UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1998
( ) Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________________ to
Commission file number 0-22341
AUGMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3089539
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
790 Turnpike Street Suite 202 North Andover, MA 01845
(Address of principal executive offices) (Zip Code)
978-725-8156
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Common Stock Purchase Warrants
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement for the past
90 days.
(1) Yes X No (2) Yes X No
----- ----- ----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this form. Yes X NO
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The issuer's revenues for the fiscal year ended December 31, 1998 was $998,000.
As of April 15, 1999, there were 11,898,952 shares of the Issuer's Common Stock,
$.01 par value, issued and outstanding. The aggregate market value of the
Issuer's voting stock held by non-affiliates was approximately $118,990 based
upon the average of the bid and ask prices of such stock on that date.
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Prior to January 15, 1999, Augment Systems, Inc., (the "Company")
designed, developed and sold fibre channel based network file server systems
designed to increase data transfer and file storage on computer networks. In
September 1998, the Company obtained $1,500,000 in bridge financing of secured
convertible promissory notes and common stock purchase warrants, in anticipation
of a private placement of the Company's Common Stock. The Company used a portion
of the proceeds of the bridge financing to repay in full its indebtedness to a
major lending institution. In November 1998, the Company was informed by the
investment bank that provided the bridge financing, that they would be unable to
secure the additional funding required to repay the outstanding bridge loan and
provide the Company with the necessary working capital to support implementation
of its business plan and ongoing operations. The Company began to seek
alternative financing, but, was unable to secure the funds or a commitment for
the additional funding necessary to maintain ongoing operations and transition
its products from a proprietary platform to standard hardware and software.
While the Company experienced initial success with the introduction of its
products to customers, long-term viability was dependent in part, on migrating
its technology to standard hardware and software. However, without additional
capital, the Company was unable to complete research and development, maintain a
sales force and requisite administrative support.
On January 15, 1999, the Board of Directors elected to discontinue all
ongoing operations, layoff all but one of its employees, seek buyers for its
technology and inventory and look for a merger partner. The Company has ceased
sales, marketing and distribution of its products. On March 31, 1999, two of the
remaining three members of the Board of Directors resigned to pursue other
interests. As of April 15, 1999, the Company's Chief Financial Officer, and only
active board member, was engaged in the disposition of assets, settlement of
outstanding debts, sale of the Company's technology, and exploration of
potential mergers. There are substantial risks that the Company will not be able
to settle its debts or find a suitable merger transaction. The Company may be
compelled to voluntarily file for bankruptcy or be forced by its creditors into
an involuntarily bankruptcy. See Item 1 - Potential for Bankruptcy - Need for
Financing and Item 6 - Management's Discussion and Analysis or Plan of
Operation.
Prior to January 15, 1999, Augment Systems, Inc. designed, developed
and sold fibre channel-based network file server systems designed to increase
data transfer and file storage on computer networks. The Company's products
addressed the increasing demand for the rapid transfer and efficient storage of
very large image and text files within computer networks. The Company's initial
target market was the electronic printing and publishing industry which is
rapidly converting to digital technology, but suffered from critical workflow
bottlenecks due to the very large file sizes of color images which cannot be
efficiently transported over conventional networks. The Company sold fibre
channel-based network file server systems which included (i) one or more
end-to-end high speed fibre channel arbitrated loop ("FC-AL") interfaces; (ii) a
file server, the AFX 410, that performs a central file management function, high
speed large capacity storage, and high speed interconnects to the FC-AL
interfaces; and (iii) PCI cards and software for each client workstation to be
connected to the file server.
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BACKGROUND
Information, and the ability to access and distribute it, is
increasingly becoming a key strategic asset in the competitive business
environment. Advances in computer hardware and software technology have resulted
in dramatic increases in the amount of electronically stored information
available to computer users. The need to effectively use and communicate
information has driven the extensive deployment of network based communication
systems, which are now typically based on the client/server architecture. The
resulting explosion in connectivity has in turn focused attention on the need to
transfer information between computer users quickly and effectively. In a number
of industries, for example, electronic publishing, geophysical information
systems (GIS) and medical imaging, the quantity of digital information routinely
manipulated has now outgrown the capacity of the networks to transfer files to
the client in a reasonably short period of time. Often involving the
manipulation of very large text and image files, these applications require
massive amounts of disk storage and very high network bandwidths. As more types
of information became digitized over the past two decades, file sizes have
increased dramatically.
THE AUGMENT PRODUCTS
The Company's products, which combined high-performance interconnect
technology and scalable server, were optimized for the production flow of large
data files. The Augment super servers permitted increases in the speed at which
data files were moved from each end of the printing process, leading to improved
workflow, radically decreasing the time lost through waiting for files to be
transferred between workstations. The Augment technology was multi-platform and
augmented the existing network architecture to provide improvements in file
management and file transfer speed. The Company's initial product, the AFX 410,
provided data transfer for Macintosh clients and WindowsNT clients via a fiber
channel arbitrated loop. The fiber channel interconnect delivered up to 10
MBytes/sec per client workstation. The server incorporated an extensive scalable
internal storage system.
The Company's file management network and super server products
performed the file management functions and high speed interconnects outside of
the processor running the core operating system. This approach produced
improvements in file transfer speeds and enabled the server system to maintain
compatibility with Apple and Microsoft operating systems while running different
application software.. The Company's products supported Macintosh workstations
and Windows NT-based workstations and servers to the Augment system. The
Company's technology incorporated (i) end-to-end high-speed fibre channel
connectivity, (ii) a server containing an embedded I/O control processor, a
hardware-assisted parallel disk array subsystem, and two NUBus-90 backplanes
(each supporting up to six I/O control processors) and (iii) file management
software in the client and super server. The overall system was optimized to
move large files over a network. The Company's server's file system appeared to
the desktop applications as a local hard drive, providing shared access of up to
96 GBs of data, and transfer speeds faster than a conventional 10 baseT network.
COMPETITION
The Company faced substantial competition from the manufacturers of
several different types of products used as file servers. Many of these
companies had substantially greater financial resources, research and
development staffs, manufacturing, marketing and distribution facilities than
the Company. The Company's ability to compete depended, among other factors,
upon its ability to anticipate industry trends, invest in product research and
development, and effectively manage the introduction of new products into
targeted markets.
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SALES AND MARKETING
The Company's sales and marketing strategy employed multiple
distribution channels, including direct sales and value added resellers (VARs).
The Company believed that broad distribution would enable its products to be
exposed to the maximum number of end-users, whether as an add-on upgrade to
sophisticated early adopters or as part of a large solution when packaged with
electronic publishing applications and hardware.
RESEARCH AND DEVELOPMENT
The market for the Company's products is characterized by extensive
research and development and rapid technological advances in both hardware and
software development, resulting in frequent introductions of new products. The
introduction of products embodying new technology and the emergence of new
industry standards can render existing products obsolete and unmarketable. In
the fiscal years ended December 31, 1997 and December 31, 1998, respectively,
the Company expended approximately $3,812,326, and $2,338,222 respectively, for
research and development.
CUSTOMER SERVICE AND SUPPORT
The Company provided customer training, installation and integration
support, and maintained systems sold directly to end users in North America
through an internal systems integration organization. The Company covered its
server products against defects in material and workmanship for 90 days. During
the warranty period, the Company would repair or replace, within two days, any
server component(s) which the Company identified as containing defects which did
not prevent the continued use of the server. For defects that did prevent the
continued use of the server, the Company would attempt to repair or replace the
identified defective component within 24 hours. The Company offered service and
maintenance contracts to its customers.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consisted of product assurance,
quality control of materials, components and subassemblies, final assembly and
system test. The Company relied on numerous high-quality ISO 9002 class vendors
located in New England for the manufacture of mechanical subsystems and printed
circuit boards. This strategy minimized capital investment and overhead
expenditures in the manufacturing process and provided the Company with the
ability to increase production, as, and if necessary to meet market demand.
LICENSES
The Company's server systems included proprietary software and hardware
developed by the Company, hardware and software components manufactured by third
party vendors, proprietary software and hardware technology licensed from Radius
and proprietary software technology licensed from Polybus.
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On September 27, 1995, the Company obtained a worldwide license from
Radius to use certain of Radius' technology in its products. The license was
exclusive except as to Radius, which retained rights to its technology. Under
the agreement with Radius, the royalties payable by the Company initially were
the greater of $1,500 per unit or two percent of the purchase price per unit for
the first 200 units, declining in increments based on the number of units sold
to the greater of $750 per unit or one percent of the purchase price per unit
after 1001 units are sold. Royalties will be paid until the cumulative total of
royalties paid equals $10,000,000 at which time the Company will have a royalty-
free license. If the Company failed to sell the minimum number of units required
to be sold pursuant to the agreement for two consecutive calendar quarters, as
was the case in 1998, the technology can be licensed to other parties. In
addition, the Company had granted to Radius an irrevocable, perpetual,
non-exclusive, worldwide, royalty-free license to any modifications to the
Radius technology made by the Company.
The Company entered into a Development and License Agreement dated
August 1, 1996 with Polybus pursuant to which the Company obtained an
irrevocable, perpetual, worldwide, nonexclusive (except as to publishing for
which the license is exclusive) license to a high speed file manager software
package in consideration for royalty payments. The royalties payable by the
Company pursuant to the Development and License Agreement were initially $800
per server and $400 per workstation, declining in increments based upon the
number of systems sold to $50 per server and $25 per workstation until the first
100,000 systems are sold by the Company. No royalties were payable after the
Company sold 100,000 systems. The initial term of the Development and License
Agreement was 25 years and the agreement could be terminated sooner by Polybus
only in the event of a payment default by the Company. Upon termination of the
Development and License Agreement, Polybus may license the software to third
parties in the publishing market.
On January 22, 1999, Polybus and the Company terminated the Development
and License Agreement and entered into a Software License Agreement. Under the
terms of the new agreement Polybus granted to Augment a perpetual, worldwide,
irrevocable, nonexclusive license to distribute Polybus Macintosh Client
software; and, Augment granted to Polybus a perpetual, irrovocable, royalty free
license for Augment's NT Client software.
EMPLOYEES
As of April 15, 1999, the Company employed 1 full-time employee to
dispose of all assets, settle any outstanding debts and explore potential
mergers.
POTENTIAL FOR BANKRUPTCY - NEED FOR ADDITIONAL FINANCING
The Company's continued viability depends in part, on its ability to
negotiate or litigate substantial reductions in the amounts owed by the Company
to its creditors and successfully settle or defend any creditor's claims or
actions. In the event the Company is unable to achieve this objective, it would
not have adequate cash resources to meet its obligations and would, in most
likelihood, be forced into the filing of a petition in bankruptcy. In addition,
the creditors of the Company could involuntarily place the Company in
bankruptcy. Either of the foregoing events would have a material adverse effect
on the value of the Company to its current shareholders, secured and unsecured
creditors. In the event of bankruptcy, current equity and warrant-holders could
be substantially diluted.
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In addition, the Company may also need to raise capital from other
financings. There can be no assurances that the Company will be able to obtain
such additional financings on terms acceptable to the Company or in a timeframe
required by the Company, if at all. In such event, the Company may be required
to materially alter its plans. Any such additional financing may result in
significant dilution to existing stockholders or the issuance of securities with
rights superior to those of the existing shareholders. In the event that the
Company is unable to raise or borrow additional funds, the Company may be forced
into bankruptcy.
In addition, the Company is seeking to be acquired by another entity
with growth potential. If any such entity is located, there can be no assurances
that the Company will be able to obtain such a merger on terms acceptable to the
Company and within an acceptable timeframe required by the Company, if at all.
Any such transaction may result in significant dilution to existing stockholders
or the issuance of securities with rights superior to those of the existing
stockholders. In the event that the Company is unable to consummate such a
transaction, the Company may be forced to file for bankruptcy.
ITEM 2. DESCRIPTION OF PROPERTY
Facilities
The Company has a month to month lease for 700 square feet of shared
office space in North Andover, Massachusetts, which currently accommodates the
Company's headquarters, administrative, and financial functions. The Company
vacated its principal office at 2 Robbins Road in Westford, Massachusetts,
consisting of approximately 30,000 square feet. The monthly rent is $1,000. The
Company believes that its facilities are adequate to meet its current business
requirements.
ITEM 3. LEGAL PROCEEDINGS
In March 1998, the Company's former President and CEO, Lorrin Gale,
left the Company at the request of the Board of Directors. On May 29, 1998, Mr.
Gale filed a complaint against the Company in the Superior Court of the
Commonwealth of Massachusetts seeking relief for breach of an employment
contract. In September 1998, the Company reached a settlement with Mr. Gale,
which required that the Company pay $150,000 in severance pay and an additional
$45,000 in increments of $15,000 over the next three years commencing in July
1999. In the event the Company does not make payments under the terms of the
settlement agreement or is unable to work out an arrangement for payment, Mr.
Gale could obtain a judgement against the Company, which would have a material
adverse affect on the prospects of the Company.
The Company had received a letter from a printing vendor claiming that
the Company owes the vendor approximately $50,000 for printing services
rendered. The Company's position was that it had provided consideration to the
vendor for the printing services in the form of equipment and software, in
accordance with an understanding between the parties established in November
1996. The Company is negotiating a settlement with the vendor. In the event the
Company cannot work out a viable agreement, it would have a material adverse
affect on the prospects of the Company.
The Company is not involved in any other material legal proceedings.
Although the Company has effectively ceased operations, there are numerous
secured and unsecured creditors who could commence litigation against the
Company. In the event that the Company has insufficent funds to settle or defend
these matters, the Company or its creditors could cause the filing of a
bankruptcy proceeding. See Item 1 - Business - Potential for Bankruptcy - Need
for Financing and Item 6 Management Disscussion and Analysis Plan of Operation.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the Bulletin Board
Over-the-Counter under the symbol "AUGS" and the Company's Common Stock Purchase
Warrants are traded on the Bulletin Board Over-the-Counter under the symbol of
"AUGSW". In February 1998, the NASD changed the listing requirements for
companies whose securities are listed on NASDAQ SmallCap Market. In light of
those changes, on February 26, 1998, NASDAQ informed the Company it was to have
net tangible assets of $5,000,000 by June 30, 1998, and granted the Company a
temporary listing exception until that time. Since, at June 30, 1998, the
Company did not meet the net tangible assets requirement, on July 7, 1998 NASDAQ
informed the Company that it's securities were no longer eligible for listing on
the NASDAQ SmallCap Market.
The following table sets forth the range of high and low prices quoted
for the Common Stock for the periods indicated. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
High Bid Low Bid
Price Price
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<S> <C> <C>
1997
First Quarter......Privately held until May 1997.... $ $
Second Quarter...................................... $6.00 $4.00
Third Quarter...................................... $4.125 $2.625
Fourth Quarter...................................... $4.313 $ .734
1998
First Quarter....................................... $1.50 $1.00
Second Quarter...................................... $1.4375 $ .50
Third Quarter...................................... $ .5625 $ .21875
Fourth Quarter...................................... $ .375 $ .01
</TABLE>
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DIVIDEND POLICY
The Company has never paid any cash dividends and does not anticipate
payment of cash dividends on the Company's Common Stock in the foreseeable
future. Under Delaware Corporation Law, dividends may be paid only out of
legally available funds as proscribed by statute, subject to the discretion of
the Company's Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to all securities sold by the Company
during the period covered by this reporting period that were not registered
under the Securities Act of 1933 or otherwise reported on the Company's Form
10-QSBs filed during this reporting period.
1. In January 1998, in connection with a $6,180,000 private
placement of the Company's Common Stock, the Company issued warrants for the
purchase of up to 655,891 shares of Common Stock to the underwriter and 12 of
its designees. These warrants have an exercise price of $1.00 per share; rights
to purchase shares granted by these warrants will expire on January 8, 2003.
2. In January 1998, in connection with a $6,180,000 private
placement of the Company's Common Stock, the Company issued 378,910 shares of
Common Stock, to the underwriter and 4 of its designees. The shares of Common
Stock were issued in lieu of cash compensation payments to the underwriter.
3. In May 1998, in connection with the a $575,000 private
placement of the Company's Common Stock, the Company issued warrants for the
purchase of up to 62,673 shares of Common Stock to the underwriter and 4 of its
designees. These warrants have an exercise price of $1.00 per share; rights to
purchase shares granted by these warrants will expire on May 30, 2003.
4. In May 1998, in connection with a $575,000 private placement
of the Company's Common Stock, the Company issued 51,722 shares of Common Stock,
to the underwriter. The shares of Common Stock were issued in lieu of cash
compensation payments to the underwriter.
5. In September 1998, in connection with a $1,500,000 bridge
financing, the Company issued secured promissory notes with a stated principal
of $1,500,000 and warrants to purchase up to 750,000 shares of the Company's
Common Stock at $.40 per share to 41 accredited investors.
6. In September 1998, in connection with the execution of a
consulting agreement and securing of $1,500,000 the Company issued warrants to
purchase 1,000,000 shares of the Company's common stock to an underwriter and 4
of its designees. These warrants have an exercise price of $.40 per share;
rights to purchase shares granted by these warrants will expire on September 30,
2003.
7. In December 1998, the Board of Directors authorized the
issuance of an additional 3,592,816 shares of Common Stock to 66 accredited
investors who participated in private placements of the Company's Common Stock
during January and May 1998. The issuance of the shares was pursuant to specific
terms of the private placement relating to missing certain revenue milestones.
As of April 1999, the Company had not issued those shares.
8. In December 1998, the Board of Directors authorized the
issuance of warrants to purchase 359,282 shares of Common Stock to the
underwriter involved in private placements of the Company's Common Stock during
January 1998 and May 1998. The issuance of the warrants was pursuant to specific
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terms of the private placement relating to missing certain revenue milestones.
As of April 1999, the Company had not issued those warrants.
The offerings described in Numbers 1 through 8, inclusive, were exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933 and the
Securities and Exchange Commission Rule 506.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. Except for historical
information contained herein, the matters discussed in the Liquidity and Capital
Resources section below contain potential risks and uncertainties, including,
without limitation, risks related to the Company's ability to successfully
identify potential merger partners, retain key employees and settle any
outstanding debts. The Company will need to attract partners in order to execute
its revised business strategy, and there can be no assurance that the Company
will be successful in attracting such partners.
GENERAL
In January 1999, the Board of Directors elected to suspend ongoing
operations, layoff all but one of its employees, dispose of all assets, attempt
to settle any outstanding short and long term debts, seek buyers for its
technology, and explore merger opportunities.
Prior to January 15, 1999, Augment Systems, Inc. designed, developed
and sold fibre channel based network file server systems designed to increase
data transfer and file storage on computer networks. In September 1998, the
Company obtained $1,500,000 in bridge financing of secured convertible
promissory notes and common stock purchase warrants. The Company used a portion
of the proceeds of the bridge financing to repay in full its indebtedness to a
major bank. In November 1998, the Company was informed by an investment bank,
that provided the bridge financing, that they would be unable to secure the
additional funding required to repay the outstanding bridge loan, provide the
Company with the necessary working capital to support the execution of its
business plan and ongoing operations. The Company began to seek alternative
financing, but was unable to secure the funds necessary to maintain ongoing
operations.
From October 1995 through March 1997, the Company operated as a
development stage company and engaged principally in research and development,
recruitment of personnel and financing activities. The Company conducted limited
marketing activities and did not commence beta shipments of its initial products
until February 1997. During the second quarter ended June 30, 1997, the Company
commenced commercial shipment of its server product and recognized initial
revenue in April 1997. The Company's initial target market was the electronic
publishing industry, which required the rapid and efficient movement of large
image and data files over networks.
Plan of Operation
In January 1999, the Board of Directors elected to suspend ongoing
operations, layoff all but one of its employees, dispose of all assets, attempt
to settle any outstanding short and long term debts, seek buyers for its
technology, and explore merger opportunities.
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Revenues for the fiscal year ended December 31, 1998 were $1,072,203 as
compared to $989,609 in revenues for the fiscal year ended December 31, 1997.
Prior to the second quarter ended June 30, 1997, the Company was a development
stage company and had not recognized revenues. Gross product margin on product
sales was 41% for the period ended December 31, 1998 versus a 40% gross product
margin on product sales for the period ended December 31, 1997. During 1997 and
1998, product revenue were primarily generated through domestic end-user sales.
Research and development costs for the fiscal year ended December 31,
1998 were $2,338,222 as compared to $3,812,326 for fiscal year ended December
31, 1997. The $1,852,811 decrease was primarily attributable to a reduction in
engineering personnel and consultants associated with the development of the
Company's server product and lack of capital. The Company also decreased
spending for associated engineering supplies and prototype materials used in the
development of its server product. The Company does not anticipate spending any
additional funds on research and development for the foreseeable future.
General and administrative costs for the fiscal year ended December 31,
1998 were $2,022,743 as compared to $1,565,274 for the fiscal year ended
December 31, 1997. The $457,469 increase is attributable to increased spending
for legal fees, fund raising activities and severance to former employees. The
Company anticipates that spending for general and administrative costs for the
next six months at less than $150,000.
Selling and marketing costs for the fiscal year ended December 31, 1998
were $1,867,460 as compared to $3,141,843 for the fiscal year ended December 31,
1997. The $1,274,383 decrease is attributable to an decrease in marketing
support and sales personnel, participation in various trade shows and decreased
spending on sales promotional material and lack of capital. The Company does not
plan on spending any funds on selling and marketing expenses in the foreseeable
future.
The Company recognized a net loss for the fiscal year ended December
31, 1998 of $6,878,205 as compared to $9,380,055 for the fiscal year ended
December 31, 1997. The decrease in net loss of $2,501,850 was attributable to a
decrease in personnel to support research and development, sales and marketing
and administration activities. As a result of the Board of Directors decision to
shut down its operations, the Company recognized a write down of unique
inventory associated with the Company's products and recognized an increase in
the reserve for bad debts of approximately $542,000 and $258,000, respectively,
for the fiscal year ended December 31, 1998. In addition, the Company recognized
a write down of fixed assets of approximately $382,000 associated with the net
value realized in a liquidation of fixed assets.
The Company currently has 1 full-time employee to dispose of all
physical assets, attempt to settle any outstanding short and long term debts,
seek buyers for its technology, and explore merger opportunities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since October 1995 principally
from a combination of debt and equity financings totaling approximately
$22,975,000. Prior to May 1997, the Company issued convertible promissory notes
in the aggregate principal amount of approximately $864,000. Approximately
$802,000 of the principal balance of these notes plus accrued interest was
converted into shares of Common Stock in November 1996 at a conversion price of
$4.00 per share. In December 1996 and February 1997, the Company raised gross
proceeds of $3,585,000 in a private placement of
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promissory notes and common stock purchase warrants. The promissory notes,
bearing interest at 12% per annum, were repaid from the proceeds of its initial
public offering. In addition, from September 1995 through August 1996, the
Company issued 1,653,623 shares of its Common Stock for approximately $3,372,000
in gross proceeds.
On May 16, 1997, the Company completed its initial public offering of
1,800,000 shares of its Common Stock at a price of $5.50 per share and 2,070,000
Redeemable Common Stock Purchase Warrants at $.15 per warrant. Each Redeemable
Common Stock Purchase Warrant entitles the holder to purchase one share of
Common Stock for $6.60 during the four-year period commencing May 12, 1998. The
net proceeds from the Company's initial public offering, after deducting
underwriting discounts and commissions and estimated expenses payable by the
Company, were approximately $8,220,000.
In October 1997, the Company obtained a $750,000 loan from Fleet
National Bank. The loan was secured by all of the Company's assets, bore
interest at Fleet National Bank's prime rate plus 2% and was originally payable
by December 31, 1997 or upon completion of a financing resulting in net proceeds
to the Company of at least $5,000,000. Pursuant to the terms of the loan, the
Company issued detachable warrants to purchase 100,000 shares of Common Stock at
an exercise price of $1.00 per share exercisable over five years. This loan was
extended through and until July 31, 1998. On July 31, 1998, the Company made a
payment in the amount of $300,000 to Fleet National Bank and the final $450,000
balance was retired on August 31, 1998.
During December 1997 and January 1998, the Company secured $1,000,000
in bridge financing from institutional and private investors in anticipation of
the private placement of the Company's Common Stock. The bridge financing
promissory notes accrued interest at 8% per annum with interest and principal
payable at maturity on the initial closing of the private placement. In
addition, the Company issued to bridge investors five year warrants to purchase
up to 750,000 shares in the aggregate of the Company's Common Stock at $1.00 per
share. In February 1998, the Company repaid $200,000 of these promissory notes
plus interest and the holders of $800,000 of these promissory notes converted
their notes into shares of the Company's Common Stock at $1.00 per share. In
January 1998, the Company closed on an initial amount of $6,180,000 of a private
placement initiated in December 1997. In early May 1998, the Company closed on
an additional $575,000 and terminated the offering started in December 1997. The
aforementioned funds were used to repay outstanding accounts payable debts
incurred during 1997 of approximately $1.400,000, repay bridge financing of
approximately $200,000 and bank debt of approximately $300,000, support research
and development expenses of approximately $2,000,000, sales and marketing
expenses of approximately $1,700,000, and $675,000 in administrative and other
expenses.
In September 1998, the Company obtained $1,500,000 in bridge financing
of secured convertible promissory notes and common stock purchase warrants. The
Company used a portion of the proceeds of the bridge financing to repay in full
its indebtedness to Fleet National Bank. The convertible promissory notes were
due and payable upon the earlier of the closing of a financing of a minimum of
$4,000,000 or in September 1999. In November 1998, the Company was informed by
the investment bank, that provided the bridge financing, that they would be
unable to secure the additional funding required to repay the outstanding bridge
loan and provide the Company with the necessary working capital to support its
business plan and ongoing operations. The Company began to seek alternative
financing, but, was unable to secure the funds necessary. On January 15, 1999,
the Board of Directors decided to shut down operations, lay-off all all but one
of its employees, liquidate assets, seek buyers for the Company's technology and
look for merger partners.
10
<PAGE>
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company is dependent on its ability to settle
all debts with creditors, attract purchasers of the Company's technology and
attract potential merger partners, which will undoubtedly result in substantial
dilution to existing shareholders. Although the Company has effectively ceased
operations, there are numerous secured and unsecured creditors who could
commence litigation against the Company. see item 3-legal proceedings In the
event that the Company has insufficent funds to settle or defend these matters,
the Company or its creditors could cause the filing of a bankruptcy proceeding.
See Item 1 - Business - Potential for Bankruptcy - Need for Financing.
The Company is authorized to issue up to 50,000,000 shares of its
Common Stock and up to 2,000,000 shares of Preferred Stock. As of April 15,
1999, there were 11,898,952 shares of the Company's Common Stock issued and
outstanding and no Preferred Stock issued and outstanding. The Company is
obligated to issue additional 3,592,816 shares of Common Stock to certain
investors who participated in private placements of the Company's Common Stock
during January 1998 and May 1998. The shares had been authorized for issuance by
the Board of Directors during 1998. In addition, the Company has 7,413,111
Common Stock Purchase Warrants issued and outstanding, of which all 7,413,111
are substantially above the existing market price.
CAPITAL EXPENDITURES
The Company does not have any material commitments for capital
expenditures at this time.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rate of inflation
over the past few years has not had a significant impact on the Company's sales
or operating results.
INCOME TAXES
The Company adopted Statement No. 109 "Accounting for Income Taxes," in
1993 and its implementation has had no effect on the Company's financial
position and results of operation.
YEAR 2000 DISCLOSURE
The Company believes that its products are year 2000 compliant and does
not anticipate any claims relating thereto. As the Company effectively has no
operations, the year 2000 problem is not an issue at this point.
ITEM 7. FINANCIAL STATEMENTS
See Pages F-2 through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company does not have any disagreements with its auditors.
11
<PAGE>
ITEM 9. DIRECTOR'S EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The current directors, executive officers and key employees of the
Company, their ages and their positions held in the Company are as follows:
NAME AGE POSITION
Duane A. Mayo 46 Vice President of Finance and Administration,
Chief Financial Officer, Treasurer, Secretary
and Director
All directors hold office until the next annual meeting of stockholders
of the Company and until their successors have been duly elected and qualified.
The executive officers are appointed annually by, and serve at the discretion
of, the Board of Directors. In January 1999, Mr Laurence Liebson, the former
President and CEO, resigned as an officer and member of the Board of Directors
and as of March 31, 1999, Mr. Fred Chanowski and Mr. Jeffrey Leventhal resigned
from the Board of Directors.
DUANE A. MAYO has served as Vice President of Finance and
Administration since March 1995 and as a director, Chief Financial Officer,
Secretary and Treasurer since May 1995. From April 1993 through February 1995,
he served as Chief Financial Officer for Xerographic Laser Images Corporation, a
publicly-held company involved in development of resolution enhancement
technology. From April 1988 to April 1993, Mr. Mayo was Corporate Controller for
Howtek, Inc., a publicly-held company and supplier of desktop scanners for the
color prepress marketplace.
COMMITTEES
The Board of Directors currently does not have any committees.
DIRECTOR COMPENSATION
The Company's directors do not receive compensation for serving on the
Board of Directors, however, the Company reimburses directors for travel
expenses incurred to attend Board meetings.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth actual compensation, for the fiscal
years ended June 30, 1995, and 1996, and the fiscal years ended December 31,
1997 and 1998, including salary, bonuses and certain other compensation, paid by
the Company to its Chief Executive Officer. None of the Company's executive
officers received cash compensation in excess of $100,000.
12
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
Awards Payouts
Other Restricted
Annual Compensation Annual Stock LTIP All Other
Name and Position Year Salary($) Bonus($) Compensation Awards($) Options(#) Payouts($) Compensation Principal
(a) (b) (C) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lorrin G. Gale 1998 73,253 - - - - - 195,000 (1) -
Chairman, President and 1997 120,000 - - - 75,000 (2) - - -
Chief Executive Officer * 1996 55,862 - - 3,186 (3) - - - -
1995 - - - 1,885 (4) - - - -
Laurence Liebson 1998 97,956 - - - 1,763,955 - - -
Chairman, President and (5)
Chief Executive Officer **
</TABLE>
(1) In March 1998, Mr. Gale left the Company at the request of the Board of
Directors. Pursuant to an employment agreement with the Company, he received
$150,000 in severance and is obligated to receive an additional $45,000 to be
paid in equal installments of $15,000 per year beginning July 1999.
(2) In January 1997, pursuant to an employment contract, the Company issued
incentive stock options to purchase up to 75,000 shares of Common Stock. Options
to purchase 15,000 shares of Common Stock vested upon the execution of the
agreement and options to purchase 30,000 shares of Common Stock vest on each of
the first and second anniversaries of the agreement. All options have an
exercise price of $4.00 per share.
(3) In July 1995, the Company issued 151,735 shares of restricted Common
Stock valued at $.021 per share to Mr. Gale in consideration for services
rendered.
(4) In June 1995, as part of a recapitalization, the Company issued to Mr.
Gale 89,747 shares of restricted Common Stock valued at $.021 per share in lieu
of payment of accrued compensation of $454,843 for the period commencing June
1992 through March 1995 and in lieu of repayment of $55,000 of loans payable to
Mr. Gale, as well as in exchange for all shares of preferred stock and common
stock then held by Mr. Gale.
(5) In May 1998, Laurence Liebson joined the Company as Chairman, President
and Chief Executive Officer. Pursuant to an employment contract, Mr. Liebson was
issued incentive stock options to purchase up to 1.763,955 shares of Common
Stock. Options to purchase 563,881 shares of Common Stock vested upon execution
of the agreement and options to purchase 300,019 shares vest on each of the
first, second, third and fourth anniversaries of the agreement. All options had
an exercise price of $.40 per share
* In March 1998, Mr. Gale left the Company as President and Chief Executive
Officer
** In January 1999, Mr. Liebson left the Company as President and Chief
Executive Officer.
13
<PAGE>
EMPLOYMENT CONTRACTS
As of April 15, 1999, the Company had no employment contracts with its
employee.
Prior to 1999, the Company had entered into a two-year employment
agreement with Mr. Lorrin Gale. Pursuant to such contract, Mr. Gale would be
paid a base salary of $125,000 and had been granted incentive stock options to
purchase up to 75,000 shares of Common Stock. Options to purchase 15,000 shares
of Common Stock vested upon the execution of the agreement and options to
purchase 30,000 shares of Common Stock vest on each of the first and second
anniversaries of the agreement. All options had an exercise price of $4.00 per
share. Pursuant to his employment agreement, Mr. Gale agreed not to compete with
the Company during the term of his employment and for one year thereafter. Mr.
Gale left the Company as President and Chief Executive Officer in March 1998.
Effective as of May 1998, the Company entered into a two-year employment
agreement with Mr. Laurence Liebson. Pursuant to such agreement, Mr. Liebson
would be paid a base salary of $150,000 and receive $75,000 in relocation
expenses, which the Company was unable to pay. In addition, Mr. Liebson was
granted incentive stock options to purchase up to 1,763,955 at $.40 per share.
Mr. Liebson left the Company as President and Chief Executive Officer in January
1999.
(This page left intentionally blank.)
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets, as of April 15, 1999, certain information with
respect to the beneficial ownership of the capital stock of the Company for (i)
each person who is known by the Company to own beneficially 5% or more of the
outstanding shares of its Common Stock; (ii) each of the directors and executive
officers of the Company; and (iii) all directors and officers as a group. Except
as otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated. As of April 12,
1999, the Company had 172 Stockholders of record. Unless otherwise indicated,
the address for directors, executive officers and 5% stockholders is 790
Turnpike Street, Suite 202, North Andover, Massachusetts 01845.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owner Number of Shares of Percentage Class
Common Stock
Beneficially Owned(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Duane A. Mayo 105,176 .9%
Hamburg Bank 657,354 5.5%
Hamburg, Germany
Nathan Low 972,942(2) 7.9%
C/O Sunrise Securities
135 East 57th Street
New York, NY 10022
Trussel & Co. 1,000,000 8.4%
C/O Westfield Capital Management
One Financial Center
Boston, MA 02110
- ------------------------------------------------------------------------------------------------------------------------
All directors and executive officers as a group 105,176 .9%
(1 person)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be
beneficially owned and outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
2. Includes 210,440 shares of Common Stock held in Nathan A. Low and Ruth
I. Low JTWROS, and 95,000 shares held in Sunrise Foundation Trust. Also
includes 325,775 shares of Common Stock issuable upon exercise of
warrants held in Nathan A. Low and Ruth I. Low JTWROS, 50,000 shares of
Common Stock issuable upon exercise of warrants held in Sunrise
Foundation Trust, and 34,007 shares of Common Stock issuable upon
exercise of warrants held by Nathan Low.
15
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1995, as part of a recapitalization, the Company issued 89,747
shares of Common Stock valued at $.02 per share to Lorrin Gale in lieu of
payment of $454,843 of accrued compensation and $55,000 of loans payable, and in
exchange for 15,787 shares of preferred stock and 7,547 shares of common stock
held by Mr. Gale. Also as part of this recapitalization, the Company issued
39,100 shares of Common Stock valued at $.021 per share to Chappell Cory, a
former director of the Company, in lieu of payment of $214,231 of accrued
compensation and $7,255 of loans payable.
In July 1995, the Company issued 151,735 shares of Common Stock valued
at $.021 per share to Mr. Gale and 105,176 shares of Common Stock valued at
$.021 per share to Duane Mayo for services rendered.
In July 1995, the Company entered into a consulting agreement with
Young Management Group, Inc. ("Young Management"), a company founded by Stanley
A. Young, who subsequently became a director of the Company in September 1995.
In consideration for consulting services, the Company agreed to pay consulting
fees of $7,000 per month, plus out-of-pocket expenses, of which $3,000 per month
was deferred until completion of the Company's initial public offering, and sold
179,279 shares of Common Stock at a price of $.021 per share to Young
Management. Consulting fees expensed in connection with this agreement during
the fiscal year ended June 30, 1996 were approximately $85,000, of which $56,000
was accrued and unpaid at June 30, 1996. Consulting fees expensed in connection
with this agreement during the six months ended December 31, 1996 were $42,000
and an aggregate of $67,250 was accrued and unpaid at December 31, 1996. In
August 1996, Young Management transferred all of its shares of Common Stock to
certain affiliates of Young Management, including the Stanley A. Young
Irrevocable Trust and the Stanley A. Young Family Limited Partnership.
In May 1996, the Stanley A. Young Irrevocable Trust was issued a
promissory note in the principal amount of $100,000 (which was subsequently
repaid) and warrants to purchase 23, 904 shares of Common Stock with an exercise
price of $1.507 per share in connection with a private placement, and in
February 1997, the Stanley A. Young Family Limited Partnership was issued in a
private placement, promissory notes in the aggregate principal amount of $50,000
and warrants to purchase 6,375 shares of Common Stock at an exercise price of
$2.75 per share and warrants to purchase 6,375 shares of Common Stock at an
exercise price of $4.125 per share. In November 1995, Stanley A. Young
Irrevocable Trust and Mr. Young's wife each purchased 3,787 shares of Common
Stock at a price of $1.507 per share and were each issued a convertible
promissory note in the amount of $19,297.50 in a private placement. In November
1996, Stanley A. Young Irrevocable Trust converted the principal balance and
accrued interest on its note into 5,320 shares of Common Stock and Mr. Young's
wife converted the principal balance and accrued interest on her note into 5,320
shares of Common Stock.
In May 1996, the Company issued to Fred L. Chanowski, in consideration
for consulting services rendered, a warrant to purchase up to 23, 904 shares of
Common Stock at an exercise price of $1.507 per share. Also in May 1996, the
Company issued to Mr. Chanowski, in consideration for a $25,000 loan, a
promissory note in the principal amount of $25,000 plus a warrant to purchase up
to 5,976 shares of Common Stock at $1.507 per share.
In October 1996, the Company issued to Mr. Chanowski 19,123 shares of
Common Stock in consideration for consulting services rendered. Mr. Chanowski
also purchased 23,904 shares of Common Stock for $50,000 in October 1996 in
private placement. Mr. Chanowski paid the $50,000 purchase price by converting
the $25,000 promissory note issued to him in May 1996 and by investing an
additional $25,000 in cash. Mr. Chanowski is a 6.675% member in Alpha Ventures
LLC which holds
16
<PAGE>
77,540 shares of the Company's Common Stock and warrants to purchase
11,952 shares of Common Stock. In April 199, the Company issued to Venture
Management Consultants, LLC ("Venture Management"), of which Mr. Chanowski ids a
20% member, a promissory note in the principal amount of $200,000 in
consideration for a $200,000 loan. The promissory note bears interest at 18% per
annum with interest and principal payable at maturity on May 31, 1998. In May
1997, the Company issued to Venture Management a promissory note in the
principal amount of $200,000 in consideration for a $200,000 loan. The
promissory note bears interest at 18% per annum with interest and principal
payable at maturity on June 30, 1998. In October 1997, the Company issued to
Venture Management in consideration of a $400,000 loan, a promissory note in the
principal amount of $400,000 plus a warrant to purchase up to 100,000 shares of
Common Stock at $3.00 per share. The promissory note bears interest at 9% per
annum with interest and principal payable at maturity on the earlier of (i)
December 11, 1997 or (ii) the completion of a financing by the Company. The
Company subsequently repaid all three of the promissory notes issued to Venture
Management. In October 1997, the Company entered into a Consulting Agreement
with Venture Management. In consideration for consulting services, the Company
issued Venture Management a warrant to purchase up to 400,000 shares of Common
Stock at $3.00 per share and agreed to pay consulting fees of $4,000 per month,
plus out-of-pocket expenses up to $1,000 per month. In October 1998, the Company
cancelled the Consulting Agreement with Venture Management signed in October
1997 and entered into a new Consulting Agreement Venture Management. In
consideration for consulting services, the Company issued Venture Management a
warrant to purchase up 500,000 shares of common stock at $1.00 per share.
On March 31, 1998, Mr. Fred Chanowiski resigned from the Board of Directors to
pursue other interests.
In January 1998, Jeffrey Leventhal invested $200,000 in a private
placement of the Company's Common Stock. Mr. Leventhal was elected to the Board
of Directors in January 1998. In March 1999 Mr. Leventhal resigned from the
Board of Directors to pursue other interests.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits.
*1.1 - Form of Underwriting Agreement
*3.1 - Certificate of Incorporation of the Company, as amended.
*3.1.1 - Restated Certificate of Incorporation of the Company.
*3.2 - By-laws of the Company.
*4.1 - Specimen Common Stock Certificate of the Company.
*4.2 - Form of Underwriters' Purchase Option.
*4.3 - Specimen Redeemable Common Stock Purchase Warrant.
*4.4 - Form of Warrant Agreement.
*5 - Opinion of Warner & Stackpole LLP on legality of securities
being registered.
*10.1 - Lease agreement of Corporate Headquarters in Westford,
Massachusetts between New England Mutual Life Insurance Company
and the Company dated October 23, 1995.
*10.1.1 - First Amendment to Lease Agreement of Corporate Headquarters
dated as of January 31, 1996.
*10.2 - Lease Agreement to Sales Office in San Diego,
California between The Parkwest Partners and the Company
dated July 1, 1996.
*10.3 - Restated Technology License Agreement between Radius and
the Company dated as of September 27, 1995.
*10.3.1 - First Amendment to Restated Technology Agreement between Radius
and the Company Dated as of October 28, 1996.
*10.4 - Software Development and License Agreement between Polybus
and the Company dated as of August 1, 1996.
*10.5 - Form of Warrant as issued to the Company's other
Warrantholders.
*10.6 - Form of Warrant as issued to placement agent in the Company's
private placement completed in May 1996.
17
<PAGE>
*10.7 - Form of Promissory Note from the Company's private placement
in May 1996.
*10.8 - Form of Registration Rights Agreement for shares of common
stock and shares underlying promissory notes issued in the
Company's private placement completed in May 1996.
*10.9 - Form of Registration Rights Agreement for shares of common
stock issued in the Company's private placement completed in
October 1996.
*10.10 - Form of Class A Warrant from the Company's private placement
completed in February 1997.
*10.11 - Form of Class B Warrant from the Company's private placement
completed in February 1997.
*10.12 - Form of Class A Promissory Note from the Company's private
placement completed in February 1997.
*10.13 - Form of Class B Promissory Note from the Company's private
placement completed in February 1997.
*10.14 - Consulting Agreement between Young Management and the Company
dated July 1995.
*10.15 - The Company's 1995 Stock Option Plan.
*10.16 - Employment Agreement, dated as January 1, 1997, between the
Company and Lorrin G. Gale.
*10.17 - Noncompetition and Nondisclosure Agreement, dated as of January
1, 1997, between the Company and Duane A. Mayo.
*10.18 - Promissory Note issued to Venture Management by the Company
dated April 8, 1997.
*10.19 - Promissory Noted issued to Venture Management by the Company
dated May 6, 1997.
*10.20 - Loan Letter Agreement with Fleet National Bank.
*10.21 - $3,000,000 Promissory Note issued to Fleet National Bank.
*10.22 - Placement Agent Agreement with Oscar Gruss & Son.
*10.23 - Consulting Agreement between the Company and Venture
Management, executed as of October 1, 1997.
*10.24 - Form of Promissory Note evidencing the Company's indebtedness
to Fleet National Bank, executed October 9, 1997.
*10.25 - Warrant Purchase Agreement between the Company and Fleet
National Bank, executed October 9, 1997.
*10.26 - Loan Modification Agreement between the Company and Fleet
National Bank, executed October 9, 1997.
*10.27 - Sales Agency Agreement between the Company and Sunrise
Securities, dated December 8, 1997.
*10.28 - Allonge to Promissory Note between the Company and Fleet
National Bank.
10.29 - Form of Warrant Purchase Agreement between the Company and
certain investors, executed in December 1997 and January 1998.
10.30 - Form of Registration Rights Agreement between the Company and
accredited investors participating in private placements of the
Company's Common Stock during January 1998 and May 1998.
10.31 - Software Licence Agreement between Augment and Avid Technology,
Inc. dated June 29, 1998.
10.32 - Form of Secured Convertible Promissory Note evidencing the
Company's indebtedness to certain accredited investors who
participated in Bridge financing in September 1999.
18
<PAGE>
10.33 - Form of Loan Agreement evidencing the Company's indebtedness
to certain accredited investors who participated in Bridge
financing in September 1999.
10.34 - Form of Security Agreement evidencing the Company's
indebtedness to certain accredited investors who participated
in Bridge financing in September 1999.
10.35 - Form of Subscription Agreement evidencing the Company's
indebtedness to certain accredited investors who participated
in Bridge financing in September 1998
10.36 - Form of Warrant issued to certain accredited investors who
participated in Bridge Financing in September 1998, and the
underwriter for consulting fees.
10.37 - Form of Lending Agreement between underwriter for Company's
September 1999 Bridge Financing and the Company.
10.38 - Software Licence Agreement between Augment and Polybus Systems
Corporation dated January 22, 1999.
*24 - Power of Attorney.
27 - Financial Data Schedule.
-------------------------------------------------------------------------
*Previously filed with the Commission.
(b) Reports of Form 8-K.
The Company did not file any Form 8-Ks during the
quarter ended December 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AUGMENT SYSTEMS, INC.
By: /s/ Duane A. Mayo
-------------------------
Duane A. Mayo
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
/s/Duane A. Mayo April 15, 1999
- ---------------- --------------
Chief Financial Officer, Treasurer and Secretary
(Principal Financial & Accounting Officer)
Member of the Board of Directors
19
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THERETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION AGREEMENT
WITH THE HOLDER CONTAINS ADDITIONAL PROVISIONS RESTRICTING THE TRANSFER OF THIS
WARRANT. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S
OFFICE.
For the Purchase of
No. [__] [__] shares of
Common Stock
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
AUGMENT SYSTEMS, INC.
(A Delaware Corporation)
Augment Systems, Inc., a Delaware corporation ("Company"), hereby
certifies that [___], or his, her or its registered assigns ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing
January 30, 1998 ("Commencement Date") and ending on January 30, 2003
("Expiration Date"), 50,000 shares of Common Stock, $.01 par value, of the
Company ("Common Stock"), at an initial exercise price equal to $1.00 per share
(subject to adjustment as provided below). The number of shares of Common Stock
purchasable upon exercise of this Warrant, and the exercise price per share,
each as adjusted from time to time pursuant to the provisions of this Warrant,
are hereinafter referred to as the "Warrant Stock" and the "Exercise Price,"
respectively.
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit I duly executed by such Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Exercise Price payable in respect of the number of shares of Warrant Stock being
purchased upon such exercise.
<PAGE>
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which the
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders of
record of the Warrant Stock represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part the Company at its expense will cause to be issued in the name of,
and delivered to, the Registered Holder, or, subject to the terms and conditions
hereof, as such Holder (upon payment by such Holder of any applicable transfer
taxes) may direct:
(i) a certificate or certificates for the number of full shares
of Warrant Stock to which such Registered Holder shall be entitled upon
such exercise, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on
the face or faces thereof for the number of shares of Warrant Stock equal
(without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant, minus the number of such
shares purchased by the Registered Holder upon such exercise as provided in
subsection 1(a) above.
(d) In lieu of the payment of the Exercise Price in the manner
required by Section 1(a), the Holder shall have the right (but not the
obligation) to pay the Exercise Price for the shares of Common Stock being
purchased with this Warrant upon exercise by the surrender to the Company of any
exercisable but unexercised portion of this Warrant having a "Value" (as defined
below), at the close of trading on the last trading day immediately preceding
the exercise of this Warrant, equal to the Exercise Price multiplied by the
number of shares of Common Stock being purchased upon exercise ("Cashless
Exercise Right"). The sum of (x) the number of shares of Common Stock being
purchased upon exercise of the non-surrendered portion of this Warrant pursuant
to this Cashless Exercise Right and (y) the number of shares of Common Stock
underlying the portion of this Warrant being surrendered, shall not in any event
be greater than the total number of shares of Common Stock purchasable upon the
complete exercise of this Warrant if the Exercise Price were paid in cash. The
"Value" of the portion of the Warrant being surrendered shall equal the
remainder derived from subtracting (x) the Exercise Price multiplied by the
number of shares of Common Stock underlying the portion of this Warrant being
surrendered from (y) the Market Price of a share of Common Stock multiplied by
the number of shares of Common Stock underlying the portion of this Warrant
being surrendered. As used in this Warrant, the term "Market Price" at any date
shall be deemed to be the last reported sale price of the Common Stock on such
date, or, in case no such reported sale takes place on such day, the average of
the last reported sale price for the immediately preceding three trading days,
in either case as officially reported by the national securities exchange on
which the
2
<PAGE>
Common Stock is trading, or, if the Common Stock is not principally traded on
any national securities exchange, the last reported sale price as furnished by
the NASD through the Nasdaq National Market or SmallCap Market, or, if
applicable, the OTC Bulletin Board, or if the Common Stock is not listed or
admitted to trading on the Nasdaq National Market or SmallCap Market or OTC
Bulletin Board or similar organization, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it. The Cashless Exercise Right may be exercised by the
Holder on any business day on or after the Commencement Date and not later than
the Expiration Date by delivering the Warrant with a duly executed exercise form
attached hereto with the cashless exercise section completed to the Company,
exercising the Cashless Exercise Right and specifying the total number of shares
of Common Stock being purchased pursuant to such Cashless Exercise Right.
2. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
(a) If the outstanding shares of the Company's Common Stock shall be
subdivided or split into a greater number of shares, or a dividend in Common
Stock shall be paid in respect of Common Stock, the Exercise Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or split or
immediately after the record date of such dividend be proportionately reduced.
If the outstanding shares of Common Stock shall be combined or reverse-split
into a smaller number of shares, the Exercise Price in effect immediately prior
to such combination or reverse-split shall, simultaneously with the
effectiveness of such combination or reverse-split, be proportionately
increased.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, or the
payment of a liquidating distribution, then, as part of any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution,
lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof (to the
extent, if any, still exercisable) the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined by the Board of Directors
of the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of the Registered
Holder of this Warrant such that the provisions set forth in this Section 2
(including provisions with respect to adjustment of the Exercise Price) shall
thereafter be applicable, as nearly as practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
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(c) When any adjustment is required to be made in the Exercise Price,
the number of shares of Warrant Stock purchasable upon the exercise of this
Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment.
(d) No adjustment in the per share Exercise Price shall be required
unless such adjustment would require an increase or decrease in the Exercise
Price of at least $0.01; provided, however, that any adjustments which by reason
of this paragraph are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section 2
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be. Anything in this Section 2 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the per share Exercise
Price, in addition to those required by this Section 2 as in its discretion it
shall deem to be advisable in order that any stock dividend, subdivision of
shares or distribution rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
3. FRACTIONAL SHARES. The Company shall not be required to issue
certificates representing fractions of shares of Common Stock or Warrants upon
the exercise or transfer of the Purchase Option, nor shall it be required to
issue scrip or pay cash in lieu of any fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Warrants, shares of Common Stock or
other securities, properties or rights.
4. LIMITATION ON SALES, etc. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Stock have not been registered under the Securities
Act of 1933, as now in force or hereafter amended, or any successor legislation
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant and the Warrant Stock issued upon its exercise and registration or
qualification of this Warrant or such Warrant Stock under any applicable Blue
Sky or state securities law then in effect, or (b) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required.
Without limiting the generality of the foregoing, unless the offering and
sale of the Warrant Stock to be issued upon the exercise of the Warrant shall
have been effectively registered under the Act, the Company shall be under no
obligation to issue the shares covered by such exercise unless and until the
Registered Holder shall have executed an investment letter in form and substance
reasonably satisfactory to the Company, including a warranty at the time of such
exercise that it is acquiring such shares for its own account, for investment
and not with a view to, or for sale in connection with, the distribution of any
such shares, in which event the Registered Holder shall be bound by the
provisions of a legend or legends to such effect which shall be endorsed upon
the certificate(s) representing the Warrant Stock issued pursuant to such
exercise.
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<PAGE>
5. CERTAIN DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock
("Property Dividend"), then the Company will pay or distribute to the Registered
Holder of this Warrant, upon the exercise hereof, in addition to the Warrant
Stock purchased upon such exercise, the Property Dividend which would have been
paid to such Registered Holder if the Registered Holder had been the owner of
record of such shares of Warrant Stock immediately prior to the date on which a
record is taken for such Property Dividend or, if no record is taken, the date
as of which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
6. REGISTRATION RIGHTS OF WARRANT HOLDER.
(a) The Holders shall have the right until the Expiration Date to
include the Warrant Stock as part of any other registration of securities filed
by the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8 or any equivalent
form), subject to the discretion of the underwriter(s), if any, to limit the
number of shares of Warrant Stock, including zero shares, to be included in the
registration.
(b) The Company shall bear all fees and expenses attendant to
registering the Warrant Stock, but the Holders shall pay any and all
underwriting commissions and the expenses of any legal counsel selected by the
Holders to represent them in connection with the sale of the Warrant Stock. The
Company agrees to use its best efforts to cause the filing required herein to
become effective promptly and to qualify or register the Warrant Stock in such
States as are reasonably requested by the Holder(s); provided, however, that in
no event shall the Company be required to register the Warrant Stock in a State
in which such registration would cause (i) the Company to be obligated to
register or license to do business in such State, or (ii) the principal
stockholders of the Company to be obligated to escrow their shares of capital
stock of the Company. The Company shall cause any registration statement filed
pursuant to the rights granted under this Section 6 to remain effective until
the earliest of (i) the Expiration Date, (ii) the date by which all of the
Warrant Stock have been sold pursuant to the registration statement, or (iii)
the date by which all of the Warrant Stock are eligible for resale without
restriction pursuant to Rule 144(K) promulgated under the Act.
(c) The Company shall indemnify the Holder(s) of the Warrant Stock to
be sold pursuant to any registration statement hereunder and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
reasonable attorneys' fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim
5
<PAGE>
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement. The Holder(s) of the
Warrant Stock to be sold pursuant to such registration statement, and their
successors and assigns, shall severally, and not jointly, indemnify the Company,
against all loss, claim, damage, expense or liability (including all reasonable
attorneys' fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, in
writing, for specific inclusion in such registration statement.
(d) Nothing contained in this Warrant shall be construed as requiring
the Holder(s) to exercise their Warrants prior to or after the initial filing of
any registration statement or the effectiveness thereof.
(e) The Company shall furnish to each Holder participating in any of
the foregoing offerings and to each underwriter of any such offering, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an opinion
of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under any underwriting agreement
related thereto), and (ii) a "cold comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company shall also deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(f) Each of the Holder(s) participating in any of the foregoing
offerings shall furnish to the Company a completed and executed questionnaire
provided by the Company requesting information customarily sought of selling
securityholders.
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7. RESERVATION OF STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
8. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
9. TRANSFERS, etc. The Company will maintain a register containing the
names and addresses of the Registered Holders of this Warrant and of the holders
of other warrants of like tenor issued simultaneously hereunder. Any Registered
Holder may change its, his or her address as shown on the warrant register by
written notice to the Company requesting such change.
Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Registered Holder of this Warrant as the absolute
owner hereof for all purposes; provided, however, that if and when this Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
10. MAILING OF NOTICES, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, sent by reputable
overnight delivery or by facsimile to the address furnished to the Company in
writing by the last Registered Holder of this Warrant who shall have furnished
an address to the Company in writing. All notices and other communications from
the Registered Holder of this Warrant or in connection herewith to the Company
shall be mailed by first-class certified or registered mail, postage prepaid,
sent by reputable overnight delivery or by facsimile to the Company at its
offices at, 2 Robbins Road, Westford Massachusetts 01886 or such other address
as the Company shall so notify the Registered Holder, with copies to Warner &
Stackpole LLP, 75 State Street, Boston, Massachusetts 02109, Attn: Michael A.
Hickey, Esq., facsimile number (617) 951-9151.
11. NO RIGHTS AS STOCKHOLDERS. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
12. CHANGE OR WAIVER. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against whom
enforcement of the change or waiver is sought.
13. HEADINGS. The headings of this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
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14. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts without regard to
the principles of conflict of law.
15. VENUE. The Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Warrant shall be instituted
exclusively in Massachusetts Courts, Suffolk County or in the Federal District
Court in Massachusetts, Eastern District, (b) waives any objection to the venue
of any such suit, action or proceeding and the right to assert that such forum
is not a convenient forum, and (c) irrevocably consents to the jurisdiction of
the Massachusetts Courts, Suffolk County, and the Federal District Court in
Massachusetts, Eastern District any such suit, action or proceeding. The Company
further agrees to accept and acknowledge service of any and all process which
may be served in any such suit, action or proceeding in the Massachusetts
Courts, Suffolk County, or in the Federal District Court in Massachusetts,
Eastern District and agrees that service of process upon it mailed by certified
mail to its address shall be deemed in every respect effective service of
process upon it in any such suit, action or proceeding.
Dated: January 30, 1998 AUGMENT SYSTEMS, INC.
By:____________________________________
Duane A. Mayo, Chief Financial Officer
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EXHIBIT I
PURCHASE FORM
To: AUGMENT SYSTEMS, INC.
======================
______________________
______________________
______________________
Dated:________________________________________________
In accordance with the provisions set forth in the attached Warrant
(No. __), the undersigned hereby irrevocably elects to purchase ________ shares
of the Common Stock covered by such Warrant and herewith makes payment of
$_______, representing the full Exercise Price for such shares at the price per
share provided for in such Warrant.
or
The undersigned hereby elects irrevocably to purchase _________ shares
of Common Stock of Augment Systems, Inc. by surrender of the unexercised portion
of such Warrant (with a "Value" of $__________ based on a "Market Price" of
$___________).
The undersigned has had the opportunity to ask questions of and receive
answers from the officers of the Company regarding the affairs of the Company
and related matters, and has had the opportunity to obtain additional
information necessary to verify the accuracy of all information so obtained.
The undersigned understands that the shares have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
other jurisdiction, and hereby represents to the Company that the undersigned is
acquiring the shares for its own account, for investment, and not with a view
to, or for sale in connection with, the distribution of any such shares.
Signature____________________________________
Address____________________________________
____________________________________
AUGMENT SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
for 1998 Private Placement
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made by Augment
Systems, Inc., a corporation formed under the laws of the State of Delaware (the
"Company"), for the benefit of the investors listed on Schedule I hereto
(collectively, the "Investors" and, individually, an "Investor").
RECITALS
A. The Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors, a minimum
of $4,000,000 and a maximum of $8,000,000 in shares of Common
Stock, par value $0.01 (the "Shares") in a private placement
(the "Private Placement") conducted in accordance with the
Securities Act of 1933, as amended, and the rules and
regulations thereunder (collectively, the "Securities Act").
The Shares referenced in this Recital A are herein called the
"Shares".
B. As further inducement for the Investors to purchase the Shares
from the Company, the Company desires to undertake to register
under the Securities Act, the Shares, in accordance with the
terms hereof.
AGREEMENTS
The Company and the Investors covenant and agree as follows:
1. DEFINITIONS. For the purposes of this Agreement:
(a) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document by the Securities and Exchange Commission (the "SEC").
<PAGE>
(b) The term "Registrable Securities" means (i) the Investors' Shares
(as defined in the Subscription Agreement, if any), (ii) Shares, if any, issued
to Sunrise Securities Corp. in satisfaction of the selling commission and
expense allowance and (iii) any Shares issued as (or issuable upon the
conversion or exercise of any convertible security, warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of the Shares, including, but not limited
to, the shares underlying the Placement Agent's Warrants, and excluding in all
cases, however, any Registrable Securities sold by an Investor in a transaction
in which its registration rights under this Agreement are not assigned pursuant
to Section 9 of this Agreement.
(c) The term "Investor" includes (i) each Investor (as defined above)
and (ii) each person who is a permitted transferee or assignee of the
Registrable Securities pursuant to Section 9 of this Agreement.
2. DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3. Subject to
the terms of this Agreement, in the event that the Company shall receive from
the holders of at least fifty percent (50%) of the Registrable Securities (the
"Initiating Holders"), at any time after the earlier of (i) five (5) years after
the initial closing date of the Private Placement, or (ii) ninety (90) days
after the effective date of any public offering under the Securities Act of the
Shares by the Company for its account (the "Public Offering"), a written request
that the Company effect any registration with respect to all or a part of the
Registrable Securities on an applicable Securities Act form other than Form S-3
for an offering covering the registration of Registrable Securities having a
reasonably anticipated aggregate offering price to the public in excess of five
million dollars ($5,000,000), the Company shall (A) promptly give written notice
of the proposed registration to all other holders of the Registrable Securities,
and (B) as soon as practicable, and in any event within ninety (90) days after
such request, use its best efforts to effect registration of the Registrable
Securities specified in such request, together with any Registrable Securities
of any holder thereof joining in such request as are specified in a written
request given within twenty (20) days after written notice from the Company. The
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section 2(a): (i) within six (6) months after the
effective date of a registration of the Shares initiated by the Company; or (ii)
after the Company has effected two such registrations pursuant to this Section
2(a) and such registrations have been declared effective by the SEC and, if
underwritten, have closed.
(b) RIGHT OF DEFERRAL OF REGISTRATION ON FORM OTHER THAN FORM S-3. If
the Company shall furnish to all the holders of Registrable Securities who
joined in the request for registration pursuant to Section 2(a) above a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for any registration to be effected as requested
under Section 2(a), then the Company shall have the right to defer the filing of
a registration statement under the Securities Act with respect to such requested
offering for a period of not more than ninety (90) days from delivery of the
request of the Initiating Holders; provided, however, that the Company may not
utilize this right more than once in any twelve-month period.
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(c) REQUEST FOR REGISTRATION ON FORM S-3. Subject to the terms
of this Agreement, if the Company receives from holders of Registrable
Securities, at a time when the Company is eligible to register securities for a
secondary offering by its stockholders on SEC Securities Act Form S-3 (or any
successor form to Form S-3, regardless of its designation), a written request
that the Company effect any registration on Form S-3 (or any successor form to
Form S-3, regardless of its designation) for an offering of Registrable
Securities the reasonably anticipated aggregate offering price to the public of
which would exceed $500,000, then the Company will promptly give written notice
of the proposed registration to all the holders of Registrable Securities and
will, as soon as practicable, use its best efforts to effect registration of the
Registrable Securities specified in such request, together with all or such
portion of the Registrable Securities of any holder joining in such request as
are specified in a written request delivered to the Company within twenty (20)
days after written notice from the Company of the proposed registration.
(d) REGISTRATION OF OTHER SECURITIES IN DEMAND REGISTRATION.
Any registration statement filed pursuant to the request of the Initiating
Holders under this Section 2 may, subject to the provisions of Sections 2(e),
(f), (g), (h) and (i), include securities of the Company other than Registrable
Securities.
(e) NOTICE OF UNDERWRITING. If the Initiating Holders intend
to distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 2, and the Company shall include such information in
the written notice referred to in Section 2(a). The right of any holder to
registration pursuant to Section 2(a) shall be conditioned upon such holder's
agreement to participate in such underwriting and the inclusion of such holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such holder with respect to
such participation and inclusion).
(f) INCLUSION OF OTHER HOLDERS IN DEMAND REGISTRATION. If the
Company, officers or directors of the Company holding the Shares other than
Registrable Securities or holders of securities of the Company other than
Registrable Securities shall request inclusion in such registration, then, on
behalf of all holders of Registrable Securities, the Initiating Holders shall
offer (to the extent they deem advisable and consistent with the goals of such
registration and subject to the allocation provisions of Section 3(b) below) to
any or all of the Company, such officers or directors and such holders of other
securities, to include such securities held thereby in the underwriting. The
Initiating Holders may condition such offer on the acceptance by such persons of
the terms of this Section 2.
(g) SELECTION OF UNDERWRITER IN DEMAND REGISTRATION. The
Company shall (together with all holders proposing to distribute their
securities through such underwriting) enter into and perform its obligations
under an underwriting agreement in usual and customary form with the
representative of the underwriter or underwriters (the "Underwriter's
Representative") selected for such underwriting by the holders of a majority of
the Registrable Securities being registered by the Initiating Holders and
consented to by the Company (which consent shall not be unreasonably withheld).
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(h) MARKETING LIMITATION IN DEMAND REGISTRATION. In the event
the Underwriter's Representative advises the Initiating Holders in writing that
market factors (including, without limitation, the aggregate number of Shares
requested to be registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the registration)
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all holders of Registrable Securities, and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all holders in
proportion, as nearly as practicable, to the number of shares proposed to be
included in such registration by such holders; provided, however, that the
number of shares of Registrable Securities to be included in such underwriting
shall not be reduced unless all other securities (including those proposed to be
included by the Company) are first entirely excluded from the underwriting. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 2(h) shall be included in such Registration Statement.
(i) RIGHT OF WITHDRAWAL IN DEMAND REGISTRATION. If any holder
of Registrable Securities, or a holder of other securities entitled (upon
request) to be included in such registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
(7) days prior to the effective date of the registration statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
3. PIGGYBACK REGISTRATION.
(a) NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF
REGISTRABLE SECURITIES. Subject to the terms of this Agreement, in the event the
Company decides to register any of its Shares (either for its own account or the
account of a security holder or holders (other than in connection with a
registration being effected pursuant to Section 2 hereof)) on an SEC form that
would be suitable for a registration involving solely Registrable Securities,
the Company will: (i) promptly give each holder of Registrable Securities
written notice thereof (which shall include a list of the jurisdictions in which
the Company intends to qualify such securities under the applicable Blue Sky or
other state securities laws) and (ii) include in such registration (and in any
related qualification under Blue Sky laws or other state securities laws), and
in any underwriting involved therein, all the Registrable Securities specified
in a written request delivered to the Company by any holder of Registrable
Securities within twenty (20) days after delivery of such written notice from
the Company.
(b) NOTICE OF UNDERWRITING IN PIGGYBACK REGISTRATION. If the
registration of which the Company gives notice pursuant to Section 3(a) is for a
registered public offering involving an underwriting, then the Company shall so
advise the holders of Registrable Securities as a part of the written notice
given pursuant to Section 3(a). In such event, the right of any such holder to
registration shall be conditioned upon such underwriting and the inclusion of
such holder's Registrable Securities in such underwriting to the extent provided
in this Section 3. All holders of Registrable Securities proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement with the Underwriter's Representative for such
offering; provided that such holders of Registrable Securities shall have no
right to participate in the selection of the underwriters for an offering
pursuant to this Section 3.
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(c) MARKETING LIMITATION IN PIGGYBACK REGISTRATION. In the
event the Underwriter's Representative advises the holders seeking registration
of Registrable Securities pursuant to this Section 3 in writing that market
factors (including, without limitation, the aggregate number of Shares requested
to be registered, the general condition of the market, and the status of the
persons proposing to sell securities pursuant to the registration) require a
limitation of the number of shares to be underwritten, the Underwriter's
Representative may limit the number of shares of Registrable Securities to be
included in such registration and underwriting to not less than twenty percent
(20%) of the total number of shares included in such registration. In either
such event, the Underwriter's Representative shall so advise all holders of the
number of shares of Registrable Securities (if any) that may be included in the
registration and underwriting. The number of shares of Registrable Securities to
be so included shall not be reduced unless all other securities (other than
those to be sold by the Company) are first entirely excluded from the
underwriting. No Registrable Securities or other securities excluded from the
underwriting by reason of this Section 3(c) shall be included in the applicable
Registration Statement.
(d) Withdrawal in Piggyback Registration. If any holder of
Registrable Securities, or a holder of other securities entitled (upon request)
to be included in such registration, disapproves of the terms of any such
underwriting, then such holder may elect to withdraw therefrom by written notice
to the Company and the underwriter delivered at least seven (7) days prior to
the effective date of the registration statement. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
4. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities pursuant to this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC, within thirty (30) days
after (i) the close of the Company's Private Placement or (ii) the date of
issuance of any Registrable Securities issued thereafter, as the case may be, a
registration statement or registration statements (the "Registration Statement")
with respect to all Registrable Securities included therein, and use its best
efforts to cause the Registration Statement to become effective as soon as
reasonably possible after such filing, and, with respect to any registration
that does not involve an underwriting, to keep the Registration Statement
effective pursuant to Rule 415 under the Securities Act for a period of at least
two years after the close of the Company's Private Placement, or such shorter
period as prescribed by Rule 144 promulgated under the Securities Act or during
which the Registrable Securities are sold, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
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(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and any
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective (i) for such period as
may be required by the Securities Act with respect to an underwritten offering
and (ii) for at least two years after the close of the Company's Private
Placement, or such shorter period as prescribed by Rule 144, with respect to a
non-underwritten offering, and during such periods to comply with the provisions
of the Securities Act with respect to the disposition of all securities covered
by the Registration Statement
(c) Furnish promptly to each Investor whose Registrable
Securities are included in the Registration Statement such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto, and of such other documents as such Investor may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by such Investor.
(d) Use its reasonable efforts to register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or Blue Sky laws of such jurisdiction as shall be reasonably
requested by the Investors who hold a majority in interest of the Registrable
Securities covered by the Registration Statement and, with respect to a
non-underwritten offering, prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements and to take
such other actions as may be necessary to maintain such registration and
qualification in effect at all times for a period of at least two years after
the close of the Company's Private Placement, or such shorter period as
prescribed by Rule 144 or during which the Registrable Securities are sold, and
to take all other actions necessary or advisable to enable the disposition of
such securities in such jurisdictions; provided, however, that the Company shall
not be required in connection therewith or as a condition thereto to (i) qualify
to do business, file a general consent to service of process or subject itself
to general taxation in any such states or jurisdictions or (ii) provide any
undertaking or make any change in its Certificate of Incorporation or bylaws.
(e) If the Registration Statement relates to an underwritten
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the Underwriter's
Representative.
(f) Notify the Investors who hold Registrable Securities being
sold (or in the event of an underwritten offering, the Underwriter's
Representative), at any time when a prospectus relating to Registrable
Securities covered by the Registration Statement is required to be delivered
under the Securities Act, of the happening of any event as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing. The Company shall use
its best efforts promptly to amend or supplement the Registration Statement to
correct any such untrue statement or omission.
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<PAGE>
(g) Notify the Investors who hold Registrable Securities being
sold (or in the event of an underwritten offering, the Underwriter's
Representative) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.
(h) Permit a single firm of counsel, designated as selling
shareholders' counsel by the holders of a majority in interest of the
Registrable Securities being sold, to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing, and shall not file any document in a form to which such counsel
reasonably objects.
(i) Make generally available to its security holders as soon
as practicable, but not later than forty five (45) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
(j) At the request of the Investors who hold a majority in
interest of the Registrable Securities being sold, furnish to the underwriters,
if any, on the date that Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Agreement (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, and (ii) a letter, dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters.
(k) Make available for inspection by any underwriters
participating in the offering and the counsel, accountants or other agents
retained by such underwriter, all pertinent financial and other records,
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by such underwriters in connection with the Registration Statement.
(l) If the Shares are then listed on a national securities
exchange, use its best efforts to cause the Registrable Securities to be listed
on such exchange if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or if the Shares are not then listed on a
national securities exchange, use its best efforts to facilitate the quotation
of the Shares on NASDAQ, and use its best efforts to cause continued listing of
the Shares so long as the Registration Statement is in effect under the
Securities Act.
7
<PAGE>
(m) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement.
(n) Take all actions reasonably necessary to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities sold pursuant to the
Registration Statement and to enable such certificates to be in such
denominations and registered in such names as the Investors or any underwriters
may reasonably request.
(o) Take all other actions reasonably necessary to expedite
and facilitate disposition by the Investors of the Registrable Securities
pursuant to the Registration Statement.
(p) Notwithstanding anything contained in this Section 4 to
the contrary, the Company shall have no obligation pursuant to Sections 2 or 3
for the registration of Registrable Securities held by any Investor (i) where
such Investor would then be entitled to sell under Rule 144 within any
three-month period (or such other unitary period prescribed under Rule 144 as
may be provided by amendment thereof) all of the Registrable Securities then
held by such Investor, and (ii) where the number of Registrable Securities held
by such Investor is within the volume limitations under paragraph (e) of Rule
144 (calculated as if such Investor were an affiliate of the Company within the
meaning of Rule 144).
5. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities pursuant to this Agreement, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement with respect to each
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended
methods of disposition of such securities as shall be reasonably required to
effect the registration of the Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request. At least thirty (30) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if it elects to have any of his Registrable Securities included in
the Registration Statement. If within seven (7) business days of the filing date
the Company has not received the Requested Information from an Investor (a "Non-
Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor.
(b) Each Investor by his acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement.
8
<PAGE>
(c) In the event Investors holding a majority in interest of
the Registrable Securities select underwriters for the offering, each Investor
agrees to enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations and market stand-off obligations,
with the managing underwriter of such offering and to take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities, unless such Investor has notified the Company in
writing of its election to exclude all of his Registrable Securities from the
Registration Statement.
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 4(f),
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 4(f) and, if so desired by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of such destruction) all copies, other
than the permanent file copies then in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
(e) No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay such Investor's pro
rata portion of all underwriting discounts and commissions.
6. Expenses of Registration. All expenses other than
underwriting discounts and commissions incurred in connection with registration,
filings or qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing, filing and qualification fees, printers
and accounting fees, the fees and disbursements of counsel for the Company and
the reasonable fees and disbursements of one firm of counsel for the Investors
shall be borne by the Company.
7. Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor, the directors, if any, of such Investor, the
officers, if any, of such Investor who sign the Registration Statement, each
person, if any, who controls such Investor, any underwriter (as defined in the
Securities Act) for the Investors and each person, if any, who controls any such
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any losses, claims,
damages, expenses or liabilities, joint or several) to which any of them may
become subject under the Securities Act, the Exchange Act, other federal or
state law or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof, arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue statement
9
<PAGE>
or alleged untrue statement of a material fact contained in the Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law. Subject to the restrictions set forth in Section 7(c)
with respect to the number of legal counsel, the Company will reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred, for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding. Notwithstanding anything contained in this
Agreement to the contrary, the indemnity agreement contained above in this
Section 7(a): (I) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld, (II) shall not apply to any such case for any such loss,
claim, damage, liability or action arising out of or based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the
Investors or any such underwriter or controlling person, as the case may be, and
(III) with respect to any preliminary prospectus, shall not inure to the benefit
of any person from whom the person asserting any such claim purchased the
Registrable Securities that are the subject thereof (or to the benefit of any
person controlling such person) if the untrue statement or omission of material
fact contained the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Investors or
any such underwriter or controlling person and shall survive the transfer of the
Registrable Securities by an Investor pursuant to Section 9.
(b) To the extent permitted by law, each Investor, severally
and not jointly, will indemnify and hold harmless, to the same extent and in the
same manner set forth in Section 7(a), the Company, each of its directors, each
of its officers who have signed the Registration Statement, each person, if any,
who controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such holder or underwriter, against any losses, claims,
damages or liabilities, joint or several) to which any of them may become
subject, under the Securities Act, the Exchange Act, other federal or state law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Investor
expressly for use in connection with such registration; and such Investor will
reimburse any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Investor shall be liable under
this Section 7(b) for only that amount of losses, claims, damages and
liabilities as does not exceed the proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such registration. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on
10
<PAGE>
behalf of such indemnified party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. The Company shall
be entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
about such persons so furnished in writing by such persons expressly for
inclusion in the Registration Statement
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
satisfactory to the indemnifying party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
for the indemnifying party, representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The Company shall pay for
only one legal counsel for the Investors. Such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve such
indemnifying party of any liability to the indemnified party under this Section
7 only to the extent prejudicial to its ability to defend such action, but the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under section 7. The indemnification required by this Section 7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, promptly as such expense, loss, damage or liability is incurred and
is due and payable.
(d) To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under this Section 7 to the extent permitted by law; provided, however,
that (i) no contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards set forth in
this Section 7, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation, and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Investors the benefits of Rule 144 and any other rule
or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration, the Company agrees
to:
11
<PAGE>
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public.
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act.
(c) Furnish to each Investor, so long as such Investor owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144 (at
any time after 90 days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing the Investors of any rule or regulation of
the SEC which permits the selling of any such securities without registration.
9. ASSIGNMENTS OF REGISTRATION RIGHTS. The rights to have the
Company register securities pursuant to this Agreement may be assigned by the
Investors to transferees or assignees of such securities provided that (i) the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned, (ii) such
assignment is in accordance with and permitted by all other agreements between
the Company and the transferor or assignor, and (iii) such assignments shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act. The term "Investors" as used in this Agreement shall include permitted
assignees.
10. MISCELLANEOUS.
(a) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested, addressed (i) if
to the Company, Augment Systems, Inc., 2 Robbins Road, Westford, Massachusetts
01886, Attention: President, and (ii) if to an Investor, at the address set
forth under his or her name in the subscription agreement executed by such
Investor in connection with its investment, or at such other address as each
such party furnishes by notice given in accordance with this Section 10(a).
(b) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, will not operate as a waiver thereof. No waiver will be effective unless
and until it is in writing and signed by the party giving the waiver.
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<PAGE>
(c) This Agreement shall be enforced, governed and construed
in all respects in accordance with the laws of the State of New York, as such
laws are applied by New York courts to agreements entered into and to be
performed in New York by and between residents of New York. This Agreement shall
be binding upon each Investor and its heirs, estate, legal representatives,
successors and permitted assignees and shall inure to the benefit of the Company
and its successors and assigns. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(d) This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof. Any provision of
this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by a writing executed by the Company and Investors who hold
a majority in interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10(d) shall be binding upon such
Investor and the Company.
(e) Any such person is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, then the Company shall be entitled to act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities.
Dated this ___ day of June, 1998.
AUGMENT SYSTEMS, INC.
By:_____________________________________
Name:
Title:
13
AVID DRAFT JUNE 29, 1998
GEMINI-NT FILE CLIENT SOFTWARE LICENSE AND DISTRIBUTION AGREEMENT
-----------------------------------------------------------------
AUGMENT SYSTEMS, Inc., a Delaware corporation with its principal place of
business located at Two Robbins Road, Westford, MA 01886-4113 ("Augment"),
hereby agrees to license certain Software (as that term is herein defined) to
Avid Technology, Inc., a Delaware corporation with a place of business located
at Metropolitan Technology Park, One Park West, Tewksbury, MA 01876 ("Avid")
pursuant to the terms and conditions set forth herein, all as of June 30, 1998.
Whereas, Augment has developed certain proprietary software for the
transfer and storage of large files over local and wide area networks;
Whereas, Avid is interested in developing a real-time video shared storage
subsystem and has evaluated the feasibility of using and/or modifying
Augment's proprietary software for use in such a shared storage system;
Whereas, Avid wishes to license certain of Augment's proprietary software
for the purpose of this product development;
Now Therefore, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree:
Section 1. DEFINITIONS.
The following italicized terms shall have the correspondent meanings set
forth below.
"Agreement" shall mean this Gemini-NT File Client Software License and
Distribution Agreement and any schedules hereto, including any amendments,
revisions, additions, or deletions thereto.
"Avid Derived Works" shall mean modifications based upon or derivative
works of the Software in any form.
"Augment Field of Use" shall mean the Geographical Information Systems
Field of Use, the Medical Imaging Systems Field of Use and the Printing and
Publishing Field of Use, but shall not include the Avid Field of Use.
"Avid Field of Use" shall mean software, systems and processes relating to
(i) the capture, creation, manipulation, storage, transmission, management
and/or display of film, video or other motion images or audio (including,
without limitation, still-frame images intended to be used in motion
images); or (ii) news or broadcast production. The Avid Field of Use shall
not include the Augment Field of Use.
"Binary Code" shall refer to copies of the Software, including any Software
incorporating Avid Derived Works, in binary language, stored in whatever
media.
"Bug" shall mean any error in the Software which causes repeated
malfunctions in the operations or functions of the Software.
<PAGE>
"Designated Location" shall mean Avid's current facility at Metropolitan
Technology Park, One Park West, Tewksbury, MA 01876, other Avid research
and development sites identified on Schedule D hereto, and such other
locations at which Avid shall conduct research and development from time to
time, provided, however, that no Designated Location (other than the
Designated Locations identified on Schedule D) shall be outside of the
United States.
"Geographical Information Systems Field of Use" shall mean the following
processes or activities which utilize a large database of terrain data and
scan, digitize, or enhance for analysis, including but not limited to
photogrammetry, land visualization, satellite image acquisition and
enhancement, spatial information systems, digital orthophoto, digital image
acquisition, mapping, and aerial photography.
"Independent Contractor" shall mean any Person (other than employees of
Avid) to whom Avid grants access to the Source Code.
"Medical Imaging Systems Field of Use" shall mean the following processes
or activities which utilize a large database of computer enhanced
two-dimensional or three-dimensional data for medical analysis, including
but not limited to MRI, CT, radiology (x-ray), radiology information
systems, healthcare information systems, nuclear medicine, ultrasound, cine
imagery, teleradiology, picture archiving and communications systems,
mini-PACS, digital imaging communications in medicine, and diagnostic
viewing.
"Person" shall mean and include any individual, partnership, joint venture,
firm, limited liability company, corporation, association, trust, or other
enterprise, or any entity or agency of local, state, federal, or foreign
government.
"Printing and Publishing Field of Use" shall mean processes or activities
which utilize a database of image and text data, and which data is scanned,
digitized, manipulated or enhanced for display or printing in the following
industries: newspapers (SIC 2711); periodicals (SIC 2721); book publishing
(SIC 2731); book printing (SIC 2732); miscellaneous publishing (SIC 2741);
commercial printing, lithographic (SIC2752); commercial printing, gravure
(SIC 2754); commercial printing, n.e.c. (SIC 2759); manifold business forms
(SIC 2761); greeting cards (SIC 2771); blankbooks and loose-leaf binders
(SIC 2782); bookbinding and related work (SIC 2789); printing trade
services (SIC 279); in-house printing; in-plant printing; graphic design;
advertising design (SIC 731).
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<PAGE>
"Proprietary Information" shall have the meaning ascribed to it in the
Bilateral Confidentiality Agreement by and between Augment and Avid (the
"Confidentiality Agreement"), attached as hereto as Schedule B and
incorporated into this Agreement.
"Software" shall mean each computer program described in Schedule A to this
Agreement.
"Source Code" shall refer to copies of the Software in any source code
language, in whatever form.
Section 2. GRANT OF SOURCE CODE LICENSE.
(a) Augment hereby grants to Avid a non-exclusive, irrevocable, perpetual
license to use, modify, copy, or make derivative works of the Source Code
to the extent expressly provided in this Section 2 and solely at the
Designated Location for the consideration set forth in Section 2(c) and
subject to the terms and conditions otherwise set forth in this Agreement
(the "Source Code License"). Subject to the terms and conditions of this
Agreement, Augment further grants to Avid a non-exclusive, irrevocable,
perpetual license under any patents, copyrights, trade secrets or other
intellectual property rights owned or licensed by Augment at any time
during the terms of this Agreement to the extent necessary to exercise any
right and license granted under this Agreement. The Source Code License is
non-transferable, non-assignable, and without the right to sub-license,
except in connection with the sale to any Person (a "Permitted
Sublicensee") of a line of Avid's business that includes the transfer of
substantially all rights in one or more products related to the Software
and all obligations under this Agreement. Notwithstanding any other
provision in this Agreement, the Source Code License shall not include any
right to market, distribute, or publicly perform or display any form of the
Source Code, or to make the Source Code available to any Person that is not
an employee or an Independent Contractor or Permitted Sublicensee of Avid
modifying or making derivative works of the Software on behalf of Avid.
(b) RIGHTS GRANTED BY THE SOURCE CODE.
(i) Avid shall exclusively own all right, title, and interest in any
Avid Derived Works of the Source Code and associated Binary Code
only to the extent of Avid's modifications or alterations to the
Source Code.
(ii) Avid agrees to give notice of Augment's proprietary interest in
the Software and the provisions of this Agreement to any Avid
employee to whom the Source Code is made available. Avid shall
require any Independent Contractor granted access to or
information about the Source Code to execute a Non-Disclosure
Agreement containing substantially the provisions in the form
attached as Schedule C.
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<PAGE>
(iii) In no case shall Avid have any ownership interest in Augment's
SOURCE CODE OR preexisting work embodied in the Software, nor
shall any aspect of the Source Code License affect the scope,
duration, ownership, or substance of Augment's ownership
interest in the SOURCE CODE OR THE Software.
(c) Consideration. As consideration for the Source Code License, Avid agrees to
pay to Augment, upon the execution of this Agreement by both parties, one
hundred thousand dollars (US $100,000.00) (the "Source Code
Consideration"). The Source Code Consideration shall take the form of a
check or wire transfer to a financial institution of Augment's selection
and the delivery thereof shall be a condition precedent to Augment's
obligations under the Source Code License.
(d) Change of Designated Location. Upon the written request of Augment, Avid
shall provide Augment with a list of the Designated Locations where the
Source Code is maintained.
(e) Acknowledgment of Source Code. Upon receipt of the Source Code, Avid shall
sign a hard copy reproduction of the Source Code acknowledging receipt of
the Source Code.
(f) Bug Notification. For a period of one year from the date of execution of
this Agreement and to the extent reasonably practicable, Avid and Augment
agree to notify each other of any Bugs discovered by the respective parties
or by any third party with access to the Software acting on such party's
behalf. Such notification shall include any available information on
conditions under which the Bug arises and any other relevant data
concerning the existence of such Bug.
Section 3. GRANT OF BINARY CODE LICENSE.
(a) Except as provided in Section 10(e) of this Agreement, Augment grants to
Avid a non-exclusive worldwide irrevocable perpetual license to use, copy,
modify, prepare derivative works of, market, distribute, sell and
sublicense the Binary Code (including any Binary Code incorporating Avid
Derived Works) for the consideration set forth in Section 3(d)(i) and (ii),
subject to the terms and conditions otherwise set forth in this Agreement
(the "Binary Code License"). The Binary Code License permits Avid to
license the Binary Code to end-users, resellers, distributors, VARs, and
OEMs. Such resellers, distributors, VARs, and OEMs may grants sublicenses
to end users. Within forty-five (45) days of the end of each calendar
quarter, Avid agrees to provide Augment a report indicating royalties due
and payment received of or for all licenses granted during such calendar
quarter.
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(b) Avid hereby grants to Augment (and any certified public accountant
designated by Augment) the right to audit Avid's books and records relative
to the Binary Code License on reasonable prior written notice and during
Avid's normal business hours. Such audits shall not take place more than
twice per calendar year. In the event that such review determines that Avid
has underrepresented licensing royalties by more than ten percent (10%) in
any period, Avid shall assume the reasonable cost of such review, and, in
addition to the royalties due, shall immediately pay to Augment a late
payment charge of 1.5% per month based on royalties due.
(c) All Avid licenses or sub-licenses of Binary Code shall contain customary
prohibitions against the sublicensee's decompilation and modification of
the Software, except to the extent that such prohibitions are restricted by
law.
(d) Consideration.
(i) Binary Code Royalty. As consideration for the Binary Code
License, and subject to the provisions of Sections 3(d)(iii)
and 3(d)(iv) of this Agreement, Avid agrees to pay Augment a
royalty (the "Binary Code Royalty") on all of Avid's
sublicenses of the Software (including on sublicenses granted
by VARs, OEMs, resellers, and distributors insofar as such
VARs, OEMs, resellers, or distributors copy the Binary Code and
distribute such copies, and do not merely sublicense copies of
the Binary Code as provided by Avid), based upon the following
marginal rate schedule. Only one (1) royalty payment per copy
of the Software shall be due. Payments shall be due within
forty-five (45) days of the end of each calendar quarter in
which such sublicenses were granted. Avid shall be entitled to
grant up to seventy five (75) sublicenses of the Software for
evaluation, demonstration, or similar purposes without the
payment of the Binary Code Royalty hereunder.
COPY SUB-LICENCED MARGINAL BINARY CODE ROYALTY
----------------- ----------------------------
Copy #1 through #4,999 US $ 100.00 per copy
Copy #5,000 through #9,999 US $75.00 per copy
Copy #10,000 through #12,499 US $50.00 per copy
Copy # 12,500 or greater US $0.00 per copy
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For example, if Avid sublicensed 13,100 copies of the Binary
Code, the total Binary Code Royalty owed to Augment would be US
$999,775 ($499,900 for copies 1 through 4,999; $374,925 for
copies 5,000 through 9,999; $124,950 for copies 10,000 through
12,499; and $0 for copies 12,500 through 13,100).
(ii) Incremental Royalty on Certain Sales. As further consideration
for the Binary Code License, in the event that Avid or any Avid
VAR, OEM, reseller, or distributor sublicenses the Binary Code
(including any Binary Code incorporating Avid Derived Works) or
the Mac Software (as defined below) or any derivations of the
Mac Software created by or on behalf of Avid for use primarily
in the Augment Field of Use, Avid agrees to pay Augment (in
addition to the royalty set forth in Section 3(d)(i) above), an
incremental royalty on each such sublicense in the amount of
two thousand dollars (US $2,000) within thirty (30) days after
written notification thereof from Augment. In the event Augment
does not so notify Avid within one hundred eighty (180) days of
the sublicense or thirty days after the date that Augment
receives actual notice of such sublicense, whichever is
earlier, then no incremental royalty will be required to be
paid.
(iii) Entertainment Market Buyout. At any time prior to 5:00 pm on
December 31, 1998, Avid, in its sole discretion, may elect to
make a lump sum payment (the "Entertainment Buyout") of two
hundred and fifty thousand dollars (US $250,000)
("Entertainment Buyout Fee") in lieu of the Binary Code Royalty
for sub-licenses of the Binary Code in the Avid Field of Use.
If Avid elects to pay the Entertainment Buyout Fee, the Binary
Code License in the Avid Field of Use shall thereafter be fully
paid up and royalty free for an unlimited number of copies.
Election of the Entertainment Buyout shall be effective upon
Augment's receipt of the Entertainment Buyout Fee; Augment's
failure to receive the Entertainment Buyout Fee by 5:00 pm on
December 31, 1998 shall constitute a waiver of the
Entertainment Buyout.
(iv) `Other Market' Buyout. At any time prior to 5:00 pm on December
31, 1998, Avid, in its sole discretion, may elect to make a lump
sum payment of two hundred and fifty thousand dollars (US
$250,000) ("`Other Market' Buyout Fee") in lieu of the Binary
Code Royalty for sub-licenses of the Binary Code to all markets
except
(A) the Augment Field of Use; and
(B) the Avid Field of Use.
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If Avid elects to pay the `Other Market' Buyout, all
sub-licenses of Binary Code in all markets other than those
listed in this Section 3(iv)(A) and (B) shall thereafter be
fully paid up and royalty free for an unlimited number of
copies. Election of the `Other Market' Buyout shall be effective
upon Augment's receipt of the `Other Market' Buyout Fee;
Augment's failure to receive the `Other Market' Buyout Fee by
5:00 pm on December 31, 1998 shall constitute a waiver of the
`Other Market' Buyout.
(v) The parties acknowledge and agree that Augment and Polybus
Systems Corporation ("Polybus") are parties to a certain
agreement dated August 1, 1996 (the "Polybus Agreement")
related to the development and license of Augment's existing
AFX 410 network file server system (the "AFX Software"). The
Polybus Agreement contains a certain non-competition provision
pursuant to which Polybus agreed not to license, sell, or
transfer the AFX Software to any party for a purpose that
competes with Augment in the Printing and Publishing Field of
Use without the express written consent of Augment (the
"Polybus Non-compete"). Avid and Polybus are presently
negotiating an agreement regarding the license, modification
and distribution of a certain computer program (the "Mac
Software") which implements a Macintosh file system client and
was derived from the AFX Software. Augment agrees that the
Polybus Non-compete shall not apply to Avid or Polybus with
respect to any license, sale, or transfer of the Mac Software
by Avid in the Augment Field of Use, provided that any such
license, sale, or transfer shall be governed by the terms of
Section 3(d)(ii) above.
Section 4. OWNERSHIP OF THE SOFTWARE.
(a) Avid acknowledges that all right, title and interest, including all
patents, copyrights, and trade secret rights, in the Software (except
for Avid's right to ownership of the Avid Derived Works expressly set
forth in Section 2(a)(i)) are the exclusive property of Augment or its
assigns. Avid further acknowledges that nothing contained in this
Agreement shall be construed to convey any rights or proprietary
interest in the Software, other than the specific licenses granted
hereunder. Avid covenants that it shall not, at any time, challenge or
contest the validity, ownership, title in and to the Software (except
for Avid's right to ownership of the Avid Derived Works expressly set
forth in Section 2(a)(i)) or the validity of the Agreement. Avid agrees
to execute any documents that Augment may reasonably request from time
to time so as to ensure that all right, title, and interest in and to
the Software (except for Avid's right to ownership of the Avid Derived
Works expressly set forth in Section 2(a)(i)) resides in Augment.
7
<PAGE>
(b) Augment acknowledges that all right, title and interest, including all
patents, copyrights, and trade secret rights, in the Avid Derived Works
(except for Augment's right to ownership of the preexisting works
embodied in the Software) are the exclusive property of Avid or its
assigns. Augment further acknowledges that nothing contained in this
Agreement shall be construed to convey any rights or proprietary
interest in the Avid Derived Works. Augment covenants that it shall
not, at any time, challenge or contest the validity, ownership, title
in and to the Avid Derived Works (except for Augment's right to
ownership of the preexisting works embodied in the Software) or the
validity of the Agreement. Augment agrees to execute any documents that
Avid may reasonably request from time to time so as to ensure that all
right, title, and interest in and to the Avid Derived Works (except for
Augment's right to ownership of the preexisting works embodied in the
Software) resides in Avid.
Section 5. SOFTWARE SUPPORT.
Augment agrees to provide a total of twenty (20) hours of telephone
support service ("Telephone Support") to assist Avid in development of
Avid Derived Works, without additional cost to Avid. This Telephone
Support shall consist of not more than five (5) hours of service in any
seven (7) day period, and in any event shall be concluded (whether or
not all 20 hours are requested or provided) no later than three (3)
months from the date hereof. In addition, Augment will make available
to Avid an Augment representative who is reasonably knowledgeable and
trained in the operation of the Software (the "Representative") who
will assist Avid with installation of the Software for a period of two
(2) consecutive days. Such Representative shall, in Augment's sole
discretion provide service to Avid either at Augment's facility in San
Diego, California, or at the Designated Location.
Section 6. AUGMENT INDEMNIFICATION.
(a) Augment shall defend or, at its option, settle (with Avid's written
consent, which shall not be unreasonably withheld), any claim or
proceeding brought against Avid to the extent that it is based on an
assertion that the Software, as provided to Avid, infringes any patent,
copyright, trade secret or other intellectual property right of any
third party and shall indemnify Avid against all costs, damages, and
expenses (including reasonable attorneys fees) finally awarded against
Avid which result from any such claim, provided that Avid shall notify
Augment promptly in writing of any such claim or proceeding and gives
Augment full and complete authority, information, and assistance to
defend such claim or proceeding, and further provided that Avid gives
Augment sole control of the defense of any such claim or proceeding and
all negotiations for its compromise or settlement. No delay on the part
of Avid in notifying Augment shall relieve Augment from any obligation
hereunder unless (and then solely to the extent) Augment thereby is
prejudiced. Should any Software, as
8
<PAGE>
provided by Augment, become, or in Augment's opinion be likely to
become, the subject of a claim of infringement, Augment shall have the
right, at Augment's option and expense:
(i) to procure for Avid the right to continue using it; or
(ii) to replace or modify it with a non-infringing version of
substantially equivalent function and performance.
(b) Augment shall have no liability or obligation to Avid hereunder for any
infringement to the extent based upon:
(i) the combination of the Software with other products not produced
by Augment if such infringement would not have arisen but for such
combination;
(ii) any use of Software in the practice of a process not authorized
pursuant to this Agreement; or
(iii) modifications by Avid to the Software if such infringement would
not have arisen but for such modifications.
(c) Augment shall have no obligation for any costs incurred by Avid without
Augment's prior written authorization. In no event shall Augment's
liability to indemnify Avid hereunder exceed the amounts paid by Avid
to Augment for the infringing Software. In the event that Avid incurs
or suffers any costs, damages, liabilities or expenses in excess of
Augment's indemnification obligation ("Infringement Costs"), the total
amount of such Infringement Costs shall be treated as prepaid royalties
under Section 3(d) hereof.
Section 7. AVID INDEMNIFICATION.
(a) Avid shall defend or, at its option, settle (with Augment's written
consent, which shall not be unreasonably withheld), any claim or
proceeding brought against Augment to the extent that it is based on an
assertion that Avid Derived Works infringe any patent, copyright, trade
secret or other intellectual property right of any third party and
shall indemnify Augment against all costs, damages, and expenses
(including reasonable attorneys fees) finally awarded against Augment
which result from any such claim, provided that Augment shall notify
Avid promptly in writing of any such claim or proceeding and gives Avid
full and complete authority, information, and assistance to defend such
claim or proceeding, and further provided that Augment gives Avid sole
control of the defense of any such claim or proceeding and all
negotiations for its compromise or settlement. No delay on the part of
Augment in notifying Avid shall relieve Avid from any obligation
hereunder unless (and then solely to the extent) Avid thereby is
prejudiced.
9
<PAGE>
(b) Avid shall have no liability or obligation to Augment hereunder for any
infringement to the extent based upon:
(i) to the extent based on the Software as provided by Augment;
(ii) the combination of the Avid Derived Software with other products
not manufactured, sold or licensed by Avid if such infringement
would not have arisen but for such combination;
(iii) modifications to Avid Derived Software not made or authorized by
Avid if such infringement would not have arisen but for such
modifications.
(c) Avid shall have no obligation for any costs incurred by Augment without
Avid's prior written authorization.
Section 8. Warranty; Disclaimers; Limitation of Liability.
(a) Augment and Avid warrant and represent to one another that that they have
the right, power, and authority to enter into this Agreement; that this
Agreement has been duly executed and delivered; and that this Agreement
does not contravene any other agreement to which either Augment or Avid is
party or either of their charters or organizational documents.
(b) Augment further represents and warrants to Avid as follows:
(i) Augment has full and exclusive right to grant all licenses and
rights granted herein, and that the Software does not infringe
any patents, copyrights, trade secrets, or other proprietary
rights of any third party; and
(ii) The Software shall conform in all material respects to the
specifications and functions set forth in Schedule A.
(c) EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 8, AUGMENT SHALL NOT BE
DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS
TO THE CONDITION, MERCHANTABILITY, DESIGN, OPERATION, OR FITNESS FOR A
PARTICULAR PURPOSE OF THE SOFTWARE OR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR IMPLIED, IN LAW OR IN FACT, ORAL OR WRITTEN, WITH
RESPECT TO THE SOFTWARE.
10
<PAGE>
(d) IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INCIDENTAL,
CONSEQUENTIAL, OR TORT DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
Section 9. PROPRIETARY RIGHTS; NON-DISCLOSURE.
(a) The terms and conditions of the Confidentiality Agreement are incorporated
herein by reference and shall govern the disclosure of Proprietary
Information by one party to the other party hereunder. Notwithstanding the
terms of the Confidentiality Agreement, each party shall have the right and
license to use the other party's Proprietary Information to the extent
provided by Licenses herein for the purposes of this Agreement.
(b) Each party's obligations to protect the confidential and proprietary nature
of Proprietary Information shall survive any termination or expiration of
these licenses for any reason.
Section 10. TERMINATION.
(a) This Agreement shall be effective on the date first above written and shall
remain in force until terminated as provided below.
(b) Avid, at its option, shall have the right to terminate this Agreement at
any time. Any such termination shall be made by written notice to Augment
and shall become effective thirty (30) days after giving such notice.
(c) If Avid fails to make payments as provided herein, or in the event of a
material and continuing breach by Avid of its obligations, Augment may
serve written notice of a breach upon Avid which identifies the breach.
With respect to a payment breach or a breach of the Confidentiality
Agreement, unless such breach is cured to both parties' reasonable
satisfaction within ten (10) business days from receipt of notice by Avid,
Augment may thereupon, at its option (which shall be exercised within one
hundred twenty (120) days of service of such notice of breach), immediately
terminate this Agreement. With respect to non-payment breaches by Avid that
do not relate to violations of the Confidentiality Agreement, unless such
breach is cured to both parties' reasonable satisfaction within thirty (30)
calendar days from receipt of notice by Avid, Augment, at its option (which
shall be exercised within one hundred twenty days of service of notice of
such breach) may immediately terminate this Agreement.
(d) Termination of this Agreement for any reason will not excuse Avid of its
obligations to make payments due under this Agreement nor shall it
terminate the effectiveness of any term of this Agreement that specifically
survives the Agreement's termination. Upon termination of this Agreement
for any reason, Avid shall promptly return (or, at
11
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Augment's election, destroy) all Proprietary Information relating to the
Source Code, the Object Code, or the Software, in any form; provided
however that if the Agreement is terminated by Avid solely on the basis of
Section 10(b), Avid may retain one copy of the Software in Source Code form
subject to all of the restrictions set forth in this Agreement, but without
the right to modify, alter, or make derivative copies of the Source Code.
(e) In the event that Avid willfully or repeatedly markets Avid Derived Works
or targets for marketing efforts Avid Derived Works in the Augment Field of
Use, Augment shall have the option, which may be exercised in its sole
discretion, to terminate this Agreement upon not less than 10 business
days' notice to Avid.
Section 11. FREEDOM OF INDEPENDENT DEVELOPMENT
Nothing in this Agreement shall be construed as prohibiting or restricting
either party from independently developing or acquiring and marketing
materials or programs that are competitive with the Software except as
otherwise expressly provided herein; provided, however, that nothing in
this Section 11 shall grant to Avid a property interest in any of Augment's
copyrights, trademarks, patents, or trade secrets or waive any rights that
Augment arising at law or from this Agreement.
Section 12. GENERAL.
(a) This Agreement and the schedules hereto constitute and incorporate the
parties' entire agreement with respect to the subject matter, and supersede
any and all prior oral and written agreements or understandings. No waiver,
alteration, modification, or cancellation of any of the provisions of this
Agreement shall be binding unless made in writing and signed by Augment.
The failure of either party at any time or times to require performance of
any provision hereof shall in no manner affect that party's right at a
later time to enforce such provision.
(b) Neither Augment nor Avid shall be liable for any delay or failure to take
any action required hereunder (except for payment) due to any cause beyond
the reasonable control of Augment or Avid, as the case may be, including,
but not limited to, unavailability or shortages of labor, materials, or
equipment, failure or delays in the delivery of vendors and suppliers, or
delays in transportation.
(c) This Agreement, and the transactions to which it relates, will be governed
by and construed and enforced in accordance with the law of the
Commonwealth of Massachusetts, excluding its choice of law rules to the
contrary. Any claims or legal actions by one party against the other shall
be commenced and maintained in the Commonwealth of Massachusetts, and both
parties hereby submit to the jurisdiction and venue of any such court.
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(d) If any provision of this Agreement is held to be unenforceable, the
remaining portions of this Agreement shall remain in full force and effect.
(e) Regardless of any disclosure by Avid to Augment of the ultimate destination
of any Software, Avid will not directly or indirectly export any Software
without first obtaining the appropriate United States export license.
(f) This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, assigns, and legal
representatives. The provisions of this Agreement are not intended to be
for the benefit of any creditor of either party.
(g) Avid represents that it had free access to capable legal counsel in the
negotiation of this Agreement, and therefore any maxim, rule, or law of
interpretation by which contracts are construed against their drafter shall
be inapplicable in the interpretation of this Agreement.
(h) Nothing in this Agreement shall create a partnership for any purpose.
(i) This Agreement may be executed in several counterparts and, as so executed,
shall constitute one contract binding on both parties hereto,
notwithstanding that all of the parties have not signed the same
counterpart.
(j) For purposes of interpretation of this Agreement and unless the context
otherwise requires, the singular shall include the plural; the masculine
gender shall include the feminine and neuter, and vice versa; and the word
"or" in non-exclusive.
(k) Notices to Avid shall be addressed to Avid Technology, Inc., One Park West,
Tewksbury, MA 01876, Attn: Senior Vice President of Professional Products,
with a copy to Attn: General Counsel; notices to Augment shall be addressed
to Augment Systems, Inc. 2 Robbins Road Westford, MA 01886-4113, Attn.
President. Except as otherwise provided, any and all notices required under
this Agreement shall be in writing and effective (i) on the fourth business
day after being sent by registered or certified mail, return receipt
requested, postage prepaid; (ii) on the first business day after being sent
by express mail, or commercial overnight delivery service providing a
receipt for delivery; (iii) on the date of hand delivery; or (iv) on the
date actually received, if sent by any other method.
(l) Except as otherwise expressly provided, no term, condition, obligation or
benefit of this Agreement may be assigned or delegated, in whole or in
part, by Augment; provided however that Augment may assign its rights to
payments arising out of this Agreement.
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In witness whereof, the parties hereto have executed this Agreement under
seal as of the day and year first above written.
Augment Systems, Inc.
------------------------------
By:
Title:
Avid TechnologY, Inc.
------------------------------
By:
Title:
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Schedule A
SOFTWARE AND SPECIFICATIONS
---------------------------
GEMINI - NT CLIENT SOFTWARE - DESCRIPTION
The Gemini - NT Client Software is designed to operate on computers that utilize
the Client or Server versions of the Windows NT 4.0 Operating System, with
Service Pac 3, and 1 or 2 Intel Pentium or Digital Equipment Corporation Alpha
computer processing units. The Gemini - NT Client Software used in conjunction
with the OSR (Open Systems Resources) `wrapper', and a suitable protocol
transport mechanism (Fibre channel etc.) to access a remote file server. The
server must support the Polybus File Transfer Protocol (including access
control). Messages destined for the remote server are converted to a subset of
the CIFS protocol, prior to conversion to Polybus format (this is included to
support future standards conformance). The code comprises of the following.
AVID FOLDER
AFXCLIENT FOLDER
1 Core redirector
Directory: NetRedir
Files: Access.c, Access.h, Attr.c, Attr.h, Buffers.c, Buffers.h,
Connect.c, Connect.h, Create.c, Create.h, Ctrl.c,
Ctrl.h, Dir.c, Dir.h, E, Entry.c, Entry.h, Enum.c,
Enum.h, enumservers.c, enumservers.h, Lookup.c,
Lookup.h, Makefile, Misc.c, Misc.h, rdAhead.c,
rdAhead.h, Redircmn.h, Sources, Trace.c, Trace.h,
Types.h, wrBehind.c, Wrbehind.h
This module includes the following functionality:
Implementation of the OSR wrapper interface Management of the
system, volume and file structures as required by the OSR
interface. Access control in conjunction with the user mode
service Read ahead and write behind buffering to improve
sequential access performance Volume mounting functionality
Volume and directory enumeration File/directory
create/rename/delete File open/read/write/flush/close File
attribute management Program execution trace mechanism for
debugging
All output (with the exception of access control) is in a modified CIFS format
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2 CIFS DRIVER
Directory: Cifs
Files: cifsconnect.c, cifsconnect.h, cifscreate.c, cifscreate.h,
Cifsdata.c, Cifsdata.h, Cifsfind.c, Cifsfind.h,
Cifsinfo.c, Cifsinfo.h, Cifsmisc.c, Cifsmisc.h,
cifstypes.h, Makefile, Sources
This module converts CIFS calls from the core redirector into Polybus
protocol function calls. It maintains a CIFS state machine.
3 FILE PROTOCOL DRIVER
Directory: FsDrv
Files: FsApi.c, FsNtStatus.c, Makefile, Sources
This module marshals incoming file system calls and parameters into
Polybus protocol message blocks. Responses from the file server are
parsed and converted back into local parameters. Macintosh endian and
time format conversions are also performed.
4 ACCESS PROTOCOL DRIVER
Directory: AsDrv
Files: AsApi.c, Makefile, Sources
This module marshals incoming access calls and parameters into Polybus
protocol message blocks. Responses from the access server are parsed
and converted back into local parameters. Macintosh endian and time
format conversions are also performed.
5 SERVICE
Directory: Service
Files: Afxsvc.c, Afxsvc.def, Afxsvc.h, Afxsvc, Afxsvc.rc, Build,
Control.c, Makefile, Resource.h, Service.c, Service.h,
Small
The user mode service provides access control functions. On behalf of
the redirector it converts SID's (NT security descriptors) into NT user
names. When appropriate it prompts the user for a corresponding
password.
6 NETWORK PROVIDER
Directory: NetProvider
Files:Afxnp.c, Afxnp.h, Afxprov.def, Afxprov.src, Makefile, Makefile.
inc, npconnect.c, npconnect.h, npenumerate.c, npenumerate.h,
Npmisc.c, Npmisc.h, Nptypes.h, Sources
The user mode network provider provides user mode volume mounting and
volume/directory enumeration interfaces. These are implemented by calls
to the core redirector code.
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7 COMMON INCLUDE
Directory: Include
Files: Afxdef.h, AsApi.h, AtApi.h, BaseTypes.h, Cifsapi.h, FsApi.h
, FsCommon.h, Log.h, MsgCommon.h, traceDef.h
A number of common include file are provided..
8 COMMON MESSAGES
Directory: MsgCommon
Files: Makefile, MsgCommon.c, Sources
9 AT INTERFACE
Directory: AtInterface
Files: Atapi.c, Makefile, Sources
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Schedule B
BILATERAL CONFIDENTIALITY AGREEMENT
With respect to the Gemini-NT File Client Software License and
Distribution Agreement ("License Agreement") by and between Avid Technology,
Inc. ("Avid") and Augment Systems, Inc. ("Augment") to which this Schedule B is
attached, the parties agree as follows. The party disclosing confidential or
proprietary information will be referred to as the "DISCLOSING PARTY" and the
party receiving the confidential or proprietary information will be referred to
as the "RECEIVING PARTY".
1. The parties intend to license technology pursuant to the License
Agreement, and that it may be necessary for the DISCLOSING PARTY to
transfer to the RECEIVING PARTY information of a proprietary nature,
including, but not limited to processes, trade secrets, copyrights,
customer lists, proprietary computer programs (including Source Code)
hardware configurations and other business and technical practices and
information of a confidential nature ("Proprietary Information"). The
Proprietary Information specifically includes the Software, as defined
in the License Agreement between Avid and Augment executed as of the
date hereof, including all materials, specifications, algorithms, trade
secrets, and data related thereto.
2. The RECEIVING PARTY agrees that it will not disclose any Proprietary
Information to any other party (other than its employees who are
directly participating in work involving the DISCLOSING PARTY's
products and who are contractually bound to protect the confidentiality
of such Proprietary Information, including Independent Contractors who
have executed a Non-Disclosure Agreement provided in Schedule C), and
that it will use its best efforts to prevent any such disclosure of
Proprietary Information. Avid and Augment hereby agree that any breach
of a Non-Disclosure Agreement on the part of any Independent Contractor
shall be deemed a breach of Avid's obligations under this paragraph 2.
3. The limitations on disclosure or use of Proprietary Information shall
not apply to, and the RECEIVING PARTY shall not be liable for
disclosure or use of Proprietary Information with respect to which the
RECEIVING PARTY proves using tangible evidence that any of the
following conditions exist: (a) If, prior to the receipt thereof from
the DISCLOSING PARTY, it has been developed independently by the
RECEIVING PARTY, or was lawfully known to the RECEIVING PARTY. (b) If,
subsequent to the receipt thereof (i) it is published by the DISCLOSING
PARTY or is disclosed by the DISCLOSING PARTY to others, without
restriction, or (ii) it has been lawfully obtained by the RECEIVING
PARTY from other sources, provided such other source did not receive it
due to a breach of Schedule B, Schedule C, or the License Agreement, or
(iii) it otherwise comes within the public knowledge or becomes
generally known to the public.
4. Except as otherwise expressly provided, in the License Agreement all
Proprietary Information shall be and remain the property of the
DISCLOSING PARTY, and all embodiments and copies thereof, upon the
written request of the DISCLOSING PARTY, shall be promptly returned to
the DISCLOSING PARTY or destroyed (in which case the RECEIVING PARTY
shall certify to the DISCLOSING PARTY as to its destruction), at the
DISCLOSING PARTY's option.
5. The RECEIVING PARTY acknowledges that the DISCLOSING PARTY's products
and technical data must be licensed for export under the regulations of
the United States Department
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of Commerce. Regardless of any disclosure made by the RECEIVING PARTY
to the DISCLOSING PARTY or its distributors, resellers, VARs, and OEMs
(as set forth in the License Agreement) of an ultimate destination of
the products, the RECEIVING PARTY will not export or re-export, either
directly or indirectly, any products or systems incorporating such
product without first obtaining all required licenses from the United
States Government.
7. The RECEIVING PARTY acknowledges and agrees that the restrictions
contained in this Schedule B are necessary for the protection of the
business and property of the DISCLOSING PARTY, and considers them to be
reasonable for such purpose. The RECEIVING PARTY agrees that any breach
of this Agreement may cause the DISCLOSING PARTY substantial and
irreparable damage and therefore, in the event of any such breach, the
RECEIVING PARTY agrees that the DISCLOSING PARTY shall be entitled to
specific performance and other injunctive relief, in addition to such
other remedies as may be afforded by applicable law, without being
required to post a bond.
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Schedule C
Non-Disclosure Agreement (Independent Contractor)
================================================================================
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
================================================================================
TO : Avid Technology, Inc.
Metropolitan Technology Park
1 Park West
Tewksbury, MA 01824 As of
The undersigned, in consideration of and as a condition of my consulting
arrangement by you and/or by companies which you own, or are affiliated with or
their successors in business (collectively the "Company"), hereby agrees as
follows:
1. CONFIDENTIALITY
I agree to keep confidential, except as the Company may otherwise
consent in writing not to disclose or make any use of at any time either
during or subsequent to my consulting arrangement any Inventions (as
hereinafter defined), trade secrets, confidential information,
knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer
lists, business plans, marketing plans and strategies, or other subject
matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the
course of my consulting relationship except as herein provided. I
further agree not to deliver, reproduce, or in any way allow any such
trade secrets, confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to
or used by any third parties without specific direction or consent of a
duly authorized representative of the Company.
2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL
I agree that during my consulting arrangement with the Company I
will not engage in any other employment, occupation, consulting or other
activity relating to the business in which the Company is now or may
hereafter become engaged, or which would otherwise conflict with my
obligations to the Company. In the event my consulting arrangement with
the Company terminates for any reason whatsoever, I agree to promptly
surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the
course of my consulting arrangement, and I will not take with me any
description containing or pertaining to any confidential information,
knowledge or data of the Company which I may produce or obtain during
the course of my consulting arrangement.
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3. ASSIGNMENT OF INVENTIONS
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably
assign to the Company all my right, title and interest in and to
all Inventions to the Company.
3.2 For the purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or
improvements in any of the foregoing or other ideas, whether or
not patentable and whether or not reduced to practice, made or
conceived by me (whether solely or jointly with others) during the
period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work,
or research and development of the Company, or result from or are
suggested by and any task assigned to me or any work performed by
me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or improvement
in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) which I develop entirely
on my own time not using any of the Company's equipment, supplies,
facilities, or trade secret information ("Personal Invention") is
excluded from this Agreement provide such Personal Invention:
a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and
b) does not result, directly or indirectly, from any work
performed by me for the Company.
4. DISCLOSURE OF INVENTIONS
I agree that in connection with any Invention, I will promptly
disclose such Invention to my immediate superior at the Company in order
to permit the Company to enforce its property rights to such Invention
in accordance with this Agreement. My disclosure shall be received in
confidence by the Company.
5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my consulting
arrangement in every reasonable way to obtain for its own benefit
patents and copyrights for Inventions in any and all countries.
Such patents and copyrights shall be and remain the sole and
exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to
allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge
and delivery to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or
copyright applications, assignments of such applications,
assignments of patents or copyrights upon issuance, as the Company
may determine necessary or desirable to protect the Company's or
its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
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<PAGE>
6. MAINTENANCE OF RECORDS
I agree to keep and maintain adequate and current written
records of all Inventions made by me (in the form of notes, sketches,
drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the
Company at all times.
7. PRIOR INVENTIONS
It is understood that all Personal Inventions, if any, whether
patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement.
8. OTHER OBLIGATIONS
I acknowledge that the Company from time to time may have
agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company
regarding Inventions made during the course of work thereunder or
regarding the confidential nature of such work. I agree to be bound by
all such obligations and restrictions and to take all action necessary
to discharge the Company's obligations.
9. TRADE SECRETS OF OTHERS
I represent that my performance of all the terms of this
Agreement and as a consultant of the Company does not and will not
breach any agreement to keep confidential proprietary information,
knowledge or data acquired by me in confidence or in trust prior to my
consulting arrangement with the Company, and I will not disclose to the
Company, or induce the Company to use, any confidential or proprietary
information or material belonging to any previous employer or others. I
agree not to enter into any agreement either written or oral in conflict
herewith.
10. MODIFICATION
I agree that any subsequent change or changes in my consulting
duties, salary, or compensation or, if applicable, in any Consulting
Agreement between the Company and me, shall not affect the validity or
scope of this Agreement.
11. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon my heirs, executors,
administrators or other legal representatives and is for the benefit of
the Company, its successors and assigns.
12. INTERPRETATION
It is the intent of the parties that in case any one or more of
the provisions contained in this Agreement shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of
this Agreement, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained
herein.
Moreover, it is the intent of the parties that in case any one
or more of the provisions contained in this Agreement shall for any
reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by
limiting and reducing it, so as to be enforceable to the maximum extent
compatible with applicable law.
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13. WAIVERS
If either party should waive any breach of any provision of this
Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any provision of this
Agreement.
14. COMPLETE AGREEMENT; AMENDMENTS
I acknowledge receipt of this Agreement, and agree that with
respect to the subject matter thereof it is my entire Agreement with the
Company, superseding any previous oral or written communications,
discussions, representations, understandings, or agreements with the
Company or any officer or representative thereof.
Any amendment of this agreement or waiver by either party of any
right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, and, in the case of the
Company, upon written authorization of the Company's Board of Directors.
15. HEADINGS
The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect
the meaning thereof.
16. COUNTERPARTS
This Agreement may be signed in two counterparts, each of which
shall be deemed an original and both of which shall together constitute
one agreement.
17. GOVERNING LAW
This Agreement shall be governed and construed under
Massachusetts law.
Accepted and Agreed:
CONSULTANT AVID TECHNOLOGY, INC.
_______________________________ ___________________________________
Name Employment Manager
Avid Technology, Inc.
_______________________________ ___________________________________
Date Date
Social Security Number
23
<PAGE>
Schedule D
DESIGNATED LOCATIONS
24
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THIS
NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD, PLEDGED,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE SECURITIES ACT
AND ALL APPLICABLE STATE SECURITIES LAWS, AND IN THE CASE OF ANY EXEMPTION, ONLY
IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE NOTE OR SUCH
OTHER SECURITIES
AUGMENT SYSTEMS, INC.
SECURED CONVERTIBLE PROMISSORY NOTE
$_________
For value received, Augment Systems, Inc., 2 Robbins Road, Westford,
Massachusetts ("Debtor") promises to pay to the order of ________________ with
an address at _______________ ("Payee") the sum of ____________ with interest on
the unpaid balance at 8% per annum on or before the earlier of 4th day of
September, 1999 or (i) any sale, pledge, assignment, transfer or disposition of
any assets of Debtor outside of the ordinary course of business, (ii) any merger
or consolidation of Debtor with any other entity, other that if Debtor is the
surviving entity of such merger or a "change of control" of Debtor (which shall
mean the acquisition by any person, entity or group of control of Debtor), or
(iii) proceeds of at least $4,000,000 are received by Debtor from the sale or
issuance of any debt or equity securities by Debtor (such applicable date
hereinafter the "Maturity Date").
This Note is being issued pursuant to a Loan Agreement dated as of the
date hereof by and among Debtor, Payee and other lenders (collectively, the
"Lenders") specified therein (as amended, the "Loan Agreement"), and Payee's
rights and Debtor's obligations hereunder are subject to the provisions of the
Loan Agreement, the terms of which are incorporated herein by this reference.
This Note is also referred to and entitled to the benefits of, and payment of
this Note is secured by certain collateral set forth in a Security Agreement,
dated the date hereof, between Debtor and the Lenders.
Debtor shall have the right to pre-pay this Note in whole or in part,
provided any pre-payment shall be in multiples of $10,000. Such pre-payment
shall be first credited to any accrued unpaid interest with the balance to be in
reduction of the principal sum.
<PAGE>
At the option of the Payee, the principal and interest due and payable
under this Note may be converted into the form of equity securities issued by
Debtor in the first equity financing subsequent to the date hereof of at least
$4,000,000 that is completed within twelve (12) months of the date of this Note,
upon the terms and conditions of any such financing, at the time of closing for
that equity financing. Debtor shall give the Payee at least twenty (20) days
advance notice of the closing of such financing.
The occurrence of an Event of Default under the Loan Agreement shall
constitute an "Event of Default" under this Note. Upon the occurrence of an
Event of Default, the Debtor agrees it shall be liable for interest at the rate
of 14 1/2% from the date of default until paid. In the event this rate is above
the legal authorized default rate, Debtor shall pay the highest rate permitted
under the laws of the State of New York from the date of default until paid.
Upon an Event of Default, the holder of this Note shall be entitled to the costs
and expenses of collection hereof, including, but not limited to, reasonable
attorneys' fees.
If any principal or interest payment is not made within five (5) days
of when due ("Payment Default"), or if any other Event of Default other than a
Payment Default shall occur for any reason, and is not cured within ten (10)
days of notice thereof, then in any such event, in addition to all rights and
remedies of Payee under applicable law or otherwise, all such rights being
cumulative, not exclusive and enforceable alternatively, successively and
concurrently, Payee may, at its option, declare any or all of Debtor's
obligations, liabilities and indebtedness owing to Payee, including, without
limitation, all amounts owing under this Note, to be due and payable, whereupon
the then unpaid balance hereof together with all interest accrued thereon, shall
forthwith become due and payable, together with interest accruing thereafter at
the then applicable rate stated above until the indebtedness evidenced by this
Note is paid in full, plus the costs and expenses of collection hereof,
including but not limited to, reasonable attorney's fees.
Debtor (i) waives diligence, demand, presentment, protest, and notice
of any kind, (ii) agrees that it will not be necessary for any holder hereof to
first file suit in order to enforce payment of this Note and (iii) consents to
any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. The pleading of any statute of
limitations as a defense to any demand against Debtor is expressly hereby
waived. Upon any Event of Default, Payee shall have the right but not the
obligation to set off against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
The execution and delivery of this Note has been authorized by all
necessary corporate actions of the Debtor. The Debtor hereby authorizes the
Payee to complete this Note in any particulars according to the terms of the
Loan evidenced hereby.
2
<PAGE>
Any notices that are required or permitted under this Note may be sent
to the address of the party as it appears in this Note by either Certified Mail,
Return Receipt Requested, or by overnight courier. In the event that it is sent
by Certified Mail, Return Receipt Requested, the notice shall be deemed to have
been given three (3) days after same has been sent and in the event that the
Note has been sent by overnight courier, the notice shall be deemed to be given
one (1) day after it has been sent.
This Note and the collateral shall be governed by and construed in
accordance with the laws of the State of New York and shall be binding upon the
successors and assigns of Debtor and inure to the benefit of Payee and
successors, holders, and assigns. If any term or provisions of this Note is held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall not be affected thereby.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the Payee or the holder hereof.
Debtor hereby waives the right to trial by jury and any and all rights
of set off arising in connection with this Note. Debtor hereby irrevocably
consents to a non-exclusive jurisdiction of the Supreme Court of the State of
New York, County of New York and of the United States District Court in the
State of New York, Southern District of New York for all purposes in connection
with any action or proceeding arising out of or relating to this Note, and
further consents that any process in connection with any proceeding hereunder
may be served (i) inside or outside the State of New York by Registered or
Certified Mail, Return Receipt Requested, and service or notice so served shall
be deemed complete three (3) days after same shall have been posted, or (ii)
such other manner as permissible under the rules of said Courts. Within twenty
(20) days after such mailing, Debtors shall appear in answer to such process or
Notice of Motion or other application to said Courts, failing which Debtor shall
be deemed in default and judgment may be entered by the holder of this Note
against Debtor for the amount of the claim and other relief requested therein.
Failure by the Payee to insist upon the strict performance by Debtor of
any terms and provisions herein shall not be deemed to be a waiver of any terms
and provisions herein, and Payee shall retain the right thereafter to insist
upon strict performance by Debtor of any and all terms and provisions of this
note or any documents securing the repayment of this Note.
IN WITNESS WHEREOF, the parties have set their hand and seal as of this
____ day of September, 1998.
AUGMENT SYSTEMS, INC.
By:______________________________
3
LOAN AGREEMENT
--------------
AGREEMENT ("Loan Agreement") by and among Augment Systems, Inc., with
an address at 2 Robbins Road, Westford, Massachusetts 01886-4113 (hereinafter
referred to as "Borrower"), and the persons set forth on Exhibit A hereto
(hereinafter referred to as the "Lenders");
WHEREAS, Borrower has requested that the Lenders provide a bridge loan
(the "Loan") to Borrower in the sum of $1,500,000 for a 12-month period pursuant
to an offering as described in that certain Subscription Agreement by and
between each Lender and the Borrower, dated even date herewith; and
WHEREAS, Lenders are willing to lend Borrower said sum under the terms
and conditions of this Loan Agreement;
NOW, THEREFORE, the parties agree as follows:
1. TERMS.
(a) Upon the execution of this Loan Agreement and the related
exhibits, Lenders shall lend Borrower by wire transfer or check the sum of
$1,500,000 to be repaid with interest at the rate of 8% per annum by Borrower at
the earlier of September __, 1999 or (i) any sale, pledge, assignment, transfer
or disposition of any assets of Borrower outside of the ordinary course of
business, (ii) any merger or consolidation of Borrower with any other entity,
other than if Borrower is the surviving entity of such merger or a "change of
control" of Borrower (which shall mean the acquisition by any person, entity or
group of control of Borrower), or (iii) proceeds of at least $4,000,000 are
received by Borrower from the sale or issuance of any debt or equity securities
by Borrower. Borrower shall execute and deliver to each Lender a Promissory Note
("Promissory Note"), substantially in the form of Exhibit B hereto.
(b) Borrower will issue warrants to each Lender substantially in
the form of Exhibit C hereto (the "Warrants"). Each Warrant shall be exercisable
for the number of shares of common stock, $.01 par value per share, of Borrower
equal to 50% of the original principal amount such Lender loans to Borrower
pursuant to this Loan Agreement (an aggregate of 750,000 shares for $1,500,000
Loan), as such number may be adjusted pursuant to the terms of the Warrants. The
Warrants shall be exercisable at the price of $0.40 per share and shall expire
five (5) years from the date of issuance. The Warrants shall be subject to
"weighted average" anti-dilution protection.
2. COLLATERAL. As collateral for the Loan, Borrower shall grant to the
Lenders concurrently herewith a first lien upon and a security interest in all
assets of Borrower, pursuant to a Security Agreement in the form of Exhibit D
hereto (the "Security Agreement"), and shall keep and maintain such collateral
free and clear of all liens and encumbrances, except as set forth on Schedule 2
hereto.
<PAGE>
3. REPRESENTATIONS. To induce Lenders to make the Loan, Borrower hereby
makes the following representations in connection with this Loan Agreement:
(a) Corporate Existence and Qualification. Borrower is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as now conducted and as
proposed to be conducted. Borrower is qualified or licensed to do business in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualifications or licensing
necessary, except where the failure to be so qualified will not, when taken
together with all other such failures, have material adverse effect on the
business of Borrower.
(b) Authority; Approvals; Non-Contravention.
(i) Borrower has full corporate power and authority and has
taken all corporate action necessary to enter into this Loan Agreement, the
Promissory Note, Warrant, and Security Agreement (collectively, the "Loan
Documents") to which it is a party and to consummate the transactions
contemplated hereby and thereby. The Loan Documents will be, duly and validly
executed and delivered by the Borrower and each Loan Document constitutes a
valid and binding agreement of Borrower, enforceable against Borrower in
accordance with its respective terms, except insofar as enforceability may be
limited by general equitable principles and to bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting the
rights and remedies of creditors.
(ii) No consent, approval, order or authorization of, or
registration, declaration or filing with any governmental authority is required
to be obtained or made by or with respect to Borrower in connection with the
execution and delivery of the Loan Documents by Borrower or the performance by
Borrower of the transactions contemplated thereby, except for those obtained.
(iii) The execution and delivery of this Loan Agreement and any
of the other Loan Documents by Borrower does not, and the consummation by
Borrower of the transactions contemplated hereby and thereby, will not, and the
performance of Borrower of the transactions contemplated hereby and thereby will
not violate, conflict with or result in a breach of any provision of, or
constitute default (a result in any event that, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under any terms, conditions or provisions of (i) the Certificate of
Incorporation, as amended to date, or by-laws of Borrower, (ii) any judgment,
decree order or award of any governmental authority applicable to Borrower, or
any law, rule or regulation applicable to Borrower or any note, bond, mortgage,
indenture, deed, trust, permit, lease, agreement or other instrument to which
Borrower is now a party or by which Borrower or any of their respective
properties or assets may be bound or subject.
(iv) Title to Properties; Encumbrances. Borrower has good,
valid and marketable title to all of its respective properties and assets
(personal, tangible and
2
<PAGE>
intangible); in each case free and clear of all encumbrances, liens, claims,
charges or other restrictions of whatever kind or character, except as set forth
on Schedule 3(b) hereto, which excepted liens will be released and terminated
upon the closing of the minimum Loans unless otherwise indicated on Schedule
3(b).
4. LEGAL OPINION. In connection with the Loan, Borrower's counsel shall
issue an opinion letter in form reasonably satisfactory to Adolf Komorsky
Hoffman & Associates, Ltd. concerning the authorization of Borrower to enter
into the Loan Documents, and the enforceability of the Loan Documents, and such
other matters as may reasonably be requested.
5. EXPENSES. The parties shall be responsible for their own expenses in
connection with the preparation and execution of this Loan Agreement.
6. PRO-RATA PAYMENTS. All payments on the Promissory Notes shall be
applied pro rata among the Lenders based upon the principal amount of the
Promissory Notes held by such Lender compared to the aggregate principal amount
of all of the Promissory Notes issued pursuant to this Loan Agreement. If any
payment shall be received by any Lender in excess of such Lender's pro rata
share, such payment shall be held in trust for the benefit of the other Lenders
and shall promptly be paid over and delivered to the other Lenders for
application to the payment of the other Promissory Notes.
7. WAIVER, AUTHORIZATION OR AMENDMENT OF TERMS. Lenders holding a
majority interest of the principal amount of the Promissory Notes may waive,
alter or amend the terms of the Promissory Notes; however, neither the interest
rate nor the maturity of any Promissory Notes may be changed without the
affirmative consent of the holder of such Promissory Note.
8. EVENTS OF DEFAULT. The following shall be deemed to be "Events of
Default" under the Loan Documents:
(a) Borrower's material breach of any of the terms, covenants and
conditions of this Loan Agreement or any material misrepresentation or breach of
warranty under this Loan Agreement;
(b) Borrower's material breach of any terms, covenants and
conditions, or material misrepresentations in the Promissory Notes or Security
Agreement;
(c) Borrower fails to pay principal or interest on any Promissory
Note within five (5) days after the date when due;
(d) Borrower ceases doing business;
(e) termination of the employment of Borrower's Chief Executive
Officer;
(f) Borrower shall default under any material contract, or any
litigation or proceeding, except as set forth on Schedule 8(f) hereto, shall be
instituted against Borrower, which default, litigation or proceeding could
reasonably be expected to have a material adverse effect on Borrower.
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<PAGE>
(g) Borrower (i) makes an assignment for the benefit of
creditors; (ii) files a voluntary petition in bankruptcy; (iii) fails to pay its
debts as they become due; (iv) admits in writing its inability to pay its debts
as they become due; (v)is adjudicated a bankrupt or an insolvent; (vi)files a
petition seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar arrangement under any present
or future statute, law or regulation, or files an answer admitting the material
allegations of a petition filed against it in any such proceeding; (vii) takes
any action looking to its dissolution or liquidation; (viii) an order for relief
is entered under the bankruptcy code against Borrower seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, and such proceeding shall not have
been dismissed within ninety (90) days; or (ix) if within thirty (30) days after
the appointment without Borrower's consent or acquiescence of any trustee,
custodian, receiver or liquidator of it or of all or any substantial part of its
assets and properties, such appointment shall be not vacated.
9. NOTICE OF PRESENTMENT. Borrower (i) waives diligence, demand,
presentment, protest and notice of any kind, (ii) agrees that it will not be
necessary for any Lender to first institute suit in order to enforce payment of
any Promissory Note and (iii) consents to any one or more extensions or
postponements of time of payment, release, surrender or substitution of
collateral security, or forbearance or other indulgence, without notice or
consent. Upon any Event of Default, Lenders shall have the right but not the
obligation to set off against the Promissory Notes all money owed by Lenders to
Borrower.
10. NO MITIGATION. Lenders shall not be required to resort to any
collateral for payment, but may proceed against Borrower in such order and
manner as Lenders may choose.
11. NOTICES. Any notices that are required or permitted under this Loan
Agreement may be sent to Borrower at the address set forth in the preamble to
this Loan Agreement and to the Lenders at the addresses set forth on Exhibit A,
with a copy to Adolph Komorsky Hoffman & Associates, Ltd., 245 Saw Mill River
Road, Hawthorne, New York 10532, by either Certified Mail, Return Receipt
Requested, or by overnight courier. In the event that it is sent by Certified
Mail, Return Receipt Requested, the notice shall be deemed to have been given
three (3) days after same has been sent and in the event that the notice has
been sent by overnight courier, the notice shall be deemed to be given one (1)
day after it has been sent. Each party hereto is deemed to have an obligation to
advise the other of its current address.
12. GOVERNING LAW. This Loan Agreement and the Promissory Notes shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to conflicts of laws provisions and shall be binding upon
the successors and assigns of Borrower and inure to the benefit of Lenders and
its successors, endorsees and assigns. Borrower hereby irrevocably consents to
the non-exclusive jurisdiction of the Supreme Court of the State of New York and
of the United States District Courts in the State of New York for all purposes
in connection with any action or proceeding arising out of or relating to this
Loan, and further consents that any process or notice in connection with any
proceeding hereunder may be served (i) inside or outside the State of New York
by Registered or Certified Mail, Return Receipt Requested, and service of notice
so served shall be deemed complete three (3) days after same shall have been
posted, or (ii) such other manner as permissible under the rules of said Courts.
Within twenty (20) days after such mailing, Borrower shall appear to answer such
process or
4
<PAGE>
notice of motion or other application to said Courts, failing which Borrower
shall be deemed in default and judgment may be entered by Lenders against
Borrower for the amount of the claim and other relief requested therein.
13. NO WAIVER. Failure by Lenders to insist upon the strict performance
by Borrower of any terms and provisions herein shall not be deemed to be a
waiver of any terms and provisions herein, and Lenders shall retain the right
thereafter to insist upon strict performance by the Borrower of any and all
terms and provisions of this Loan or any document securing the repayment of this
Loan.
14. REMEDIES. In the event of a breach of this Loan Agreement, the
Promissory Notes or the Security Agreement, the Lenders shall be entitled to
immediately demand full payment of the Loan and shall be entitled to interest at
the default rate provided under the Promissory Notes and shall be entitled to
foreclose on the Security Agreement. All such rights are cumulative and not
exclusive of any other rights, powers and remedies that Lenders might otherwise
have. Lenders may exercise these rights simultaneously, alternatively or
successively, and said rights shall be in addition to all other rights that are
available to Lenders in law or in equity. Borrower shall also be responsible for
all of Lenders' costs and expenses, including, but not limited to, reasonable
legal fees in connection with the enforcement of this Loan Agreement, the
Promissory Notes, and the Security Agreement.
15. MISCELLANEOUS.
(a) In the event that any portion of this Loan Agreement can be
construed in two ways, one of which would render the Loan Agreement or any
portion thereof illegal and unenforceable and the other one of which would
render the Loan Agreement or any portion thereof valid and enforceable, such
provisions shall have the meaning that render them valid and enforceable. It is
the desire and intent of the parties that this Loan Agreement be enforceable. It
is the desire and intent of the parties that this Loan Agreement be enforced to
the fullest extent permitted by law. In the event any portion of this Loan
Agreement is deemed invalid or unenforceable under New York law but valid under
the laws of the state in which Borrower's business is conducted, the provisions
shall be governed by the law of such state. In the event that any court
determines any portion of this Loan Agreement is unenforceable, the parties
agree that such portion of this Loan Agreement shall be amended only in such a
manner so that the provision shall be enforceable by the parties with the intent
that it be enforceable to the fullest extent possible under the laws and public
policy in the state in which the enforcement is sought. Furthermore, the
provisions of this Loan Agreement are several, and any completely invalid or
unenforceable portion of any provisions of this Loan Agreement shall be deleted
and partially valid, and enforceable provisions of this Loan Agreement shall be
enforced to the fullest extent possible.
(b) The failure of any party to insist in any one or more instances
upon a strict performance or observation of any of the terms, provisions or
covenants of the Loan Documents or to exercise any rights therein contained,
shall not be construed or deemed to be a waiver or relinquishment for the future
of any such term, provision, covenant or right, but the same shall continue and
remain in full force and effect.
5
<PAGE>
(c) At the option of each Lender, the principal and interest due and
payable under any Promissory Note held by such Lender may be converted into the
form of equity securities issued by Borrower in the first equity financing
subsequent to the date hereof of at least $4,000,000 that is completed within
twelve (12) months of the date of this Loan Agreement, upon the terms and
conditions of any such financing, at the time of closing for that equity
financing. Borrower shall give each Lender at least twenty (20) days prior
written notice of the closing of such financing.
(d) This Loan Agreement shall be binding upon and inure to the
benefit of the parties hereto and to their heirs, devises, legatees, personal
representatives, successors and assigns.
(e) This Loan Agreement, the other Loan Documents, and the
Subscription Agreement contain the entire understanding among the parties hereto
in connection with the subject matter hereof and thereof, there being no terms,
promises, covenants, agreements, conditions, warranties or representations other
than those herein and therein contained, and no amendments thereto shall be
valid unless made in writing and signed by all parties hereto.
(f) Each party hereto agrees to perform any further acts and to
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Loan Agreement.
(g) This Loan Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement
as of this _____ day of September, 1998.
LENDER:
___________________________________________
Print Name
___________________________________________
Signature
AUGMENT SYSTEMS, INC.
By:________________________________________
<PAGE>
Schedule 2
----------
Liens on Collateral
-------------------
1. MTDC and Ira Abbott
2. $150,000 deposited into escrow by Borrower as of June 1998, in
connection with the negotiation of a settlement of a litigation filed
against Borrower by its former Chief Executive Officer and President
seeking, among other things, severance and other payments claimed to be
owed to him. The escrow is intended to secure any amounts that Borrower
may be obligated to pay its former Chief Executive Officer and
President as a result of the final resolution of the litigation,
whether through settlement or trial.
3. See equipment liens identified on Schedule 3(b).
<PAGE>
SCHEDULE 3(B)
EXISTING INDEBTEDNESS AND LIENS
INDEBTEDNESS
1. $750,000 loan from Fleet National Bank; and
2. $20,743 first priority interest of indebtedness from MTDC and Ira Abbott.
LIENS
1. Liens of Fleet National Bank (to be released at the Closing of the Loan);
2. Lien of MTDC and Ira Abbott;
3. $150,000 deposited into escrow by Borrower as of June 1998, in connection
with the negotiation of a settlement of a litigation filed against
Borrower by its former Chief Executive Officer and President seeking,
among other things, severance and other payments claimed to be owed to
him. The escrow is intended to secure any amounts that Borrower may be
obligated to pay its former Chief Executive Officer and President as a
result of the final resolution of the litigation, whether through
settlement or trial.
4. The following equipment liens:
a. DEBTOR: Augment Systems, Inc.
SECURED PARTY: Peoples Heritage Leasing Corp.
DATE FILED: May 3, 1996
FILE NO.: 386975
COLLATERAL: Computer Equipment
b DEBTOR: Augment Systems, Inc.
SECURED PARTY: Continental Resources, Inc.
DATE FILED: July 15, 1996
FILE NO.: 403549
COLLATERAL: Computer Equipment
<PAGE>
c. DEBTOR: Augment Systems
SECURED PARTY: Continental Resources
DATE FILED: July 30, 1996
FILE NO.: 407158
COLLATERAL: Computer Memory
d. DEBTOR: Augment Systems, Inc.
SECURED PARTY: Fleet National Bank
DATE FILED: October 14, 1997
FILE NO.: 503351
COLLATERAL: Computer Equipment
e. DEBTOR: Augment Systems
SECURED PARTY: Continental Resources
DATE FILED: September 5, 1996
FILE NO.: 414531
COLLATERAL: Computer Equipment
f. DEBTOR: Augment Systems
SECURED PARTY: Continental Resources
DATE FILED: March 18, 1997
FILE NO.: 455158
COLLATERAL: Computer Equipment
g. DEBTOR: Augment Systems
SECURED PARTY: Continental Resources
DATE FILED: October 27, 1997
FILE NO.: 506465
COLLATERAL: Computer Equipment
h. DEBTOR: Augment Systems Incorporated
SECURED PARTY: Orix Credit Alliance, Inc.
DATE FILED: June 28, 1996
FILE NO.: 400172
COLLATERAL: Computer Equipment
i. DEBTOR: Augment Systems, Inc.
SECURED PARTY: Leasing Technologies International, Inc.
DATE FILED: October 14, 1997
FILE NO.: 503344
COLLATERAL: Computer Equipment
1
<PAGE>
j. DEBTOR: Augment Systems, Inc.
SECURED PARTY: Leasing Technologies International, Inc.
DATE FILED: April 8, 1998
FILE NO.: 541333
COLLATERAL: Computer Equipment
k. DEBTOR: Augment Systems, Inc.
SECURED PARTY: Peoples Heritage Leasing Corp.
DATE FILED: May 2, 1995
FILE NO.: 96-111
COLLATERAL: Computer Equipment
l. DEBTOR: Augment Systems Incorporated
SECURED PARTY: Orix Credit Alliance, Inc.
DATE FILED: July 1, 1996
FILE NO.: 96-176
COLLATERAL: Computer Equipment
m. DEBTOR: Augment Systems, Inc.
SECURED PARTY: Leasing Technologies International, Inc.
DATE FILED: October 15, 1997
FILE NO.: 97-372
COLLATERAL: Computer Equipment
n. DEBTOR: Augment Systems, Inc.
SECURED PARTY: Leasing Technologies International, Inc.
DATE FILED: April 9, 1998
FILE NO.: 98-109
COLLATERAL: Computer Equipment
2
<PAGE>
Schedule 8(f)
-------------
Litigations
-----------
1. $150,000 deposited into escrow by Borrower as of June 1998, in
connection with the negotiation of a settlement of a litigation filed
against Borrower by its former Chief Executive Officer and President
seeking, among other things, severance and other payments claimed to be
owed to him. The plaintiff's complaint seeks damages of approximately
$250,000 in severance, unpaid vacation of approximately $7,200,
continuation of health and life insurance benefits, treble damages for
any loss of wages or other benefits, and such other relief as may be
appropriate and just. The escrow is intended to secure any amounts that
Borrower may be obligated to pay its former Chief Executive Officer and
President as a result of the final resolution of the litigation,
whether through settlement or trial.
2. The Company has received a letter from a printing vendor claiming that
the Company owes the vendor approximately $50,000 for printing services
rendered. The Company's position is that it has provided consideration
to the vendor for the printing services in the form of equipment and
software, in accordance with an understanding between the parties
established in November 1996. The Company is currently negotiating a
settlement of the matter. No formal claim has been filed in any court
with respect to this matter.
<PAGE>
Exhibit A
LENDERS
<TABLE>
<CAPTION>
LENDER ADDRESS
------ -------
<S> <C>
Watumull Group, Ltd. 12221 Monarch Street, Garden Grove, CA 92841
Sunrise Foundation Trust 135 E. 57th St., NY, NY 10022
Joseph T. Nathan, IRA C/o NCM Capital Inc., 712 Fifth Ave., NY, NY 10019
George Rohr 1530 Palisade Ave., Apt. 4-6, Ft. Lee, NJ 07024
Den Lor Development Co., Ltd. 130 Woodside Ave., Briarcliff Manor, NY 10510
Anthony DePinto, Jr. 169 Park, NY, NY 10314
Louise Pepe 2 Floral Rd., Bronxville, NY 10708
Frederick and Patricia Williams 12 Simsbury Drive, Cheektowaga, NY 14225
Michael Fisher 147 Norman Road, New Rochelle, NY 10804-3111
Louis Mendel 1924 D Dauphin Island Parkway, Mobile, AL 36605
David Kahn 345 W. Fullerton Pkwy., #2707, Chicago, IL 60611
Jack Casagrande 3720 NE 31st Ave., Lighthouse Point, FL 33064
Wear #1 Button Corp. 36 Bedford Ave., Merrick, NY 11566
Janet Todd 25 East End Ave., NY, NY 10028-7052
Louis Gage 500 Highpoint Drive, #212, Hartsdale, NY 10530-1120
Heidi Herzog 515 E. 79th Street, #7E, NY, NY 10021-0782
Valerie Granbacher and Edwin Pupke 159-03 83rd St., Howard Beach, NY 11404-2934
Frederick Panciroli 24 Wenmore Rd., Commack, NY 11725-1638
Stanley Berman 18 Laurel Lane, Chappaqua, NY 10514-3803
Carl Casagrande P.O. Box 1702, Dania, FL 33004
Richard Hammer 15 Spruce Knotts Road, Putnam Valley, NY 10579-2038
Shirley Heiligman 116 E. 66th Street, NY, NY 10021-6504
Sol Heiligman 116 E. 66th Street, NY, NY 10021-6504
Beverly Annunziata 24 Chesley Road, White Plains, NY 10605-4512
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Arthur Benjamin 3875 Prairie Dunes Drive, Sarasota, FL 34238-2817
Leslie Cutler 344 W.72nd Street, NY,NY 10023
Lionel R. and Maria Bento 3 Mansfield Lane, Hartsdale, NY 10530-1312
Anthony and Adele Godino 25 Middle Ave., Summitt, NJ 07901
Charles and Martha Varney 18 Grove Street, Saugus, MA 01906
Wallace Collins 26-39 98th Street, E. Elmhurst, NY 11369
John Germinano 129 W. 81st Street, Apt. 9, NY, NY 10026-7207
Joseph Abraham 16 Forestview Ct., Valley Cottage, NY 10989-1434
Roy and Maria Powell 105 Rt. 210, Stony Point, NY 10980
Kenneth Kelly 3 Ardsley Terrace, Irvington, NY 10533
Florence Ferrara 4619 Bird View Court, Las Vegas, NV 89129
George Rusch 870 Dow Road, Birdgewater, NJ 08807
Redman Family Counselors, Inc. PFT 20688 4th Street, Saratoga, CA 90076
Steven and Maxine Juvelier 304 E. 20th Street, NY, NY 10003
Paul Kandell 417 E. 57th Street, NY, NY 10022
Giant Trading Inc. c/o Suite 1, Provident House, Haviland St., St. Peter Port
Guerney, Channel Islands
Cass & Co. - Magnum Opportunity Fund Windmere House, 404 East Bay Street, P.O. Box 55 6238, Nassau,
Bahamas
Cass & Co. - Magnum Turbo Growth Fund Windmere House, 404 East Bay Street, P.O. Box 55 6238, Nassau,
Bahamas
Cass & Co. - Magnum Tech. Fund Windmere House, 404 East Bay Street, P.O. Box 55 6238, Nassau,
Bahamas
</TABLE>
SECURITY AGREEMENT
This Security Agreement (this "Security Agreement") is made on
September 4, 1998, by Augment Systems, Inc., 2 Robbins Road, Westford,
Massachusetts 01886-4113 ("Debtor"), in favor of the persons listed on Exhibit A
hereto ("Lenders"), pursuant to a Loan Agreement dated the date hereof between
Debtor and Lenders (as the same may from time to time be amended or
supplemented, the "Loan Agreement"), and certain Promissory Notes issued in
favor of the Lenders.
The following is a recital of facts underlying this Security Agreement:
A. Debtor is simultaneously with the execution of this Security
Agreement borrowing from Lenders money (all such borrowings are collectively
referred to as the "Loan"), which Loan is being made through a bridge loan by
Lenders evidenced by promissory notes of Debtor (the "Notes") and pursuant to
the Loan Agreement. All sums that are now or hereafter become due to Lenders
pursuant to the terms of the Notes and the Loan Agreement are referred to in
this Security Agreement as the "Debt."
B. In order to induce Lenders to make the Loan, Debtor has agreed to
grant Lenders a security interest in all "Collateral," as hereafter defined.
NOW THEREFORE, the parties hereby agree as follows:
1. SECURITY INTEREST AND COLLATERAL. To secure the due payment and
performance of all indebtedness and other liabilities and obligations, whether
now existing or hereafter arising, of the Debtor to the Lenders under, arising
out of or in any way connected with the Loan Agreement and the Notes and all
instruments, agreements and documents executed, issued and delivered pursuant
thereto, including, without limitation, this Security Agreement, and to secure
any other obligations of the Debtor to the Lenders, whether now existing or
hereafter arising, all hereinafter referred to collectively as the
"Obligations," Debtor hereby assigns, mortgages, pledges, hypothecates,
transfers and sets over to the Lenders and grants to the Lenders a first lien
upon and security interest in all assets of the Debtor, including without
limitation those assets set forth, referred to, or listed on Schedule I hereto
(all hereinafter referred to as the "Collateral").
2. CONDITIONAL ASSIGNMENT. In addition to, and not by way of limitation
of, the grant of a security interest in the Collateral set forth above, Debtor
hereby, effective upon the occurrence and during the continuance of any Event of
Default, as defined herein, grants, sells, conveys, transfers, assigns and sets
over to Lenders for Lenders' benefit all Debtor's rights, title and interest in
and to the Collateral.
3. SECURED CREDITOR. Lenders shall have all the rights and remedies of
a secured creditor as provided under the Massachusetts Uniform Commercial Code
and any other applicable Uniform Commercial Codes, as set forth in the Notes and
<PAGE>
the Loan Agreement and as provided in this Security Agreement. Debtor represents
and warrants that (i) Debtor has no place of business other than as set forth at
the beginning of this Agreement or its sales office located at 16885 West
Bernardo Drive, Suite 255, San Diego, California 92127 and (ii) Debtor has used
no other name in the operation of its business other than "Augment Systems."
Debtor agrees that Debtor will neither (y) change its place of business or
operate its business in any place other than that set forth at the beginning of
this Security Agreement nor (z) change its name or use or operate under any
other name, unless Debtor provides to Lenders notice thereof not less than ten
(10) business days before any such change, operation or use.
4. FINANCING STATEMENTS. Debtor will execute such financing statements
or other documents required under the Massachusetts Uniform Commercial Code and
any other applicable Uniform Commercial Code and the United States Patent and
Trademark Office in order to enable Lenders to perfect its security interest in
the Collateral, and Debtor will at all times and from time to time at the
request of Lenders make, execute and deliver all such additional financing
statements and other writings, including assignments, as Lenders reasonably
require to more completely vest in and assure Lenders their rights in the
Collateral pursuant to this Security Agreement. Debtor hereby appoints Lenders,
or any agent of Lenders as Debtor's attorney-in-fact with full power and
authority to execute any such financing statements or other writings for the
purposes set forth in this Section.
5. BOOKS OF ACCOUNT. Debtor will, at all reasonable times, and from
time to time, allow Lenders or any of their partners, officers, employees,
representatives, or agents, subject to maintenance of reasonable
confidentiality, to examine and inspect and make extracts from Debtor's books
and other records pertaining to the Collateral and, where accounts or contract
rights are part of the Collateral, to arrange for verification of accounts,
under reasonable procedures, directly with account debtors or by other methods.
6. NO MARSHALLING OF ASSETS. Lenders shall not be obligated to take any
steps necessary to preserve their rights in any Collateral against other persons
claiming an interest therein, but may do so at Lenders' option. At their option,
Lenders may discharge any taxes, liens, security interest, or other encumbrances
to which any Collateral is at any time subject and may, upon the failure of
Debtor to do so, purchase insurance on any Collateral and pay for the
preservation thereof, and Debtor shall reimburse Lenders on demand for any
payments made or expenses incurred by Lenders pursuant to the foregoing
authorization together with interest at the rate provided in the Notes.
7. DEFAULT. Any Event of Default as defined in the Loan Agreement shall
also constitute an "Event of Default" under this Security Agreement. Upon the
occurrence of any Event of Default and at any time thereafter:
a. Lenders may appoint an agent on their behalf ("Agent") by the
vote of a majority in interest of the principal amount of Notes, which Agent may
take control of the Collateral and any proceeds and products of Collateral to
which Lenders are entitled under this Security Agreement or under applicable
law. Agent shall have the right to endorse any checks, notes, contracts or other
instruments or documents on behalf of Debtor for the benefit of Lenders.
2
<PAGE>
b. Agent may require Debtor to assemble the Collateral and make it
available to Lenders at a place to be designated by Agent which is reasonably
convenient to the parties.
c. Agent may notify any account debtor of Debtor or obligor on an
instrument to make payment to Lenders.
d. Whenever notification with respect to the sale or other
disposition of Collateral is required by law, such notification of the time and
place of public sale, or the date after which a private sale or other intended
disposition is to be made, shall be considered reasonable if given at least five
(5) days before the time of such event.
e. Agent shall be entitled to recover from Debtor all Agent's
expenses for retaking, holding, or preparing for sale, selling or otherwise
disposing of the Collateral, including, but not limited to, Agent's reasonable
attorneys' fees and legal expenses.
f. Lenders may bid at any public or private sale and may purchase
any Collateral sold at such sale.
8. MAINTENANCE OF COLLATERAL. Debtor shall at all times keep the
Collateral within the Commonwealth of Massachusetts or State of California. The
Company will keep the Collateral in good order and repairs, subject to
reasonable wear and tear, and will not use same in violation of law or policy of
insurance thereon. The Company will maintain with financially sound and
reputable insurers insurance with respect to its properties and business against
such casualties and contingencies as shall be in accordance with general
practices of businesses engaged in similar activities in similar geographic
areas
9. RELEASE OF LENDERS. Upon payment of all of the Obligations, Lenders
shall execute any and all instruments and documents reasonably necessary and
proper to discharge and release the lien on the Collateral arising pursuant to
this Agreement.
10. MISCELLANEOUS. This Agreement may only be terminated, modified,
waived or amended by a written instrument duly executed by Debtor and Lenders
who hold more than 50% of the principal amount of the Notes. All notices given
pursuant to this Agreement shall be in writing, either delivered by hand or
first-class mail or by telecopier, to the address of the parties set forth on
EXHIBIT A hereto or to such other address as a party designates by written
notice to the other party. Lenders' rights and remedies under this Agreement,
the Notes and the Loan Agreement shall be cumulative and may be exercised
separately or concurrently. This Agreement may be assigned by Lenders, but
Debtor shall not assign this Agreement or any rights hereunder without the prior
written consent of Lenders. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and shall be binding upon the
successors and assigns of Debtor and inure to the benefit of Lenders and their
successors, assigns and endorsees. Debtor hereby irrevocably consents to the non
exclusive jurisdiction of the Supreme Court of the State of New York, County of
New York and of the United States
3
<PAGE>
District Courts in the State of New York, Southern District of New York for all
purposes in connection with any action or proceeding arising out of or relating
to this Security Agreement, and further consents that any process or notice in
connection with any proceeding hereunder may be served (i) inside or outside the
State of New York by Registered or Certified Mail, Return Receipt Requested, and
service or notice so served shall be deemed complete five (5) days after same
shall have been posted, or (ii) such other manner as permissible under the rules
of said Courts. Within twenty (20) days after such mailing, Debtor shall appear
in answer to such process or notice of motion or other application to said
Courts, failing which Debtor shall be deemed in default and judgment may be
entered by Lenders against Debtor for the amount of the claim and other relief
requested herein. This Agreement may be signed in counterparts, each of which
shall be an original, but when taken together shall constitute one instrument.
11. USE AS FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement,
even though only the original hereof contains an original signature.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first set forth above.
"Debtor"
AUGMENT SYSTEMS, INC.
By:___________________________________
4
<PAGE>
SCHEDULE I
COLLATERAL
All of Debtor's rights, title and interest in, under and to the
following (collectively, the "Collateral"):
(A) Accounts Receivable, including (i) all of Debtor's present and future
accounts, contract rights, general intangibles, chattel paper and instruments,
as such terms are defined in the Uniform Commercial Code, (ii) all of Debtor's
right, title and interest, and all of any of Debtor's rights, remedies, security
and liens, in, to and in respect of any Accounts Receivable, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to Accounts
Receivable, deposits or other security for the obligation of any account debtor,
and credit and other insurance and (iii) all of any of Debtor's right, title and
interest in, to and in respect of all goods relating to, or which by sale have
resulted in, Accounts Receivable, including, without limitation, all goods,
described in invoices or other documents or instruments with respect to, or
otherwise representing or evidencing, any Account Receivable, and all returned,
reclaimed or repossessed goods; (B) Documents, including all instruments, files,
records, ledger sheets and documents covering or relating to any of the
collateral; (C) Equipment, including all of Debtor's machinery, equipment,
vehicles that are owned by Debtor, furniture and fixtures and all attachments,
accessories and equipment now or hereafter owned or acquired in Debtor's
business or used in connection therewith, and all substitutions and replacement
thereof, wherever located, whether now owned or hereafter acquired by Debtor;
(D) General Intangibles, including all of Debtor's present and future general
intangibles of every kind and description, and the goodwill of the business
symbolized thereby, including, without limitation, all patents, trademarks,
service marks, copyrights, web sites, and internet domain names and sites, and
Federal, State and local tax refund claims of all kinds due to Debtor; (E)
Inventory, including all raw materials, work in process, finished goods, and all
other inventory (as defined in the Uniform Commercial Code) of whatsoever kind
or nature, and all wrapping, packaging, advertising and shipping materials, and
any documents relating thereto, and all labels and other devices, names or marks
affixed or to be affixed hereto for purposes of selling or identifying the same
or the seller or manufacturer thereof and all of Debtor's right, title and
interest therein and thereto, wherever located, whether now owned or hereafter
acquired by debtor; (F) Cash, including drafts, acceptances, bank deposits,
deposit accounts, checking accounts, and cash now or hereafter owned by Debtor,
or in which Debtor may now have or may hereafter acquire any interest and (G)
Proceeds, including any consideration received from the sale, exchange, license,
lease or other disposition of any asset or property which constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft or other involuntary conversion of
whatever nature of any asset or property which constitutes Collateral, and shall
include, without limitation, all cash and negotiable instruments received or
held by Debtor, including, without limitation, cash and negotiable instruments
received or held, pursuant to any lockbox or similar arrangement relating to the
payment of Account Receivable.
AUGMENT SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
<PAGE>
STATE NOTICES
-------------
FOR CALIFORNIA RESIDENTS: THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THE UNITS.
THE SALE OF THE SHARES PURSUANT TO THIS OFFERING HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
UNITS OR THE PAYMENT OR RECEIPT OF ANY PART OF THE ISSUANCE OF SUCH UNITS OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SHARES IS EXEMPT FROM THE
QUALIFICATION REQUIREMENTS UNDER SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CODE.
FOR CONNECTICUT RESIDENTS: THE UNITS HAVE NOT BEEN REGISTERED UNDER SECTION
36-485 OF THE CONNECTICUT UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RELIANCE ON
AN EXEMPTION FROM SUCH REGISTRATION SET FORTH IN SECTION 36-490(b)(9)(A) OF SAID
ACT AND REGULATIONS PROMULGATED THEREUNDER. THE UNITS CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SECTION 36-485 OF SAID ACT OR AN EXEMPTION FROM REGISTRATION
PURSUANT TO SECTION 36-490 OF SAID ACT.
FOR FLORIDA RESIDENTS: THE UNITS IN THIS OFFERING WILL NOT BE SOLD TO, AND
ACQUIRED BY, THE SUBSCRIBER IN A TRANSACTION EXEMPT UNDER ss.517.061 OF THE
FLORIDA SECURITIES ACT. THE UNITS HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE
PURCHASE WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE FOR
SUCH SHARES TO THE ISSUER, AN AGENT OF THE ISSUER, OR THE ESCROW AGENT OR WITHIN
THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
PURCHASER, WITHEVER OCCURS LATER.
THE FLORIDA DEPARTMENT OF BANKING AND FINANCE HAS NOT REVIEWED THIS OFFERING OR
THIS SUBSCRIPTION AGREEMENT AND THE UNITS OFFERED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT. UNLESS THE
UNITS OFFERED HEREBY ARE REGISTERED, THEY MAY NOT BE SOLD OR TRANSFERRED IN
FLORIDA EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THAT ACT.
FOR NEW JERSEY RESIDENTS: THE OFFERING DOCUMENS HAVE NOT BEEN FILED WITH OR
REVIEWED BY THE NEW JERSEY BUREAU OF SECURITIES OR THE DEPARTMENT OF LAW AND
PUBLIC SAFETY OF THE STATE OF NEW JERSEY
i
<PAGE>
PRIOR TO ITS ISSUANCE AND USE. NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW
JERSEY NOR THE BUREAU OF SECURITIES HAS PASSED ON OR ENDORSED THE MERITS OF THE
OFFERING DOCUMENTS. ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
FOR NEW YORK RESIDENTS: THE OFFERING DOCUMENTS HAVE NOT BEEN FILED WITH OR
REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO THEIR
ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATIONS TO THE CONTRARY
ARE UNLAWFUL. THE OFFERING DOCUMENTS DO NOT CONTAIN AN UNTRUE STATEMENT OF
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS
MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.
IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS PURPORTED TO BE
SUMMARIZED HEREIN.
ii
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Name of Purchaser:_____________________
AUGMENT SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
Augment Systems, Inc.
2 Robbins Road
Westford, Massachusetts 01886-4113
Attention: Laurence S. Liebson, Chief Executive Officer
Gentlemen:
1. SUBSCRIPTION. The undersigned (the "Purchaser"), intending to be legally
bound, hereby irrevocably agrees to purchase from Augment Systems, Inc. (the
"Company") the number of units (the "Units") set forth on the signature page
hereof, at a purchase price of $50,000 per Unit. Each Unit consists of a $50,000
principal amount 8% Convertible Promissory Note (the "Notes") and warrants (the
"Warrants") to purchase up to 25,000 shares of the Company's common stock, $.01
par value per share ("Common Stock"). The minimum subscription is for one Unit
or $50,000 per investor (the "Minimum Investment"). The Company may accept
offers to purchase less than Minimum Investment from an investor. This
subscription is submitted to the Company in accordance with and subject to the
terms and conditions described in a certain Loan Agreement, Secured Convertible
Promissory Note, and Security Agreement, each dated as of even date herewith, as
amended or supplemented from time to time, including all attachments, schedules
and exhibits thereto (collectively, the "Loan Documents"), relating to this
offering (the "Offering") by the Company of up to 30 Units on a "best efforts,
all or none" basis (the "Offering Amount") through Adolph Komorsky Hoffman &
Associates, Ltd. ("AKH" or the "Placement Agent"), as Placement Agent for the
Company. Forms of the Loan Agreement, Promissory Note, and Security Agreement
are attached hereto as Exhibit A, B and C, respectively.
Certain terms used but not otherwise defined herein shall have the
respective meanings provided in the Loan Documents.
2. PAYMENT OF PURCHASE PRICE. The Purchaser hereby deposits with Republic
National Bank via check payable to "Augment Systems, Inc. - Marine Midland Bank,
as Escrow Agent" or via wire transfer an amount (the "Purchase Price") equal to
the number of Units subscribed for hereunder multiplied by $50,000. See
Subscription Instructions attached hereto as EXHIBIT D for wire transfer
instructions. The Purchase Price shall be held in escrow by Marine Midland Bank
until the Minimum Proceeds are accepted by the Company and the Closing occurs
(as defined in Section 3.2 below). Together with this Subscription Agreement and
the check for, or wire transfer of, the full Purchase Price, the Purchaser is
delivering a completed and executed signature page to the Loan Agreement,
attached hereto.
<PAGE>
3. ACCEPTANCE OF SUBSCRIPTION BY THE COMPANY.
3.1 Units subscribed for herein shall not be deemed issued to or owned by the
Purchaser until this Subscription Agreement ("Subscription Agreement"),
together with the Accredited Investor Certificate set forth in Section 20 of
this Subscription Agreement, have been completed and executed by the
Purchaser, and countersigned by the Company. The Purchaser understands and
agrees that the Company reserves the right to accept or reject this or any
other subscription for Units, in whole or in part, notwithstanding prior
receipt by the Purchaser of notice of acceptance of this subscription. The
Company shall have no obligation hereunder until the Company shall execute and
deliver to the Purchaser an executed copy of this Subscription Agreement. If
this subscription is rejected in whole or the Offering is terminated prior to
the Closing (as described in Section 3.2 below), all funds received from the
Purchaser will be returned without interest, penalty, expense or deduction,
and this Subscription Agreement shall thereafter be of no further force or
effect. If this subscription is rejected in part, the funds for the rejected
portion of this subscription will be returned, without interest, penalty,
expense or deduction, and this Subscription Agreement will continue in full
force and effect to the extent this subscription was accepted.
3.2 Upon receipt by Marine Midland Bank on behalf of the Company of
subscriptions for 30 Units or $1,500,000 (the "Minimum Proceeds") pursuant to
Subscription Agreements, there shall be a closing (the "Closing") of the
purchase of the Units and the Company shall deliver to the Purchaser an
accepted Subscription Agreement, the Loan Documents and the Warrants. Upon the
Closing, the Company will repay in full its indebtedness to Fleet Bank under
that certain Loan Agreement, dated August 4, 1997, as amended. The Offering
shall terminate on August 17, 1998, unless extended for up to 30 days upon
mutual agreement by and between the Company and AKH. Upon the Closing, the
Company shall deliver to the Purchasers an accepted Subscription Agreement,
the Loan Documents and the Warrant.
3.3 Purchaser agrees that he will not transfer or assign this Subscription
Agreement or any of Purchaser's interest herein. Purchaser may not cancel,
terminate or revoke this Subscription Agreement, and this Subscription
Agreement will be binding upon Purchaser's successors and assigns.
3.4 Purchaser undertakes to execute and deliver to the Company within five (5)
days after receipt of the Company's request therefor, such further
designations, powers of attorney and other instruments as the Company deems
reasonably necessary or appropriate to carry out the provisions of this
Subscription Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser acknowledges
that the Company is offering the Units in reliance upon the representations,
warranties and other information presented by the Purchaser herein and the
Purchaser's accredited investor certificate. In order to induce the Company to
accept the subscription made hereby, the Purchaser hereby acknowledges,
represents and warrants to and agrees with the Company as follows:
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<PAGE>
4.1 RESTRICTED SECURITIES. None of the Notes, securities issuable upon
conversion of the Notes, Warrants, or securities issuable upon exercise of the
Warrants (collectively, the "Securities") are registered under the Securities
Act of 1933, as amended (the "Securities Act") or any state securities laws.
The Purchaser understands that the offering and sale of the Units is intended
to be exempt from registration under the Securities Act, by virtue of Section
4(2) thereof, based, in part, upon the representations, warranties and
agreements of the Purchaser contained in this Subscription Agreement. The
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings set forth herein in
order to determine the suitability of Purchaser to subscribe for and acquire
the Units.
4.2 RISK FACTORS. The Purchaser confirms that he understands and has fully
considered the risks of an investment in the Units and understands that (i)
this investment is suitable only for an investor who is able to bear the
economic consequences of losing his entire investment, (ii) the purchase of
the Units is a speculative investment and involves a high degree of risk, and
(iii) there are substantial restrictions on the transferability of, and there
will be no immediate public or private market for, the Units, or any of the
Securities, and accordingly, it may not be possible for Purchaser to liquidate
Purchaser's investment. The Purchaser hereby acknowledges and understands that
an investment in the Company is subject, but is not limited, to the following
risks:
History of Losses and Accumulated Deficit; No Assurance of Significant Revenues
or Operating Profit; Independent Certified Public Accountants' Qualified Report.
To date, the Company has recognized limited revenues from product sales and has
experienced significant operating losses since inception. As of March 31, 1998,
the Company had an accumulated deficit of approximately $17,871,000, working
capital of approximately $2,674,000 and stockholders' equity of approximately
$3,188,000. The Company expects to incur substantial additional costs, including
costs related to ongoing research and development activities, resulting in
operating losses for at least the next 12 months following the completion of the
Offering. The Company's ability to achieve significant revenue and profitability
is dependent on successful marketing of its existing products and successful
completion of enhancements to its existing products and the development of
future products, of which there can be no assurance. The report of the Company's
independent certified public accountants with respect to the financial
statements of the Company for the year ended December 31, 1997 contains a
paragraph expressing doubt as to the Company's ability to continue as a going
concern. Among the factors cited by the auditors as raising substantial doubt as
to the Company's ability to continue as a going concern is that the Company has
incurred recurring operating losses and is dependent on obtaining additional
financing to continue its operations.
Delisting by NASDAQ. On July 7, 1998, the Company's Common Stock ceased trading
on the NASDAQ SmallCap Market because the Company failed to comply with the
continued listing requirements and criteria of that market. As a result, the
market for the Company's Common Stock is extremely limited, and no assurance can
be given that the Company will in the future be able to have its Common Stock
listed on the NASDAQ Stock Market.
SUBSTANTIAL AMOUNT OF PROCEEDS USED TO SATISFY INDEBTEDNESS: Approximately
$750,000 of the proceeds received by the Company from the Offering will be used
to repay outstanding indebtedness and, therefore, will not be available for
future operations. The remaining proceeds received by the Company from the
Offering, if any, will be used for general working capital purposes, and
accordingly, management will have broad discretion to use the proceeds from the
Offering. As a result, investors in the Offering will not know in advance how
such proceeds will be used by the Company.
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<PAGE>
NEED FOR ADDITIONAL CAPITAL. The Company's future capital requirements will
depend on many factors, including cash flow from operations, continued progress
in its research and development programs, competing technological and market
developments and the Company's ability to market its products successfully. The
Company anticipates that it will need to raise at least an additional $6,000,000
in the next 6 months to meet its capital requirements (including repayment of
the Notes) and fund operations and development of products. There can be no
assurance that the Company will be able to obtain additional funding on terms
favorable to the Company, if at all. If adequate funds are not available, there
would be a material adverse affect on the Company's ability to continue its
operations.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT; RAPID TECHNOLOGY CHANGE;
TECHNOLOGICAL OBSOLESCENCE; INTRODUCTION OF NEW PRODUCTS. The Company has
ongoing research and development programs to develop new products and further
enhance its existing products. If the Company is unsuccessful in enhancing its
existing and developing future products, then the Company's sales and operations
will be adversely affected. There can be no assurance that any of the Company's
existing and future products will be successfully developed or, if developed,
will be successfully marketed. The storage area network market is characterized
by extensive research and development and rapid technological change resulting
in product life cycles of 18 to 24 months. The Company's future success will
depend in large part on the Company's ability to develop and introduce products
that keep pace with technological developments, achieve market acceptance and
respond to customer requirements that are constantly evolving. Development by
others of new or improved products, processes or technologies may make the
Company's products or proposed products obsolete or less competitive. The
Company will be required to devote substantial efforts and financial resources
to enhance its existing products and to develop new products. Any failure by the
Company to anticipate or respond adequately to technological developments and
customer requirements or any significant delays in product development or
introduction could result in a loss of competitiveness or could materially and
adversely affect the Company's operating results.
SOFTWARE AND HARDWARE BUGS. The Company's products incorporate internally
developed software and hardware components and software and hardware components
purchased from third parties. There is a substantial risk that the integration
of internally developed and externally purchased components will have or could
develop certain errors, omissions, or bugs that may render the Company's
products unfit for the purpose for which they were intended. There can be no
assurance that such errors, omissions, or bugs do not currently exist or will
not develop in the Company's current or future products. Any such error,
omission or bug found in the Company's products could lead to delays in
shipments, recalls of previously shipped products, damage to the Company's
reputation, and other related problems which would have a material adverse
effect on the Company. Although the Company believes it will resolve these
integration problems, there can be no assurance that such problems will be
completely resolved and that delays in shipments, recalls of previously shipped
products, damage to the Company's reputation, and other related problems will
not occur.
4
<PAGE>
NO ASSURANCE OF MARKET ACCEPTANCE. The Company's current target market is the
electronic printing and publishing industry. The Company's initial products,
which were first shipped in February 1997, are high speed storage area network
systems. The Company's success is dependent upon its ability to gain market
acceptance of its products, which will depend upon the ability of the Company to
demonstrate the advantages of its products over other technology offered by
other companies. The failure of the Company to penetrate its target markets
would have a material adverse effect upon its operations and prospects.
COMPETITION. Many of the Company's competitors, including Sun Microsystems Inc.,
Hewlett-Packard Co., International Business Machines Corp., Apple, Digital
Equipment Corporation and Silicon Graphics Inc., have significantly greater
market recognition and greater financial, technical, marketing and human
resources than the Company. The Company's competitors can be expected to
continue to improve the design and performance of their products and to
introduce new products with competitive price-to-performance characteristics.
Competitive pressures often necessitate price reduction, which can adversely
affect operating results. Although the Company believes that it presently has
certain technical and other advantages over its competitors, maintaining such
advantages will require a continued high level of investment by the Company in
research and development and sales and marketing. There can be no assurance that
the Company will have sufficient resources to continue to make such investment
or that the Company will be able to make the technological advances necessary to
maintain such competitive advantages. There can be no assurance that the Company
will be able to compete successfully against existing competitors or new
entrants to the marketplace.
DEPENDENCE ON PROPRIETARY TECHNOLOGY OF OTHERS. The Company's current products
incorporate technology licensed from Radius, Inc. ("Radius"), a publicly-held
company that manufactures Macintosh controller cards and accessories. The
Company has a non-exclusive license and Radius may license the technology to
other parties. In addition, if the Company fails to fulfill its obligations
under the Radius agreement, including its obligation to pay royalties, Radius
may terminate the license. The Company's current products also incorporate
certain critical technology licensed from Polybus Systems Corporation
("Polybus"). If the Company fails to fulfill its obligations under the Polybus
agreement, including its obligation to pay royalties, Polybus may license the
technology to third parties in the publishing market.
DEPENDENCE ON PROPRIETARY KNOW-HOW AND TRADE SECRETS; LACK OF PATENTED
TECHNOLOGY; RISK OF INFRINGEMENT. The Company relies on unpatented proprietary
know-how and trade secrets, and employs various methods, including
confidentiality agreements with employees, consultants and marketing partners,
to protect its trade secrets and know-how. There can be no assurance, however,
that the Company will be able to maintain the confidentiality of any of its
proprietary technology, know-how or trade secrets, or that others will not
independently develop substantially equivalent technology. The failure or
inability to protect these rights could have a material adverse effect on the
Company's results of operations. Moreover, there can be no assurance that the
Company's proposed products will not infringe on the rights of others. The
Company may be forced to expend substantial resources if the Company is required
to defend against any such infringement claims. The Company also may desire or
be required to obtain licenses from others in order to develop new products or
applications for its products. There can be no assurance that such licenses will
be obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the unpatented technology underlying such licenses will remain
proprietary.
5
<PAGE>
RELATED PARTY TRANSACTIONS; POSSIBLE CONFLICTS OF INTEREST. The Company has
engaged in certain transactions with certain of its directors, and is a party to
a consulting agreement with an affiliate of one of its directors, which will
continue after the consummation of the Offering. Ownership interests of
directors of the Company in entities providing services to the Company or
service as a director of both the Company and such entities could create, or
appear to create, potential conflicts of interest. All transactions between the
Company and any of its officers, directors, principal stockholders or affiliates
are subject to the approval of a committee of the Board of Directors, a majority
of the members of which shall be independent directors, or, if required by law,
a majority of disinterested directors, and must be on terms no less favorable to
the Company than could be obtained in arm's length transactions from
unaffiliated third parties.
DEPENDENCE ON QUALIFIED PERSONNEL. The ability to attract and retain highly
competent executives, professionals, sales personnel and other employees is
critical to the ongoing success of the Company. There can be no assurance that
the Company will be able to continue to attract and retain qualified executive
professionals, salespersons and other personnel.
POSSIBLE VOLATILITY OF STOCK PRICE. The price of the Company's Common Stock has
fallen substantially since its initial public offering ("IPO") and NASDAQ's
decision to delist the Company's securities from the NASDAQ SmallCap Market. The
market price of the shares of the Company's Common Stock, like that of the
common stock of many other high technology companies, is likely to be highly
volatile. The Company's Common Stock is not heavily traded, which could increase
the volatility of such stock. Factors such as announcements of technological
innovations or new products by the Company or its competitors, governmental
regulation, developments in patent or other proprietary rights of the Company or
its competitors, litigation, fluctuations in the Company's operating results,
and market conditions for high technology stocks in general could have a
significant impact on the future price of the Common Stock.
COMMON STOCK ELIGIBLE FOR FUTURE SALE; REGISTRATION OBLIGATIONS. Sales of the
Company's Common Stock in the public market by existing stockholders and by
holders of outstanding options and warrants could adversely affect the market
price of the Common Stock. The following charts reflect the number of
outstanding shares of Common Stock, shares of Common Stock underlying warrants
issued by the Company, and warrants to purchase Common Stock that the Company
has agreed to register for resale under the Securities Act:
6
<PAGE>
SHARES OF ISSUED AND OUTSTANDING
COMMON STOCK Amount
------------ ---------
By June 8, 1998 (1)..................................... 7,185,630
By June 11, 1998 (2).................................... 1,871,997
Best efforts to register as part of any registration
of securities of the Company (3)(4)(5)..................
227,085
---------
Total.......................................... 9,284,712
=========
(1) Including 6,755,000 shares of Common Stock issued pursuant to a private
placement (the "Sunrise Placement") commenced in December 1997 and
completed in May 1998 through Sunrise Securities, Inc. ("Sunrise") and
430,632 shares of Common Stock issued to Sunrise.
(2) Issued as part of a private placement of convertible promissory notes
undertaken by the Company from October 1995 through April 1996.
(3) Subject to the discretion of the managing underwriter, if any, to
exclude such shares from registration.
(4) Including 47,808 shares of Common Stock issued pursuant to the exercise
of warrants.
(5) Of which 179,280 were issued in connection with the issuance of
promissory notes in April 1997 and May 1997.
SHARES OF COMMON STOCK
UNDERLYING WARRANTS AMOUNT
------------------- ---------
Best efforts to register as part of 678,309
any registration of securities of the Company (1)....
By June 8, 1998 (2).................................. 1,468,563
By June 11, 1998 .................................... 35,565
Best efforts to register (3) ........................ 2,474,271
---------
Total..................................... 4,656,708
=========
(1) These shares were required to be registered by May 13, 1998, but they
have not been. The Company is required to use its best efforts to
register these shares as part of any other registration of securities
by the Company until November 30, 2002.
(2) Of which, 13,599 were issued in the conversion of a promissory note
issued in a private placement of promissory notes and common stock
purchase warrants completed in December 1996 and February 1997.
(3) Registration of 1,724,271 of these shares underlying warrants is
subject to the discretion of the managing underwriter, if any.
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WARRANTS AMOUNT
-------- -------
Best efforts to register as part 678,309
of any registration of securities of the Company (1).
Best efforts to register (2)......................... 40,000
------
Total.......................................... 718,309
=======
(1) These warrants were required to be registered by May 13, 1998, but they
have not been. The Company is required to use its best efforts to
register these warrants as part of any other registration of securities
by the Company until November 30, 2002.
(2) Subject to the discretion of the managing underwriter, if any.
CONTINGENT ISSUANCES; FUTURE DILUTION. Prior to this Offering, the Company has
outstanding warrants to purchase an aggregate of up to 5,393,112 shares of
Common Stock. This amount includes 2,070,000 shares underlying the warrants
issued in the Company's initial public offering ("Public Warrants") and
3,323,110 shares underlying other warrants outstanding prior to this Offering,
with exercise prices between $1.00 per share and $5.33 per share, of which
warrants to purchase 3,283,110 shares are immediately exercisable and of which a
warrant to purchase 40,000 shares becomes exercisable in September 1998. In
addition, there will be outstanding stock options granted pursuant to the
Company's Stock Option Plan to purchase an aggregate of approximately 2,682,183
shares of Common Stock at exercise prices ranging from $.80 per share to $5.50
per share, of which 1,763,954 were granted to the Company's President and CEO in
May 1998. The Company also issued to the underwriters for its initial public
offering an option to acquire up to 180,000 shares of Common Stock for $9.08 per
share and 180,000 Public Warrants for $.25 per Public Warrant (the
"Underwriters' Option"). The exercise of any such outstanding Public Warrants,
other warrants, stock options or the Underwriters' Option will dilute the
percentage ownership of the Company's stockholders, and any sales in the public
market of Common Stock underlying such Public Warrants, other warrants, stock
options and the Underwriters' Option may adversely affect prevailing market
prices for the Common Stock. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected, since the
holders of such outstanding securities can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in such
Public Warrants, other warrants, stock options and the Underwriters' Option. In
addition, pursuant to the Sunrise Placement, the Company is obligated to issue
3,592,815 shares if it does not meet certain revenue milestones in 1998. The
Company anticipates that these 3,592,815 shares, will need to be issued, and a
request for such issuance has been made by Sunrise. To date, the Company has not
registered any of the foregoing shares.
POTENTIAL ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER
PROVISIONS. The Company is authorized to issue up to 2,000,000 shares of
preferred stock, $.01 par value ("Preferred Stock"). Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular
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matters), preferences as to dividends and liquidation, conversion and redemption
rights and sinking fund provisions. No Preferred Stock is currently outstanding
and the Company has no present plans for the issuance thereof. Issuance of such
Preferred Stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company, or could result in the dilution of the voting power of
the Common Stock issuable upon conversion of the notes or exercise of the
warrants purchased in this Offering. In addition, certain "anti-takeover"
provisions of the Delaware General Corporation Law, among other things, may
restrict the ability of the stockholders to effect a merger or business
combination or to obtain control of the Company.
No Dividends. The Company has never paid any cash dividends on its Common Stock.
The Board of Directors anticipates that for the foreseeable future the Company's
earnings, if any, will be retained for use in the business and that no cash
dividends will be paid on the Common Stock.
4.3 LACK OF LIQUIDITY. The Purchaser confirms that he is able (i) to
bear the economic risk of this investment, and (ii) to hold the Units and the
Securities underlying the Units for an indefinite period of time. The Purchaser
has sufficient liquid assets so that the illiquidity associated with an
investment in the Units will not cause any undue financial difficulties or
affect the Purchaser's ability to provide for his current needs and possible
financial contingencies, and that his commitment to all speculative investments
is reasonable in relation to his net worth and annual income.
4.4 ACCESS TO INFORMATION. The Purchaser and the Purchaser's attorney,
accountant and/or tax advisor, if any (collectively, the "Advisors"):
(a) have received the Loan Documents and all other documents
requested by the Purchaser, have carefully reviewed them and understand the
information contained therein;
(b) have been furnished with the Company's Proxy Statement mailed to
Stockholders on June 15, 1998 ("Proxy Statement"), annual report on Form 10-KSB
for the fiscal year ended December 31, 1997 ("10-KSB"), quarterly report on Form
10-QSB for the fiscal quarter ended March 31, 1998 ("First Quarter 10-QSB"),
quarterly report on Form 10-QSB for the fiscal quarter ended June 30, 1998
("Second Quarter 10-QSB"), and any documents which may have been made available
upon request, and he or his Advisors have carefully read Proxy Statement, the
10-KSB, First Quarter 10-QSB, and Second Quarter 10-QSB and understand and have
evaluated the risks of a purchase of Units, including the risks set forth under
"Risk Factors" in Section 4.2 above;
(c) have been provided an opportunity to obtain additional
information concerning the Offering, the Company and all other information to
the extent the Company possesses such information or can acquire it without
unreasonable effort or expense. All documents, records and books pertaining to
the investment in the Units (including, without limitation, the Loan Documents)
have been made available for inspection by such Purchaser and the Advisors, if
any;
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<PAGE>
(d) have been given the opportunity to ask questions of and receive
answers from the Company concerning any and all matters relating to the Company
and this investment, and has been given the opportunity to obtain such
additional information necessary to verify the accuracy of the information
provided in order to evaluate the merits and risks of purchase of the Units;
(e) are satisfied that they have received adequate information with
respect to all matters which they consider material to their decision to make an
investment in this Offering.
(f) have not relied upon any representation or other information
(oral or written) other than as stated in the Loan Documents or this
Subscription Agreement or as contained in documents or answers to questions so
furnished to the Purchaser or the Advisors by the Company; and
(g) have determined that the Units are a suitable investment for him
and that at this time he can bear a complete loss of his investment.
4.5 INVESTMENT INTENT. The Units are being acquired by the undersigned
solely for his own personal account, for investment purposes only, and not with
a view to, or in connection with, any resale or distribution thereof. The
Purchaser has no contract, undertaking, understanding, agreement or arrangement,
formal or informal, with any person to sell, transfer or pledge to any person
the Units, or any of the Securities underlying the Units, for which he hereby
subscribes, or any part thereof, or any interest therein or any rights thereto.
The Purchaser has no present plans to enter into any such contract, undertaking,
agreement or arrangement. The Purchaser must bear economic risk of the
investment for an indefinite period of time because neither the Units, nor the
Securities underlying the Units, have been registered under the Securities Act
and applicable state securities laws and, therefore, cannot be sold unless they
are subsequently registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration is available.
4.6 FEDERAL AND STATE SECURITIES APPROVAL. Neither the Securities and
Exchange Commission ("SEC") nor any state securities commission has approved the
Units, or passed upon or endorsed the merits of the Offering or confirmed the
accuracy or determined the adequacy of this Subscription Agreement or the Loan
Documents or made any finding or determination as to the fairness of the Units
for investment. Neither this Subscription Agreement, nor any of the Loan
Documents, have been reviewed by any Federal, state or other regulatory
authority.
4.7 NO GENERAL SOLICITATION. The Purchaser is unaware of, is no way
relying on, and did not become aware of the offering of the Units through or as
a result of, any form of general solicitation or general advertising, including,
without limitation, any article, notice, advertisement or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, in connection with this Offering and is not subscribing for
Units and did not become aware of the Offering through or as a result of any
seminar or meeting to which the Purchaser was invited by, or any solicitation of
a subscription by, a person not previously known to the Purchaser in connection
with investments in securities generally.
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4.8 INVESTMENT EXPERIENCE. The Purchaser, together with the Advisors,
has such knowledge and experience in financial, tax and business matters and, in
particular, investments in securities, so as to enable them to utilize the
information made available to them in connection with the Offering to evaluate
the merits and risks of an investment in the Company and to make an informed
investment decision with respect thereto. The Purchaser has significant prior
investment experience, including investment in non-registered securities. The
Purchaser has a sufficient net worth to sustain a loss of its entire investment
in the Company in the event such a loss should occur. The investment is a
suitable one for the Purchaser.
4.9 RELIANCE ON PURCHASER'S ADVISORS. The Purchaser is not relying on
the Company, the Placement Agent or any of their respective employees or agents
with respect to the legal, tax, economic and related considerations of an
investment in the Units, and the Purchaser has relied on the advice of, or has
consulted with, only his own Advisors.
4.10 NONTRANSFERABILITY OF UNITS AND SECURITIES. The Purchaser must
bear the substantial economic risks of the investment in the Units indefinitely
because none of the Units or the Securities underlying the Units may be sold,
hypothecated or otherwise disposed of unless subsequently registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is available. Legends shall be placed on the Securities underlying
the Units to the effect that they have not been registered under the Securities
Act or applicable state securities laws, and appropriate notations thereof will
be made in the Company's stock books. Stop transfer instructions will be placed
with the transfer agent of the Securities underlying the Units. It is not
anticipated that there will be any market for resale of the Securities
underlying the Units, and such Securities will not be freely transferable at any
time in the foreseeable future.
4.11 ACCREDITED INVESTOR STATUS. The Purchaser meets the requirements
of at least one of the suitability standards for an "accredited investor" as set
forth on the Accredited Investor Certificate contained in Section 20 of this
Subscription Agreement.
4.12 AUTHORITY OF PURCHASER. The Purchaser: (i) if a natural person,
represents that the Purchaser has reached the age of 21 and has full power and
authority to execute and deliver this Subscription Agreement and all other
related agreements or certificates and to carry out the provisions hereof and
thereof and this Subscription Agreement constitutes a legal, valid and binding
obligation of the Purchaser; (ii) if a corporation, partnership, limited
liability company or partnership, association, joint stock company, trust,
unincorporated organization or other entity, represents that such entity was not
formed for the specific purposes of subscribing for and acquiring the Units,
such entity is duly organized, validly existing and in good standing under the
laws of the state of its organization, the consummation of the transactions
contemplated hereby is authorized by, and will not result in a violation of
state law or its charter or other organizational documents, such entity has full
power and authority to execute and deliver this Subscription Agreement and all
other related agreements or certificates and to carry out the provisions hereof
and thereof and to purchase and hold the Units, and the Securities underlying
the Units, the execution and delivery of this Subscription Agreement have been
duly authorized by all necessary actions, this Subscription Agreement has been
duly executed and delivered on behalf of such entity and is a legal, valid and
binding obligation of such entity; and (iii) if executing this Subscription
Agreement in a representative or fiduciary capacity, represents that it has full
power and authority to execute and deliver this Subscription Agreement in such
capacity and on behalf of the subscribing individual,
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ward, partnership, trust, estate, corporation, limited liability company or
partnership, or other entity for whom the Purchaser is executing this
Subscription Agreement and such individual, ward, partnership, trust, estate,
corporation, limited liability company or partnership, or other entity, has full
right and power to perform pursuant to this Subscription Agreement and make an
investment in the Company, and that this Subscription Agreement constitutes a
legal, valid and binding obligation of such entity. The execution and delivery
of this Subscription Agreement and the purchase of the Units will not violate or
be in conflict with any order, judgment, injunction, agreement or controlling
document to which the Purchaser is a party or by which it is bound and is
legally permitted by all laws and regulations to which the Purchaser is subject.
All consents, approvals, authorizations of or designations, declarations or
filings that are necessary to be obtained by the Purchaser in connection with
the valid execution and delivery of this Subscription Agreement by the Purchaser
or the purchase of the Units by the Purchaser have been obtained or will be
obtained.
4.13 ACCURACY OF INFORMATION FURNISHED BY PURCHASER. The Purchaser
represents to the Company that any information which the Purchaser has
heretofore furnished or furnishes herewith to the Company or the Placement Agent
is complete and accurate and may be relied upon by the Company in determining
the availability of an exemption from registration under Federal and state
securities laws in connection with the Offering. The Purchaser further
represents and warrants that it will notify and supply corrective information to
the Company and the Placement Agent immediately upon the occurrence of any
change therein occurring prior to the Company's issuance of the Units.
4.14 COMMISSIONS. The Purchaser is not aware that any person, and has
been advised that no person, will receive from the Company any compensation as a
broker, finder, adviser or in any other capacity in connection with the purchase
of Units; provided, however, that the Purchaser understands and agrees that AKH,
or its designees, shall be entitled to receive (a) (i) a commission equal to ten
percent (10%) of the gross proceeds of the Units offered and sold in the
Offering, (ii) a non-accountable expense allowance equal to one percent (1%) of
the gross proceeds of the Units offered and sold in the Offering, and (iii)
five-year warrants to purchase 1,000,000 shares of Common Stock at an exercise
price of $.40 per share (the "AKH Warrants") if 30 Units are sold in the
Offering (with a pro-rata reduction to the extent less than 30 Units are sold);
and (b) financial advisory fees of $5,000 per month for a twelve-month period
commencing the date of the Initial Closing. The Company has also agreed to
indemnify AKH against certain liabilities under the Federal securities laws.
4.15 FURTHER ASSURANCES. Within five (5) days after receipt of a
request from the Company or the Placement Agent, the Purchaser will provide such
information and deliver such documents as may reasonably be necessary to comply
with any and all laws and ordinances to which the Company or the Placement Agent
is subject.
4.16 RESTRICTED SECURITIES. NEITHER THE UNITS OFFERED HEREBY, NOR THE
SECURITIES UNDERLYING THE UNITS HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT, OR THE SECURITIES
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COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THE UNITS ARE BEING
OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION PURSUANT TO SECTION 4(2) OF
THE SECURITIES ACT. THE UNITS, AND THE SECURITIES UNDERLYING THE UNITS, ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
SUCH STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, IS AVAILABLE. NEITHER THE
UNITS, NOR THE SECURITIES UNDERLYING THE UNITS, HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING
AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY
OR ADEQUACY OF THE LOAN DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows:
5.1 CORPORATE EXISTENCE AND QUALIFICATION. The Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as now conducted and as
proposed to be conducted. The Company is qualified or licensed to do business in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualifications or licensing
necessary, except where the failure to be so qualified will not, when taken
together with all other such failures, have material adverse effect on the
business of the Company.
5.2 AUTHORITY; APPROVALS; NON-CONTRAVENTION.
(a) The Company has full corporate power and authority and has
taken all corporate action necessary to enter into this Subscription Agreement
and the Loan Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. This Subscription Agreement has been, and the
Loan Documents will be, duly and validly executed and delivered by the Company
and this Subscription Agreement, and the Loan Documents, constitute valid and
binding agreements of the Company enforceable against the Company in accordance
with their respective terms, except insofar as enforceability may be limited by
general equitable principles and to bankruptcy, insolvency, reorganization,
moratorium, or similar laws of general application affecting the rights and
remedies of creditors.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any governmental authority is required
to be obtained or made by or with respect to the Company in connection with the
execution and delivery of this Subscription Agreement or the Loan Documents by
the Company or the performance by the Company of the transactions contemplated
hereby or thereby, except for those obtained or made.
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(c) The execution and delivery of this Subscription Agreement and
each of the Loan Documents by the Company do not, and the consummation by
Company of the transactions contemplated hereby and thereby, will not, and the
performance of the Company of the transactions contemplated hereby or thereby
will not violate, conflict with or result in a breach of any provision of, or
constitute default (or result in any event that, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under any terms, conditions or provisions of (i) the Certificate of
Incorporation, as amended to date, or by-laws of the Company, (ii) any judgment,
decree order or award of any governmental authority applicable to the Company,
or any law, rule or regulation applicable to the Company or any note, bond,
mortgage, indenture, deed, trust, permit, lease, agreement or other instrument
to which the Company is now a party or by which the Company or any of its
properties or assets may be bound or subject.
5.3 Title to Properties; Encumbrances. The Company has good, valid
and marketable title to all of its properties and assets (personal, tangible and
intangible); in each case free and clear of all encumbrances, liens, claims,
charges or other restrictions of whatever kind or character, except as set forth
on Schedule 3(b) attached to the Loan Agreement.
5.4 SEC Documents. The Company has filed all required periodic
reports and proxy statements with the SEC since its initial public offering
completed in May, 1997 (the "SEC Documents"). As of their respective dates, none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied in a consistent basis during the periods involved
(except as otherwise disclosed therein), and fairly present the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended.
6. REGISTRATION RIGHTS. The Company hereby covenants with the Purchaser
as follows:
6.1 DEFINITIONS. For the purposes of this Subscription Agreement:
(a) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document by the SEC.
(b) The term "Registrable Securities" means (i) the shares of the
Company's Common Stock issuable upon conversion of the Notes or exercise of the
Warrants (the "Purchasers' Shares"), (ii) shares of the Company's Common Stock,
if any, issued to Sunrise or AKH
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in connection with prior private offerings of the Company or this Offering,
respectively, (iii) any shares of the Company's Common Stock issued as (or
issuable upon the conversion or exercise of any convertible security, warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of the Shares, including,
but not limited to, the shares underlying the AKH Warrants, and excluding in all
cases, however, any Registrable Securities sold by a Purchaser in a transaction
in which its registration rights under this Agreement are not assigned pursuant
to Section 6.8 of this Subscription Agreement, and (iv) any other shares or
securities of the Company that are subject to registration rights previously
granted by the Company (identified in Section 4.2, Common Stock Eligible for
Future Sale; Registration Obligations).
(c) The term "Purchaser" includes (i) each Purchaser in this
Offering, and (ii) each person who is a permitted transferee or assignee of the
Purchasers' Shares pursuant to Section 6.8 of this Subscription Agreement.
6.2 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3. Subject
to the terms of this Agreement, in the event that the Company shall receive from
the holders of at least fifty percent (50%) of the Purchasers' Shares (the
"Initiating Holders"), at any time after the earlier of (i) three (3) years
after the Closing of this Offering, or (ii) ninety (90) days after the effective
date of any public offering under the Securities Act of the Shares by the
Company for its account (the "Public Offering"), a written request that the
Company effect any registration with respect to all or a part of the Registrable
Securities on an applicable Securities Act form other than Form S-3 for an
offering covering the registration of Registrable Securities having a reasonably
anticipated aggregate offering price to the public in excess of One million
dollars ($1,000,000), the Company shall (A) promptly give written notice of the
proposed registration to all other holders of the Registrable Securities, and
(B) as soon as practicable, and in any event within ninety (90) days after such
request, use its best efforts to effect registration of the Registrable
Securities specified in such request, together with any Registrable Securities
of any holder thereof joining in such request as are specified in a written
request given within twenty (20) days after written notice from the Company. The
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section 6.2(a): (i) within six (6) months after
the effective date of a registration of the Shares initiated by the Company; or
(ii) after the Company has effected two such registrations pursuant to this
Section 6.2(a) and such registrations have been declared effective by the SEC
and, if underwritten, have closed.
(b) RIGHT OF DEFERRAL OF REGISTRATION ON FORM OTHER THAN FORM
S-3. If the Company shall furnish to all the holders of Registrable Securities
who joined in the request for registration pursuant to Section 6.2(a) above a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for any registration to be effected as requested
under Section 6.2(a), then the Company shall have the right to defer the filing
of a registration statement under the Securities Act with respect to such
requested offering for a period of not more than ninety (90) days from delivery
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
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(c) REQUEST FOR REGISTRATION ON FORM S-3. Subject to the terms of
this Agreement, if the Company receives from holders of a majority interest of
the Purchasers' Shares, at a time when the Company is eligible to register
securities for a secondary offering by its stockholders on SEC Securities Act
Form S-3 (or any successor form to Form S-3, regardless of its designation), a
written request that the Company effect any registration on Form S-3 (or any
successor form to Form S-3, regardless of its designation) for an offering of
Registrable Securities the reasonably anticipated aggregate offering price to
the public of which would exceed $500,000, then the Company will promptly give
written notice of the proposed registration to all the holders of Registrable
Securities specified in such request, together with all or such portion of the
Registrable Securities of any holder joining in such request as are specified in
a written request delivered to the Company within twenty (20) days after written
notice from the Company of the proposed registration.
(d) REGISTRATION OF OTHER SECURITIES IN DEMAND REGISTRATION. Any
registration statement filed pursuant to the request of the Initiating Holders
under this Section 6.2 may, subject to the provisions of Sections 6.2(e), (f),
(g), (h) and (i), include securities of the Company other than Registrable
Securities.
(e) NOTICE OF UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 6.2, and the Company shall include such information in
the written notice referred to in Section 6.2(a). The right of any holder to
registration pursuant to Section 6.2(a) shall be conditioned upon such holder's
agreement to participate in such underwriting and the inclusion of such holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such holder with respect to
such participation and inclusion).
(f) INCLUSION OF OTHER HOLDERS IN DEMAND REGISTRATION. If the
Company, officers or directors of the Company holding Shares other than
Registrable Securities or holders of securities of the Company other than
Registrable Securities shall request inclusion in such registration, then, on
behalf of all holders of Registrable Securities, the Initiating Holders shall
offer (to the extent they deem advisable and consistent with the goals of such
registration and subject to the allocation provisions of Section 6.3(b) below)
to any or all of the Company, such officers or directors and such holders of
other securities, to include such securities held thereby in the underwriting.
The Initiating Holders may condition such offer on the acceptance by such
persons of the terms of this Section 6.2.
(g) SELECTION OF UNDERWRITING IN DEMAND REGISTRATION. The Company
shall (together with all holders proposing to distribute their securities
through such underwriting) enter into and perform its obligations under an
underwriting agreement in usual and customary form with the representative of
the underwriter or underwriters (the "Underwriter's Representative") selected
for such underwriting by the holders of a majority of the Registrable Securities
being registered by the Initiating Holders and consented to by the Company
(which consent shall not be unreasonably withheld).
(H) MARKETING LIMITATION IN DEMAND REGISTRATION. In the event the Underwriter's
Representative advises the Initiating Holders in writing that the market factors
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(including, without limitation, the aggregate number of Shares requested to be
registered, the general condition of the market, and the status of the persons
proposing to sell securities pursuant to the registration) require a limitation
of the number of shares to be underwritten, then the Initiating Holders shall so
advise all holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all holders in proportion, as nearly as practicable, to
the number of shares proposed to be included in such registration by such
holders; provided, however, that the number of Purchasers' Shares included in
the aggregate of the Registrable Securities to be so included shall not be
reduced unless all other Registrable Securities or other securities (other than
those to be sold by the Company) are first entirely excluded from the
underwriting. No Registrable Securities or other securities excluded from the
underwriting by reason of this Section 6.2(h) shall be included in such
Registration Statement.
(i) Right of Withdrawal in Demand Registration. If any holder of
Registrable Securities, or a holder of other securities entitled (upon request)
to be included in such registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
(7) business days prior to the effective date of the registration statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
6.3 PIGGYBACK REGISTRATION.
(a) NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF REGISTRABLE
SECURITIES. In the event the Company decides to register any of its shares of
Common Stock (either for its own account or the account of a security holder or
holders [other than in connection with a registration being effected pursuant to
Section 6.2 hereof]) on an SEC form that would be suitable for a registration
involving solely Registrable Securities, the Company will: (i) promptly give
each holder of Registrable Securities written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to qualify such
securities under the applicable Blue Sky or other state securities laws) and
(ii) include in such registration (and in any related qualification under Blue
Sky laws or other state securities laws), and in any underwriting involved
therein, all the Registrable Securities specified in a written request delivered
to the Company by any holder or Registrable Securities within twenty (20) days
after delivery of such written notice from the Company.
(b) NOTICE OF UNDERWRITING IN PIGGYBACK REGISTRATION. If the
registration of which the Company gives notice pursuant to Section 6.3(a) is for
a registered public offering involving an underwriting, then the Company shall
so advise the holders of Registrable Securities as a part of the written notice
given pursuant to Section 6.3(a). In such event, the right of any such holder to
registration shall be conditioned upon such underwriting and the inclusion of
such holder's Registrable Securities proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement with the Underwriter's Representative for such offering;
provided that such holders of Registrable Securities shall have no right to
participate in the selection of the underwriters for an offering pursuant to
this Section 6.3(b)
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(c) MARKETING LIMITATION IN PIGGYBACK REGISTRATION. In the event
the Underwriter's Representative advises the holders seeking registration of
Registrable Securities pursuant to Section 6.3(b) in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative may limit the number of shares of Registrable
Securities to be included in such registration and underwriting. In either such
event, the Underwriter's Representative shall so advise all holders of the
number of shares of Registrable Securities (if any) that may be included in the
registration and underwriting. The number of Purchasers' Shares included in the
aggregate of the Registrable Securities to be so included shall not be reduced
unless all other Registrable Securities or other securities (other than those to
be sold by the Company) are first entirely excluded from the underwriting. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 6.3(c) shall be included in the applicable Registration
Statement.
(d) WITHDRAWAL IN PIGGYBACK REGISTRATION. If any holder of
Registrable Securities, or a holder of other securities (upon request) to be
included in such registration, disapproves of the terms of any such
underwriting, then such holder may elect to withdraw therefrom by written notice
to the Company and the underwriter delivered at least seven (7) business days
prior to the effective date of the registration statement. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
6.4 OBLIGATIONS OF THE COMPANY. When the Company is required by the
provisions of Section 6.2 or Section 6.3 to effect the registration of the
Registrable Securities under the Securities Act, the Company will:
(a) prepare and file with the SEC a registration statement (the
"Registration Statement") with respect to such securities, and use its best
efforts to cause the Registration Statement to become effective as soon as
reasonably possible after such filing, and, with respect to any registration
that does not involve an underwriting, to keep the Registration Statement
effective pursuant to Rule 415 under the Securities Act for a period of at least
two years after the close of this Offering, or such shorter period as prescribed
by Rule 144 promulgated under the Securities Act ("Rule 144") or during which
the Registrable Securities are sold, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and any
prospectus contained therein as may be necessary to keep the Registration
Statement effective (i) for such period as may be required by the Securities Act
with respect to an underwritten offering and (ii) for at least two years after
the close of the Offering, or such shorter period as prescribed by Rule 144,
with respect to a non-underwritten offering, and during such periods to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement;
(c) furnish to each Purchaser whose Registrable Securities are
included in the Registration Statement such reasonable number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
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supplements thereto, and such other documents as such Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Purchaser;
(d) use its reasonable efforts to register or qualify the
Registrable Securities covered by the Registration Statement under such other
state securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Purchasers who hold a majority in interest of the Purchasers'
Shares covered by the Registration Statement and, with respect to a
non-underwritten offering, prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements and to take
such other actions as may be necessary to maintain such registration and
qualification in effect at all times for a period of at least two years after
the close of the Offering, or such shorter period as prescribed by Rule 144 or
during which the Registrable Securities are sold, and to take all other actions
necessary or advisable to enable the disposition of such securities in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business,
file a general consent to service of process or subject itself to general
taxation in any such states or jurisdictions or (ii) provide any undertaking or
make any change in its Certificate of Incorporation or by-laws;
(e) If the Registration Statement relates to an underwritten
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including without limitation, customary
indemnification and contribution obligations, with the Underwriter's
Representative.
(f) Notify Purchasers who hold Registrable Securities being sold
(or in the event of an underwritten offering, the Underwriter's Representative),
at any time when a prospectus relating to Registrable Securities covered by the
Registration Statement is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. The Company shall use its best efforts promptly to
amend or supplement the Registration Statement to correct any such untrue
statement or omission.
(g) Notify the Purchasers who hold Registrable Securities being
sold (or in the event of an underwritten offering, the Underwriter's
Representative) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose. The Company will make every reasonable effort to prevent the
issuance of any stock order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.
(h) Permit a single firm of counsel, designated as selling shareholders' counsel
by the holders of a majority in interest of the Purchasers' Shares being sold,
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to review the Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing, and shall not file any
document in a form to which such counsel reasonably objects.
(i) Make generally available to its security holders as soon as
practicable, but not later than forty five (45) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
(j) At the request of the Purchasers who hold a majority in
interest of the Purchasers' Shares being sold, furnish to the underwriters, if
any, on the date that Registrable Securities are delivered to the underwriters
for sale in connection with a registration pursuant to this Agreement (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
and (ii) a letter, dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
(k) Make available for inspection by any underwriters
participating in the offering and the counsel, accountants or other agents
retained by such underwriter, all pertinent financial and other records,
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by such underwriters in connection with the Registration Statement.
(l) Take all actions reasonably necessary to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities sold pursuant to the
Registration Statement and to enable such certificates to be in such
denominations as registered in such names as the Purchasers or any underwriters
may reasonably request;
(m) Take all other actions reasonably necessary to expedite and
facilitate disposition by the Purchasers of the Registrable Securities pursuant
to the Registration Statement; and
(n) Notwithstanding anything contained in this Section 6.4 to the
contrary, the Company shall have no obligation pursuant to this Subscription
Agreement for the registration of Registrable Securities held by any Purchaser
(i) where such Purchaser would then be entitled to sell under Rule 144 within
any three-month period (or such other period prescribed under Rule 144 or as may
be provided by amendment thereof) all of the Registrable Securities then held by
such Purchaser, and (ii) where the number of Registrable Securities held by such
Purchaser is within the volume limitations under paragraph (e) of Rule 144
(calculated as if such Purchaser were an affiliate of the Company within the
meaning of Rule 144).
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6.5 OBLIGATIONS OF THE PURCHASERS. In connection with the
registration of the Registrable Securities pursuant to this Subscription
Agreement, the Purchaser shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Purchaser that such Purchaser shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended
methods of disposition of such securities as shall be reasonably required to
effect the registration of the Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request. At least thirty (30) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Purchaser of the
information the Company requires from each such Purchaser (the "Requested
Information") if it elects to have any of his Registrable Securities included in
the Registration Statement. If within seven (7) business days of the filing date
the Company has not received the Requested Information from a Purchaser (a
"Non-Responsive Purchaser"), then the Company may file the Registration
Statement without including the Registrable Securities of such Non-Responsive
Purchaser.
(b) Each Purchaser by his acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such
Purchaser has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement.
(c) In the event Purchasers holding a majority in interest of the
Purchasers' Shares select underwriters for the offering, each Purchaser agrees
to enter into and perform its obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations and market stand-off obligations,
with the managing underwriter of such offering and to take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities, unless such Purchaser has notified the Company in
writing of its election to exclude all of his Registrable Securities from the
Registration Statement.
(d) Each Purchaser agrees that, upon receipt of any notice from
the Company of the happening of any event of any kind described in Section
6.3(f), such Purchaser will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Purchaser's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6.3(f) and, if so desired by the
Company, such Purchaser shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of such
destruction) all copies, other than the permanent file copies then in such
Purchaser's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
(e) No Purchaser may participate in any underwritten registration
hereunder unless such Purchaser (i) agrees to sell such Purchaser's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Purchasers entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay such Purchaser's pro rata
portion of all underwriting discounts and commissions.
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6.6 EXPENSES OF REGISTRATION. With respect to the registration, all
fees, costs and expenses of and incidental to such registration and public
offering (as specified below) in connection therewith shall be borne by the
Company, provided, however, that any security holders participating in such
registration shall bear their pro rata share of the underwriting discount and
commission and transfer taxes. The fees, costs and expenses of registration to
be borne by the Company as provided above shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of one counsel
and one accountant for the selling security holders, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered and qualified. Fees and disbursements of more than one counsel and
one accountant for the selling security holders, and any other expenses incurred
by the selling security holders not expressly included above shall be borne by
the selling security holders.
6.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Purchaser, the directors, if any, of such Purchaser, the
officers, if any, of such Purchaser who sign the Registration Statement, each
person, if any, who controls such Purchaser, any underwriter (as defined in the
Securities Act) for the Purchasers and each person, if any, who controls any
such underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, expenses or liabilities, joint or several) to which any of them
may become subject under the Securities Act, the Exchange Act, other federal or
state law or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof, arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue statement
or alleged untrue statement of material fact contained in the Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law. Subject to the restrictions set forth in Section
6.7(c) with respect to the number of legal counsel, the Company will reimburse
the Purchasers, directors, officers, and each such underwriter or controlling
person, promptly as such expenses are incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding. Notwithstanding
anything contained in this Agreement to the contrary, the indemnity agreement
contained above in this Section 6.7(a) (I) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld, (II) shall not apply to any such
case for any such loss, claim, damage, liability or action arising out of or
based upon a Violation which occurs in reliance upon and in
22
<PAGE>
conformity with written information furnished expressly for use in connection
with such registration by the Purchasers or any such underwriter or controlling
person, as the case may be, and (III) with respect to any preliminary
prospectus, shall not inure to the benefit of any person from whom the person
asserting any such claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Purchasers or any such underwriter or
controlling person and shall survive the transfer of the Registrable Securities
by a Purchaser pursuant to Section 6.9.
(b) To the extent permitted by law, each Purchaser, severally and
not jointly, will indemnity and hold harmless, to the same extent and in the
same manner set forth in Section 6.7(a), the Company, each of its directors,
each of its officers who have signed the Registration Statement, each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such holder or underwriter, against any losses, claims,
damages or liabilities (joint or several), to which any of them may become
subject, under the Securities Act, the Exchange Act, other federal or state law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Purchaser
expressly for use in connection with such registration; and such Purchaser will
reimburse any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Purchaser shall be liable under
this Section 6.7(b) for only that amount of losses, claims, damages and
liabilities as does not exceed the proceeds received by such Purchaser as a
result of the sale of Registrable Securities pursuant to such registration. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such indemnified party and shall survive the transfer of
the Registrable Securities by the Purchasers pursuant to Section 6.9 The Company
shall be entitled to receive indemnities from underwriters, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, to the same extent as provided above, with respect to
information about such persons so furnished in writing by such persons for
inclusion in the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6.7, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
satisfactory to the indemnifying party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
for the indemnifying party, representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding.
23
<PAGE>
The Company shall pay for only one legal counsel for the Purchasers. Such legal
counsel shall be selected by the Purchasers holding a majority in interest of
the Purchasers' Shares. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section 6.7 only to the extent prejudicial to its ability to
defend such action, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under Section 6.7. The indemnification required
by this Section 6.7 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, promptly as such expense,
loss, damage or liability is incurred and is due and payable.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 6.7 to the extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in this
Section 6.7, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation, and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
6.8 Reports Under the Exchange Act. With a view to making available
to the Purchasers the benefits of Rule 144 and any other rule or regulation of
the SEC that may at any time permit Purchasers to sell securities of the Company
to the public without registration, the Company agrees to:
(a) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act.
(b) Furnish to each Purchaser, so long as such Purchaser owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company), the Securities Act and the Exchange Act, (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing the Purchasers of any rule or regulation of
the SEC which permits the selling of any such securities without registration.
6.9 Assignment of Registration Rights. The rights to have the
Company register securities pursuant to this Agreement may be assigned by the
Purchasers to transferees or assignees of such securities provided that (i) the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned, (ii) such
assignment is in accordance with and permitted by all other agreements between
the Company and the transferor or assignor, and (ii) such assignments shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act. The term "Purchasers" as used in Section 6 of this Subscription Agreement
shall include permitted assignees.
24
<PAGE>
7. IRREVOCABILITY; BINDING EFFECT. The Purchaser hereby acknowledges
and agrees that the subscription hereunder is irrevocable by the Purchaser,
except as required by applicable law, and that this Subscription Agreement shall
survive the death or disability of the Purchaser and shall be binding upon and
inure to the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives, and permitted assigns. If the Purchaser is
more than one person, the obligations of the Purchaser hereunder shall be joint
and several and the agreements, representations, warranties and acknowledgments
herein shall be deemed to be made by and be binding upon each such person and
each such person's heirs, executors, administrators, successors, legal
representatives and permitted assigns.
8. MODIFICATION. This Subscription Agreement shall not be modified or
waived except by an instrument in writing signed by the party against whom any
such modification or waiver is sought.
9. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, by Federal Express, or delivered against receipt to
the party to whom it is to be given (a) if to the Company, at the address set
forth above, or (b) if to the Purchaser, at the address set forth on the
signature page hereof (or, in either case, to such other address as the party
shall have furnished in writing in accordance with the provisions of this
Section 9). Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given a the time of receipt thereof.
10. ASSIGNABILITY. This Subscription Agreement and the rights, interest
and obligations hereunder are not transferable or assignable by the Purchaser,
and the transfer or assignment of the Units, or the Securities underlying the
Units, shall be made only in accordance with all applicable laws.
11. APPLICABLE LAW. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York relating to
contracts entered into and to be performed wholly within such State. The
Purchaser and the Company each hereby irrevocably submits to the jurisdiction of
any New York State court or United States Federal court sitting in New York
County over any action or proceeding arising out of or relating to this
Subscription Agreement or any agreement contemplated hereby, and the Purchaser
and the Company each hereby irrevocably agrees that all claims in respect of
such actions or proceeding may be heard and determined in such New York State or
Federal court. The Purchaser and the Company further waives any objection to
venue in such State and any obligation to an action or proceeding in such State
on the basis of a non-convenient forum. The Purchaser further agrees that any
action or proceeding brought against the Company or the Placement Agent shall be
brought only in New York State or United States Federal courts sitting in New
York County.
12. BLUE SKY QUALIFICATION. The purchase of the Units under this Subscription
Agreement is expressly conditioned upon the exemption from qualification of the
offer and sale of the Units from applicable Federal and state securities laws.
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<PAGE>
The Company shall not be required to qualify this transaction, under the
securities laws of any jurisdiction and, should qualification be necessary, the
Company shall be released from any and all obligations to maintain its offer,
and may rescind any sale contracted, in the jurisdiction.
13. USE OF PRONOUNS. All pronouns and any variations thereof used
herein shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identify of the person or persons referred to may require.
14. CONFIDENTIALITY. The Purchaser acknowledges and agrees that any
information or data it has acquired from or about the Company not otherwise
properly in the public domain, was received in confidence. The Purchaser agrees
not to divulge, communicate or disclose, except as may be required by law or for
the performance of this Subscription Agreement, or use to the detriment of the
Company or for the benefit of any other person or persons, or misuse in any way,
any confidential information of the Company, including any scientific,
technical, trade or business secrets of the Company and any scientific,
technical, trade or business materials that are treated by the Company as
confidential or proprietary, including, but not limited to, ideas, discoveries,
inventions, developments and improvements belonging to the Company and
confidential information obtained by or given to the Company about or belonging
to third parties.
15. ENTIRE AGREEMENT. This Subscription Agreement, together with the
Loan Documents, constitutes the entire agreement between the Purchaser and the
Company with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings, if any, relating to the subject matter
hereof. The terms and provisions of this Subscription Agreement may be waived,
or consent for the departure therefrom granted, only by a written document
executed by the party entitled to the benefits of such terms or provisions.
16. FEES AND EXPENSES. Each of the parties hereto shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Subscription Agreement
and the transactions contemplated hereby, whether or not the transactions
contemplated hereby are consummated.
17. COUNTERPARTS. This Subscription Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same instrument.
18. SEPARABLE PROVISIONS. Each provision of this Subscription Agreement
shall be considered separable and if for any reason any provision or provisions
hereof are determined to be invalid or contrary to applicable law, such
invalidity or illegality shall not impair the operation of or affect the
remaining portions of this Subscription Agreement.
19. HEADINGS. Paragraph titles are for descriptive purposes only and
shall not control or alter the meaning of this Subscription Agreement as set
forth in the text.
20. ACCREDITED INVESTOR STATUS. The Purchaser certifies that he is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
adopted pursuant to the Securities Act. The Purchaser further certifies that he
is a "sophisticated investor" as that term is defined in Rule 506(b)(2)(ii) of
Regulation D adopted pursuant to the Securities Act in that the undersigned is a
natural person or entity with such knowledge and experience in financial and
business matters that such investor is capable of evaluating the merits and
risks of the prospective investment. The Purchaser represents that he has
completed the Accredited Investor Certificate below, and that the information is
true and correct.
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Accredited Investor Certificate
The specific category or categories of accredited investor
qualification applicable to the Purchaser are checked below:
_____ a natural person whose individual net worth, or joint net
worth with that person's spouse, exceeds $1,000,000;
_____ a natural person who had individual income in excess of
$200,000 in 1996 or 1997 or who had joint income with that
person's spouse in excess of $300,000 in each of those years
and who reasonably expects to reach that income level in 1998;
_____ a bank as defined in Section 3(a)(2) of the Securities Act; or
a savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in
its individual or fiduciary capacity; or a broker dealer
registered pursuant to Section 15 of the Exchange Act; or an
insurance company as defined in Section 2(13) of the
Securities Act; or an investment company registered under the
Investment Company Act of 1940; or a business development
company as defined in Section 2(a)(48) of the Investment
Company Act of 1940; or a small business investment company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958; or a plan established and maintained by a state, its
political subdivisions or any agency or instrumentality of a
state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of
$5,000,000; or an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such 1974 Act, that is either a bank, savings
and loan association, insurance company or registered
investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan,
with investment decisions made solely by persons that are
accredited investors.
_____ a private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940;
_____ an organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, a Massachusetts or similar
business trust or partnership, not formed for the specific
purpose of acquiring the securities offered, with assets in
excess of $5,000,000;
_____ a trust, which trust has total assets in excess of $5,000,000,
which is not formed for the specific purpose of acquiring the
Units offered hereby and whose purchase is directed by a
sophisticated person as described in Rule 506(b)(ii) of
Regulation D and who has such knowledge and experience in
financial and business matters that he is capable of
evaluating the risks and merits of an investment in the Units;
_____ a natural person who is a director or executive officer of
Augment Systems, Inc.; or
_____ an entity in which all the equity owners are accredited
investors.
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Dated: August ___, 1998 PURCHASER:
_______________________________ ____________________________
Number of Units being Purchased
If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS
IN COMMON, or as COMMUNITY PROPERTY:
_______________________________ ____________________________
Print Name(s) Social Security Number(s)
_______________________________ ____________________________
Signature(s) of Purchaser(s)
_______________________________ ____________________________
Date Address
If the Purchaser is PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or
TRUST:
________________________________ ____________________________________
Name of Partnership, Corporation Federal Taxpayer
Limited Liability Company Identification Number
or Trust
______________________________
Date
By:
___________________________ ____________________________________
Name: State of Organization
Title:________________________ ____________________________________
Address
28
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COMPANY SIGNATURE PAGE
SUBSCRIPTION ACCEPTED AND AGREED TO this _____ day of _________, 1998.
AUGMENT SYSTEMS, INC.
By:_________________________________
29
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LOAN AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement as of
this _____ day of August, 1998.
LENDER:
_____________________________________________
Print Name
_____________________________________________
Signature
AUGMENT SYSTEMS, INC.
By:__________________________________________
30
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS. NEITHER
THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE
SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE SECURITIES
ACT AND ALL APPLICABLE STATE SECURITIES LAWS, AND IN THE CASE OF ANY EXEMPTION,
ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE
WARRANT OR SUCH OTHER SECURITIES.
WARRANT
Warrant to Purchase _____ Shares of
Warrant No. ___ Common Stock
AUGMENT SYSTEMS, INC.
THIS CERTIFIES that for good and valuable consideration received,
__________ (the "Holder"), is entitled to subscribe for and purchase from
AUGMENT SYSTEMS, INC., a Delaware corporation (the "Company"), subject to the
terms and conditions set forth below, at any time or from time to time on or
after the date hereof and prior to 5:00 P.M., Boston, Massachusetts time on the
fifth anniversary of the date of this Warrant (the "Expiration Date"), such
five-year period being the "Exercise Period," _________ shares of Common Stock,
$.01 par value per share, of the Company (the "Common Stock"), subject to
adjustment as provided for herein (the "Warrant Shares"), at a price of $0.40
per share, subject to adjustment as provided for herein (as so adjusted, the
"Exercise Price"). This Warrant shall not be redeemable by the Company. The term
"Shares" as used herein shall mean the Company's shares of Common Stock.
Section 1. EXERCISE OF WARRANT
1.1 METHOD OF EXERCISE. This Warrant may be exercised by Holder, in
whole or in part, at any time, and from time to time, prior to the Expiration
Date by surrender of this Warrant, together with (i) the form of subscription at
the end hereof duly executed by Holder, to the Company at its principal office,
and (ii) (a) payment, by certified or official bank check payable to the order
of the Company or by wire transfer to its account, in the amount obtained by
multiplying the number of Warrant Shares for which the Warrant is then being
exercised by the Exercise Price then in effect, or (b) Non-Cash Exercise Payment
as provided for in Section 1.2 below. Whenever the Exercise Price is adjusted
pursuant to Section 2, the number of Warrant Shares shall be adjusted by
multiplying such number of Warrant Shares immediately prior to such adjustment
by a fraction, the numerator of which is the Exercise Price prior to such
adjustment and the denominator of which is the Exercise Price after such
adjustment. In the event the Warrant is not exercised in full, the Company, at
its expense, shall forthwith issue and deliver to or upon the order of Holder a
new Warrant of like tenor in the name of Holder or as Holder (upon payment by
Holder of any applicable transfer taxes) may request, calling in the aggregate
on the face thereof for the number of shares of Common Stock equal (without
giving effect to any adjustment therein) to (i) the number of such shares called
for on the face of this
1
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Warrant minus (ii) the number of such shares for which this Warrant shall have
been exercised, whether in cash or pursuant to a Non-Cash Exercise Payment.
1.2 NON-CASH EXERCISE PAYMENT. In lieu of the cash payment of the
Exercise Price, the Holder shall have the right (but not the obligation), during
the Exercise Period, to require the Company to convert this Warrant, in whole or
in part, into the Warrant Shares as provided for in this Section (the
"Conversion Right"). Upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of the Exercise Price) that
number of shares of Common Stock equal to (i) the number of Warrant Shares
issuable upon exercise of the portion of the Warrant being converted, multiplied
by (ii) the quotient obtained by dividing (x) the value of the Warrant (on a per
Warrant Share basis) at the time the Conversion Right is exercised (determined
by subtracting the Exercise Price from the Current Market Price (as determined
pursuant to Section 2.4 below), for the shares of Common Stock issuable upon
exercise of the Warrant immediately prior to the exercise of the Conversion
Right) by (y) the Current Market Price of one share of Common Stock immediately
prior to the exercise of the Conversion Right. The Conversion Rights provided
under this Section may be exercised in whole or in part and at any time, and
from time to time, while any Warrants remain outstanding. In order to exercise
the Conversion Right, the Holder shall surrender to the Company, at its offices,
this Warrant accompanied by a duly completed Conversion Notice in the form
attached hereto. The presentation and surrender shall be deemed a waiver of the
Holder's obligations to pay all or any portion of the aggregate purchase price
payable for the Warrant Shares being issued upon such exercise of this Warrant.
This Warrant (or so much thereof as shall have been surrendered for conversion)
shall be deemed to have been converted immediately prior to the close of
business on the day of surrender of this Warrant for conversion in accordance
with the foregoing provisions. As promptly as practicable on or after the
conversion date, the Company shall issue and shall deliver to the Holder (i) a
certificate or certificates representing the largest number of whole Warrant
Shares which the Holder shall be entitled as a result of the conversion, and
(ii) if such Warrant is being converted in part only, a new Warrant exercisable
for the number of Warrant Shares equal to the unconverted portion of the
Warrant. Upon any exercise (which term, as used herein, shall include any
exercise of the Conversion Right) of this Warrant, in lieu of any fractional
Warrant Shares to which the Holder shall be entitled, the Company shall pay to
the Holder cash in accordance with the provisions of Section 1.4 hereof.
1.3 DELIVERY OF STOCK CERTIFICATES. Subject to the terms and conditions
of this Warrant, the Holder shall, as of the close of business on the day of the
exercise of the Holder's rights to purchase Warrant Shares, be deemed to be the
holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing such Warrant Shares shall not then have been actually
delivered to the Holder. As soon as practicable after each such exercise of this
Warrant, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, upon surrender of this Warrant for cancellation, the Company shall
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
1.4 FRACTIONAL SHARES. This Warrant may not be exercised as to
fractional shares of Common Stock. In the event that the exercise of this
Warrant, in full or in part, would result in the issuance of any fractional
shares of Common Stock, then in such event the Holder shall be
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entitled to cash equal to the Current Market Price (as defined in Section 2.4)
of such fractional shares.
1.5 RECORDING OF TRANSFER. Any warrants issued upon the transfer or
exercise in part of this Warrant shall be numbered and shall be registered in a
Warrant Register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration or transfer of warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his or its duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new warrant or warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of the
Holder hereof, for another warrant, or other warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause this Warrant to be transferred on its
books to any person if counsel to the Company reasonably requests a legal
opinion that such transfer does not violate the provisions of the Securities Act
of 1933, as amended, and the rules and regulations thereunder, unless such
opinion is delivered.
Section 2. ADJUSTMENT OF EXERCISE PRICE.
2.1 ADJUSTMENT FOR STOCK DIVIDENDS. In case the Company shall at any
time after the date hereof (i) declare a dividend or make any other distribution
on the outstanding Shares in shares of its capital stock or securities
convertible into or exchangeable for capital stock, (ii) subdivide the
outstanding Shares, (iii) combine the outstanding Shares into a smaller number
of shares, or (iv) issue any shares by reclassification of the Shares (other
than a change in par value, or from par value to no par value, or from no par
value to par value), then, in each case, the Exercise Price in effect, and the
number of Shares issuable upon exercise of the Warrants outstanding, at the time
of the record date for such dividend or at the effective date of such
subdivision, combination or reclassification, shall be proportionately adjusted
so that the Holders of the Warrants after such time shall be entitled to receive
upon exercise of the Warrant the aggregate number and kind of shares which, if
such Warrants had been exercised immediately prior to such time, such Holders
would have owned upon such exercise and immediately thereafter been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
2.2 OTHER ADJUSTMENTS. In case the Company shall distribute to all
holders of Shares (including any such distribution made to the stockholders of
the Company in connection with a consolidation or merger in which the Company is
the surviving or continuing corporation)
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evidences of its indebtedness, cash, or assets (other than distributions and
dividends payable as contemplated by Section 2.1 above), or rights, options, or
warrants to subscribe for or purchase Shares or securities convertible into or
exchangeable for Shares, then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price (as determined pursuant to Section 2.5 hereof) per Share on such record
date, less the fair-market value (as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such rights, option, or warrants or convertible or
exchangeable securities, or the amount of such cash, applicable to one share,
and the denominator of which shall be such Current Market Price per Share. Such
adjustment shall become effective at the close of business on such record date.
2.3 Issuances of Additional Common Stock and Other Securities.
----------------------------------------------------------
(a) In the event that the Company shall issue or sell additional
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
additional shares of Common Stock at a price per share lower than the Exercise
Price in effect on the date of such issuance or sale, or if the Company shall
amend the provisions of any rights, options, warrants or convertible or
exchangeable securities such as to reduce the price per share applicable
thereto, then the Exercise Price in effect immediately after such event shall be
adjusted by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (a) the numerator of which shall be the sum of (i) the
number of shares of Common Stock outstanding immediately prior to such event
plus (ii) the number of shares of Common Stock that the aggregate consideration
received in respect of such additional shares of Common Stock or other
securities so offered would purchase divided by such Exercise Price, and (b) the
denominator of which shall be the sum of (i) the number of shares of Common
Stock outstanding immediately prior to such event plus (ii) the number of
additional shares of Common Stock so issued or sold (or initially issuable
pursuant to such rights, options or warrants or into which such convertible or
exchangeable securities are initially convertible or exchangeable).
(b) In the event that the Company shall issue and sell additional
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
additional shares of Common Stock, for consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in determining the
aggregate consideration received, the Board of Directors shall determine, in
good faith and on a reasonable basis, the fair value of such property, and such
determination, if so made, shall be binding upon the Holder. In the event that
the Company shall issue and sell additional shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase additional shares of Common Stock, together with
other debt or equity securities for a fixed amount of cash or other
consideration for all such securities being then issued and sold, the
consideration received by the Company in respect of such additional shares of
Common Stock, or rights, options, warrants or convertible or exchangeable
securities, for purposes of computing the aggregate consideration received,
shall equal that portion of the total consideration allocable to the purchase of
such additional shares of Common Stock, or rights, options, warrants or
convertible or exchangeable securities; PROVIDED, HOWEVER, that if the aggregate
consideration received in respect of such additional shares of
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Common Stock, or rights, options, warrants or convertible or exchangeable
securities and all such other securities then being issued and sold shall equal
or exceed the aggregate Fair Market Value of all such additional shares of
Common Stock, or rights, options, warrants or convertible or exchangeable
securities and all such other securities then being issued and sold, then no
adjustment shall be made to the Exercise Price pursuant to this Section 2.3.
2.4 COMPUTATION OF ADJUSTED EXERCISE PRICE. Whenever the Exercise
Price is adjusted as provided in this Section 2:
(a) the Company shall compute the adjusted Exercise Price to the
nearest one-hundredth of a cent in accordance with this Section 2 and shall
prepare a certificate signed by the Chief Financial Officer or the Treasurer of
the Company setting forth the adjusted Purchase Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate shall
forthwith be filed at the office maintained pursuant to Section 4.3;
(b) a notice stating that the Exercise Price has been adjusted and
setting forth the adjusted Exercise Price shall, as soon as practicable after it
is required, be mailed to Holder; and at its option, Holder may confirm the
adjustment noted on the certificate by causing such adjustment to be computed by
an independent certified public accountant at the expense of the Company.
2.5 CURRENT MARKET PRICE. The Current Market Price per Share on any
date shall be deemed to be the average of the daily closing prices for the five
(5) consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price preceding the
date in question. The closing price for each day shall be the last reported
sales price regular way or, in case no such reported sale takes place on such
day, the closing bid regular price regular way, in either case on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or a similar organization if NASDAQ is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted by NASDAQ on any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
2.6 MINIMUM ADJUSTMENT; LIMITATION. No adjustment in the Exercise Price
shall be required under this Section 2 unless such adjustment would require an
increase or decrease of at least $.01 in such price; provided, however, that any
adjustments that by reason of this Section 2.6 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 2 shall be made to the nearest one-hundredth of
a cent or to the nearest one-hundredth of a share as the case may be.
Notwithstanding the foregoing provision of this Section 2, in no event shall the
Purchase Price be reduced below the minimum amount for which the Common Stock
may lawfully be issued pursuant to applicable laws and regulations; provided,
however, that upon the occurrence of any event that would, but for the foregoing
limitation, give rise to an adjustment of the Purchase Price pursuant to this
Section 2, solely for purposes of determining the Warrant Number pursuant to
Section 1 above,
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the Purchase Price shall be given effect as if adjusted to the full extent
provided for in this Section 2, without regard to the limitation set forth in
this sentence.
2.7 ISSUANCE OF EQUITY SECURITIES NOT REQUIRING ADJUSTMENT.
Notwithstanding anything to the contrary contained herein, no adjustments shall
be made under this Section 2 as a result of any issuance of any equity security
by the Company (i) in connection with any obligations of the Company to issue
such equity securities that are in effect as of the date of this Warrant, or
(ii) upon the conversion, exchange, exercise of any stock option, warrant,
preferred stock or any other security or right outstanding as of the date of
this Warrant that is convertible, into exchangeable for, or exercisable to
purchase, directly or indirectly, shares of Common Stock.
Section 3. CONSOLIDATIONS AND MERGERS.
3.1 In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation and which does not result in
any reclassification of the outstanding Shares or the conversion of such
outstanding Shares into shares of other stock or other securities or property),
or in case of any sale, lease or conveyance to another corporation of the
property and assets of any nature of the Company as an entirety or substantially
as an entirety (such additions being hereinafter collectively referred to as
"Reorganizations"), there shall thereafter be deliverable upon exercise of this
Warrant (in lieu of the number of Shares theretofore deliverable) the kind and
amount of shares of stock or other securities, cash or other property which
would otherwise have been deliverable to a holder of the number of Shares
issuable upon the exercise of this Warrant upon such Reorganization if this
Warrant had been exercised in full immediately prior to such Reorganization. In
case of any Reorganization, appropriate adjustment, as determined in good faith
by the Board of Directors of the Company, shall be made in the application of
the provisions herein set forth with respect to the rights and interests of the
Holder so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of this Warrant. Any such adjustment shall be made by
and set forth in a supplemental agreement between the Company, or any successor
thereto, and the Holder and shall for all purposes hereof conclusively be deemed
to be an appropriate adjustment. The Company shall not effect any such
Reorganization unless upon or prior to the consummation thereof the successor
corporation, or if the Company shall be the surviving corporation in any such
Reorganization and is not the issuer of the shares of stock or other securities
or property to be delivered to holders of Shares outstanding at the effective
time thereof, then such issuer shall assume by written instrument the obligation
to deliver to the Holder such shares of stock, securities, cash or other
property as the Holder shall be entitled to purchase in accordance with the
foregoing provisions.
3.2 In case of any reclassification or change of the Shares issuable
upon exercise of this Warrant (other than a change in par value or from no par
value to a specified par value, or as a result of a subdivision or combination,
but including any change in the Shares into two or more classes or series of
shares), or in case of any consolidation or merger of another corporation into
the Company in which the Company is the continuing corporation and in which
there is a reclassification or change (including a change to the right to
receive cash or other property) of the Shares (other than a change in par value,
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the Shares into two or more
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classes or series of shares), the Holder shall have the right thereafter to
receive upon exercise of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash or any combination thereof receivable
upon such reclassification, change, consolidation or merger by a holder of the
number of Shares for which this Warrant might have been exercised immediately
prior to such reclassification, change, consolidation or merger. Thereafter,
appropriate provision shall be made for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 2.
3.3 The above provisions to this Section 3 shall similarly apply to
successive reclassifications and changes of Shares and to successive
consolidations, mergers, sales, leases or conveyances.
Section 4. CERTAIN OBLIGATIONS OF THE COMPANY. Until the earlier to occur
of (i) the Expiration Date or (ii) the exercise in full of the Warrant:
4.1 RESERVATION OF STOCK. The Company covenants that it will at all
times reserve and keep available out of its authorized and unissued Common Stock
or out of shares of its treasury stock, solely for the purpose of issue upon
exercise of the purchase rights evidenced by this Warrant, a number of shares of
Common Stock equal to the number of shares of Common Stock issuable hereunder.
The Company will from time to time, in accordance with the laws of the State of
Delaware, take action to increase the authorized amount of its Common Stock if
at any time the number of shares of Common Stock authorized but remaining
unissued and unreserved for other purposes shall be insufficient to permit the
exercise of this Warrant.
4.2 NO VALUATION OR IMPAIRMENT. The Company will not, by amendment of
its Certificate of Incorporation, including, without limitation, amendment of
the par value of its Common Stock, or through reorganization, consolidation,
merger, dissolution, issuance of capital stock or sale of treasury stock
(otherwise than upon exercise of this Warrant) or sale of assets, by effecting
any subdivision of or stock split or stock dividend with respect to its Common
Stock, or by any other voluntary act or deed, avoid or seek to avoid the
material performance or observance of any of the covenants, stipulations or
conditions in this Warrant to be observed or performed by the Company. The
Company will at all times in good faith assist, insofar as it is able, in the
carrying out of all of the provisions of this Warrant in a reasonable manner and
in the taking of all other action that may be necessary in order to protect the
rights of the holder of this Warrant against dilution in the manner required by
the provisions of this Warrant.
4.3 MAINTENANCE OF OFFICE. The Company will maintain an office where
presentations and demands to or upon the Company in respect of this Warrant may
be made. The Company will give notice in writing to Holder, at the address of
Holder appearing on the books of the Company, of each change in the location of
such office.
Section 5. CERTAIN EVENTS. In case at any time any of the following occur:
(a) the Company shall take a record of the holders of its Shares for
the purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of current and retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company; or
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<PAGE>
(b) the Company shall offer to all the holders of its Shares any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) the Company shall take any action to effect any reclassification or
change of outstanding shares or any consolidation, merger, sale, lease or
conveyance of property, described in Section 3; or
(d) the Company shall take any action to effect any liquidation,
dissolution or winding-up of the Company or a sale of all or substantially all
of its property, assets and business; THEN, and in any one or more of such
cases, the Company shall give written notice thereof, by registered mail,
postage prepaid, to the Holder at the Holder's address as it shall appear in the
Warrant Register, mailed at least fifteen (15) days prior to (i) the date as of
which the holders of record of Shares to be entitled to receive any such
dividend, distribution, rights, warrants or other securities are to be
determined, (ii) the date on which any such offer to holders of Shares is made,
or (iii) the date on which any such reclassification, change of outstanding
Shares, consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up is expected to become effective and the date as of
which it is expected that holders of record of Shares shall be entitled to
exchange their shares for securities or other property, if any, deliverable upon
such reclassification, change of outstanding shares, consolidation, merger,
sale, lease, conveyance of property, liquidation, dissolution or winding-up.
Nothing herein shall allow a Holder to delay or prevent any of the foregoing
actions.
Section 6. COMPLIANCE WITH THE SECURITIES ACT; REGISTRATION RIGHTS; REDEMPTION;
TRANSFERABILITY.
6.1 COMPLIANCE WITH THE SECURITIES ACT. The Holder acknowledges that
neither this Warrant nor the shares of Common Stock issuable upon exercise of
this Warrant have been registered under the Securities Act and applicable state
securities laws and agrees that this Warrant and all shares purchased upon
exercise hereof shall be disposed of only in accordance with the Securities Act
and applicable states securities laws and the rules and regulations of the SEC
promulgated thereunder and applicable state securities laws.
6.2 REGISTRATION RIGHTS. The Holder shall be entitled, with respect to
the Warrant Shares, to the same registration rights and the rights included
therein, subject to the same obligations, as a purchaser of units of the Company
is entitled and subject to pursuant to Section 6 of that certain Subscription
Agreement by and between the Company and the Holder, dated even date herewith
(the "Subscription Agreement"). The Company acknowledges that the Holder is a
"Purchaser" and that the Warrant Shares are "Registrable Securities," as such
terms are defined in Section 6.1 of the Subscription Agreement.
Section 7. TAXES. The issuance of any Shares or other securities upon the
exercise of this Warrant and the delivery of certificates or other instruments
representing such Shares or other securities shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
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other than that of the Holder (except for any tax that is payable in respect of
any such transfer and any related exercise of this Warrant and that would be
payable pursuant to the first sentence of this Section 7 were such certificate
to be issued in the name of the Holder) and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
Section 8. LEGEND. Unless registered pursuant to the provisions of Section
6 hereof, the certificate or certificates evidencing the Warrant Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR STATE SECURITIES LAWS, BUT HAVE BEEN
ISSUED OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQURIEMENTS OF THE ACT. NO DISTRIBUTION, SALE,
OFFER FOR SALE, TRANSFER, DELIVERY, PLEDGE, OR OTHER
DISPOSITION OF THESE SECURITIES MAY BE EFFECTED EXCEPT IN
COMPLIANCE WITH THE ACT, ANY APPLICABLE STATE LAWS, AND THE
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION AND STATE AGENCIES PROMULGATED THEREUNDER."
If after the Warrant Shares are registered pursuant to Section 6 hereof, the
Holder wishes to have the original legend removed, then, unless the Warrant
Shares are registered pursuant to the provisions of Section 6.2 hereof (in which
case no legend shall be required), the certificate or certificates evidencing
the Warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE
OFFERED OR SOLD EXCEPT PURUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, UNLESS COUNSEL OF
COMPANY ADVISES IN WRITING THAT SUCH POST-EFFECTIVE AMENDMENT
IS NOT REQUIRED, IN WHICH EVENT SUCH SHARES MAY BE OFFERED
PURSUANT TO THE ORIGINAL REGISTRATION STATEMENT PURSUANT TO
WHICH THESE SHARES HAVE BEEN REGISTERED, (ii) A SEPARATE
REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
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Section 9. REPLACEMENT OF WARRANTS. Upon (a) surrender of this Warrant in
mutilated form or receipt of evidence satisfactory to the Company of the loss,
theft or destruction of this Warrant and (b) in the case of any loss, theft or
destruction of any Warrant, receipt of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company, then in the absence
of actual notice to the Company that this Warrant has been acquired by a bona
fide purchaser, the Company, at its expense, shall execute and deliver, in lieu
of this Warrant, a new Warrant identical in form to this Warrant.
Section 10. NO RIGHTS AS STOCKHOLDER. The Holder of any Warrant shall not have,
solely on account of such status, any rights of a stockholder of the Company,
either at law or in equity, or to any notice of meetings of stockholders or of
any other proceedings of the Company, except as provided in this Warrant.
Section 11. REMEDIES. The Company stipulates that the remedies at law of the
Holder in the event of any breach or threatened breach by the Company of the
terms of this Warrant are not and will not be adequate, and that such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a breach of any of the
terms hereof or otherwise.
Section 12. TRANSFER. This Warrant and the shares of Common Stock issuable
hereunder shall not be sold, transferred, pledged or hypothecated unless the
proposed disposition is the subject of a currently effective registration
statement under the Securities Act or unless the Company has received an opinion
of counsel, in form and substance reasonably satisfactory to the Company, to the
effect that such registration is not required in connection with such
disposition. In the case of such a sale, transfer, pledge or hypothecation, or
in the event of the exercise hereof if the Warrant Stock so acquired is not
registered under the Securities Act, the Company may require a written statement
that the Warrant or Warrant Stock, as the case may be, are being acquired for
investment and not with a view to the distribution thereof, and any certificate
representing Warrant Stock issued pursuant to such exercise shall bear a legend
in substantially the form set forth on the face hereof. Subject to the first two
sentences of this Section, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
registered holder thereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with an assignment hereof properly endorsed.
Until transfer hereof on the registration books of the Company, the Company may
treat the existing registered holder hereof as the owner hereof for all
purposes. Any transferee of this Warrant and any rights hereunder, by acceptance
thereof, agrees to assume all of the obligations of Holder and to be bound by
all of the terms and provisions of this Warrant.
Section 13. NOTICES. Where this Warrant provides for notice of any event, such
notice shall be given (unless otherwise herein expressly provided) in writing
and either (i) delivered personally, (ii) sent by certified, registered or
express mail, postage prepaid, (iii) telegraphed or (iv) telexed or sent by
facsimile transmission, and shall be deemed given when so delivered personally,
telegraphed, telexed, sent by facsimile transmission (confirmed in writing) or
mailed. Notices shall be addressed, if to the Holder, to the address of Holder
at such Holder's address as it appears in the records of the Company, or if to
the Company, to its office maintained pursuant to Section 4.3.
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Section 14. SURVIVAL. The provisions of Section 4 and Section 6.2 shall survive
the termination of this Warrant upon exercise in full, but shall terminate in
any event on the Expiration Date.
Section 15. MISCELLANEOUS. This Warrant shall be binding upon the Company and
Holder and their legal representatives, successors and assigns. In case any
provision of this Warrant shall be invalid, illegal or unenforceable, or
partially invalid, illegal or unenforceable, the provision shall be enforced to
the extent, if any, that it may be legally enforced and the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its
principles of conflicts of laws. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant shall take effect as an instrument under seal.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary or Assistant Secretary.
Dated as of _____________, 1998 AUGMENT SYSTEMS, INC.
(Corporate Seal) Name:______________________
Title:_____________________
Attest:
________________________________
Secretary
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FORM OF CASH EXERCISE
TO: Augment Systems, Inc.
The undersigned hereby exercise its rights to purchase __________
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $__________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:__________________ Name:______________________________
(Print)
____________________________________________
(Signature)
(Signature must conform to the name of the
Warrant Holder specified on the face of the
Warrant)
Address:________________
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Warrant)
TO: Augment Systems, Inc.
The undersigned hereby irrevocably elects to surrender its Warrant for
the number of Warrant Shares a shall be issuable pursuant to the cashless
exercise provisions of Section 1.2 of the within Warrant, in respect of
__________ Warrant Shares underlying the within Warrant, and requests that
certificates for such Warrant Shares be issued in the name of and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the shares exchangeable
or purchasable under the within Warrant, that a new Warrant for the balance of
the Warrant Shares covered by the within Warrant be registered in the name of,
and delivered to, the undersigned at the address stated below:
Dated:__________________ Name:______________________________
(Print)
____________________________________________
(Signature)
(Signature must conform to the name of the
Warrant Holder specified on the face of the
Warrant)
Address:________________
<PAGE>
FORM OF ASSIGNMENT
(To be executed solely by the registered holder
if such holder desires to transfer the attached Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _________________________ having an address at
__________________________, the attached Warrant to the extent the right to
purchase __________ shares of Common Stock, $.01 par value per share, of AUGMENT
SYSTEMS, INC. (the "Company"), together with all right, title and interest
therein, and does irrevocably constitute and appoint _________________________
as attorney to transfer such Warrant on the books of the Company, with full
power of substitution.
Dated:_________________ __________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Signed in the presence of:
_____________________________________
AUGMENT SYSTEMS
2 Robbins Road
Westford, Massachusetts 01886
August 3, 1998
Adolf Komorsky Hoffman & Associates, LTD
245 Saw Mill Road
Hawthorne, New York 10532
Gentlemen:
The undersigned, Augment Systems, Inc., a Delaware corporation (the
"Company"), proposes to issue to certain lenders (the "Lenders") (i) $1,500,000
of principal amount of 8% Convertible Promissary Notes (the"Notes") and (ii)
five year warrants to purchase up to 750,000 shares of the Company's common
stock $.01 par value per share ("common stock"), at an exercise price of $.40
per share (the "Warrants"). The notes and Warrants are collectively hereinafter
referred to as the "Securities". The sale of Securities to the Lenders is
hereinafter referred to as the "Bridge Financing".
The Bridge Financing is governed by the terms and conditions of a
certain Subscription Agreement ("Subscription Agreement"), Loan Agreement (the
"Loan Agreement") and Notes acceptable to you and your counsel and shall be
secured by certain collateral as set forth in a certain Security Agreement by
and between the Company and the Lenders (the "Security Agreement"). The Loan
Agreement, Notes and the Security Agreement are collectively referred to as the
"Loan Documents". The Warrants will be in form acceptable to you and your
counsel.
The Company acknowledges that AKH is responsible for locating the
Lenders who are purchasing Securities issued by the Company. This agreement sets
forth, inter alia the compensation to be paid to AKH in connection with the
Bridge Financing.
1. Representations and Warranties of the Company. The Company hereby
incorporates by reference all of the representations and warranties of the
Company as set forth in Section 5 of the Subscription Agreement with the same
force and effect as if specifically set forth herein, and such representations
and warranties are made to induce AKH to enter into this Agreement and the
transactions contemplated hereby.
<PAGE>
Adolf Komorsky Hoffman & Associates, LTD
August 3, 1998
Page 2
2. CLOSING FEES
(a) CLOSING. The closing of the purchase and sales of the Securities
("Closing") shall take place at the offices of AKH, or such mutually agreeable
location, at a time and date agreed upon between AKH and the Company. At the
Closing, payment for the Securities shall be made pursuant to the terms of the
Subscription Agreement against delivery of the Notes and Warrants to AKH on
behalf of the Lenders.
(b) PROCEDURES AT CLOSING. At the Closing, the Company shall provide
AKH with copies of all closing documentation provided to the parties including,
but not limited to, officer certificates and an executed opinion of Company
counsel, dated the Closing Date.
(c) PLACEMENT FEE AND NON-ACCOUNTABLE EXPENSE ALLOWANCE. In accordance
with the terms of this section 2(c), simultaneously with payment for and
delivery of the Securities as provided in Section 2(a) above, the Company shall
at Closing pay AKH via wire transfer (i) a selling commission equal to 10% of
the aggregate gross proceeds from the sale of the Securities and (ii) a
non-accountable expense allowance equal to 1% of the aggregate gross proceeds
from the sales of the Securities.
(d) ISSUANCE OF WARRANTS TO AKH. In addition to the fees of AKH
provided in Section 2(c) hereof, simultaneously with payment for and delivery of
the Securities, the Company shall at Closing issue to AKH or its designees, for
nominal consideration, five-year Warrants (the AKH Warrants") to acquire up to
1,000,000 shares of Common Stock (assuming the sale of all the Securities being
offered) at an exercise price of $0.40 per share on the same terms and
conditions as the Warrants. The AKH Warrants shall be in the form of Exhibit A
hereto. The Certificates representing the AKH Warrants will be in such
denominations and such names as AKH may request prior to the Closing.
(e) CONSULTING AGREEMENT. On or prior to the Closing, the Company shall
enter into a consulting agreement with AKH, which will provide that the Company
will pay AKH a monthly fee of $5,000 for the 12 month period following the
Closing, for AKH's agreement to provide investment banking and financial
advisory services as the Company may from time to time reasonably request, such
as advice relating to corporate management, strategic planning, financial
planning and relationships with banks, securities firms and financial
institutions. The first monthly fee shall be payable at the closing (retroactive
to July 1, 1998) and subsequent monthly fees shall be due and payable on the
first day of each succeeding month thereafter for the remaining term of the
consulting agreement. The consulting agreement shall be cancelable upon 30 days
written notice after January 1, 1999.
3. COVENANTS OF THE COMPANY
(a) EXPENSES OF OFFERING. Anything set forth herein to the contrary
notwithstanding, the Company shall bear all expenses incurred by it in
connection with the Bridge Financing, including, but not limited to, the
following: filing fees, registrar and transfer agent fees, its own counsel and
accounting fees, and issue and transfer
<PAGE>
Adolf Komorsky Hoffman & Associates, LTD
August 3, 1998
Page 3
taxes if any, blue sky fees and expenses and costs of supplying sufficient
copies of the documents related to the Bridge Financing. As promptly as
predictable after the Closing, the Company shall prepare at its own expense,
"bound volumes" relating to the Bridge Financing and will distribute volumes to
AKH and its legal counsel. AKH shall be responsible for its own expenses
incurred in connection with the Bridge Financing.
(b) DUE DILIGENCE. The Company will cooperate with AKH by making
available to AKH's representatives such information as may be appropriate in
making a reasonable investigation of the Company and its affairs. Prior to the
Closing, the Company will make available such materials relating to the Company,
and shall provide AKH or the Lenders with access to such employees, as shall be
reasonably requested.
(c) RESERVATION OF COMMON STOCK. The Company will reserve and keep
available that maximum number of its authorized but unissued shares of common
stock that are issuable upon exercise of any of the Warrants or the AKH
Warrants.
(d) INFORMATION RIGHTS. The Company shall provide AKH within three (3)
business days, of the filing or preparation thereof, with such financial and
other statements, including, without limitation, documents sent to the
shareholders, management letters and consolidated financial statements as are
provided to any other lenders to or security holders of the Company. In the
event any current officer, director, employee, consultant or other agent ceases
subsequent to the date hereof, to have such relationships with the Company and
such cessation has, or is likelyto have, a material effect on the Company,
taking as a whole, the Company shall promptly notify AKH of such event, which
notification shall comprehensively describe such circumstances, including,
without limitation, the plan to attempt to reverse such material adverse effect.
The Company shall, on a regular basis, provide to AKH updates of any material
litigation and/or governmental proceedings that may have a material adverse
effect on the business of the Company. The Company shall promptly provide to AKH
notice of any event of default under any agreement or other document with any
lender or holder of any security of the Company, or any other event that is
reasonably likely to have a material adverse effect on the Company.
4. INDEMNIFICATION
(a) The Company and its successors agree to indemnify and hold harmless
AKH and its agents, stockholders, officers, employees, and directors and each
person, if any, who controls AKH, as follows.
(i) against any and all losses liabilities, claims, damages and
expenses whatsoever arising out of any untrue statement or alleged untrue
statement of a fact set forth in the Subscription Agreement or Loan
Documents or th omission or alleged omission of a fact necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading unless such statement or omissions was made
in reliance on and in conformity with written information furnished
<PAGE>
Adolf Komorsky Hoffman & Associates, LTD
August 3, 1998
Page 4
to the Company by AKH expressly for inclusion in the Subscription Agreement
or Loan Documents.
(ii) against any and all losses, liabilities, claims, damages and
expenses whatsoever to th extent of the aggregate amount paid in settlement
of any litigation commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission or any such alleged untrue
statement or omission unless such statement was made in reliance on and in
reliance on and in conformity with written information furnished to the
Company by AKH expressly for inclusion in the Subscription Agreement or
Loan Documents; and
(iii) against any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission or any alleged untrue statement or omission, to the extent that
any such expense is not paid under clause (i) or (ii) above unless such
statement or omission was made in reliance on and in conformity with
written information furnished to the Company by AKH expressly for inclusion
in the Subscription Agreement or Loan Documents.
(b) The Company and its successors agree to indemnify and hold harmless
AKH and its agents, stockholders, officers, employees, and cash person, if any,
who controls AKH to the same extent as the forgoing indemnity, against any and
all losses, liabilities, claims damages and expenses whatsoever arising out of
the exercise by any person of any right under the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, or the securities or
Blue Sky Laws of any state on account of violations of the representations,
warranties or agreements set forth in Sections 1 and 2 hereof.
(c) If any action is brought against AKH or any of its officers
directors, stockholders, employees, agents, advisors, consultants and counsel or
any controlling persons of AKH (each an "Indemnified Party" and collectively,
"Indemnified Parties"), in respect of which indemnity may be sought against the
Company pursuant to Sections 4(a) or 4(b) above, each such Indemnified Party
shall promptly notify the Company (the "Indemnifying Party") in writing of the
institution of such action (but failure to so notify shall not relieve the
Indemnifying Party from any liability it may have under this section 4 unless
such failure results in the imposition of a default judgment which cannot be
reopened), and the Indemnifying Party shall promptly assume the defense of such
action, including the employment of counsel (reasonably satisfactory to each
such Indemnified Party), and payment of expenses in connection therewith. Each
such Indemnified Party shall be at the expense of each such Indemnified Party
unless the employment of such counsel shall have been authorized in writing by
the Indemnifying Party in connection with the defense of such action or the
Indemnifying Party shall have not have promptly employed counsel reasonably
satisfactory to each such Indemnified Party shall have reasonably concluded that
there may be one or more legal defenses available to it or them or to other
Indemnified Parties which are different from or additional to those available to
one or more
<PAGE>
Adolf Komorsky Hoffman & Associates, LTD
August 3, 1998
Page 5
of the Indemnified Parties and it would be inappropiate for the same counsel to
represent both parties due to actual or potential differing interests between
them, in any of which events such fees and expenses shall be borne by the
Indemnifying Party and the Indemnifying Party shall not have the right to direct
the defense of such action on behalf of each Indemnified Party. Anything in this
Section 4(c) to the contrary notwithstanding, the Indemnifying Party shall not
be liable for any settlement of any such claim or action effected without its
written consent, which consent shall not be unreasonably withheld. The Company
agrees to promptly notify AKH of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the sale of Securities.
5. MISCELLANEOUS
(a) SURVIVAL. Any termination of the Bridge Financing without
consummation thereof shall be without obligation on the part of any party except
that the provisions of Sections 3(a) hereof and the indemnification provisions
provided in Section 4 hereof shall survive any termination.
(b) REPRESENTATIONS, Warranties and Covenants to Survive Delivery. The
representations, warranties, indemnities, agreements, covenants and other
statements of the Company shall survive execution of this Agreement and delivery
of the Securities, except that the representations and warranties shall survive
for a period of only 24 months.
(c) NO OTHER BENEFICIARIES. Except as provided in Section 4, this
Agreement is intended for the sole exclusive benefit of the parties hereto and
their respective successors and controlling persons and no other person, firm or
corporation shall have any third-party beneficiary or other rights hereunder.
(d) GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the State of New York. The parties hereby; (i) in
any legal proceeding brought in connection with this Agreement or the
transactions contemplated hereby, irrevocably submit to the nonexclusive in
personsm jurisdiction of (A) any state or Federal court of competent
jurisdiction sitting in the State of New York, County of New York or (B) in the
event that any third party defendant in any legal proceeding in ehich it seeks
to join the other as a third-party defendant, any state or Federal court in
which such proceeding has properly been brought and consents to suit therein;
and (ii) waive any objection that it may now or hereafter have to the venue of
such proceeding in any such court or that such proceeding was brought in an
inconvenient court.
(e) NOTICES. All notices, requests, demands and other communications
which are required or may be given hereunder shall be in writing and shall be
deemed to have been duly given (i) when delivered personally, receipt
acknowledged, (ii) five (5) days after being sent by registered or certified
mail, return receipt requested postage prepaid, (iii) one (1) day after being
sent via overnight courier, receipt acknowledged, (iv) via telecopy, upon
written confirmation of receipt thereof. All notices shall be made to the
parties at the addresses designated below or at
<PAGE>
Adolf Komorsky Hoffman & Associates, LTD
August 3, 1998
Page 6
such other or different addresses which a party may subsequently provide with
notice thereof, and to their respective legal counsel, as follows:
(i) If to AKH, to:
Adolf Komorsky Hoffman & Associates, LTD
245 Saw Mill Road
Hawthorne, New York 10532
Attn: Mark Komorsky, Secetary & Treasurer
Telecopy: 914-769-4599
-with a copy to-
Breslow & Walker, LLP
767 Third Avenue
New York, New York 10017
Attn: Joel M. Walker, Esquire
Telecopy: 212-888-4955
(ii) If to the Company to:
Augment Systems, Inc.
2 Robbins Road
Westford, MA 01886
Attn: Laurence S. Liebson, Chief Executive Officer
Telecopy: 978-392-8636
-with a copy to-
Epstein Becker & Green, P.C.
75 State Street
Boston, Massachusetts 02109
Attn: Gabor Garai, Esquire
Telecopy: 617-342-4001
or to such persons or addresses as either party shall furnish to the other party
in writing.
(f) Counterparts. This agreement may be signed in counterparts with the
same effect as if both parties had signed one and the same instrument.
(g) Entire Agreement. This agreement constitutes the entire agreement
between the parties hereto in pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings, documents,
negotiations and discussions, whether oral or written, of the parties hereto.
<PAGE>
Adolf Komorsky Hoffman & Associates, LTD
August 3, 1998
Page 7
If you find the forgoing is in accordance with our
understanding, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
us.
Very Truly Yours,
By:_______________________________
Laurence S. Liebson,
Chief Executive Officer
Agreed:
ADOLF KOMORSKY HOFFMAN & ASSOCIATES, LTD
By:________________________________
Authorized Officer
SOFTWARE LICENCE AGREEMENT
AUGMENT SYSTEMS INCORPORATED
POLYBUS SYSTEMS CORPORATION
As of January 22, 1999
<PAGE>
Page 2 of 3
1 Augment and Polybus mutually agree to terminate the agreement of Augment 1,
1996, except that Sections 6, 9, 10 and 11 shall survive,
2. Augment will grant to Polybus a perpetual, irrevocable, royalty free
license to use, modify and sub-license for the Augment NT Client in source
code and binary form, said NT Client being the same as most recently
provided to Augment licensee Avid Technology Inc., subject to conditions
set forth below.
3. Polybus acknowledges that Augment has entered into a license of the NT
Client with Avid Technology Inc. (the "Augment/Avid License"), as copy of
which is herewith provided. Polybus agrees that it will not knowingly
interfere with Augment's contractual rights in the Augment/Avid License.
Polybus further agrees that for a Period of 18 months from the date of this
agreement it will not license, sell or transfer the NT client for a purpose
that competes with Augment's license of the NT Client to Avid Technology
Inc., provided, however, that in the event that the Augment/Avid License
has been terminated by either Party, or otherwise ceases to be in effect,
then in that event, the restriction set forth herein shall expire,
4, The Parties acknowledge that the Polybus Agreement restricts Augment's use
of Polybus owned software code, but does not restrict the use of the
Polybus protocol.
5. The NT Client and its source code, in its present form, shall be owned by
Augment. Each Party shall own any derivative work developed by that Party.
6. Polybus Will grant to Augment a perpetual, irrevocable, royalty free
license to use, copy and modify the Polybus Macintosh Client in source code
or binary form for internal use and development by Augment, The Macintosh
Client, as delivered to Augment in accordance with the August 1, 1996
agreement, shall be owned by Polybus. Each Party shall own any derivative
work developed by that Party.
7. Polybus grants to Augment a perpetual, worldwide, irrevocable, nonexclusive
right and licence to manufacture, grant sublicenses to Augment OEM's and
VAR customers ("Augment customers") and distribute Polybus Macintosh
Client in binary code form and only in conjunction with Augment hardware
products purchased from Augment, in accordance with the following schedule:
COPY SUB-LICENCED MARGINAL BINARY CODE ROYALTY
----------------- ----------------------------
Copy #1 through #4,999 US $ 100.00 per copy
Copy #5,000 through #9,999 US $60.00 per copy
Copy #10,000 through #12,499 US $30.00 per copy
Copy # 12,500 or greater US $0.00 per copy
<PAGE>
Page 3 of 3
8. Polybus grants to Augment a perpetual, irrevocable, nonexclusive right and
license to manufacture distribute and sub-license to AUGMENT's customers
and partners source code copies of the Polybus Macintosh Client for
AUGMENT's customers' internal use only, and only in conjunction with
Augment hardware products purchased from Augment.
9. Except as otherwise set forth in this Agreement, neither Party may, without
the prior written consent of the other Party, assign or transfer this
Agreement or any obligation incurred hereunder, except by merger,
reorganization, consolidation, or sale of all or substantially all of such
Party's assets. Any permitted assignee shall assume all obligations of its
assignor under this Agreement. No assignment shall relieve either Party of
responsibility for the performance of any accrued obligation, which such
Party then has hereunder.
10. The Parties acknowledge that a breach of any of the terms, provisions and
conditions of this Agreement will cause such damage as will be irreparable
and the exact amount of which will be impossible to ascertain. For that
reason the Parties agree that the non-breaching party shall be entitled, as
a matter of right, to an injunction from any court of competent
jurisdiction, restraining any threatened or further violation of this
Agreement, Such right to an injunction, however, shall be cumulative, and
in addition to whatever other remedies the non-breaching party may have to
protect its rights,
11. Polybus agrees that for a period of 6 months after the date of this
agreement it will not license, sell or transfer the NT Client to any third
party,
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duty authorized representatives as of the day and year first above
written.
AUGMENT SYSTEMS INCORPORATED
By:______________________________________
Duane A. Mayo, Chief Financial Officer
POLYBUS SYSTEMS CORPORATION
By:______________________________________
Herb.Jacobs, President
