Under the terms of the deal, ActivCard will make an initial cash payment of $21m and issue 1.65 million shares of common stock. Additionally, up to 2.1 million shares will be payable on the achievement of revenue targets.

Protocom specialises in password management systems. The vendor's SecureLogin Password Management Suite consists of single sign on, advanced authentication and self-service password reset. The company's SecureLogin eSSO software is used by more than 600 customers globally.

The acquisition is expected to close in the next 10 days.

Ben Barnes, CEO, ActivCard, says: "The acquisition of Protocom provides ActivCard opportunities for revenue growth, brings needed scale to the Company, adds to our senior management team, increases operational efficiencies, and accelerates our path to profitability."

ActivCard says it has initiated a plan to restructure the merged companies which includes a 13% reduction in the combined companies' workforce over the next five quarters, although the majority of the job cuts will take place in the September 2005 quarter.

The restructuring is expected to save the combined company around $11m a year in functional expenses. In addition to reducing the headcount, ActivCard says savings will come from a range of sources including the elimination of overlapping product development, the consolidation of facilities and personnel into more flexible and lower cost locations, as well as outsourcing certain functions and reducing overall sales and marketing expenses.

Following the acquisition, Jason Hart, CEO of Protocom, will join ActivCard's board of directors and assume the role of SVP, sales and marketing and will reporting directly to Barnes.

Yves Audebert will be stepping down from the board of directors while retaining his position of president and chief strategy officer.

In addition, ActivCard has appointed Thomas Jahn, managing partner of Kainos Consulting, to the new position of chief restructuring and integration officer to help manage the integration efforts.

As a result of the restructuring, ActivCard expects to record a charge of approximately $1.8 million in the September quarter.

For its fiscal year 2006, ActivCard expects revenue to be in the range of $64m to $68m, gross margins to be in the range of 68% to 70%, and sales and marketing, research and development, and general and administrative, or functional expenses, to be in the range of $57m to $60m.

The firm says it expects to reach cash flow break even within the next five to six quarters.