LaserCard Ends License and Manufacturing Equipment Agreements

LaserCard Corporation terminated its Master License and Manufacturing Agreement, dated April 3, 2004, as amended, and its Equipment Sale Agreement, dated March 18, 2006, as amended, each originally entered into with Global Investments Group (GIG).

The Subject Agreements were part of a series of agreements that LaserCard entered into in 2004 with GIG. In 2007, GIG assigned all of its rights, title and interest in the Agreements to Prevent Global and Prevent Global agreed to assume all of the obligations under the Agreements.

However, a dispute arose regarding
whether Prevent Global or GIG:

• was obliged to make payments owed to LaserCard under the Agreements;
• had rights to certain equipment under the Agreements; and
• was subject to and bound by the arbitration provisions contained in the Agreements. On July 12, 2010, the English High Court of Justice, Commercial Court declared Prevent Global the rightful counterparty to the Agreements, entitled to all rights and bound by all obligations.

The Subject Agreements provided for non-refundable payments to LaserCard of about $31 million to date, including wait fees and interest, and provided for a seven-year mandatory training and support package, the required manufacturing equipment and installation support for the licensee’s new facility to achieve a targeted initial manufacturing capacity of 10 million optical cards annually. There were also 13 optional one-year support packages that would have been provided upon the receipt of payments of $1 million annually to begin April 1, 2011.

Prevent Global ceased making payments under the Subject Agreements after a December 1, 2008 payment. On July 21, 2010, LaserCard notified Prevent Global that its failure to pay the amounts owed under the Subject Agreements constituted a breach of the Subject Agreements. On August 3, 2010, Prevent Global filed a petition in bankruptcy in Slovenia also a breach of the Subject Agreements. Given the repeated and uncured breaches of the Subject Agreements, LaserCard notified Prevent Global by correspondence dated November 17, 2010 that LaserCard had terminated the Subject Agreements and intended to commence arbitration for recovery of the sums owed under the Agreements. The Company intends to account for the termination of the Subject Agreements by recording income in the current period of approximately $20.7 million consisting of payments to date net of costs deferred.