of each calendar month thereafter.
(b) Rent for any period during the lease term which is for less than one month shall be on a pro rata portion of that monthly installment. Rent shall be payable without notice or demand and without any deduction, offset or abatement, in lawful money of the United States of America, to landlord at the address of 701 Automation Drive, Windsor, Colorado 80550 or to such other persons or at such other places as landlord may designate in writing.
(c) Rent under 3.01(a) shall be adjusted on the third anniversary of this Lease. In the event that the fair market rental of the premises is in excess of that amount set forth under this Lease, the rent shall be increased to such fair rental value. The determination of the fair rental value hereunder shall be determined by a real estate professional (which shall be defined to mean a real estate appraiser or leasing agent) acceptable to the parties.
3.02 Operating Costs. In addition to the rent set forth in Article 3.01, tenant shall pay landlord at the time and in the manner herein provided, its proportionate share of building operating costs. The "Building" shall be deemed to mean the entire premises, which include the premises, parking facilities, common facilities and the like as the same may be altered from time to time. Tenant's proportionate share of operating costs shall be calculated by dividing such costs by the total rental area which the parties agree to be 33.8% of the total costs of the premises. Operating costs shall include all expenses incurred by landlord with respect to the maintenance and operation of the Building and land upon which the premises are a part including, without limitation, maintenance and repair costs of all systems and improvements, utilities, janitorial, sewer, trash, snow removal, landscaping, pest control, reasonable and customary management fees, parking areas, the cost of repairs or improvements required by any governmental authority, regulation, statute or law now in effect or imposed or enacted in the future. The term "operating costs" also includes all real property taxes and other assessments, which accrue against the premises during the term of this Lease, and any non-progressive tax on or measured by gross rentals received from the rental space from the Building.
(a) Tenant shall pay landlord's estimate of such operating costs in twelve (12) equal monthly installments of tenant's proportionate share, simultaneously with tenant's payment of base rent. Within four (4) months of each calendar year, landlord shall deliver to tenant a written statement setting out the amount of tenant's proportionate share of actual operating costs
for such year. If the aggregate monthly installments of operating costs is less than the actual amount due, tenant shall remit the difference to the landlord within ten (10) days.
3.03 Personal Property Taxes. Tenant shall pay, when due, all personal property taxes or other assessments or charges applicable to tenant's occupancy and use of the Building.
3.04 Security Deposit. Tenant shall deposit with landlord Three Thousand Six Hundred Sixty-Four Dollars ($3,664.00) as security for the payment of rent and the full and faithful performance by tenant of all the terms, conditions and covenants of this Lease. Landlord may apply the deposit to cure any default under the terms of the Lease and shall account to the tenant for the balance. Tenant may not apply any portion of the deposit to payment of the required rent or any other obligations contained herein.
3.05 Utilities. Tenant shall pay for water, gas, heat, light, power, telephone and other utilities and services supplied to the premises, together with any taxes thereon. In the event that the utilities cannot be separately provided, the same shall be operating at cost to be billed in accordance with paragraph 3.02 above.
3.06 Late Fees. In addition to all other remedies provided landlord, in the event any amounts payable to tenant to landlord under this lease are not received by the landlord on or before the fifth day of the month for which it is due or such other due date as may be specifically provided herein, landlord shall be entitled to a ten percent (10%) service charge of such past due amount.
ARTICLE 4.00
USE OF PREMISES
4.01 Designated Use. The premises shall be used and occupied only for the purpose of a manufacturing facility as landlord may specifically authorize in writing.
4.02 Compliance with Law. Tenant shall, at tenant's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders and requirements in effect during the term of any part of the term of this lease regulating the use by tenant of the premises. Tenant shall not use or permit the use of premises in any manner that will tend to create waste. Tenant will not violate any environmental laws including those dealing with the disposition of hazardous waste. All mechanical fluids, including but not limited to gasoline, oil and antifreeze will be deposed of as provided by law. No barrels containing such items shall be stored on the premises nor shall the tenant permit contamination of the premises with such materials.
4.03 Condition of Premises. Tenant hereby accepts the premises in its condition existing as of the date of the possession hereunder, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the premises, and accepts this lease subject thereto and to all matters disclosed thereby. Tenant acknowledges that
neither landlord nor landlord's agent has made any representation or warranty as to the suitability of the premises for the conduct of tenant's business.
4.04 Insurance Cancellation. Notwithstanding the provisions of Section 4.02 above, no use shall be made or permitted to be made of the premises nor acts done which will cause the cancellation of any insurance policy covering the premises or any building of which the premises may be a part, and if tenant's use of the premises causes an increase in said insurance rates, tenant shall pay any such increase.
4.05 Nuisance. Tenant shall not cause or maintain any nuisance in or about the premises, and shall keep the premises free of debris, rodents, vermin and anything of a dangerous, noxious or offensive nature or which could create a fire hazard (through undue load on electrical circuits or otherwise) or undue vibration, heat, noise or weight upon or about the premises. Landlord shall not be liable for the failure to act in accordance with the terms of this Article by tenant or other occupants of the Building.
ARTICLE 5.00
MAINTENANCE, REPAIR AND ALTERATIONS BY LANDLORD
5.01 Landlord's Obligations. Subject to the provisions of Article 8.00 and
except for damage caused by any negligent or intentional act or omission of
tenant or tenant's agents, employees, or invitees, landlord, at landlord's
expense, shall keep in good order, condition, and repair the foundation,
exterior walls, and the exterior roof of the premises. Landlord shall not,
however, be obligated to paint such exterior, nor shall landlord be required to
maintain the interior surface of exterior walls, windows, doors, or plate glass.
Landlord agrees to keep the driveway to the leased premises accessible during
normal business hours, and to provide snow removal as is reasonable under the
circumstances. Landlord shall have no obligation to make repairs under this
Section 5.01 until a reasonable time after receipt of written notice of the need
to such repairs. Tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford tenant the right to make
repairs at landlord's expense or to terminate this lease because of landlord's
failure to keep the premises in good order, condition and repair.
5.02 Tenant's Obligations.
(a) Subject to the provisions of Article 5.01 and Article 8.00, tenant, at tenant's expense, shall keep the premises in good order, condition and repair, including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, ventilating, electrical and lighting facilities and equipment, including hydraulic equipment, within the premises, fixtures, interior walls, ceilings, windows, doors, plate glass located within the premises. Tenant shall pay its proportionate share of such items. Notwithstanding anything contained in this lease to the contrary, tenant agrees that it will, at its own expense, repair all damage to the foundation, exterior walls and exterior roof of the premises caused by any negligent or intentional act or omission of tenant or tenant's agents, employees, or invitees.
(b) If tenant fails to perform tenant's obligations under this Section
5.02(a), landlord may at landlord's option enter upon the premises after ten
(10) days' prior written notice to tenant, and put the same in good order,
condition and repair, and the cost thereof together with interest thereon at the
rate of ten percent (10%) per annum shall be due and payable as additional rent
to landlord with tenant's next rental installment.
(c) On the last day of the term of this lease, or on any sooner termination, tenant shall surrender the premises to landlord in good condition, broom clean, ordinary wear and tear excepted. Tenant shall repair any damage to the premises occasioned by its use or by the removal of its trade fixtures, furnishings and equipment pursuant to Section 5.03, which repair shall include but not be limited to the patching and filling of holes and repairs of structural damage.
(d) Tenant agrees that within fifteen (15) days following the termination of this lease or repossession of the premises following any default by tenant pursuant to Section 10.02 below, tenant shall remove from the premises all personal property which tenant is entitled to remove under the provisions of this Article 5.00, provided landlord has consented to the removal of the property in accordance with Section 10.04 below. Any such property or automobiles not removed within that fifteen (15) day period shall, at the landlord's option, irrevocably become the property of the landlord. Landlord may store, sell, or otherwise dispose of the property, and tenant hereby waives all rights to notice and all common law and statutory claims against landlord in connection with any storage, damage, distribution, or loss of use of the property subject to this Section 5.02(d). Tenant acknowledges landlord's need to relet the premises upon termination of this lease or repossession of the premises, and tenant understands that the forfeitures and waivers provided for in this Section 5.02(d) are necessary to expedite reletting.
5.03 Alterations and Additions.
(a) Tenant shall not, without landlord's prior written consent, make any alterations, improvements or additions in, on or about the premises. Before commencing any work relating to alterations, additions and improvements affecting the premises, tenant shall notify landlord in writing of the expected date of commencement of the work. Landlord shall then have the right at any time and from time to time to post and maintain on the premises such notices as landlord reasonably deems necessary to protect the premises and landlord from mechanics' liens, materialmen's liens or any other liens. In any event, tenant shall pay, when due, all claims for labor or materials furnished to or for tenant at or for use in the premises. Tenant shall not permit any mechanics' or materialmen's liens to be levied against the premises for any labor or material furnished to tenant or claimed to have been furnished to tenant or to tenant's agents or contractors in connection with work of any character performed or claimed to have been performed on the premises by or at the direction of tenant.
(b) Unless landlord requires their removal, as set forth in Section 5.02, all alterations, improvements, or additions which may be made on the premises shall become the property of landlord and remain upon and be surrendered with the premises at the expiration of the term. Notwithstanding the provision of this Section, tenant's machinery, equipment, and trade
fixtures, other than that which is affixed to the premises so that it cannot be removed without material damage to the premises, shall remain the property of tenant and may be removed by tenant subject to the provisions of Section 5.02(d).
(c) Landlord reserves the right to construct additional improvements on or around the Building in which he Premises are a part as may be reasonably necessary or advisable, which determination shall be in the sole discretion of Landlord.
5.04 Access. Tenant shall permit landlord to enter the premises outside normal business hours, and during normal business hours where such will not unreasonably disturb or interfere with tenant's use of the premises and operation of its business, to examine, inspect, and show the premises to persons wishing to lease them or like premises, to provide services or make repairs, to take such steps as landlord may deem necessary for the safety, improvement or preservation of the premises or the Building. Landlord shall whenever possible consult with or give reasonable notice to tenant prior to such entry.
ARTICLE 6.00
SIGNAGE
6.01 Signs. Any sign, lettering or design of tenant which is visible from the exterior of the premises shall be at tenant's expense and subject to approval by landlord, and shall conform to any uniform pattern of identification signs as may, from time to time, be prescribed by landlord.
ARTICLE 7.00
INSURANCE; INDEMNITY
7.01 Liability Insurance.
(a) Tenant shall, at tenant's expense, obtain and keep in force during the term of this lease a policy of comprehensive public liability insurance insuring landlord and tenant against any liability arising out of the ownership, use, occupancy, or maintenance of the premises and all areas appurtenant thereto. Such insurance shall be in an amount of not less than $500,000.00 for injury to or death of one person in any one accident or occurrence, and in an amount of not less than $1,000,000.00 for injury to or death of more than one person in any one accident or occurrence. Such insurance shall further insure landlord and tenant against liability for property damage of at least $100,000.00. The limits of said insurance shall not, however, limit the liability of tenant hereunder. In the event that the premises constitute a part of a larger property, said insurance shall include a landlord's Protective Liability endorsement.
(b) Tenant shall produce verification of required coverage at the time of the signing of the lease and at such other times during its term as landlord may require.
(c) If tenant fails to procure and maintain the insurance required above, landlord may, but shall not be required to, procure and maintain the same, but at the expense of tenant. Landlord shall give tenant at least ten (10) days written notice of landlord's intent to obtain liability insurance on tenant's behalf, and the cost of the insurance, together with interest at the rate of ten percent (10%) per annum shall be due and payable as additional rent to landlord with tenant's next rental installment. In the event the premium for property insurance is more than that normally charged for property similar to the premises due to the fact of the utilization of the premises by tenant, then tenant agrees to reimburse landlord for such increase within thirty days after receipt by tenant of a statement of the amount of such increase attributable to tenant's utilization of the premises.
7.02 Property Insurance. Landlord shall obtain and keep in force during the
term of this lease a policy or policies of insurance covering loss or damage to
the premises, in the amount of the full replacement value thereof, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, and special extended periods
(all risk). Tenant shall pay during the term of this lease, in addition to rent,
the amount of any increase in premiums for the insurance required under this
Section 7.02 over and above such premiums paid by landlord prior to the terms of
this lease due to tenant's occupancy. Tenant shall pay any such premium
increases to landlord within thirty (30) days after receipt by tenant of a copy
of the premium statement or other satisfactory evidence of the amount due. If
the insurance policies maintained hereunder cover other improvements in addition
to the premises, landlord shall also deliver to tenant a statement of the amount
of such increase attributable to the premises and showing in reasonable detail
the manner in which such amount was computed. If the term of this lease shall
not expire concurrently with the expiration of the period covered by such
insurance, tenant's liability for premium increases shall be prorated on an
annual basis. The proceeds of any such insurance shall be paid to landlord.
7.03 Insurance Policies. Insurance required hereunder shall be in companies
rated A+ AAA or better in "Best's Insurance Guide". Tenant shall deliver to
landlord, prior to possession, copies of liability insurance required under
Section 7.01 or certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to landlord. No such policy
shall be cancelable or subject to reduction of coverage or other modifications
except after ten (10) days prior written notice to landlord. Tenant shall, at
least ten (10) days prior to the expiration of such policies, furnish landlord
with renewal policies, or landlord may order such insurance and charge the cost
thereof to tenant, which amount shall be payable to tenant upon demand. Tenant
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in Section 7.02.
7.04 Waiver of Subrogation. Tenant and landlord each waives any and all rights of recovery against the other, or against the officers, employees, agents, and representatives of the other, for loss of or damage to such waiving party or its property or the property of others under its control, where such loss or damage is insured against under any insurance policy in force at the time of such loss or damage. Tenant and landlord shall, upon obtaining the policies of insurance required
under this lease, give notice to the insurance carriers that the foregoing mutual waiver of subrogation is contained in this lease.
7.05 Hold Harmless. Tenant shall indemnify, defend and hold landlord harmless from any and all claims arising from tenant's use of the premises or from the conduct of its business or from any activity, work or things which may be permitted by tenant in or about the premises, and shall further indemnify, defend and hold landlord harmless from and against any and all claims arising from any breach or default in the performance of any obligation on tenant's part to be performed under the provisions of this lease or arising from any negligence of tenant or any of its agents, contractors, employees, or invitees and from any and all costs, attorneys' fees, expenses, and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon. Tenant hereby assumes all risk of damage to property or injury to persons in or about the premises from any cause, and tenant hereby waives all claims in respect thereof against landlord, except where damage or injury arises out of negligence of landlord.
7.06 Exemption of Landlord from Liability. Tenant hereby agrees that landlord shall not be liable for injury to tenant's business, loss of income, or damage to the goods, wares, merchandise, or other property of tenant, or injury to tenant's employees, invitees, customers, agents, contractors, or any other person in or about the premises. Further, unless landlord is negligent, landlord shall not be liable for injury to the person of tenant, tenant's employees, invitees, customers, agents or contractors, or any other person in or about the premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the premises or upon other portions of the Building of which the premises are a part or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to landlord or tenant.
ARTICLE 8.00
DAMAGE OR DESTRUCTION
8.01 Partial Damage - Insured. Subject to the provisions of Section 8.04, if the premises are damaged and such damage was caused by a casualty covered under an insurance policy required to be maintained pursuant to Section 7.02, and, provided that the insurance proceeds have been made available for repairs by the holders of any mortgages or deeds of trust encumbering the premises or the property of which the premises are a part, the damage shall be repaired by and at the expense of landlord to the extent of available insurance proceeds. The repairs shall be made as soon as reasonably possible, and this lease shall continue in full force and effect.
8.02 Damage - Uninsured. In the event the premises are damaged or destroyed by a casualty which is not covered by fire and extended coverage insurance carried by landlord, then landlord shall restore same, provided that if the damage or destruction is to an extent greater than ten percent (10%) of the then replacement cost of improvements on the premises (exclusive of tenant's trade fixtures and equipment and exclusive of foundation), then landlord may elect not to
restore and to terminate this lease. Landlord must give tenant written notice of its election not to restore within thirty (30) days from the date of damage, and, if that notice is not given, landlord shall be deemed to have elected to restore and in such event shall repair any damage as soon as reasonably possible. In the event landlord elects to give such notice of landlord's intention to cancel and terminate this lease, tenant shall have the right within ten (10) days after the receipt of such notice to give written notice to landlord of tenant's intention to repair such damage at tenant's expense, without reimbursement from landlord, in which event this lease shall continue in full force and effect, and tenant shall proceed to make such repairs as soon as reasonably possible. If tenant does not give such notice within such ten (10) day period, this lease shall be canceled and terminated as of the date of the occurrence of such damage.
8.03 Total Destruction. If at any time during the term of this lease the premises are totally destroyed from any cause, whether or not covered by the insurance required to be maintained by landlord pursuant to Section 7.02 (including any total destruction required by any authorized public authority), this lease shall automatically terminate as of such total destruction.
8.04 Damage Near End of Term. Notwithstanding any provisions of this lease to the contrary, if the premises are partially destroyed or damaged during the last six (6) months of the term of this lease, landlord may, at landlord's option, cancel and terminate this lease as of the date of occurrence of such damage by giving written notice to tenant of landlord's election to do so within thirty (30) days after the date of occurrence of such damage.
8.05 Abatement of Rent.
(a) If the premises are partially destroyed or damaged and landlord or tenant repairs or restores them pursuant to the provisions of this Article 8.00, the rent payable under this lease for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which tenant's reasonable use of the premises is impaired. Except for abatement of rent, if any, tenant shall have no claim against landlord for any damage suffered by reason of any such damage, destruction, repair or restoration.
(b) If landlord shall be obligated to repair or restore the premises under the provisions of this Article 8.00 and shall not commence such repair or restoration within ninety (90) days after such obligations shall accrue, tenant may, at tenant's option, cancel and terminate this lease by giving landlord written notice of tenant's election to do so at any time prior to the commencement of such repair or restoration. In such event, this lease shall terminate as of the date of such notice. Any abatement in rent shall be computed as provided in Section 8.05(a).
(c) There shall be no abatement of rent in the event the damage or destruction is caused by the negligence or intentional act or omission of tenant or tenant's agents, employees, or invitees.
8.06 Restoration. Landlord's obligation to restore shall not include the restoration or replacement of tenant's trade fixtures, equipment, merchandise or any improvements or alterations made by tenant to the premises.
8.07 Prorations. Upon termination of this lease pursuant to this Article 8.00, an equitable pro rata adjustment of rent based upon a thirty (30) day month shall be made. Landlord shall, in addition, return to tenant so much of tenant's security deposit as has not been previously applied by landlord.
ARTICLE 9.00
ASSIGNMENT AND SUBLETTING
9.01 Landlord's Consent Required. Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of tenant's interest in this lease or in the premises without landlord's prior written consent.
9.02 No Release of Tenant. Regardless of landlord's consent, no subletting or assignment shall release tenant of tenant's obligation to pay the rent and to perform all other obligations to be performed by tenant for the term of this lease. The acceptance of rent by landlord from any other person shall not be deemed to be a waiver by landlord of any provision of this lease. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting.
ARTICLE 10.00
DEFAULTS; REMEDIES
10.01 Defaults. The occurrence of any one or more of the following event shall constitute a default and breach of this lease by tenant:
(a) The vacating or abandonment of the premises by tenant.
(b) The failure by tenant to make any payment of rent or any other payment required to be made by tenant to landlord within three (3) days after the same is due under this lease.
(c) The failure by tenant to observe or perform any of the covenants, conditions or provisions of this lease to be observed or performed by tenant, other than described in paragraph (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from landlord to tenant; provided, however, that if the nature of tenant's default is such that more than thirty (30) days are reasonably required for its cure, then tenant shall not be deemed to be in default if tenant has commenced such cure within said thirty (30) day period and then diligently prosecutes such cure to completion.
(d) The making by tenant of any general assignment, or general arrangement for the benefit of creditors;
(e) The filing by or against tenant of a petition to have tenant adjudged as bankrupt, or insolvent or the filing of a petition for reorganization of tenant or arrangement by tenant with its creditors under any law relating to bankruptcy or insolvency (unless, in the case of a petition filed against tenant, the same is dismissed within thirty (30) days after the date of its filing);
(f) The appointment of a trustee or receiver for the business or property of tenant, unless such appointment shall be vacated within ten (10) days of its entry;
(g) The attachment, execution or other judicial seizure of substantially all of tenant's assets located at the premises or of tenant's interest in this lease, or the adjudication of tenant as bankrupt or insolvent under any law relating to bankruptcy or insolvency where such seizure is not discharged, or such order is not vacated, within ten (10) days.
(h) The occurrence of any other event described as constituting a breach or event of default elsewhere in this lease.
10.02 Remedies in Default. In the event of any such default or breach by tenant, landlord may take any of the actions set forth below at any time thereafter, with or without notice or demand and without limiting landlord in the exercise of any other right or remedy which landlord may have by reason of such default or breach.
(a) Landlord may give tenant three (3) day's notice of intention to end the term of this lease, and, at the expiration of that three (3) day period, this lease shall terminate, and tenant shall leave and surrender the premises to landlord, but tenant will remain liable to landlord for damages as provided below. If tenant fails to surrender the premises as required, landlord may enter upon and take possession of the premises and expel or remove tenant and any other person who may be occupying the premises, by force if necessary, without being liable for prosecution or any claim of damages therefor.
(b) Landlord may re-enter and relet the premises in whole or in part. No such entry shall be considered a forcible entry. Such reletting may be either in landlord's own name or as agent of tenant, for such term and under such conditions as landlord may determine in its discretion. At its option, landlord may make such alterations, repairs, and improvements to the premises as landlord in its judgment deems advisable for such reletting. Landlord shall not be liable for failure to relet the premises or, in the event the premises are relet, for failure to collect rent under such reletting, and in no event shall tenant be entitled to receive any excess of rent under such reletting over the sums payable by tenant to landlord under this lease.
(c) Landlord may re-enter and repossess the premises and remove all property from the premises, and landlord may store such property in any other place for the account
of and at the expense and risk of tenant. Further, landlord may sell all or any part of such property as provided in Section 10.04 below. Tenant hereby waives all claims for damages arising out of landlord's re-entering and removing and storing tenant's property, and tenant will hold landlord harmless for any loss, costs or damages incurred by landlord in connection with such actions.
(d) Landlord may recover damages from tenant which may include, without limitation,
(i) such expenses as landlord may incur for reletting, including legal expense, attorneys' fees, court costs, advertising, brokerage fees, expenses of putting and maintaining the premises in good order and repair, costs of alterations or improvements made to accomplish such reletting, and any expenses incurred in connection with the appointment of and performance by a receiver;
(ii) the equivalent amount of rent and other charges which would be payable under this lease by tenant over the balance of the lease term, less the net proceeds of any reletting, after deducting all of landlord's expenses in connection with such reletting, which amount landlord shall be entitled to recover from tenant monthly on the days on which the rent would have been payable under this lease absent tenant's default;
(iii) instead of any or further monthly amounts set forth in subparagraph (ii), liquidated damages, in addition to any damages due under subparagraph (i), in an amount equal to the difference between the present value of the rent reserved in this lease from the date of tenant's default to the date of the expiration of the original term demised, and the present reasonable rental value of the premises for the same period, both discounted to the date of such breach at the rate of not more than five percent (5%) per annum, to be determined by landlord.
(e) Landlord may pursue any other remedy now or hereafter available to landlord under the laws or judicial decisions of the state in which the premises are located.
10.03 No Implied Termination.
(a) A notice to pay or quit the premises, served or posted by landlord pursuant to Colo. Rev. Stat. ss. 13-40-404(1)(d), as amended, shall not operate as an election of remedies by landlord either to accept payment of rent or to accept surrender of the premises. Neither the failure of tenant to make payment nor tenant's vacating the premises, as demanded in the notice, shall operate to terminate this lease, unless the notice specifically states that landlord elects to terminate this lease and waives its right to future rentals otherwise due. If those specific provisions are not contained in the notice, tenant shall remain liable for all unaccrued rent due and payable for the remaining term of this lease.
(b) No action by landlord to re-enter and take possession of the premises shall be construed as an election on the landlord's part to terminate this lease unless written notice
of such intention is given by landlord to tenant. Landlord reserves the right following any re-entry or reletting to terminate this lease by giving tenant written notice to that effect.
10.04 Landlord's Lien. In addition to any statutory lien for rent in landlord's favor, landlord shall have and tenant hereby grants to landlord a continuing security interest for all rentals and other sums of money becoming due under this lease from tenant, upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper, and other personal property of tenant situated on the premises, and such property shall not be removed therefrom without the consent of landlord until all arrearage in rent as well as any and all other sums of money then due to landlord under this lease shall first have been paid and discharged. In the event of a default under this lease, landlord shall have, in addition to any other remedies provided in this lease or by law, all rights and remedies under the Uniform Commercial Code, including, without limitation the right to require tenant to assemble tenant's personal property and make it available to landlord at a place designated by landlord and convenient to both landlord and tenant, and the right to sell the property described in this Section 10.04 at public or private sale upon five (5) days notice to tenant. Tenant hereby agrees to execute such financing statements and other instruments necessary or desirable in landlord's discretion to perfect the security interest hereby created. Any statutory lien for rent is hereby waived, the express contractual lien herein granted being in addition and supplementary thereto.
ARTICLE 11.00
GENERAL PROVISIONS
11.01 Waivers. No waiver by landlord of any provision of this lease shall be deemed a waiver of any other provision of this lease or of any subsequent breach by tenant of the same or any other provision. Landlord's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of landlord's consent to or approval of any subsequent act by tenant. The acceptance of rent under this lease by landlord shall not be a waiver of any preceding breach by tenant of any provision of this lease, other than the failure of tenant to pay the particular rent so accepted, regardless of landlord's knowledge of such preceding breach at the time of acceptance of such rent.
11.02 Recording. Tenant shall not record this lease. Any such recordation shall be a breach under this lease.
11.03 Condemnation. In the event of condemnation or other taking by any governmental agency, all proceeds shall be paid to the landlord, the tenant waiving all right to any such payments.
11.04 Holding Over. If tenant remains in possession of the premises or any part thereof after the expiration of the lease term with the express written consent of landlord, such occupancy shall be a tenancy from month-to-month at a rental in the amount of the last monthly rental plus all other charges payable hereunder, and upon the terms of this lease applicable to month-to-month tenancy.
11.05 Cumulative Remedies. No remedy or election under this lease shall be deemed exclusive, but shall wherever possible, be cumulative with all other remedies at law or in equity.
11.06 Covenants and Conditions. Each provision of this lease performable by tenant shall be deemed both a covenant and a condition.
11.07 Binding Effect; Choice of Law. This lease shall bind the parties, their personal representatives, successors and assigns. This lease shall be governed by the laws of the State of Colorado.
11.08 Subordination.
(a) This lease, at landlord's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the real property of which the premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, tenant's right to quiet possession of the premises shall not be disturbed if tenant is not in default and so long as tenant shall pay the rent and observe and perform all of the provisions of this lease, unless this lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice of that election to tenant, this lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this lease is dated prior or subsequent to the date of the mortgage, deed of trust or ground lease or the date of recording thereof.
11.09 Attorney's Fees. If either landlord or tenant brings an action to enforce the terms of this lease or declare rights under this lease, the prevailing party in any such action, on trial or appeal, shall be entitled to its reasonable attorney's fees to be paid by the losing party as fixed by the court.
11.10 Landlord's Access. Landlord and landlord's agents shall have the right to enter the premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, or lenders, and making such alterations, repairs, improvements or additions to the premises or to the Building of which they are a part as landlord may deem necessary or desirable. Landlord may at any time place on or about the premises any ordinary "For Sale" signs, and landlord may at any time during the last ninety (90) days of the lease term place on or about the premises any ordinary "For Sale or Lease" signs, all without rebate of rent or liability to tenant.
The parties to this lease have executed this lease at the place and on the dates specified immediately adjacent to their respective signatures.
Executed at Windsor, Colorado on this 1st day of October, 1998.
LANDLORD:
ANDERSEN/TIFFANY CONSTRUCTION, LLC
By /s/ Harry J. Tiffany, III -------------------------------- |
TENANT:
CARDXX, INC.
By /s/ Frank Leo -------------------------------- |
EXHIBIT A
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 1st day of January, 2000, is by and between CARDXX, INC., a Nevada corporation (hereinafter called the "Company"), and HARRY J. TIFFANY, III (hereinafter called the "Employee").
The Company has determined that it is in the best interests of the Company and its shareholders to employ the Employee as President and Chief Operating Officer, or upon the direction of the Board of Directors as Chief Technology Officer, and the Employee is willing to accept such employment on the terms and conditions described below. Certain provisions to pay Employee for uncompensated past services are contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of and subject to the agreements, terms and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
Section 1.1. Employment of the Employee. The Company hereby employs the Employee, and the Employee hereby accepts employment by the Company, upon the terms and conditions hereinafter set forth, for the "Initial Term" of this Agreement and any "Renewal Term", as such terms are defined in Section 1.2. The term "Period of Employment" as used herein shall mean the period from the date of this Agreement until the first to occur of the end of the term of this Agreement (either the Initial Term or, if applicable, any Renewal Term) as provided in Section 1.2 or the date of the Employee's termination as provided herein.
Section 1.2. Term. The Initial Term of this Agreement shall be three (3) years commencing on the date of this Agreement and ending December 31, 2002. At the expiration of the Initial Term, this Agreement shall be renewed automatically for successive one-year terms (each such one-year term being referred to herein as a Renewal Term) unless on or prior to ninety (90) days preceding the date this Agreement would otherwise expire, either the Employee or the Company notifies the other party that this Agreement shall not be renewed.
ARTICLE II
DUTIES
Section 2.1. Duties. During the Period of Employment, the Employee shall, subject to the authority of the Board of Directors of the Company (the "Board"), be employed as President and Chief Operating Officer, with such duties, responsibilities and authority as are consistent with such employment including, but not limited to, all matters involving research and development of the Company's products and services, and with such additional responsibilities and
duties as may be reasonably assigned to him by the Board, which in each case he shall faithfully and diligently perform.
Section 2.2. Time to be Devoted to Employment, Etc. Except for vacations, which in no event shall be more than three (3) weeks each year, and absences due to temporary illness or disability, the Employee shall devote such time as necessary to the business of the Company.
ARTICLE III
COMPENSATION
Section 3.1. Base Salary. The Company shall pay to the Employee a base annual salary equal to One Hundred Twenty Thousand Dollars ($120,000.00) (the "Base Salary"), payable bi-monthly in arrears. The Base Salary may be adjusted as determined by the Board, but shall not be decreased below the Base Salary in existence immediately prior to such adjustment.
Section 3.2. Reimbursement for Expenses. The Company shall reimburse the Employee for all reasonable and necessary travel expenses and other reasonable disbursements made by him for or on behalf of the Company in the performance of his duties hereunder on the Company's business, upon presentation by the Employee to the Company of appropriate vouchers or other substantiation.
Section 3.3. Employee Benefit Plans. During the Period of Employment, the Employee shall be entitled to participate, on terms no less favorable than those available to any other senior executive officer of the Company in all employee benefit plans adopted by the Company to which senior executive officers and their immediate families are entitled to participate.
ARTICLE IV
DISABILITY OR DEATH OF THE EMPLOYEE
Section 4.1. Disability. If the Employee is incapacitated or disabled by accident, sickness or otherwise so as to render him mentally or physically incapable of performing the services required to be performed by him under this Agreement for a period of one hundred eighty (180) consecutive days or for a total of two hundred sixty (260) days in any twelve (12) month period, the Company may, at its option, at that time or any time thereafter, terminate the Period of Employment immediately upon giving him notice to that effect. Until the Company shall have terminated the Employee's employment in accordance with the foregoing, the Employee shall be entitled to receive his compensation, pursuant to Article III notwithstanding any such physical or mental disability. Nothing herein shall limit the Employee's right to receive any amounts to be paid to the Employee under any disability or employee benefit plan of the Company, if any, or under any other disability insurance policy or plan covering the Employee.
Section 4.2. Death. If the Employee dies during the Period of Employment, his employment hereunder and the Period of Employment shall terminate on the date of this death.
ARTICLE V
TERMINATION FOR CAUSE
The Company may, by summary notice in writing, terminate the Period of Employment for cause. For the purposes of this Agreement, the term "cause" shall mean:
(a) a material breach or any continued default by the Employee in the performance of his duties under this Agreement (other than resulting from his disability) for a 30-day period after a demand for performance is delivered to the Employee by the Company, which demand specifies and identifies the manner in which the Employee has not performed his duties;
(b) misconduct by the Employee which is injurious to himself or the Company, provided that conduct will not be deemed misconduct if it was engaged in by the Employee in good faith in the belief that it was in, or not opposed to, the interests of the Company, or was engaged in at the direction of the Board; or
(c) the intentional commission by the Employee of either:
(i) a business crime the intended purpose of which was to enrich the Employee at the expense of the Company; or
(ii) a felony of which the Employee is convicted or to which he pleads guilty or nolo contendere.
ARTICLE VI
TERMINATION WITHOUT CAUSE
Section 6.1. Company Termination. The Company may terminate the Period of Employment without cause at any time by giving the Employee written notice, upon which the Period of Employment shall terminate.
Section 6.2. Employee Termination. For purposes of this Agreement, the Period of Employment shall be deemed to have been terminated without cause if the Employee resigns under any of the following conditions:
(a) upon the continued default (including a material reduction in the
duties, responsibilities and authority of the Employee as set forth in Article
II) by the Company in the substantial performance of its obligations hereunder
for a thirty (30) day period after a demand for substantial performance is
delivered to the Company by the Employee, which demand specifies and identifies
the manner in which the Company has not substantially performed its obligations;
or
(b) upon the Employee being directed by the Board to engage in any activity which the Employee, based upon written advice of competent legal counsel, believes would
constitute criminal activity, provided that the Employee gives notice to the Company providing it with a copy of the written advice of his legal counsel and the Company does not, within five (5) business days after its receipt of such notice, withdraw its request that the Employee engage in the activity in question.
ARTICLE VII
EFFECT OF TERMINATION OF PERIOD OF EMPLOYMENT
Section 7.1. Termination upon Death, Disability, for Cause or Voluntarily. Upon termination of the Period of Employment pursuant to Articles IV or V or voluntarily by the Employee for any reason (except under the conditions set forth in Section 6.2), neither the Employee nor his beneficiaries or estate shall have any further rights or claims against the Company under this Agreement except to receive:
(a) the unpaid portion of the Employee's Base Salary provided for in
Section 3.1, computed on a pro rata basis to the date of termination;
(b) reimbursement for any expenses for which the Employee shall not have theretofore been reimbursed as provided in Section 3.3; and
(c) any benefits, including the right to continued coverage under the Company's health plans, which are mandated by law for terminated employees.
Section 7.2. Termination Without Cause. Upon the termination of the Period of Employment pursuant to Article VI, neither the Employee nor his beneficiaries or estate shall have any further rights or claims against the Company under this Agreement except to receive:
(a) compensation at the then applicable Base Salary rate through the term of this Agreement as provided in Section 1.2;
(b) reimbursement for any expenses for which the Employee shall not have theretofore been reimbursed as provided in Section 3.3;
(c) any benefits, including the right to continued coverage under the Company's health plans, which are mandated by law for terminated employees.
Section 7.3. Other Company Obligations. The provisions of this Article VII shall in no way limit any rights or claims which the Employee may have by virtue of any other agreements entered into with the Company.
ARTICLE VIII
COVENANT NOT TO COMPETE
Section 8.1. Covenant Not to Compete. During the Period of Employment and for a period of (i) two years (2) thereafter if terminated by the Company with cause or Employee terminates his employment without good reason and (ii) for a period of twelve (12) months thereafter if Employee is terminated without cause, or Employee terminates his employment due to a breach by the Company of its obligations hereunder, Employee shall not, alone, together or in association with others, as owner, shareholder, employee, officer, director, partner, lender, investor, consultant, principal, agent, independent contractor, co-venturer or in any other capacity, directly or indirectly, engage in, have a financial interest in or be in any way connected or affiliated with, or render advice or service, to, any person, firm or business or enterprise which is in competition with the Company.
(i) Competition with the Company. For purposes of this Agreement, (a) the phrase "in competition with the Company" shall be deemed to include competition with the Company, or their respective successors or assigns, or the business of any of them, and (b) a business or enterprise shall be deemed to be in competition with the Company if it is engaged in any business activity which is the same or comparable to the business activities of the Company from time to time in any geographic area in which the Company is conducting or has conducted or solicited business at any time during the Period of Employment or for two (2) years prior thereto. Notwithstanding the foregoing, nothing herein contained shall prevent Employee from purchasing and holding for investment less than five percent (5%) of the shares of any corporation, the shares of which are regularly traded either on a national securities exchange or in the over-the-counter market.
(ii) Interpretation of Covenant. The parties hereto acknowledge and agree that the duration and area for which the covenant not to compete set forth in this Article VIII is to be effective are fair and reasonable and are reasonably required for the protection of the Company, and Employee hereby waives any objections to or defenses in respect thereof. In the event that any court determines that the time period or the area, or both of them, are unreasonable and that such covenant is to the extent unenforceable, the parties hereto agree that this Article VIII shall be deemed amended to delete therefrom such provisions or portions adjudicated to be unenforceable so that the covenant shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable. The parties intend that this covenant shall be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America and one for each and every political subdivision of each and every other country where the covenant not to compete is intended to be effective and is not proscribed by law.
Section 8.2. Covenant Regarding Disclosure or Use of Confidential Information. Employee acknowledges that during his employment he will learn and will have access to confidential and proprietary information regarding the Company, its customers and its business. Employee hereby agrees that he shall at all times during and after the Period of
Employment keep and maintain Confidential Information (as defined below) confidential, and Employee shall not, at any time, either during or subsequent to the Period of Employment, either directly or indirectly, use any Confidential Information for Employee's own benefit or to the benefit of any other person or entity or divulge, disclose, communicate or otherwise reveal any Confidential Information to any person or entity in any manner whatsoever other than employees or agents of the Company having a need to know such Confidential Information, and only to the extent necessary to perform their responsibilities on behalf of the Company and other than in the performance of Employee's duties hereunder, except to the extent otherwise required by court order. As used herein, "Confidential Information" shall mean any and all information (excluding information in the public domain) related to the business of the Company, including, without limitation, any and all trade secrets, engineering designs or concepts, computer programs, technical data, information concerning Company policies, pricing policies, price lists, financial plans and special products, marketing strategies and techniques, methods and manner of operations, information relating to the identity and location of all parts, present and prospective customers, suppliers, affiliates, debtors, distributors, wholesalers, clients and others who have been dealing with the Company, patents and patent applications, copyrights and copyright applications (in any such case, whether registered or to be registered in the United States or any foreign country) applied for, issued to or owned by the Company, each and all processes inventions, computer programs, engineering or technical data, drawings or designs, manufacturing techniques; and any other information known to Employee to be confidential information. Upon the termination or expiration of this Agreement, Employee shall leave with Company, without making or keeping copies thereof, all documents such as memoranda, notes, records, reports, books, letters, customer lists, manuals or other writings or documents whatsoever, which reflect or deal with any secret, proprietary or confidential information or material relating to the business or activities of the Company.
Section 8.3. Covenants Regarding Other Employees. Employee agrees that so long as he is an employee of the Company and for the period described in Section 8.1, except when acting on behalf of the Company, he shall not, directly or indirectly, induce or attempt to induce any person in the employment of the Company to (i) terminate such employment, or (ii) interfere with the business of the Company.
Section 8.4. Intellectual Property. During and throughout the Period of
Employment, Employee agrees to disclose in writing to the Company all ideas,
improvements, inventions, developments, discoveries, trade secrets and business
plans ("Intellectual Property") developed, conceived, made, devised, discovered,
acquired or acquired knowledge of, by Employee, either by himself or in
conjunction with any other person or persons during such period, which relate
to, directly or indirectly, or may be useful in the business of the Company
(including any lines of business which are in the development or planning stage)
including, without limitation, any process, product, operation or improvement,
whether or not they may be patentable or copyrightable. Employee hereby agrees
that the Intellectual Property shall become and remain the sole and exclusive
property of the Company and that Employee will, at the Company's request and
cost, do whatever the Company deems necessary or desirable to secure the rights
thereto by patent, copyright or otherwise to the Company, including without
limitation the assignment, transfer and conveyance
of all Employee's right, title and interest in and to the Intellectual Property. Subject to the terms of an Intellectual Property Agreement of even date, Employee acknowledges and agrees that any intellectual property concerning "SmartCards" or any other use of technology related to SmartCards created by Employee is the property of the Company. Such intellectual property includes ideas, inventions, development involving other SmartCard-like devices including "tags", as well as the equipment and processes to manufacture the same. Employee shall execute such patents and copyrights and assignments as requested by the Company from time to time. Adequate consideration for this intellectual property has been received.
Section 8.5. Equitable Relief. Employee hereby acknowledges and agrees that his obligations contained in this Article VIII are of special, unique and personal character which gives them a peculiar value to the Company, and the Company cannot be reasonably or adequately compensated in money damages in an action at law in the event Employee breaches such obligations. Employee therefore expressly agrees that, in addition to any other rights or remedies which the Company may have at law or in equity or by reason of any other agreement, the Company shall be entitled to injunctive and other equitable relief in the form of preliminary and permanent injunctions without bond or other security in the event of any actual or threatened breach of such actual damages, and to discontinue any salary, bonus and/or insurance continuation provided hereunder.
Section 8.6. Nullification of Non-Competition Covenant. Notwithstanding any provision contained herein to the contrary, should the Company fail to pay to the Employee amounts due under the parties' Exclusive License Agreement and Assignment of even date (the "License Agreement"), the Employee shall be relieved of all restrictions or obligations under this Article 8 and such covenants contained in Section 8.1 through 8.5 shall be null and void. In such case, unless he remains employed by the Corporation, the Employee shall be free to accept employment or otherwise compete with the Company and exercise such other rights as may be available to the Employee under the License Agreement.
ARTICLE IX
ARBITRATION
Section 9.1. Arbitration. If a dispute arises between the Company and the Employee as to the interpretation of this Agreement, the Company and the Employee agree to submit the matter to binding arbitration in accordance with the American Arbitration Association, as modified herein, by a sole arbitrator, in Denver, Colorado, selected in accordance with the provisions of Section 9.2. The arbitration shall be governed by the Uniform Arbitration Act, and judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof.
Section 9.2. Selection of Arbitrator. The parties shall have ten (10) days from the date when written notice is provided to either party by the other party of a request for arbitration to agree upon a mutually acceptable neutral person not affiliated with either of the parties to act as arbitrator. If no arbitrator has been selected within such time, the parties agree jointly to request the American Arbitration Association or another mutually agreed-upon organization to supply within
ten (10) days a list of potential arbitrators with qualifications as specified by the parties in the joint request. Within five (5) days of receipt of the list, the parties shall independently rank the proposed candidates, shall simultaneously exchange rankings, and shall select as the arbitrator the individual receiving the highest combined ranking who is available to sere.
Section 9.3. Cost of Arbitration. The costs of arbitration shall be apportioned between the Company and the Employee as determined by the arbitrator in such manner as the arbitrator deems reasonable taking into account the circumstances of the case, the conduct of the parties during the proceeding and the result of the arbitration.
ARTICLE X
MISCELLANEOUS
Section 10.1. Necessary Acts. All parties to this Agreement shall perform any and all acts as well as execute any and all documents that may be reasonably necessary to fully carry out the provisions and intent of this Agreement.
Section 10.2. Notices. All notices, demands, requests or other
communications required or permitted by this Agreement or by law to be served
on, given to or delivered to any party hereto by any other party to this
Agreement shall be in writing and shall be deemed duly served, given, received
and delivered (a) on the date of service if served personally on the party to
whom notice is given, (b) on the day of transmission if sent via facsimile
transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(c) on the business day after delivery to an overnight courier service or the
Express Mail service maintained by the United States postal service, provided
receipt of delivery has been confirmed or (d) five (5) days after being sent by
registered or certified mail, provided receipt of delivery is confirmed, first
class, postage prepaid, properly addressed to the respective parties as follows:
If to the Company: CardXX, Inc.
701 Automation Drive
Windsor, Colorado 80550
Phone: (970) 686-2444
Fax: (970) 686-2422
With a copy to: Larry D. Harvey, Esq.
5290 DTC Parkway, Suite 150
Englewood, Colorado 80111
Phone: (303) 220-7810
Fax: (303) 850-7115
|
James M. Piro, Esq.
PIRO, ZINNA, CIFELLI & PARIS
360 Passaic Avenue
Nutley, New Jersey 07110-2787
Phone: (973) 661-0710
Fax: (973) 661-5157
Frank A. Leo
44 Minebrook Road
Colts Neck, New Jersey 07722
Fax: (732) 462-7840
If to the Employee: Harry J. Tiffany, III
14247 Road X
Weldona, Colorado 80653
Fax: 970-645-2382
With a copy to: Michael E. Lindsay, Esq.
BALLARD SPAHR ANDREWS &
INGERSOLL, LLP
1225 17th Street, Suite 2300
Denver, Colorado 80202
Phone: (303) 292-2400
Fax: (303) 296-3956
|
or to such other address as may be designated by any such addressees by a notice given in conformity herewith.
Section 10.3. Binding on Successors. This Agreement shall inure to the benefit of and be binding on the parties hereto and on each of their respective heirs, executors, administrators, personal representatives, successors and assignees.
Section 10.4. Choice of Law and Forum. This Agreement shall be construed and governed by the laws, commercial usages and customs of the State of Colorado, without giving effect to the principles of conflict of laws thereof. In the event that any dispute, action, proceeding or litigation arises between the parties based on or arising out of this Agreement, or any agreement or instrument delivered pursuant to this Agreement, subject to the arbitration provisions of Article IX, the parties agree to submit themselves to and irrevocably consent to the jurisdiction of the courts of the State of Colorado, and any federal court located in the State of Colorado.
Section 10.5. Headings. The headings of the articles and sections of this Agreement have been inserted solely for convenience of reference and shall in no way restrict or modify any of the terms or provisions hereof.
Section 10.6. Sole and Only Agreement. This Agreement and the agreements referred to herein constitute the only agreements of the parties hereto relating to the subject matter hereof. Any prior agreements, promises, negotiations or representations concerning the subject matter of this Agreement not expressly set forth in this Agreement shall have no force or effect.
Section 10.7. Amendment and Extension. This Agreement may not be amended or extended except by an instrument in writing signed on behalf of each of the parties hereto.
Section 10.8. Severability. Should any provision or portion of this Agreement be held unenforceable or invalid for any reason, the remaining provisions and portions of this Agreement shall be unaffected by such holding, unless to do so would alter substantially the intended effect of this Agreement or cause a substantial hardship for any party hereto.
Section 10.9. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
Company:
CARDXX, INC.
By /s/ Frank Leo ------------------------------- Frank Leo, President |
EMPLOYEE:
/s/ Harry J. Tiffany, III ----------------------------------- Harry J. Tiffany, III |
EXHIBIT 10.4
SECURITY AGREEMENT
FOR INTELLECTUAL PROPERTY
Windsor, Colorado
January 27, 2000
In order to induce Harry J. Tiffany, III ("Lender") whose address is 701 Automation Drive, Windsor, Colorado 80550 to assign certain assets and intellectual property to Cardxx ("Borrower") in exchange for a promise by Borrower to make payments to Lender as described herein, and in consideration thereof and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower hereby agrees as follows:
1. DEFINITIONS.
When used herein, the terms set forth below shall be defined as follows:
(a) "Obligations" means all the indebtedness, obligations and liabilities of the Borrower to Lender described in an Assignment of even date herewith between Lender as Assignor and Borrower as Assignee (the "Assignment"). In particular, the Obligations include the agreement of Borrower to pay Lender the sum of $600,000 on or before March 31, 2000 and $200,000 on or before January 1, 2001 together with interest on such amounts from the date due until paid at the rate of 10% per annum.
(b) "Collateral" means the following property: the intellectual property described on Exhibit A attached hereto and all additions thereto and substitutions therefor and all cash proceeds thereof. The Collateral is sometimes referred to herein as the "IP."
(c) "Event of Default" means: (i) any default with respect to payment or
performance of any of the Obligations; or (ii) insolvency of the Borrower; or
(iii) the Borrower makes an assignment for the benefit of creditors or a
petition in bankruptcy or for reorganization or to effect a plan or arrangement
with creditors is filed by or against the Borrower; or (iv) the Borrower applies
for or permits the appointment of a receiver or trustee for any or all property
or assets of the Borrower, or any such receiver or trustee shall have been
appointed for any or all property or assets of the Borrower; or (v) any of the
above actions or proceedings whatsoever are commenced by or against the
Borrower; or (vi) a proceeding is filed or commenced by or against the Borrower
for dissolution or liquidation; or (vii) the Borrower voluntarily or
involuntarily terminates or dissolves or is terminated or dissolved; (viii) the
breach by Borrower of any provision of this Agreement which breach has not been
cured within 30 days after written notice from Lender to Borrower setting forth
such breach, provided that if such breach is of a nature which cannot reasonably
be cured within such 30 day period, Borrower shall have such time as shall be
reasonably necessary to cure such breach so long as it is making diligent
efforts to effect such cure.
2. PLEDGE OF COLLATERAL.
To secure the payment and performance of the Obligations, the Borrower hereby pledges, to Lender, and grants to Lender a continuing security interest in and to, all of the Collateral.
3. REPRESENTATIONS AND WARRANTIES.
The Borrower agrees to reimburse Lender, on demand, for any amounts paid or advanced by Lender after the occurrence of a breach by Borrower of any provision of this Agreement, until cured for the purpose of preserving the Collateral or any part thereof and any liabilities or expenses incurred by Lender as the transferee or holder of the Collateral. Lender shall exercise reasonable care in the custody and preservation of the Collateral to the extent required by applicable statute and use its best efforts to take such actions as the Borrower may reasonably request in writing but the failure to do any such act shall not be deemed a failure to exercise reasonable care. Borrower shall also observe and perform all of the covenants and obligations contained in the Assignment.
4. GENERAL COVENANTS.
a. Confidentiality. All of the IP, except IP described in one or more patent applications prepared with mutual consent of Lender and Borrower and made publicly available, shall be considered confidential information and trade secrets ("Confidential Information"). Except as otherwise provided herein, each party agrees that it will not disclose the Confidential Information and will take steps to safeguard such information from disclosure or discovery by third persons. Each party agrees that it will -
(i) Keep the Confidential Information secret and confidential and will not disclose such information to any third party;
(ii) Make no copies and permit no reproductions of the Confidential Information other than for internal use;
(iii) Keep the Confidential Information confidential and secret from employees, agents, independent contractors or others unless such persons have a need to know such information in connection with services they are performing for the discloser and have agreed in writing to bound by the terms of this agreement to keep the Confidential Information secret.
The covenant of confidentiality shall not apply to any information which -
(i) was in the recipient's possession or was known to recipient, without an obligation to keep it confidential, before such information was disclosed to recipient by the discloser;
(ii) is or becomes public knowledge through a source other than the recipient and through no fault of the recipient;
(iii) is independently developed by or for the recipient;
(iv) is or becomes lawfully available to the recipient from a source other than the discloser; or
(v) is disclosed by the recipient with the discloser's prior written approval.
After the payment by Borrower of the $600,000 payment provided for in
Section 1.a. (plus any interest accrued thereon and unreimbursed expenses
advanced by Lender as provided for herein), the covenants of nondisclosure shall
continue to apply to Lender, but not to Borrower, who shall be free of any
limitations or restrictions on disclosure of the Confidential Information.
If either party is required to disclose Confidential Information by law or by court or governmental order, such party shall give the other party prompt written notice thereof so that such other party may seek a protective order or other appropriate remedy prior to such disclosure, and both parties shall provide full and complete cooperation in seeking such order or remedy.
b. Limitations on Use of IP. During the term of this Agreement, in addition to the limitations on disclosure and the covenants of confidentiality contained herein, each party agrees not to sell, lease, license or otherwise transfer the IP or any part thereof to any third party. Furthermore, Borrower agrees that it shall make no alterations or modifications to the IP. After the payment of $600,000 provided for in Section 1.a. (plus any interest accrued thereon and unreimbursed expenses advanced by Lender as provided for herein) by Borrower, Borrower shall be free of such restrictions with respect to the IP, but Lender shall remain bound by them. So long as Borrower is in default under this Assignment or under the Security Agreement, or if Lender reacquires or transfers the IP pursuant to a default under the Security Agreement, Lender shall be free of such restrictions with respect to the IP but Borrower shall remain bound by them.
c. Defense of the IP and Infringement. Lender hereby represents to Borrower that to the best of Lender's knowledge and belief, there is no infringement with respect to the IP as of the date hereof. During the term of this Agreement, in the event that Lender or Borrower suspects that a third party is infringing upon any or all of the proprietary rights comprising the IP, such party shall provide prompt notice thereof to the other party. If the infringement represents a material threat to the proprietary nature of the IP or the business of Borrower, Borrower shall initiate at its expense action against such infringer and use its best efforts to achieve a successful result therefrom. Lender agrees to assist Borrower in such effort and shall be consulted on the conduct of such proceedings and shall have the right to consent to any material actions taken in any such proceedings, including without limitation the settlement thereof, which consent shall not be unreasonably withheld. Nothing herein shall limit the right of Lender to take action on its own against any infringement of the IP.
d. Treatment of Collateral. Lender shall be under no duty to: (i) collect or protect the Collateral or any proceeds thereof or give any notice with respect thereto; (ii) sell or otherwise realize upon the Collateral; or (iii) seek payment from any particular source. Without limiting the generality of the foregoing, Lender shall not be obligated to take any action in connection with any conversion, call, redemption, retirement or any other event relating to any of the Collateral.
After payment of part of the Obligations, Lender may, at its option, retain all or any portion of the Collateral as security for any remaining Obligations and retain this Agreement as evidence of such security. The Borrower agrees to reimburse Lender, on demand, for any amounts paid or advanced by Lender from and after the occurrence of a breach of this Agreement by Borrower until cured for the purposes of preserving the Collateral or any part thereof and any liabilities or expenses incurred by Lender as the transferee or holder of the Collateral.
During any period in which there are no uncured breaches of this Agreement by Borrower, nothing contained in this Section 4 shall be construed to limit the ability of the Borrower to use the IP in the ordinary course of business consistent with past practices.
5. RIGHTS AND REMEDIES.
Lender shall have, by way of example and not of limitation, the rights and remedies in subparagraph (a) of this paragraph at all times prior to and after the occurrence of an Event of Default and shall have all the rights and remedies enumerated herein after the occurrence of an Event of Default.
(a) Lender may, at its option and without notice: (i) transfer into its name or the name of its nominee all or any part of the Collateral for purposes of perfecting its security interest in the Collateral; or (ii) notify any person obligated on any of the Collateral of the security interest of Lender therein and request such person to make payment directly to Lender.
(b) If any Event of Default shall occur, then or at any time thereafter, while such Event of Default shall continue, Lender may declare all Obligations to be due and payable regardless of their terms, for the purposes of this Agreement, without notice, protest, presentment or demand, all of which are hereby expressly waived by the Borrower. At or after such time Lender shall have, in addition to any other rights and remedies contained in this Agreement, and any other agreements, guarantees, notes, instruments and documents heretofore, now or at any time or times hereafter executed by the Borrower, and delivered to Lender, all of the rights and remedies of a pledgee, under law, including without limitation all of the rights and remedies of a secured party under the Uniform Commercial Code in force in the State of Colorado as of the date hereof, all of which rights and remedies shall be cumulative, and non-exclusive, to the extent permitted by law.
6. TERM AND TERMINATION.
This Agreement shall terminate upon payment by Borrower of all amounts due to Lender hereunder. Upon termination due to payment of all amounts due from Borrower to Lender hereunder:
(a) Lender shall continue to be bound by the confidentiality provisions hereof.
(b) Lender shall immediately deliver to Borrower all written copies of all programs, drawings, specifications, instructions and any other documentation pertaining to the IP and all magnetic copies of the foregoing documents. Lender shall not retain any of the foregoing materials
and shall take all steps necessary to insure that all copies of the foregoing materials are permanently removed from his premises and that of his employees and agents.
Upon the occurrence of an Event of Default by Borrower -
(a) Borrower shall continue to be bound by the confidentiality provisions hereof.
(b) Borrower shall immediately deliver to Lender all written copies of all programs, drawings, specifications, instructions and any other documentation pertaining to the IP and all magnetic copies of the foregoing documents. Borrower shall not retain any of the foregoing materials and shall take all steps necessary to insure that all copies of the foregoing materials are permanently removed from its premises and that of its employees and agents.
7. GENERAL.
(a) Each reference herein to Lender and Borrower shall be deemed to include their respective successors and assigns, all of whom shall be bound by the provisions hereof.
(b) Borrower represents that the officer signing on its behalf has been duly authorized to execute this Agreement for and on behalf of the corporation by its Board of Directors or stockholders.
(c) No delay on the part of Lender in exercising any rights hereunder or failure to exercise the same shall operate as a waiver of such rights; no notice to or demand on the Borrower shall be deemed to be a waiver of any obligations of the Borrower or of the right of Lender to take other or further action without notice or demand as provided herein. In any event, no modification or waiver of the provisions hereof shall be effective unless in writing and signed by Lender nor shall any waiver be applicable except in the specific instance or matter for which given.
(d) The Borrower hereby certifies and covenants that all acts, conditions and things required to be done and performed and to have happened precedent to the creation and issuance of this Agreement and to constitute the same the valid and legally binding obligation of the Borrower in accordance with its terms, have been done and performed and have happened in due and strict compliance with all applicable laws.
(e) This Agreement is and shall be deemed to be a contract entered into and made pursuant to the laws of the State of Colorado and shall in all respects be governed, construed, applied and enforced in accordance with the laws of said state; in the event that the Lender brings any action hereunder in any court of record of Colorado or the Federal Government, the Borrower consents and consents and confers personal jurisdiction over the Borrower by such court or courts and agrees that service of process may be made upon the Borrower by mailing a copy of the summons to the Borrower in the manner specified in paragraph 7(i) hereof; and in any action hereunder the Borrower waives the right to demand a trial by jury.
(f) Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. Should any portion of this Agreement be declared invalid for any reason in any jurisdiction, such declaration shall have no effect upon the remaining portions of this Agreement; furthermore, the entirety of this Agreement shall continue in full force and effect in all other jurisdictions and said remaining portions of this Agreement shall continue in full force and effect in the subject jurisdiction as if this Agreement had been executed with the invalid portions thereof deleted.
(g) The section headings herein are included for convenience only and shall not be deemed to be a part of this Agreement.
(h) Each party recognizes and acknowledges that any breach or threatened breach of this Agreement by other may cause irreparable harm for which monetary damages may be inadequate. The recipient of Confidential Information agrees, therefore, that the discloser shall be entitled to an injunction to restrain the recipient from such breach or threatened breach. Nothing in this Agreement shall be construed as preventing the discloser from pursuing any remedy at law or in equity for my breach or threatened breach of this Agreement.
(i) All notices, statements, reports, requests, consents and other communications, whether required by this Agreement or in any way related to the transactions contemplated herein, shall be in writing and shall be deemed to have been sufficiently given (i) three business days after depositing the same in the U.S. mail, by registered or certified mail, postage prepaid, return receipt requested; (ii) one business day after deposit with a recognized overnight courier service; or (iii) immediately upon facsimile transmission, if such transmission occurs during the regular business hours of the recipient, or otherwise the next business day thereafter, provided that the transmission is followed by the mailing of the original by registered or certified mail or by recognized overnight courier service; at the following addresses, or at such other addresses as the parties may designate by written notice in the foregoing manner:
(i) If Lender:
Harry J. Tiffany, III
701 Automation Drive
Windsor, Co 80550
Fax: (970) 686-2422
With a copy to:
Jeffrey Davine
Ballard Spahr Andrews & Ingersoll, LLP
1225 17th Street, Suite 2300
Denver, CO 80202
Fax: (303) 296-3956
(ii) If to Borrower:
CardXX, Inc.
701 Automation Drive
Windsor, CO 80550
Bus Fax: (970) 686-2422
With a copy to:
Frank A. Leo
44 Minebrook Road
Colts Neck, New Jersey 07722
Fax: (732) 462-7840
Larry D. Harvey, Esq.
5290 DTC Parkway, Suite 150
Englewood, CO 80111
Fax: (303) 850-7115
(j) Upon the request of a party hereto, the other party shall execute any documents and take all such further actions as shall be reasonably necessary to accomplish the purposes of this Agreement.
8. ASSIGNMENT BY LENDER.
Lender may, from time to time, without notice to the Borrower, sell, assign, transfer or otherwise dispose of all or any part of the Obligations or the security interest therefor, or both. In such event, each and every immediate and successive purchaser, assignee, transferee or holder of all or any part of the Obligations or the Collateral shall have the right to enforce this Agreement by legal action or otherwise, for its own benefit as fully as if such purchaser, assignee, transferee or holder were herein by name specifically given such rights. Lender shall have an unimpaired right to enforce this Agreement for its benefit to the portion of the Obligations of Borrower as Lender has not sold, assigned, transferred or otherwise disposed of.
BORROWER:
CardXX, Inc., a Nevada corporation
By: /s/ Frank Leo
------------------------------
LENDER: /s/ Harry J. Tiffany, III
--------------------------
Harry J. Tiffany, III
|
EXHIBIT 10.5
ASSIGNMENT
This Assignment ("Assignment") is entered into this 27th day of January, 2000 by and between Harry J. Tiffany, III ("Assignor") and CardXX, Inc., a Nevada corporation ("Assignee").
RECITALS
A. Assignor is the owner and inventor of certain technology and intellectual property ("IP") as described on Exhibit A attached hereto.
B. Assignee desires to acquire rights to the IP upon the terms and conditions set forth herein.
C. Assignee is granting Assignor a security interest by a separate Security Agreement of even date herewith (the "Security Agreement") in the IP to secure the payment of the amounts due from Assignee to Assignor under this Assignment.
IT IS AGREED:
1. Assignment. In consideration of the issuance and delivery of 700,000 shares of Assignee's common stock and a payment of $600,000 to be paid by Assignee to Assignor on or before March 31, 2000 together with an additional payment of $200,000 to be paid on or before January 1, 2001 (together with interest on such cash payments from the date each payment is due until paid at the rate of 10% per annum), Assignor hereby grants to Assignee and Assignee hereby accepts an assignment of the IP. Assignor has supplied Assignee with drawings, specifications, instructions, manuals and other documentation pertaining to the IP which Assignee is currently using in the conduct of its business. Assignor makes no express or implied warranties of merchantability or fitness for a particular purpose and Assignee accepts the IP as is.
2. Ownership. Assignor hereby represents and warrants that, to the best of Assignor's knowledge and belief, Assignor is the legal and beneficial owner of the IP free and clear of all liens or other encumbrances, pledges, assignments, licenses and shop rights.
IN WITNESS WHEREOF, this Assignment is made the date first above written.
/s/ Harry J. Tiffany, III --------------------------------- Harry J. Tiffany, III |