<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1998
REGISTRATION NO. 333-62495
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
MUSE TECHNOLOGIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 85-0437001
(STATE OF OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
MUSE TECHNOLOGIES, INC.
1601 RANDOLPH, SE, SUITE 210
ALBUQUERQUE, NM 87106
(505) 843-6873
(NAME, ADDRESS AND TELEPHONE NUMBER OF
PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
------------------------
CURTIZ J. GANGI
PRESIDENT
MUSE TECHNOLOGIES, INC.
1601 RANDOLPH, SE, SUITE 210
ALBUQUERQUE, NM 87106
(505) 843-6873
(NAME, ADDRESS AND TELEPHONE NUMBER OF
AGENT FOR SERVICE)
------------------------
Copies to:
NEIL S. BELLOFF, ESQ. ASHER S. LEVITSKY P.C.
PROSKAUER ROSE LLP ESANU KATSKY KORINS & SIGER, LLP
1585 BROADWAY 605 THIRD AVENUE
NEW YORK, NY 10036 NEW YORK, NY 10158
(212) 969-3000 (212) 953-6000
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two prospectuses covering the
registration of (i) 1,380,000 units, including units to cover overallotments
(the "Units"), consisting of 1,380,000 shares of common stock, $.015 par value
per share (the "Common Stock"), of Muse Technologies, Inc., a Delaware
corporation (the "Company"), and Class A Redeemable Common Stock Purchase
Warrants (the "Warrants") to purchase 690,000 shares of Common Stock, for sale
as Units by the Company in an underwritten public offering (the "Offering") and
(ii) an additional 423,881 shares of Common Stock and Warrants to purchase
423,881 shares of Common Stock for sale by the holders thereof (the "Selling
Securityholders"). The Warrants offered by the Selling Securityholders are being
issued upon the automatic conversion of existing warrants into Warrants on the
effective date of this registration statement. Following the Prospectus for the
Offering are certain pages of the Prospectus relating solely to the Selling
Securityholders, including alternate front and back cover pages and an alternate
section entitled "Sales by Selling Securityholders." All other sections of the
Prospectus for the Offering are to be used in the Prospectus relating to the
Selling Securityholders, except "Underwriting."
<PAGE>
MUSE TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
- ----- -------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover Pages; Additional
Information
3. Summary Information and Risk Factors................ Prospectus Summary; Risk Factors.
4. Use of Proceeds..................................... Use of Proceeds.
5. Determination of Offering Price..................... Underwriting.
6. Dilution............................................ Dilution.
7. Selling Securityholders............................. Sales By Selling Securityholders
8. Plan of Distribution................................ Cover Page; Underwriting.
9. Legal Proceedings................................... Business--Legal Proceedings.
10. Directors, Executive Officers, Promoters and Control
Persons........................................... Management.
11. Security Ownership of Certain Beneficial Owners and
Management........................................ Principal Stockholders.
12. Description of Securities........................... Description of Securities; Underwriting.
13. Interest of Named Experts and Counsel............... Legal Matters; Experts.
14. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities....................................... Not Applicable.
15. Organization Within Last Five Years................. Prospectus Summary; Certain Relationships and Related
Transactions.
16. Description of Business............................. Prospectus Summary; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Financial Statements.
17. Management's Discussion and Analysis or Plan of
Operation......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations.
18. Description of Property............................. Business--Facilities.
19. Certain Relationships and Related Transactions...... Certain Relationships and Related Transactions.
20. Market For Common Equity and Related Stockholder
Matters........................................... Shares Eligible for Future Sale.
21. Executive Compensation.............................. Management--Executive Compensation.
22. Financial Statements................................ Financial Statements.
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures.............. None.
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS DATED OCTOBER 26, 1998, SUBJECT TO COMPLETION
PROSPECTUS
[LOGO]
1,200,000 UNITS
Muse TECHNOLOGIES, INC.
CONSISTING OF 1,200,000 SHARES OF COMMON STOCK
AND CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
TO PURCHASE 600,000 SHARES OF COMMON STOCK
------------------------
Muse Technologies, Inc. (the "Company") is offering 1,200,000 units (the
"Units"), consisting of 1,200,000 shares of Common Stock, par value $.015 per
share (the "Common Stock"), and Class A Redeemable Common Stock Purchase
Warrants (the "Warrants") to purchase 600,000 shares of Common Stock. Each
Warrant entitles the holder to purchase that number of shares of Common Stock
represented by such Warrant at an exercise price of $9.60 per share, subject to
adjustment and subject to prior redemption by the Company, until November ,
2003 (the "Expiration Date"). No fractional shares of Common Stock or Warrants
will be issued. The shares of Common Stock and Warrants comprising the Units are
separately transferrable immediately upon issuance and will not trade as a Unit.
The Warrants are redeemable by the Company at a redemption price of $.01 per
Warrant, upon at least 30 days' prior written notice, during the period
commencing one year from the date of this Prospectus, or earlier with the
consent of HD Brous & Co., Inc. (the "Underwriter"), 2003, provided that the
average closing price of the Common Stock is at least $12.00 per share, subject
to adjustment, for the twenty day period ending not earlier than five days prior
to the date on which the Warrants are called for redemption. See "Description of
Securities--Class A Redeemable Common Stock Purchase Warrants."
Prior to this Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that any such market will
develop, or if developed, will be maintained. It is anticipated that the Common
Stock and Warrants will be quoted on the Nasdaq SmallCap Market under the
symbols "MUZE" and "MUZEW", respectively. The Company is also seeking to list
the Common Stock and Warrants on the Boston Stock Exchange and the Pacific
Exchange.
The initial public offering price and composition of the Units and the terms
of the Warrants have been determined by negotiations between the Company and the
Underwriter and does not necessarily relate to the Company's book value, net
worth, financial condition or other established criteria of value. See
"Underwriting" for information about factors considered in determining the
initial public offering price.
------------------------
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS," BEGINNING ON PAGE 7, AND
"DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit.................................... $8.00 $0.80 $7.20
Total(3).................................... $9,600,000 $960,000 $8,640,000
</TABLE>
(1) Excludes additional compensation to be received by the Underwriter in the
form of (i) a non-accountable expense allowance of 3% of the gross proceeds
of this Offering, for a total of $288,000 ($331,200 if the Underwriter's
over-allotment option is exercised in full); and (ii) options to purchase up
to 120,000 units ("Underwriter's Units") at a price equal to $13.20 per
Unit, exercisable over a four-year period commencing one year from the date
of this Prospectus (the "Underwriter's Unit Purchase Option"). The Company
has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). The Underwriter also has the right, for a period of five
years, to appoint a member to the Company's Board of Directors. See
"Underwriting."
(2) Before deducting expenses payable by the Company (including the
Underwriter's non-accountable expense allowance) which are estimated to be
approximately $655,000.
(3) The Company has granted the Underwriter an option exercisable within
45 days after the date of this Prospectus, to purchase up to an additional
180,000 Units on the same terms and conditions as the Units offered hereby
solely to cover over-allotments, if any. If the over-allotment option is
exercised in full, total "Price to Public," "Underwriting Discounts and
Commissions" and "Proceeds to Company" will be $11,040,000, $1,104,000 and
$9,936,000, respectively.
------------------------
The registration statement of which this Prospectus is a part also relates
to the sale by certain selling securityholders (the "Selling Securityholders"),
commencing twelve months from the date of this Prospectus, or earlier with the
consent of the Underwriter, of an aggregate of 423,881 shares of Common Stock
and 423,881 Warrants. See "Sales by Selling Securityholders." Such securities
offered by the Selling Securityholders are not part of the underwritten offering
of Units being made by the Underwriter. Any such sales by the Selling
Securityholders may be made through broker-dealers or otherwise. The Company
will not receive any of the proceeds from such sales except to the extent that
the Warrants are exercised.
The Units are being offered on a "firm commitment" basis, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right to reject an order in whole or in
part. It is expected that delivery of the certificates representing the Common
Stock and Warrants comprising the Units will be made against payment therefor at
the offices of the Underwriter at 40 Cuttermill Road, Great Neck, New York 11021
on November , 1998.
------------------------
HD BROUS & CO., INC.
NOVEMBER , 1998
<PAGE>
[INSIDE FRONT COVER -- PANEL 1]
[LOGO] MUSE Technologies, Inc.
Leading the New Age of Perceptual Computing
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
DATABASE
Graphical database analysis applied to real-time road-use information spanning
one year. Developed in 1996.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
LOGISTICS/INVENTORY MANAGEMENT
Ship model that allows remote, component-level inventory control, parts
ordering, and component usage tracking. Developed in 1997.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
DYNAMIC MODELING
Simulation and analysis of the effect of the Shoemaker-Levy 9 Comet impact on
Jupiter. Developed using MuSE at Sandia National Laboratories in 1995.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
TRANSPORTATION
Detailed analysis of traffic flow from a 10,000 square-mile area around Dallas/
Ft. Worth. Developed in 1996.
<PAGE>
[INSIDE FRONT COVER -- PANEL 2]
[LOGO] MUSE Technologies, Inc.
Leading the New Age of Perceptual Computing
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
AEROSPACE
Multilevel simulation of the International Space Station showing real-time
collaboration between remote NASA design centers. Developed in 1998.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
MEDICAL
Model of cancer patient's head, including skull and brain, constructed from MRI
scans. Developed using MuSE at Sandia National Laboratories in 1995.
MUSE Technologies, Inc., develops and markets software products that enhance a
computer user's ability to analyze and understand large quantities and diverse
forms of data. The Company's products solve complex data integration and data
management problems encountered by scientists, engineers, developers, and other
computing professionals.
The Company's two principal products are:
o MuSE(Trademark) (Multidimensional user-oriented Synthetic Environment;
pronounced "muse"), a powerful software framework that is platform- and
device-independent. As a multisensory human-computer interface, it enables
varied data types to be rendered into nearly any representation, be it for
two-dimensional flat screens or virtual reality.
o Continuum(Trademark), a software program that allows multiple MuSE users to
enter the same virtual environment over networks. It allows each user to
collaborate in real time with any other user. It also supports collaboration
between applications running on different platforms and with different device
configurations.
The Company's products are based on patents and other proprietary technology
developed by the Company and Sandia National Laboratories.
The Company believes that MuSE represents a new approach to computer interaction
because it permits the integration of various types of data from multiple
sources without affecting the integrity of such data, and the presentation of
data in a multisensory environment to enhance the user's ability to analyze and
understand such data.
MuSE can be used with different computing platforms (including UNIX and Windows
NT(Trademark)) and different physical or logical input and output devices. The
multisensory capabilities of MuSE enable the user to present information in real
time using visual, auditory, tactile, and other perceptual tools.
continued on next page
<PAGE>
[INSIDE FRONT COVER -- PANEL 3]
[LOGO] MUSE Technologies, Inc.
Leading the New Age of Perceptual Computing
continued from previous page
MuSE assists users in creating synthetic or virtual environments in which
information can be processed in ways which are different from traditional use of
computers. Most computer software requires users to learn an entirely new way of
interacting with and processing information that is not consistent with human
perceptual processing. MuSE adapts the computer to humans by complementing human
perceptual processes and is designed to allow the user to interact with the
computer as if the computer is an extension of the user and the way that
particular user processes and analyzes information.
MuSE is a tool which can be used in a wide variety of industrial, commercial,
entertainment, and governmental applications. Each application would be designed
to meet the specific requirements of the end users in a particular industry.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
MANUFACTURING/CAD
Running model of complex locking mechanism. Used for testing, verification, and
training. Developed using MuSE at Sandia National Laboratories in 1993.
--------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT NUMBER OF UNITS MAY BE SOLD TO CUSTOMERS OF THE UNDERWRITER.
SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE SALE OR PURCHASE OF THE COMMON
STOCK AND/OR WARRANTS THROUGH OR WITH THE UNDERWRITER. ALTHOUGH IT HAS NO
OBLIGATION TO DO SO, THE UNDERWRITER MAY BECOME A MARKET MAKER AND OTHERWISE
EFFECT TRANSACTIONS IN THE COMMON STOCK AND/OR WARRANTS, AND, IF THE UNDERWRITER
PARTICIPATES IN SUCH MARKET, IT MAY BE A DOMINATING INFLUENCE IN THE TRADING OF
SUCH SECURITIES. THE PRICES AND THE LIQUIDITY OF SUCH SECURITIES MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE PARTICIPATION OF THE
UNDERWRITER IN SUCH MARKET, SHOULD A MARKET DEVELOP.
Upon consummation of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Securities and Exchange Commission. See "Additional
Information."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that the Warrants, outstanding options and warrants, the
Underwriter's Unit Purchase Option and the Underwriter's over-allotment option
are not exercised. All share and per share information reflects a 1-for-3.04
reverse stock split effective as of March 5, 1998.
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by, and information currently available to, the Company. When
used in this Prospectus, the words "anticipate," "believe," "estimate,"
"expect," "will," "could," "may" and similar expressions, are intended to
identify forward-looking statements, but the absence of any such words does not
mean that the statement is not forward-looking. Such statements reflect the
current views of management with respect to future events and are subject to
certain risks, uncertainties and assumptions, including those described under
"Risk Factors" and elsewhere in this Prospectus. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein. In
addition to the other information in this Prospectus, the above factors should
be carefully considered in evaluating the Company and its business and before
purchasing the securities offered hereby.
THE COMPANY
Muse Technologies, Inc. (the "Company") has developed and commenced
marketing several software products designed to enhance the user's ability to
understand and analyze data and information and to provide solutions to complex
data integration and data management problems encountered by scientists,
engineers and other computing professionals. The Company believes that
"MuSE(Trademark)" (pronounced "muse"), its core software product, represents a
new approach to computer interaction since it permits the integration of various
types of data from multiple sources without affecting the integrity of such data
and the presentation of data in a multisensory environment to enhance the user's
ability to analyze and understand such data. MuSE can be used with different
computing platforms and different physical or logical input and output devices.
The multisensory capabilities of MuSE enables the user to present information in
real time using visual, auditory, tactile and other perceptual tools.
The Company has also developed a proprietary software product,
"Continuum(Trademark)," designed for multiuser, real-time collaboration within
the MuSE environment. Continuum permits multiple users to work and interact with
each other within a common environment and to analyze and manipulate the same
data independent from other users in a parallel private environment. Since it is
designed for use with MuSE, users can interact using various platforms, devices
and tools. MuSE and Continuum were developed for the Unix operating system and
for the Windows-NT(Trademark) platform.
In addition to its software products, the Company also offers custom design
and other consulting and support services relating to MuSE. The Company provides
such services to customers in order to provide customized solutions to specific
customer problems.
The Company has not generated significant revenue to date. Historically,
its largest customers have been agencies or departments of the United States
government, which accounted for 24%, 70% and 72% of revenue for the nine months
ended June 30, 1998, the fiscal year ended September 30, 1997 and the period
from inception to September 30, 1996, respectively. The Company has devoted most
of its resources to date to the development of MuSE and Continuum, and has
conducted only a limited marketing effort for its products and services.
MuSE is a tool which can be used in a wide variety of industrial,
commercial, entertainment and governmental applications. Each application would
be designed to meet the specific requirements of the end users in a particular
industry. In order to maximize the market potential from its products and
services, the Company will attempt to enter into strategic relationships with
partners that have the financial, technological and marketing capability of
developing applications for MuSE in specific industries.
In furtherance of this strategy, in July 1998, the Company entered into an
agreement (the "CRI Agreement") with Continuum Resources International ASA
("CRI"), a Norwegian company and wholly-owned subsidiary of The Norex Group, a
major Norwegian company engaged in providing data collection services to the oil
and gas industry worldwide, for CRI to market, sell, distribute and support
MuSE-based products in the oil and
3
<PAGE>
gas industry worldwide. See "Business--The CRI Agreement." In addition, in July
1998, CRI purchased, for $8 million, 1,000,000 shares of Common Stock and
warrants (the "CRI Warrants") to purchase an additional 1,000,000 shares of
Common Stock. See "Financings." Although the Company is engaged in preliminary
discussions with other companies to market MuSE in other industries, there can
be no assurance that the Company can or will be able to enter into other
strategic relationships or that any agreements with strategic partners will
generate revenue or profits for the Company. See "Business--Strategic
Relationships."
MuSE is based on software licensed to the Company by Sandia Corporation
("Sandia") pursuant to a license agreement dated October 9, 1995 (the "License
Agreement"). Sandia is the operator, under the auspices of the United States
Department of Energy, of Sandia National Laboratories ("SNL"). Prior to
organizing the Company, certain of the Company's founders were employed by
Sandia, where they developed MuSE. See "Business--The License Agreement." Unless
the context otherwise requires, references to "Sandia" include Sandia
Corporation and SNL.
The Company is a Delaware corporation, organized on October 24, 1995. Its
executive offices are located at 1601 Randolph, SE, Albuquerque, New Mexico
87106, and its telephone number is (505) 843-6873.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company......... 1,200,000 Units, each Unit consisting of one share of Common Stock
and one-half Warrant. However, only whole shares of Common Stock and
whole Warrants will be issued and, accordingly, one whole Warrant
will be required to purchase one whole share of Common Stock. A
Warrant certificate will reflect the number of shares of Common Stock
issuable upon exercise of such Warrant certificate. The Common stock
and Warrants comprising the Units are separately transferable
immediately upon issuance and will not trade as a Unit.
Exercise of Warrants...................... Each Warrant is exercisable immediately upon issuance until November
, 2003 and entitles the holder thereof to purchase that number of
shares of Common Stock represented by such Warrant at an exercise
price of $9.60 per share (subject to adjustment and subject to
earlier redemption by the Company).
Redemption of Warrants.................... The Warrants are redeemable by the Company commencing one year from
the date of this Offering, or earlier with the consent of the
Underwriter, at $.01 per each share of Common Stock issuable upon
exercise of the Warrant, upon 30 days prior written notice; provided,
however, that the Warrants are covered by an effective registration
statement, listed on the Nasdaq Stock Market (or a national
securities exchange) and the average closing price of the Common
Stock is at least $12.00 per share, subject to adjustment, for the
twenty day period prior to the date which is five days before the
date the Warrants are called for redemption.
Common Stock Outstanding
Prior to Offering (1)................... 8,763,893 Shares
Common Stock Outstanding
After Offering (2)...................... 9,963,893 Shares
Warrants Outstanding
Prior to Offering (3)................... 423,881 Warrants
Warrants Outstanding
After Offering (3)...................... 1,023,881 Warrants
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds........................... The Company intends to apply the net proceeds of this Offering
primarily for repayment of certain indebtedness, marketing
activities, product development activities, and for working capital
and general corporate purposes. See "Use of Proceeds."
Listing of securities..................... The Company is seeking to list its securities offered hereby on the
Nasdaq SmallCap Market, the Boston Stock Exchange (the "BSE") and the
Pacific Exchange (the "PCX"). See "Risk Factors--No Prior
Trading Market."
Proposed Trading Symbols (4)
Nasdaq:
Common Stock............................ "MUZE"
Warrants................................ "MUZEW"
BSE:
Common Stock............................ " "
Warrants................................ " "
PCX:
Common Stock............................ " "
Warrants................................ " "
Sales by Selling Securityholders.......... An additional 423,881 shares of Common Stock and Warrants to purchase
423,881 shares of Common Stock have been registered pursuant to the
registration statement of which this Prospectus forms a part, for
sale by the holders thereof, subject to a contractual restriction not
to sell such securities for a period of twelve months from the date
hereof or earlier with the consent of the Underwriter. Sales by the
Selling Securityholders are not part of the Offering being sold by
the Underwriter and the Company will not receive any proceeds from
any sales of securities by the Selling Securityholders, except to the
extent that the Warrants are exercised.
The Selling Securityholders may effect sales of the Common Stock,
including Common Stock issuable upon exercise of the Warrants, or
Warrants on the Nasdaq SmallCap Market, the BSE or the PCX at
prevailing prices or in transactions at negotiated prices or by gift
or a combination thereof. Any such sales may be made to the
Underwriter or other registered broker-dealers, acting as either
principal or broker, at any time commencing one year from the date of
this Prospectus or earlier with the consent of the Underwriter. See
"Sales by Selling Securityholders."
Risk Factors.............................. Investment in the Common Stock and the Warrants involves a high
degree of risk and immediate substantial dilution. See "Risk Factors"
and "Dilution."
</TABLE>
- ------------------
(1) Does not include Common Stock issuable upon exercise of warrants to purchase
an aggregate of 1,869,243 shares of Common Stock (including 423,881 shares
of Common Stock subject to Warrants held by the Selling Securityholders) and
an aggregate of 5,236,841 shares of Common Stock subject to options under
the Company's 1995 and 1996 Stock Option Plans, of which options to purchase
2,358,749 shares are outstanding.
(Footnotes continued on next page)
5
<PAGE>
(Footnotes continued from previous page)
(2) Does not include (i) 180,000 shares of Common Stock issuable pursuant to the
Underwriter's over-allotment option, (ii) 120,000 shares of Common Stock
issuable pursuant to the Underwriter's Unit Purchase Option, and
(iii) 1,173,881 shares of Common Stock issuable pursuant to exercise of the
Warrants and Warrants includable in the Underwriter's over-allotment option
and the Underwriter's Unit Purchase Option. See "Underwriting."
(3) Does not include Warrants issuable pursuant to the Underwriter's
over-allotment option and the Underwriter's Unit Purchase Option, and other
outstanding warrants to purchase an aggregate of 1,445,362 shares of Common
Stock.
(4) A listing does not provide any assurance that an active trading market will
develop or be maintained.
SUMMARY FINANCIAL INFORMATION
The summary financial information as of June 30, 1998 and September 30,
1997, and for the year ended September 30, 1997 ("fiscal 97"), for the period
October 24, 1995 (inception) to September 30, 1996 ("fiscal 96") and the nine
months ended June 30, 1997, has been abstracted from the financial statements of
the Company included elsewhere herein (audited, with the exception of the nine
months ended June 30, 1998 and 1997). The interim financial statements for the
nine months ended June 30, 1998 and 1997 are unaudited. In the opinion of
management, these financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair representation of the
interim financial statements. The results of operations for the interim periods
are not necessarily indicative of results that may be expected for the full
year.
SUMMARY FINANCIAL DATA
SUMMARY STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NINE MONTHS ENDED JUNE 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1997 1996(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue............................................... $ 1,761,251 $ 533,351 $ 755,705 $ 355,392
Net loss.............................................. (2,116,400) (1,264,798) (2,049,102) (1,203,745)
----------- ----------- ----------- -----------
Net loss per share.................................... $ (0.29) $ (0.18) $ (0.28) $ (0.18)
----------- ----------- ----------- -----------
Weighted average number of
shares of Common Stock
outstanding......................................... 7,418,768 7,191,398 7,193,169 6,871,642
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
Working capital................................................. $ 163,861 $ 14,948,861
Total assets.................................................... 1,710,004 16,403,734
Total liabilities............................................... 936,202 368,944
Total stockholders' equity...................................... 773,802 16,147,532
Net tangible book value per share............................... $ .10 $ 1.62
---------- ------------
---------- ------------
</TABLE>
- ------------------
(1) Commencing from October 24, 1995 (the date of inception).
(2) As adjusted to give effect to the sale of 1,200,000 Units offered by the
Company, the sale by the Company of 1,000,000 shares of Common Stock to CRI
in a private transaction and the application of a portion of the proceeds of
this Offering to pay certain indebtedness. See "Use Of Proceeds,"
"Capitalization" and "Financing."
6
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is highly speculative and
subject to a high degree of risk, and only those who can bear the risk of the
entire loss of their investment should participate. Prospective investors should
carefully consider the following factors in analyzing this Offering.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY AND SUBSTANTIAL
ACCUMULATED DEFICIT.
The Company has incurred significant losses since inception. For the nine
months ended June 30, 1998, fiscal 1997 and fiscal 1996, the Company incurred
losses of approximately $2.1 million, $2.0 million and $1.2 million,
respectively. Through June 30, 1998, the Company incurred cumulative losses of
approximately $5.4 million, and at such date the Company had an accumulated
deficit of $5.7 million. The Company's revenue to date has not been substantial,
and any increase in revenue will be dependent upon the ability of the Company to
market its software, either directly or through distributors or strategic
partners. Following completion of this Offering, the Company expects to
substantially increase its operating expenses in anticipation of increased
revenue with no assurance that the Company will generate sufficient revenue to
cover such expenses. Accordingly, there can be no assurance that the Company can
or will ever achieve profitable operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EXPLANATORY PARAGRAPH IN INDEPENDENT ACCOUNTANTS' REPORT CONCERNING THE
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN.
The Company's independent accountants have included an explanatory
paragraph in their report on the Company's financial statements for fiscal 1997
to the effect that the Company's net losses and working capital deficiency raise
substantial doubt about the ability of the Company to continue as a going
concern. See Note 3 of Notes to Financial Statements.
CASH REQUIREMENTS.
The Company's principal short-term cash obligation is a $300,000 payment of
principal and interest on notes which are due in November and December 1998. The
Company will require substantial additional funds in order to continue its
marketing and product development programs. The Company's capital requirements
depend on numerous factors, including the progress of its product development
programs, the ability of the Company to enter into strategic arrangements or
other marketing arrangements which result in the commercialization of its
products, the need to purchase or lease additional capital equipment and the
cost of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights. To date, the Company's principal source of funds
has been from the sale of its debt and equity securities. Based upon its current
plans, the Company believes that the net proceeds of this Offering, together
with the net proceeds from the sale of securities to CRI in July 1998 and funds
generated from operations, including payments and royalties received through the
date hereof under the CRI Agreement, will be sufficient to satisfy the Company's
operations for at least the next twelve months. However, if the Company's
current and projected needs change due to unanticipated events or otherwise, the
Company may be required to obtain additional capital and there can be no
assurance that additional financing will be available or that the terms of any
financing will be acceptable to the Company. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one or
more of its product development programs, including but not limited to the
further development of MuSE and Continuum or related products, or the Company
may be forced to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or products that the Company would not
otherwise relinquish. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
TECHNOLOGICAL UNCERTAINTIES.
The commercial success of the Company's software will be dependent on its
acceptance by potential customers. The Company's software is based on technology
that has not been generally proven in the marketplace and is subject to the
risks of failure inherent in products based on new technologies. A significant
portion of the Company's resources, including approximately $6,200,000, or 78%
of the net proceeds of this
7
<PAGE>
Offering, will be used for research and development and marketing relating to
the Company's software and other products and services. There can be no
assurance that the Company can or will develop marketable products. The failure
of the Company to achieve market acceptance of its products will have a material
adverse effect on the Company. See "Business."
MARKETING ACTIVITIES REQUIRED.
The Company's ability to generate revenue and profits from its software
products is dependent upon its ability to successfully market MuSE and
applications using MuSE. The Company's marketing efforts will be directed
principally, at least initially, toward potential strategic partners who can
develop and market applications based on MuSE products in various industries.
Substantial marketing efforts will be required to obtain such strategic
partnerships. A portion of the proceeds of this Offering is allocated to
marketing activities, although no assurance can be given that the Company will
be successful in its marketing efforts. In addition, the Company is subject to
the risks inherent in any attempt to commercialize products based on new
technology, many of which are not within the Company's control. See
"Business--Marketing and Sales."
To date, the Company has undertaken only a limited marketing program which
has been conducted by its officers, employees and, to a lesser extent,
independent consultants. The Company believes that, in order to realize the
maximum market potential from its products and services, it will be necessary
for the Company to enter into strategic relationships with partners that have
the financial, technological and marketing capability to develop applications
for MuSE for use in specific industries. See "Business--Strategy" and
"--Marketing and Sales."
ANTICIPATED DEPENDENCE ON STRATEGIC PARTNERS.
Other than the CRI Agreement, the Company does not currently have any
agreements or understandings with other potential strategic partners, and there
can be no assurance that the Company can or will be able to enter into strategic
relationships or that any agreements or arrangements with strategic partners
will generate revenue or profits for the Company.
To the extent that the Company relies upon strategic partners to perform
such functions as research and development and marketing or commercialization of
applications based on MuSE products, the Company will be dependent upon the
ability and willingness of such strategic partners to perform its obligations in
a timely manner. The amount and timing of the allocation of resources by any
strategic partner pursuant to its arrangement or agreement with the Company may
be affected by numerous factors not within the control of the Company,
including, but not limited to, a change in management or direction by the
strategic partner, the introduction by the strategic partner of products which
may compete with the Company's products or applications or the strategic
partner's perception of the market for the Company's products.
Certain conflicts of interest could arise between the Company and one or
more of its strategic partners which, depending on the nature of the conflict,
could have a material adverse effect upon the Company's business, prospects and
financial condition. Although the Company will seek to restrict its strategic
partners from developing competitive products it may not be able either to
obtain or enforce such restrictions. The Company's strategic partners or their
affiliates may develop, either alone or with others, products which are
competitive or have applications which are competitive with the Company's
products. Such conflicts could affect the support provided by the strategic
partner for the Company's products which could have a material adverse effect on
the Company.
The ability of the Company to enter into arrangements with strategic
partners on acceptable terms may be affected by the Company's financial
condition. To the extent that the Company is in a position where it requires
substantial capital to fund its operations, it may be necessary for the Company
to grant to strategic partners certain rights to the Company's products or
technology which the Company would not otherwise grant. See "Business--Marketing
and Sales."
8
<PAGE>
DEPENDENCE ON LICENSE AGREEMENT.
MuSE is based on software which is licensed to the Company by Sandia
pursuant to the License Agreement, which grants the Company exclusive rights to
develop and commercialize MuSE until October 2005 and thereafter provides a
non-exclusive right through 2015. At the end of such ten year period of
exclusivity, the Company may request Sandia to extend exclusivity through 2015,
which determination shall be made in Sandia's sole discretion. Sandia has the
right to terminate the license or make the license non-exclusive in the event
the Company fails to pay the required royalties under the License Agreement,
with an annual minimum royalty of $20,000 through the year ending December 31,
2006. The Company is also obligated to pay an annual license fee of $10,000
through the year ending December 31, 1999 and a one-time payment of $20,000
prior to July 1999. Any termination of the License Agreement will have a
material adverse effect on the Company. Furthermore, at such time as the license
becomes non-exclusive, other companies may obtain the rights to the Muse
technology to develop products which may compete with those of the Company. See
"Business--The License Agreement" and "Business--Competition."
RAPID CHANGES IN TECHNOLOGY.
The computer industry in general and the software industry in particular
are subject to rapid changes in technology, which can make hardware or software
obsolete. Advances in technology create markets for new products and change or
reduce the market for existing products. There can be no assurance that future
technological developments will not result in technologies which render the
Company's products or applications obsolete. In order for the Company to obtain
market acceptance of MuSE and Continuum or related products, the Company must be
able to convince its potential customers and strategic partners that it has the
technological capabilities to meet the technological demands of the marketplace.
Furthermore, the willingness of a potential strategic partner to enter into an
agreement or arrangement with the Company and to devote the financial and
personnel resources to the development of applications using MuSE may be
dependent on, among other factors, the ability of the Company or the strategic
partner to offer solutions which are competitive with products developed and
offered by others and whether such products can generate an acceptable market
share. See "Business--Research and Product Development."
DISCRETION AS TO USE OF PROCEEDS BY MANAGEMENT.
Except for the payment of approximately $270,000 (3% of the estimated net
proceeds) to pay principal and accrued interest on outstanding debt due in
November and December 1998, the net proceeds of this Offering are allocated to
working capital purposes, including marketing and research and development and
other general corporate purposes. However, unforeseen circumstances, including
general economic and business conditions or material shifts in the Company's
strategy or business plan may result in a reallocation of such intended use of
proceeds. Accordingly, management will have broad discretion with respect to the
expenditure of in excess of 97% of the net proceeds of this Offering, which is
allocated to research and development, marketing and working capital. Purchasers
of the Units offered hereby will be entrusting their funds to the Company's
management, upon whose judgment the investors must depend, with only limited
information concerning management's specific plans or intentions. See "Use of
Proceeds."
UNCERTAINTY OF PROTECTION OF PATENTS AND INTELLECTUAL PROPERTY RIGHTS.
The Company believes that patent and other protection of intellectual
property rights is crucial to its business and that its future will depend in
part on its ability to develop proprietary and/or patented products, maintain
trade secret protection and operate without infringing the proprietary rights of
others. The Company's products are based on patents and other proprietary
technology developed by Sandia and by the Company. Patents have been issued
separately to Sandia and the Company with respect to various aspects of MuSE and
to the Company with respect to Continuum. However, no assurance can be given
that the patents will be upheld if challenged. Any challenge to the validity the
Company's patent rights, regardless of whether the Company ultimately prevails,
could be expensive and could require the Company to use a significant portion of
its resources in any such litigation, without any assurance of success. Pursuant
to the License Agreement, Sandia has the obligation to defend the patents
licensed to the Company against any claim of infringement or invalidity, as a
result of which the Company will be dependent upon Sandia's willingness or
ability to defend the patents against
9
<PAGE>
any claim. No assurance can be given that third parties will not challenge the
validity and enforceability of the patent applications or any patents owned or
issued in the future to the Company, or that such challenges will not be
successful. There can be no assurance that patent infringement claims will not
be asserted and found to have merit, that the Company will not be enjoined from
using MuSE and licensing MuSE, or that the Company would not be forced to obtain
a license and pay future royalty fees as well as past damages to the party
claiming infringement.
The Company will generally rely on a combination of trade secret,
copyright, trademark and patent law to protect its proprietary rights in the
intellectual property developed by it or licensed to the Company. Although the
Company intends to provide products utilizing MuSE to its customers primarily in
object code form, no assurance can be given that unauthorized third parties will
not be able to duplicate the software code. See "Business--Intellectual Property
Rights."
RISK OF PRODUCT LIABILITY; PRODUCT LIABILITY INSURANCE MAY BE INSUFFICIENT OR
UNAVAILABLE.
The use of the Company products, including products designed and marketed
by a potential strategic partner, may expose the Company to liability claims
resulting from the use of the products. The Company currently maintains limited
product liability insurance in the aggregate amount of $2,000,000 per occurrence
with a total aggregate limit of $5,000,000, and there can be no assurance that
such coverage will be adequate. Furthermore, there can be no assurance that
adequate product liability insurance will be available to the Company or any of
its strategic partners in the future at a reasonable cost, if at all. The
inability of the Company or any strategic partner to obtain sufficient coverage
at an acceptable cost or to obtain other protection against potential liability
could prevent or inhibit the commercialization of the one or more of Company's
proposed products. A successful product liability claim or a product recall
would have a material adverse effect upon the Company's business, prospects and
financial condition.
GOVERNMENT CONTRACTS.
The Company maintains several Federal government contracts and receives
grants from the Federal government, all of which are cancellable and subject to
renegotiation at the option of the government for any reason. The Company
derives a significant portion of current revenues, and expects to continue to
derive a material portion of its revenues in the near future, from government
contracts. Accordingly, any such cancellation or renegotiation relating to
significant projects could have a material adverse impact on the Company. See
"Business."
DEPENDENCE ON MANAGEMENT.
The Company is dependent upon the services of Dr. Creve Maples, Chairman of
the Board and Chief Technical Officer, Curtiz J. Gangi, President, and Craig
Peterson, Senior Software Development Manager, for the development of the
Company's products and Douglas Harless, Vice President-Sales and Marketing, for
the marketing of the Company's products and services. Given the Company's early
stage of development and the shortage of personnel trained in the application
and adaptation of MuSE, the Company is dependent on its ability to identify,
hire, train, retain and motivate high quality personnel, especially highly
skilled engineers involved in the ongoing developments required to adapt MuSE to
specific applications and solutions. Loss of the services of any of Dr. Maples
or Messrs. Gangi or Peterson would have a material adverse effect on the
Company's operations and financial condition. Pursuant to the underwriting
agreement, the Company has obtained, and the underwriting agreement requires the
Company to maintain, key man life insurance on the lives of Dr. Maples and
Mr. Gangi in the amount of $1,000,000 each and Mr. Peterson in the amount of
$500,000 while employed by the Company. The Company has entered into three-year
employment agreements with Dr. Maples, Messrs. Gangi, Peterson, Clark and
Harless commencing as of June 1, 1998 providing for current annual compensation
of $175,000, $215,000, $90,000, $150,000 and $150,000, respectively. Each
agreement provides for certain bonuses, severance benefits, non-competition
covenants and, in some cases, payments in the event of a change of control of
the Company. In addition, certain officers have the right to obtain a 5% loan
from the Company to cover certain relocation expenses. See
"Management--Employment Agreements."
10
<PAGE>
COMPETITION.
There are many companies, both public and private, engaged in developing
and marketing software products which compete or have applications which compete
with the Company's software products. At the present time, Division Group PLC
("Division"), Paradigm Systems, Inc. ("Paradigm"), Advanced Visual Systems,
Inc., Gemini Technology Corp., Autodesk, Inc. ("Autodesk") and SGI International
("SGI"), among others, market such products. The Company believes that the
principal factors affecting its ability to compete include such factors as the
functionality and architecture of MuSE, the performance of specific applications
of products using MuSE, the price of MuSE and the perceived ability of the
Company and/or a strategic partner to support and service MuSE after
installation.
Most of the companies with which the Company competes or is expected to
compete have substantially greater financial resources, research and development
capabilities, sales and marketing staffs and distribution channels than the
Company. There can be no assurance that products and services based on MuSE will
achieve sufficient quality, functionality or cost-effectiveness to compete with
existing or future alternatives. Additionally, other major software companies
may be able to develop competing products and, if MuSE gains market acceptance,
other more established companies may enter the Company's markets. See
"Business--Competition."
EFFECTS OF CUSTOMERS' COST-REDUCTION PROGRAMS.
The pricing of software products in general, and those, such as the
Company's, that are based on new technology in particular, may be affected by
the continuing efforts of end-users and project directors to contain or reduce
costs through various means, including curtailment of discretionary spending or
reduction in the scope of or termination of existing projects. The Company
cannot predict the effect such cost reduction measures or changes in the overall
economy may have on its business, and no assurance can be given that any such
actions or changes in the economy will not have a material adverse effect on the
Company's business, financial condition and results of operations. Further, to
the extent that such actions or changes have a material adverse effect upon the
business, financial condition and profitability of other companies that are
prospective strategic partners for certain of the Company's products, the
Company's ability to commercialize its products may be adversely affected. See
"Business--Marketing and Sales."
EFFECTIVE CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS.
The officers and directors of the Company currently beneficially own
approximately 32.2% of the Common Stock of the Comapny (approximately 28.8%
after this Offering) and will have the ability to significantly influence the
election of the directors of the Company and otherwise significantly influence
the affairs of the Company. In addition, CRI owns approximately 11.4% of the
Common Stock of the Company (10.0% after this Offering) and may also be able to
significantly influence the affairs of the Company. See "Principal
Stockholders."
RELATED PARTY TRANSACTIONS.
The Company has entered into several business transactions with its
directors, officers and principal stockholders and their affiliates. Such
arrangements could result in certain conflicts of interest between such persons
and the Company. See "Certain Relationships and Related Transactions." Also, a
portion of the net proceeds of this Offering may be used to make relocation
loans of up to $300,000 to certain officers of the Company. See "Use of
Proceeds" and "Management--Employment Agreements."
ABSENCE OF DIVIDENDS.
The Company has not paid any cash dividends on its capital stock and does
not anticipate paying any such cash dividends in the foreseeable future.
Earnings, if any, will be retained to finance future growth. See "Dividend
Policy."
11
<PAGE>
SUBSTANTIAL DILUTION OF BOOK VALUE.
An investment in such Units will result in an immediate and substantial
dilution to investors in this Offering, based upon the Company's net tangible
book value at June 30, 1998, of $6.38 per share, or 79.8% of the initial public
offering price of $8.00 per Unit, with no value being ascribed to the Warrants.
See "Dilution."
SUBSTANTIAL DIFFERENCE IN INVESTMENT IN THE COMPANY.
Purchasers of the Units in this Offering will have a substantially greater
cash investment in their Common Stock than the present investors, other than
CRI. Assuming no value is allocated to the Warrants, the purchasers in this
Offering will pay $8.00 per share of Common Stock. The present stockholders,
other than CRI, have an average base purchase price of $.40 per share. As a
result, the investors in this Offering will have substantially more cash at
risk, on a per share basis, than the present stockholders, other than CRI. See
"Dilution."
SHARES OF COMMON STOCK ISSUABLE PURSUANT TO WARRANTS AND UNDERWRITER'S UNIT
PURCHASE OPTION; REGISTRATION RIGHTS.
In addition to the 8,763,893 shares of Common Stock outstanding and the
shares of Common Stock and Warrants issuable pursuant to this Offering, there
are outstanding Warrants to purchase 423,881 shares of Common Stock, which
Warrants are held by the Selling Securityholders, and other outstanding warrants
to purchase 1,445,362 shares of Common Stock. The Company will issue to the
Underwriter for nominal consideration the Underwriter's Unit Purchase Option to
purchase 120,000 Units. The Company also has stock option plans pursuant to
which options to purchase 2,358,749 shares of Common Stock are outstanding. See
"Financings," "Sales by Selling Securityholders," "Management--Stock Option
Plans" and "Underwriting." The holders of Warrants and the Underwriter's Unit
Purchase Option have certain demand and/or piggyback registration rights. The
Company will bear the cost of preparing such registration statements but will
not receive any proceeds from the sale of shares of Common Stock or Warrants
pursuant thereto other than payment of the exercise price with respect to any
Warrants that are exercised. The Company anticipates that it will register the
shares of Common Stock pursuant to the Company's stock option plans pursuant to
a Form S-8 registration statement. CRI also possesses certain demand and
piggyback registration rights with respect to the 1,000,000 shares of Common
Stock held by CRI and the 1,000,000 shares of Common Stock underlying the CRI
Warrants. The existence of these registration rights, as well as the sale of
shares of Common Stock pursuant to registration statements which the Company may
be required to prepare, may have a depressive effect on the price of the Common
Stock in the open market. In addition, the existence of such warrants and
options and the registration rights referred to above may adversely affect the
terms on which the Company can obtain additional equity financing. The holders
of warrants are likely to exercise them at a time when the Company would
otherwise be able to obtain capital on terms more favorable than those provided
by the Warrants. See "Description of Securities."
ARBITRARY DETERMINATION OF OFFERING PRICE.
The initial public offering price and composition of the Units and terms of
the Warrants have been determined by negotiations between the Company and the
Underwriter and does not necessarily relate to the Company's book value, net
worth, financial condition or other established criteria of value. See
"Underwriting" for information about factors considered in determining the
initial public offering price. The factors considered in determining the public
offering price and terms, in addition to prevailing estimates of the business
potential and earning prospects of the Company, the present state of the
Company's development and an assessment of the Company's management, as well as
the consideration of the foregoing factors in relation to market valuations of
comparable companies, do not necessarily bear any relationship to the Company's
assets, accounting results or the book value of the Company or other generally
accepted criteria of value. See "Underwriting."
NO PRIOR PUBLIC TRADING MARKET.
Prior to this Offering, there was no established market for the Company's
securities. The Company is seeking to list the Common Stock and Warrants on the
Nasdaq SmallCap Market, BSE and PCX, however, there can be no assurance that an
active market in the Common Stock or Warrants will develop or be maintained or
12
<PAGE>
that the Common Stock or Warrants will be listed on either or both of such
exchanges. Purchasers of the securities offered hereby may, therefore, have
difficulties in selling such securities should they desire to do so. The market
price for the Company's securities following this Offering may be highly
volatile. Factors such as the Company's financial results, introduction of new
products in the marketplace, and various factors affecting the computer industry
generally may have a significant impact on the market price of the Company's
securities, as well as price and volume volatility affecting small and emerging
growth companies, in general, and not necessarily related to the operating
performance of such companies. Accordingly, securities received in this Offering
may be deemed illiquid.
A significant number of the Units may be sold to customers of the
Underwriter. Such customers may subsequently engage in the sale or purchase of
the Common Stock or Warrants or with the Underwriter. Although it has no
obligation to do so, the Underwriter may become a market maker and otherwise
effect transactions in such securities, and, if it participates in such market,
may be a dominating influence in the trading of such securities. The prices and
the liquidity of such securities may be significantly affected by the degree, if
any, of the participation of the Underwriter in such markets, should a market
develop. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF THE WARRANTS.
Commencing one year from the date of this Prospectus, or earlier with the
consent of the Underwriter, the Warrants may be redeemed by the Company at a
redemption price of $.01 per Warrant upon not less than 30 days' notice if the
average closing price per share of the Common Stock is at least $12.00, subject
to adjustment, during the 20 day period ending not earlier than five days from
the date the Warrants are called for redemption. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price
therefor at a time when it may be disadvantageous for the holder to do so, to
sell the Warrants at the then current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price, which, at the time
the Warrants are called for redemption, is likely to be substantially less than
the market value of the Warrants. The Company will not call the Warrants for
redemption except pursuant to a currently effective prospectus and registration
statement. See "Description of Securities--Class A Redeemable Common Stock
Purchase Warrants."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS.
Holders of the Warrants will only be able to exercise the Warrants if
(a) a current prospectus under the Securities Act relating to the shares of
Common Stock issuable upon exercise of the Warrants is then in effect and (b)
such securities are qualified for sale or exemption from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts to
maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, and may not call the Warrants for redemption unless
there is a current and effective registration statement covering the issuance of
the Common Stock upon exercise of the Warrants, there can be no assurance that
the Company will be able to do so. Pursuant to Section 10(a)(3) of the
Securities Act, this Prospectus, unless amended or supplemented in accordance
with the rules and regulations of the Commission pursuant to the Securities Act,
may not be used by the Company in connection with the exercise of any Warrants
subsequent to nine months from the date of this Prospectus. Prior to the
expiration of nine months from the date of this Prospectus, it may be necessary
to amend or supplement this Prospectus under certain conditions, in which event
the Warrants could not be exercised prior to the date of the amended Prospectus
or supplement. Unless there is an effective and current registration statement
covering the issuance of the Common Stock upon exercise of the Warrants, the
Company will not accept payment for, or issue Common Stock with respect to, the
exercise of any Warrants, and any payments made by a Warrant holder will be
refunded by the Company. The value of the Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
from qualification in the states in which the holders of Warrants reside.
The Company has registered or qualified the Warrants for sale in a limited
number of states. There is no assurance that, at the time a holder of Warrants
desires to exercise the Warrants, that such holder will reside in a state in
which the underlying Common Stock may be issued, even if the Underwriter is able
to sell the Units in such states. Although the Company is not aware of any
states which prohibit the registration or qualification of
13
<PAGE>
securities of the type offered by the Company and anticipates that it will
qualify for available after-market exemptions in a majority of states within
several months after the completion of the Offering, there can be no assurance
that an exception permitting the exercise of the Warrants will be available in
any jurisdiction other than those in states which the Common Stock and Warrants
were initially registered or are exempt from registration at the time a holder
seeks to exercise Warrants. See "Description of Securities--Class A Redeemable
Common Stock Purchase Warrants."
POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN COMPANY'S SECURITIES.
The Company is seeking to list the Common Stock and Warrants on the Nasdaq
SmallCap Market, BSE and PCX. The Underwriter has advised the Company that it
intends to make a market in the Company's securities following consummation of
this Offering. Regulation M promulgated under the Exchange Act may prohibit the
Underwriter from engaging in any market making activities with regard to the
Company's securities for the period from one or five business days (or such
other applicable period as Regulation M may provide) prior to any distribution
by the Underwriter of the Company's securities until the later of the
termination of such distribution activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
sale of such securities. As a result, the Underwriter may be unable to provide a
market for the Company's securities during such distribution period. Any
temporary cessation of such market making activities could have an adverse
effect on the market price of the Company's Securities. See "Underwriting."
FUTURE SALES OF COMMON STOCK UNDER RULE 144 OR OTHERWISE.
All of the 8,763,893 issued and outstanding shares of Common Stock as of
the date of this Prospectus, are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Of the total shares
outstanding, approximately 6,500,000 shares are subject to the restrictions
contained in certain agreements with the Underwriter and officers, directors and
certain stockholders of the Company restricting the sale or other disposition of
such persons' Common Stock for twelve (12) months following the date of this
Prospectus without the prior written consent of the Underwriter. Subsequent to
the end of the 12 month restriction, all of such restricted shares will be
eligible for sale under Rule 144. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one-year holding period
may sell "restricted securities" within any three-month period limited to a
number of shares which does not exceed the greater of one percent of the then
outstanding shares or the average weekly trading volume during the four calendar
weeks prior to such sale. Rule 144 also permits the sale (without any quantity
limitation) of "restricted securities" by a person who is not an affiliate of
the issuer and who has satisfied a two-year holding period. Accordingly, the
1,873,029 shares (and all shares subject to options and warrants) held by
officers and directors will be subject to the volume limitations described above
so long as such persons are deemed affiliates of the Company. See "Shares
Eligible for Future Sale" and "Principal Stockholders."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SMALLCAP MARKET.
The Common Stock and Warrants will be listed on the Nasdaq SmallCap Market.
The Company's failure to meet the listing maintenance criteria of the Nasdaq
SmallCap Market in the future for any reason may result in the discontinuance of
the inclusion of the Company's securities on such market. To qualify for
continued inclusion in the Nasdaq SmallCap Market, a company will have to
maintain (a) either $2,000,000 in net tangible assets (total assets minus total
liabilities and goodwill); market capitalization of $35,000,000; or net income
of $500,000 in the most recently completed fiscal year or in two of the last
three most recently completed fiscal years; and (b) a market value of the public
float of $1,000,000. In addition, continued inclusion requires two market-makers
and a minimum bid price of $1.00. In the event of Nasdaq SmallCap Market
delisting, trading, if any, in the Company's securities may then continue to be
conducted on the OTC Electronic Bulletin Board or in the non-Nasdaq
over-the-counter market. As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of the
Company's securities. See "Description of Securities--Common Stock"
and--Class A Redeemable Common Stock Purchase Warrants."
14
<PAGE>
DISCLOSURE RELATING TO LOW-PRICED STOCKS.
The Commission has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the Nasdaq system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure documented prepared by
the Commission that provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson on the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker dealer and
salesperson compensation information must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. These disclosure
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If the Company's securities become subject to the penny stock rules, investors
in this Offering may find it more difficult to sell their securities. The
Company's securities will not, however, at the time of consummation of this
Offering, be deemed to be a penny stock under the rules.
YEAR 2000 COMPLIANCE
There are issues associated with the programming code in existing computer
systems as the year 2000 approaches. The "year 2000 problem" is pervasive and
complex, as virtually every computer operation will be affected in some way by
the rollover of the two digit year value of 00. The issue is whether computer
systems will properly recognize date sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company has not verified that
companies doing business with it are year 2000 compliant. The Company does not
anticipate that it will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant. The
Company believes that its products are currently year 2000 compliant. However,
significant uncertainty exists concerning the potential costs and effects
associated with year 2000 compliance. Any year 2000 compliance problem of either
the Company or its customers or strategic partners could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
15
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at June 30, 1998
was approximately $.10 per share. Net tangible book value per share of Common
Stock represents the amount of the Company's tangible assets reduced by the
amount of its liabilities divided by the number of outstanding shares of Common
Stock. Without taking into account any change in the net tangible book value of
the Company after June 30, 1998, other than as a result of (i) the sale of the
1,200,000 shares of Common Stock included in the Units offered hereby at an
initial public offering price of $8.00 per share, after deducting estimated fees
and other expenses of the Offering, and (ii) the receipt by the Company of
$8.0 million from the sale of securities to CRI, net of bonuses paid to three
officers of the Company, the Company's net tangible book value as of June 30,
1998 would have been approximately $1.62 per share. This amount represents an
immediate increase in net tangible book value per share of approximately $1.52
to the present stockholders and an immediate dilution of Common Stock (the
difference between the offering price of the Units (with no value ascribed to
the warrants) and the net tangible book value per share after the Offering) of
approximately $6.38, or 79.8% of the initial public offering price, to the
purchasers of the Units.
The following table illustrates the dilution of one share of Common Stock
as of June 30, 1998:
<TABLE>
<S> <C> <C>
Public offering price per share..................................................... $8.00
Net tangible book value per share before the Offering............................. $0.10
Increase per share attributable to new investors.................................. $1.52(1)
-----
Pro forma net tangible book value per share after the Offering...................... $1.62
-----
Dilution per share to new investors................................................. $6.38(2)
-----
-----
</TABLE>
- ------------------
(1) After giving effect to the sale by the Company to CRI, in July 1998, of
1,000,000 shares of Common Stock at $8.00 per share, the pro forma net
tangible book value per share at June 30, 1998 would be $0.94. Accordingly,
after giving effect to this Offering, such increase per share attributable
to new investors would be $0.68.
(2) If the Underwriter exercises the over-allotment option in full, the pro
forma net tangible book value would be $1.72 per share of Common Stock,
resulting in an increase in the net tangible book value per share of $1.62
and dilution to the public investors of $6.28 per share.
The following table summarizes on a pro forma basis, as of September 30,
1998, the differences between existing stockholders and purchasers of shares in
this Offering with respect to the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average purchase price
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Current Stockholders*..................... 7,763,893 78.0% $ 3,073,279 $ 13.3% $0.40
CRI....................................... 1,000,000 10.0% $ 8,000,000 39.4% $8.00
Public Investors.......................... 1,200,000 12.0% $ 9,600,000 47.3% $8.00
--------- ------- ----------- -------
Total..................................... 9,963,893 100.0% $20,673,279 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
- ------------------
* Other than CRI.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby
are estimated to be $7,985,000 after deducting underwriting discounts and
commissions of approximately $960,000 and expenses of this Offering of
approximately $655,000. The Company anticipates that the net proceeds of this
Offering will be applied substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
ALLOCATION OF PROCEEDS DOLLAR AMOUNT PERCENT
- --------------------------------------------------------------------- ------------- -------
<S> <C> <C>
Payment of 1997 Notes(1)............................................. $ 270,000 3%
Relocation Loans to Officers(2)...................................... 300,000 4%
Marketing Activities................................................. 2,915,000 37%
Product Development Activities....................................... 3,300,000 41%
Working Capital...................................................... 1,200,000 15%
----------- ---
Total........................................................... $ 7,985,000 100%
----------- ---
----------- ---
</TABLE>
- ------------------
(1) These notes were issued to 18 accredited investors and bear interest at 8%
per annum. The net proceeds from the notes were used for capital
expenditures and working capital. See "Financings--December 1997 Private
Placement."
(2) Such loans, if taken by such officers, will mature in five years and will
bear interest at 5% per annum. See "Management--Employment Agreements."
The foregoing represents the Company's current estimate of its proposed use
of the net proceeds of this Offering based upon the present state of its
business, operations and plans, current business conditions and the Company's
evaluation of the market for its services. Except for the payment of the 1997
Notes, for which approximately $270,000 is required (inclusive of estimated
interest), management will have broad discretion with respect to the expenditure
of a substantial portion of the net proceeds of this Offering. In particular,
management will have broad discretion to allocate funds to marketing, product
development and other working capital purposes, based on the business of the
Company as it develops from time to time.
The Company intends to use the portion of the proceeds devoted to marketing
to continue to market its core software product, MuSE, and its proprietary
software product, Continuum, in certain strategic markets. In addition, the
Company will devote a portion of the proceeds to market its custom design and
consulting and support services relating to MuSE. Such funds may also be used to
assist customers in marketing the Company's products and services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--The CRI Agreement."
The Company intends to use the portion of the proceeds devoted to product
development to redesign, develop and update the MuSE software and its related
products to facilitate its use within high-end industrial, scientific and
educational sectors. The Company may also use such proceeds to develop new
products and enhance existing products to improve price and performance, expand
product capabilities, simplify user interfaces and develop interoperability with
most products and devices commonly used in the Company's targeted markets.
The Company intends to use the portion of the proceeds devoted for working
capital to maintain and fulfill its current obligations under license contracts,
employment agreements and other material agreements and for other corporate
purposes which may include capital expenditures that may be incurred in the
normal course of business.
Conditions may develop which could cause management to reallocate proceeds
from the categories listed above, including changes in its marketing program,
the ability of the Company to enter into agreements or arrangements with
strategic partners and changes in government policy, none of which can be
predicted with any degree of certainty. Furthermore, future events, including
unforseen problems, expenses, difficulties, complications and delays frequently
encountered by businesses, as well as changes in the economic climate, changes
or anticipated changes in government regulations, new technologies, competition,
reimbursement
17
<PAGE>
policies or acquisition or joint venture opportunities, may make the
reallocation of funds necessary or desirable. Any such reallocation will be at
the discretion of the Board of Directors.
The Company anticipates, based upon its current plans, that the net
proceeds of this Offering, together with the net proceeds from the sale of
securities to CRI in July 1998 and funds generated from operations, including
payments and royalties received through the date of this Prospectus under the
CRI Agreement, will be sufficient to satisfy its contemplated cash requirements
for at least twelve months. However, if the Company's current and projected
needs change due to unanticipated events or otherwise, the Company may be
required to obtain additional financing and there can be no assurance that
additional financing will be available or that the terms of any financing will
be acceptable to the Company. If adequate funds are not available, the Company
may be required to delay, scale back or eliminate one or more of its product
development programs, including but not limited to the further development of
MuSE and Continuum or related products, or the Company may be forced to obtain
funds through entering into arrangements with collaborative partners or others
that may require the Company to relinquish rights to certain of its technologies
or products that the Company would not otherwise relinquish. The Company has no
current arrangements with respect to, or sources of, additional financing.
To the extent that the Underwriter's over-allotment option is exercised,
additional net proceeds will be added to working capital. Pending utilization of
the proceeds of this Offering, the Company may make temporary investments in
bank certificates of deposit, prime commercial paper, United States Government
obligations, investments in money-market funds or other similar short-term
low-risk investments.
CAPITALIZATION
The following table sets forth the Company's capitalization at June 30,
1998, and as adjusted to give effect to (a) the issuance and the sale of the
1,200,000 Units offered hereby, (b) the sale of securities to CRI, and (c)
application of a portion of the net proceeds to pay certain debt. This table
should be read in connection with the Company's Financial Statements and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------
ACTUAL AS ADJUSTED
----------- -------------
<S> <C> <C>
Short term debt ................................................................... $ 804,914 $ 237,566
----------- -------------
Stockholders' equity:
Common stock, par value $.015 per share, 50,000,000 shares authorized; 7,763,893
shares outstanding; 9,963,893 shares as adjusted(1)........................... 116,458 149,458
Additional paid-in-capital....................................................... 6,459,091 21,799,821
Stock subscription receivable(2)................................................. (87,500) (87,500)
Accumulated deficit.............................................................. (5,714,247) (5,714,247)
----------- -------------
Total stockholders' equity.................................................... 773,802 16,147,532
----------- -------------
Total debt and stockholder's equity................................................ $ 1,578,716 $ 16,385,098
----------- -------------
----------- -------------
</TABLE>
- ------------------
(1) Does not include an aggregate of 9,156,084 shares of Common Stock reserved
as follows: (a) 2,869,243 shares of Common Stock issuable upon exercise of
outstanding warrants (including Warrants to purchase 423,881 shares of
Common Stock held by the Selling Security holders and Warrants to purchase
1,000,000 shares of Common Stock held by CRI), (b) 5,236,841 shares of
Common Stock issuable upon exercise of options granted or to be granted
pursuant to the Company's 1995 and 1996 Stock Option Plans (of which,
options to purchase 2,358,749 shares of Common Stock are outstanding),
(c) 600,000 shares of Common Stock issuable upon exercise of Warrants
included in the Units, (d) 270,000 shares of Common Stock issuable as part
of the Units issuable upon exercise of the Underwriter's over-allotment
option and upon exercise of Warrants issuable upon exercise of such
over-allotment option, and (e) 180,000 shares of Common Stock issuable upon
exercise of the Underwriter's Unit Purchase Option and upon exercise of
Warrants issuable upon exercise of the Underwriter's Unit Purchase Option.
(2) See "Certain Relationships and Related Transactions" and Note 5 of Notes to
Financial Statements.
18
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this Prospectus.
OPERATIONAL OVERVIEW
From the Company's inception (October 24, 1995) until September 30, 1996
the Company's primary activities consisted of developmental activities,
including the acquisition of MuSE; research and development relating to MuSE and
Continuum; commercialization of MuSE; developing marketing strategies; selecting
a management team; and obtaining financing. During fiscal 1997, the Company
commenced active sales and marketing activities relating to MuSE and related
products and began generating revenues from sales and licensing of such products
and providing consulting and maintenance services.
In June 1998, the Company entered into the CRI Agreement with respect to
distribution of the Company's products and services in the oil and gas industry
worldwide. The CRI Agreement provides that in exchange for such exclusive
rights, CRI will pay the Company a non-refundable license fee of $5,000,000 (of
which $1,000,000 was paid in June 1998, $2,000,000 was paid in October 1998 and
the remaining $2,000,000 is due by November 30, 1998) and minimum sales
commitments totaling $12,000,000 over the next three years. The Company has
recognized the $5,000,000 license fee under the CRI Agreement as revenue for
the fiscal year ended September 30, 1998. The Company's strategy is to seek to
enter into similar arrangements in other markets. See "Business."
Revenue during the nine months ended June 30, 1998 (the "June 1998 period")
was $1,761,000, of which $1,000,000 reflects the initial payment pursuant to the
CRI Agreement. Although such revenues represent a significant increase over the
nine months ended June 30, 1997 (the "June 1997 period"), such results are not
comparable since the Company did not begin commercialization and marketing
efforts until the latter part of fiscal 1997. The net loss during the nine
months ended June 30, 1998 was $2,116,400 due in part to increased marketing and
personnel costs associated with the commercialization effort, interest expense
and $948,000 for a non-cash imputed compensation expense incurred in connection
with the repricing of employee stock options.
Research and development expense was $710,000 for the June 1998 period, a
17.1% increase over the research and development expense for the June 1997
period, which was $606,000. The increase reflects expenditures relating to the
development of Continuum software modifications to enable MuSE and Continuum to
operate on Windows-NT(Trademark) computers.
Interest expense was $555,000 for the June 1998 period as compared to
$32,000 for the June 1997 period, reflecting accrued interest and debt issuance
costs in connection with various private placements of notes during the June
1998 period.
Revenues generated during fiscal 1997 and fiscal 1996 aggregated
approximately $756,000 and $355,000, respectively. Revenues for fiscal 1997
consisted primarily of product sales, licensing fees and consulting and
maintenance fees. Revenues for fiscal 1996 consisted primarily of fees related
to research and development services provided on behalf of government and
industrial customers. The net loss from operations for fiscal 1997 and for
fiscal 1996 of ($2,049,000) and ($1,204,000), respectively, resulted principally
from the disproportionate amount of overhead expenses in relation to revenues
received due to the recent commercialization of the Company's products and
services in fiscal 1997.
Research and development expense was $742,000 and $599,000 for fiscal 1997
and fiscal 1996, respectively, related primarily to the development of MuSE and
Continuum.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's independent auditors have included an explanatory paragraph
in their report on the Company's financial statements to the effect that certain
matters raise substantial doubt about the Company's ability to continue as a
going concern, which is contingent upon, among other things, the Company's
ability to secure financing and attain profitable operations.
To date, the Company's capital needs have been funded through a series of
debt and equity financings.
In December 1995, the Company sold convertible promissory notes and
warrants for net proceeds of approximately $900,000, which proceeds were used to
pay certain liabilities assumed in connection with the Acquisition. In April
1996, such notes were converted into an aggregate of 131,579 shares of Common
Stock.
During April through September 1996, the Company received net proceeds of
approximately $1,700,000 through the sale of Common Stock.
In June 1997, the Company received net proceeds of $1,113,750 from the
issuance of notes in the principal amount of $1,237,500. Of such notes, $937,500
were paid on maturity in June 1998 out of the proceeds of the April 1998 Private
Placement and $309,960 of such notes and accrued interest were converted to an
aggregate of 68,880 shares of Common Stock and Warrants to purchase 68,880
shares of Common Stock.
In December 1997, the Company completed a private placement (the "December
1997 Private Placement") consisting of 8% promissory notes (the "1997 Notes") in
the aggregate principal amount of $875,000 and an aggregate of 57,566 shares of
Common Stock. The net proceeds to the Company from the December 1997 Private
Placement was $688,000. A portion of the 1997 Notes were paid and the balance
are payable in November and December 1998, together with accrued interest
thereon. The Company will use approximately $270,000 of the net proceeds of this
Offering to repay the 1997 Notes, together with accrued interest thereon. See
"Use of Proceeds."
In April and May 1998, the Company sold an aggregate of 355,000 shares of
Common Stock and warrants to purchase 355,000 shares of Common Stock, for net
proceeds of $1,411,561 (the "April 1998 Private Placement"). The Underwriter
acted as Placement Agent in connection with the April 1998 Private Placement and
received a commission of 10% of the gross proceeds of such sale and
reimbursement of its expenses (including legal fees and disbursements) incurred
in connection with such placement of $25,000.
In July 1998, the Company entered into the CRI Agreement and it sold
1,000,000 shares of Common Stock and CRI Warrants to purchase 1,000,000 shares
of Common Stock to CRI for an aggregate purchase price of $8,000,000. The
Company paid special bonuses aggregating approximately $520,000 to three
officers of the Company in connection with such transaction. See "Financings."
In October, 1998, in order to assist CRI with its short term cash
requirements in connection with CRI's commencement of marketing efforts with
respect to the Company's products, the Company approved certain loans to CRI in
the principal amount of up to $1,000,000 payable on demand with interest at 12%
per annum accruing and payable monthly following 60 days from the draw-down
date. As of the date hereof, $250,000 is outstanding under such loan
arrangement.
The Company will require substantial additional funds in order to continue
its marketing and product development programs. The Company's capital
requirements depend on numerous factors, including the progress of its product
development programs, the ability of the Company to enter into strategic
arrangements or other marketing arrangements which result in the
commercialization of its products, the need to purchase or lease additional
capital equipment and the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights. To date, the Company's
principal source of funds has been from the sale of its debt and equity
securities. Based upon its current plans, the Company believes that the net
proceeds of this Offering, together with the net proceeds from the sale of
securities to CRI in July 1998 and funds generated from operations, including
payments and royalties under the CRI Agreement, will be sufficient to satisfy
the Company's operations for at least the next twelve months. However, if the
Company's current and projected needs change due to unanticipated events or
otherwise, the Company may be required to obtain additional capital and there
can be no assurance that additional financing will be available or that the
terms of any financing will be acceptable to the Company. If adequate funds are
not available, the Company may be required to delay, scale
20
<PAGE>
back or eliminate one or more of its product development programs, including but
not limited to the further development of MuSE and Continuum or related
products, or the Company may be forced to obtain funds through entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies or products that the Company
would not otherwise relinquish.
YEAR 2000 COMPLIANCE
There are issues associated with the programming code in existing computer
systems as the year 2000 approaches. The "year 2000 problem" is pervasive and
complex, as virtually every computer operation will be affected in some way by
the rollover of the two digit year value of 00. The issue is whether computer
systems will properly recognize date sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company has not verified that
companies doing business with it are year 2000 compliant. The Company does not
anticipate that it will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant. The
Company believes that its products are currently year 2000 compliant. However,
significant uncertainty exists concerning the potential costs and effects
associated with year 2000 compliance. Any year 2000 compliance problem of either
the Company or its customers or strategic partners could have a material adverse
effect on the Company's business, results of operations and financial condition.
BUSINESS
PRODUCTS AND SERVICES
The Company was organized to commercialize the MuSE technology and software
which were initially developed by the Company's founders and some of its current
employees, at Sandia. MuSE allows the user to develop and execute software
programs and import data into a multisensory environment. The MuSE software has
been substantially redesigned and rewritten by the Company from the original
prototype developed at Sandia.
MuSE is a software shell that allows data representation and analysis
through a new approach to human-computer interaction and software development.
MuSE is designed both to allow the manipulation of data and information from
other sources and the incorporation of software programs within the MuSE
environment, and to enhance the user's ability to understand and analyze such
data and information. MuSE can be used with different computing platforms and
different physical or logical input and output devices. The multisensory
capabilities of MuSE enables the user to present information in real-time using
visual, auditory, tactile and other physical or interactive tools.
MuSE assists users in creating synthetic or virtual environments in which
information can be processed in ways which are different from traditional use of
computers. Most computer software requires users to learn an entirely new way of
interacting with and processing information that is not consistent with human
perceptual processing. MuSE adapts the computer to humans by complementing human
perceptual processes. MuSE is designed to allow the user to interact with the
computer as if the computer is an extension of the user and the way that
particular user processes and analyzes information.
MuSE possesses the following attributes:
Device Independence: MuSE permits the incorporation of most existing
computer peripheral device technologies, including flat-screen display,
stereo viewing, head and body tracking devices, "virtual reality," sound,
speech recognition, voice synthesis, and other mechanical devices such as
mouse, joystick and steering wheel, without changes to the software
application code.
Software Simplification: Software development and integration for use
in the MuSE environment is significantly simplified by eliminating the need
to write specific software code to access and interface hardware devices
within the MuSE environment.
Real-Time Operation: MuSE is designed to rapidly and efficiently
coordinate parallel input and output devices and the operation of such
devices within the MuSE environment. Such efficient coordination results
in immediate output in the form of visual and auditory displays which
approximate real-time responses.
21
<PAGE>
Ancillary Virtual Environment: Through the creation of a secondary
space around the user, MuSE allows the user to "travel" throughout the
virtual environment and explore data and applications in ways that the
Company believes are more consistent with human perceptual processes than
traditional computer environments. The user may pilot a virtual craft which
operates independent from any other application, and allows movement,
control of objects in the environment, provides both navigational and
managerial aids and the display of associated information in a readily
accessible manner within the virtual craft.
Multiprocessing: MuSE is designed to support multiprocessing
capabilities at several levels, including user interaction, device control
and foreground-background operation.
Continuum permits multiple users to work and interact with each other
within a common MuSE environment and to analyze and manipulate the same data
either together with other users in the same space or independent from other
users in a parallel private environment (or multiple environments) from which
other users can be excluded or included at the discretion of the user
establishing the parallel environment. A particular user can manipulate his or
her parallel private environment according to his or her own interests and
perceptual tools, and can be joined by other users for collaboration and idea
exchange as such user deems appropriate. Similarly, a user can jump from a
private parallel environment at any time to rejoin other users in the "public"
environments.
The Company's software products can be utilized with a wide range of
hardware configurations and can be used simultaneously by more than one user in
desktop, office, laboratory or theatre settings.
In addition to its software products, the Company also offers custom
application design and development as well as consulting and support services
relating to its products.
STRATEGY
At present, the Company's products are designed to be used within the
high-end industrial, scientific and educational sectors of "visual computing."
These sectors are largely driven by technological advances in the areas of
computer graphics; real-time simultaneous processing of three-dimensional ("3D")
graphics, audio, videos, images, and text; multiprocessing, and increased
computer processing capabilities through advanced chip technology and enhanced
graphics card capabilities. Visual computing is the use of digital inputs to
create and manipulate true-color, 3D objects, representing complex data with
extreme precision and speed, thereby enhancing human understanding. In visual
computing, a 3D, full-color window or screen replaces the standard
black-and-white, two-dimensional screen image. The use of images makes it
possible to represent complex data sets more understandably as well as simulate
real-world characteristics. Combined with appropriate input and output devices
(not provided by the Company), visual computing can be significantly enhanced
into a multi-dimensional synthetic environment. The Company believes that, with
MuSE, visual computing becomes not only multi-dimensional but also multi-sensory
and highly interactive.
MuSE is a platform which can be used in a wide variety of industrial,
commercial, educational, entertainment and governmental applications. Each
application would be designed to meet the specific requirements of a particular
end user or a particular industry.
MuSE and Continuum were initially designed to operate on UNIX-based,
high-end graphics computers and workstations such as those marketed by SGI and
Sun. The Company has expanded the potential market for its products and services
by developing MuSE and Continuum software that operates on Windows-NT(Trademark)
computers with advanced graphics capabilities.
The Company believes that, in order to maximize the market potential from
its products and services, it will be necessary for the Company to enter into
strategic relationships with partners that have the financial, technological and
marketing capability of developing applications for MuSE or distributing the
Company's products and services in specific industries.
In furtherance of this strategy, in June 1998, the Company entered into the
CRI Agreement, pursuant to which CRI was given the exclusive worldwide right to
market and sell the Company's software products and services in the oil and gas
industry. See "Business--The CRI Agreement." Although the Company is engaged in
discussion with other companies to market MuSE to other industries, there can be
no assurance that the Company
22
<PAGE>
can or will be able to enter into other strategic relationships or that any
agreement with strategic partners will generate revenue or profits to the
Company.
In addition, in connection with its marketing program, the Company may
enter into agreements with customers or potential strategic partners to develop
custom MuSE applications designed to address specific problems in a particular
market.
MARKETING AND SALES
The Company presently has a limited marketing staff, consisting of four
employees, including its Vice President of Sales and Marketing. The Company is
actively seeking to recruit and hire several additional experienced software
development and sales professionals.
The Company is seeking to enter into agreements with potential strategic
partners that have the financial, technological and marketing capability of
developing applications for MuSE or distributing the Company's products and
services in specific industries. In June 1998, the Company entered into the CRI
Agreement, which covers the exploratory and production aspects of the oil and
gas industry. The Company is initially directing its marketing efforts to obtain
strategic partners in the database, automotive manufacturing and medical imaging
industries, and from agencies of the Federal government. There can be no
assurance that the Company will be able to enter into strategic relationships in
industries other than the oil and gas industry.
During the nine months ended June 30, 1998 and fiscal 1997 and 1996,
approximately 24%, 70% and 72%, respectively, of revenue was derived from
agencies of the Federal government. Such contracts are subject to renegotiation
or termination at the convenience of the government.
THE CRI AGREEMENT
On June 19, 1998, the Company and CRI entered into the CRI Agreement,
pursuant to which the Company granted CRI an exclusive, worldwide
non-transferable license to market, sell and distribute the Company's products
in the oil and gas industry relating to the exploration and production of oil
and gas. The CRI Agreement has a term of three years and continues for
successive three-year terms unless either party terminates the agreement on
written notice given not later than 60 days prior to the end of the initial term
or any renewal term. Upon the occurrence of an event of default under the CRI
Agreement, the Company can terminate the CRI Agreement upon 60 days notice.
Pursuant to the CRI Agreement, CRI is to pay the Company a $5,000,000
non-refundable initial payment, of which $3,000,000 has been paid and the
balance is due by November 30, 1998. The CRI Agreement has quarterly quotas,
which, during the initial term, range from $500,000 to $2,000,000. The quotas
are based on the Company's present price structure and are subject to adjustment
under certain conditions.
The CRI Agreement also requires the Company to hire a support team of four
persons to be dedicated to working with CRI on its sales and development
efforts. The cost of such support team is borne by the Company, except that,
under certain conditions, some or all of the cost of such persons is paid by
CRI.
In October, 1998, in order to assist CRI with its short term cash
requirements in connection with CRI's commencement of marketing efforts with
respect to the Company's products, the Company approved certain loans to CRI in
the principal amount of up to $1,000,000 payable on demand with interest at 12%
per annum accruing and payable monthly following 60 days from the draw-down
date. As of the date hereof, $250,000 is outstanding under such loan
arrangement.
THE LICENSE AGREEMENT
Pursuant to the License Agreement, the Company received (i) a limited
exclusive worldwide license to use and reproduce the MuSE software, (ii) a
license to create derivative works of MuSE software and (iii) the right to
distribute and sublicense the MuSE software. The License Agreement provides the
Company with a ten year exclusive license with respect to the MuSE software, and
thereafter provides a non-exclusive right through 2015. After the end of such
ten year period of exclusivity, the Company may request Sandia to extend
exclusivity through 2015, which determination shall be made in Sandia's sole
discretion and subject to continued royalty
23
<PAGE>
payments under the License Agreement. If the License Agreement continues in
force for a total of 20 years, the Company's rights under the License Agreement
convert to a paid-up non-exclusive license.
The Company is required to pay a licensing fee of $10,000 per year until
December 31, 1999 and a one-time payment of $20,000 prior to July 1999. In
addition, the Company is required to pay royalties (with an annual minimum
royalty of $20,000) for the term of the License Agreement, based on the
Company's gross revenues, less cost of goods sold and certain other expenses,
from the sale of products utilizing MuSE. Additionally, the Company paid a
one-time license fee of $400,000. See "Certain Relationships and Related
Transactions." The Company is also required to retain the services of key
personnel capable of supporting the MuSE software. In addition, the License
Agreement is terminable by Sandia in the event of a breach thereunder by the
Company (including, without limitation, due to failure to pay minimum royalties
in the annual amount of $20,000), or in its discretion, in the event of any such
breach, Sandia may convert the license into a non-exclusive license or otherwise
reduce the Company's rights thereunder.
As part of the License Agreement, the Company has agreed to grant Sandia an
irrevocable non-exclusive license to use the MuSE software (and all
enhancements, modifications and corrections made by the Company) and to develop
derivative works based on the MuSE software for internal use at Sandia.
Under the License Agreement, the Company bears the risk that the
information and technology licensed from Sandia and incorporated in the MuSE
software may infringe the rights of third parties and must indemnify Sandia in
respect of any claims for copyright infringement brought against them and
arising from the development and distribution of the programs incorporated in
the MuSE software. The Company has agreed to treat the originally licensed MuSE
software as proprietary to Sandia. However, enhancements and modifications to
such original software, which have been extensive, are considered proprietary to
the Company.
ILLUSTRATIVE APPLICATIONS
MuSE has been used in various research and development projects at Sandia
from 1991 through October 1995 and by the Company since October 1995. During
this period, various technical applications programs were developed in pilot
projects by Sandia and the Company. Most of the work on the original MuSE
software was performed by certain of the Company's present employees who were
then employees of Sandia. The applications described below represent specific
customized applications of MuSE that were developed either by Sandia or the
Company. The Company does not intend to commercialize such applications and such
applications are not an ongoing source of revenue to the Company. The following
descriptions are intended to provide only illustrations of certain industrial or
governmental applications of MuSE and are not intended as any representation
that the Company can or will be engaged to develop any specific applications for
MuSE or that any applications of MuSE which are developed by the Company will
result in revenues or profits to the Company.
Medical--CT Scan of Human Head: This application demonstrates the
ability of MuSE to translate a standard CAT Scan and/or MRI data from
actual patients into full-color, 3D models; to present heart rate,
respiration, and other similar information as sound; and to permit users to
create cross sections for analysis and to examine potential medical
procedures.
Modeling--Dynamic Solar System: This educational/entertainment model
simulates the solar system, including 73 independently moving objects
(planets and moons). As in every MuSE application, the viewer can control
the speed of time and tether to any given object in the environment. The
user can also access certain additional NASA data and simulations.
Simulation--Explosive Welding: MuSE was used to investigate the
simulated explosive welding of two dissimilar metals for a production
process. The data was generated from a complex supercomputer data-set
input, which included data as to the physical characteristics of both
metals and the explosive charge. After this data was recreated in a MuSE
environment, the client/researchers discovered, within minutes, a process
flaw that required revisions of their proposed manufacturing process.
Astronomy--Impact of Shoemaker/Levy 9 Comet on Jupiter: MuSE was
applied to understand the predicted effects of the collision of the
Shoemaker/Levy 9 Comet with Jupiter in 1995 based on simulated
supercomputer models. By placing the information in a MuSE environment,
scientists identified previously unanticipated effects of the collision,
which ultimately closely matched scientific observations.
24
<PAGE>
Manufacturing--Design and Assembly: MuSE was used to simulate the
assembly of a radioactive-waste containment vessel. The components of the
vessel can be examined and manipulated and viewed externally and internally
in the MuSE environment. The MuSE System can capture and display CAD/CAE
data, including manufacturing, factory modeling, process simulation,
assembly-line design, architecture, art and sculpture, and special effects
for entertainment, games, education, training, biotechnology, and medicine.
Graphical Database Analysis: The database in this project contained
production-flow information obtained from roadway sensors over a one year
period at different geographical locations, the sensors measure the type,
weight, number of axles, time of detection and direction of travel for each
vehicle detected. Users were able to present the information in visual
displays. The customer quickly discovered significant amounts of erroneous
information provided by participants as well as invalid data resulting from
sensor malfunction.
Seismic Data Interpretation and Oil Reservoir Modeling: The Company
has deployed a variety of applications for customers in the oil and seismic
industries. One project yielded a simulation of an actual oil field with
four producing wells. The simulation revealed underground oil movement
relative to the wells over a two-year period and included information about
rock porosity and oil, gas and water pressure. Another oil industry project
produced a sophisticated surface-to-data analysis tool that helps analysts
create more accurate seismic models, saving oil companies time and money
and reducing unnecessary drilling.
Electronics Component Design Validation: MuSE was used to study the
design of an electronic controller chip intended to power a set of stepping
motors prior to the manufacture of the chip. This MuSE application
integrated results from commercial CAD programs, electronic circuit
simulation models, thermal modeling software and thermal transfer programs.
The mapping of electronic circuit data to sound permitted engineers to
detect a circuit failure, correlate such failure with overheating, isolate
the design components causing the failure and test a correction of the chip
design prior to prototype construction. MuSE resulted in several months of
analysis using conventional analytic tools to be condensed into a few
hours.
Situational Analysis and Environmental Evaluation: Topographical,
geometric, photographic, and observational information was combined in a
MuSE environment to recreate a portion of a real beach to show dynamic
lighting variation; actual weather and surf conditions; and changes in
terrain, structures, and climatic effects over a three-month period. MuSE
was used both by designers to actually construct the model as well as by
users to interact with it.
Command and Control Operations: Terrain information was used to
recreate an area in the Middle East for the purpose of studying a
hypothetical engagement between land-air and air-sea forces. This
simulation included a variety of ships, planes, and missiles and can
constantly acquire updated status information on all elements in the scene
from military simulators. The simulation permits the user to interact with
a complex, dynamically changing environment in real-time and to assess and
respond to new conditions. This simulation included a simulated missile
attack and response and used streamers and ground shadows to help interpret
movement patterns. The ability instantly to attach to moving objects and to
move anywhere within the simulated environment greatly enhances a viewer's
ability to understand and intelligently examine and respond to rapidly
changing, complex situations.
RESEARCH AND PRODUCT DEVELOPMENT
Management believes that the Company's future success depends in large part
upon the timely enhancement of existing products and the development of new
products and applications. The Company is currently developing new software
products relating to information management with broad applications in the
commercial, government and education markets and enhancing existing products to
improve price and performance, expand product capabilities, simplify user
interfaces, help define and support emerging industry standards, and develop
interoperability with most products and devices commonly used in the Company's
targeted markets. Such existing MuSE-based products include desktop, office,
laboratory and theatre environments that operate on a broad range of platforms
and with a variety of display devices and tools. The Company also believes that
it is beneficial to work with third parties to accomplish these goals and has,
in the past, received funding from outside sources, such as grants from
government organizations, to develop products
25
<PAGE>
and applications. The Company intends to continue to pursue such external
research and development funding sources.
For the nine months ended June 30, 1998 and fiscal 1997 and 1996, the
Company's research and development expense was approximately $710,000, $742,000,
and $599,000, respectively. Except for payments related to Small Business
Innovative Research grants from the Federal government of approximately $124,000
which was included in revenue in fiscal 1996, which related to development of
certain applications of MuSE, all research and development was Company
sponsored.
INTELLECTUAL PROPERTY RIGHTS
The Company has been advised that Sandia has filed patent applications for
aspects of the MuSE software and holds copyrights to the MuSE software. The
Company depends on Sandia for the protection of the intellectual property
covered by the License Agreement. No assurance can be given that Sandia will be
able to patent other inventions present in the MuSE software or otherwise
protect the proprietary intellectual property covered by the License Agreement.
The Company has filed and is in the process of filing patent applications
for Continuum and related technologies, and it has also filed trademark
applications and logo identifications for certain of its other products and its
logo, although the Company does not currently have copyright protection for all
of its trademarks.
The Company will generally rely on a combination of trade secret,
copyright, trademark and patent law to protect its proprietary rights in the
intellectual property developed by it. Although the Company intends to provide
products utilizing the MuSE software to its customers primarily in object code
form, no assurance can be given that unauthorized third parties will not be able
to copy the MuSE software. In addition, there can be no assurance that the
Company's competitors will not independently utilize existing technologies to
develop products that are substantially equivalent or superior to MuSE. The
Company could incur substantial costs in defending itself or its licensees in
litigation brought by third parties, or in seeking a determination of the scope
and validity of the proprietary rights of others.
COMPETITION
The Company believes that the current market for MuSE and other visual
computing software products is relatively small and fragmented. However, based
upon publicly available market research, the Company believes that this market
will grow rapidly over the next decade. The Company believes that no single
company dominates the market at the present time; however, a number of small
companies, such as Paradigm and Division, and larger companies, such as SGI and
Autodesk, are aggressively pursuing business opportunities in this field. Many
of the companies with whom the Company competes or expects to compete have
substantially greater financial resources, research and development
capabilities, sales and marketing staffs and distribution channels and are
better known than the Company.
The Company believes that the principal factors affecting the Company's
ability to compete are the availability, functionality and architecture of its
products; the quality, ease of use, performance and functionality of the
derivative applications developed and marketed by the Company; the effectiveness
of the Company in marketing and distributing its products and services; and
price. There can be no assurance that the Company will be successful in
competing with respect to any or all of these factors.
EMPLOYEES
At September 30, 1998, the Company had 23 full-time employees. The Company
believes that its relationships with its employees are satisfactory. Of the
twenty-three persons employed by the Company, five work in administration and
management, five work in sales and marketing and thirteen work in product
development. The Company has no history of any work stoppages and no employees
of the Company are currently represented by a union.
26
<PAGE>
FACILITIES
The Company has completed the construction of a synthetic environment
laboratory to develop and demonstrate applications of MuSE. The Company has a
three year lease for approximately 8,700 square feet of office and laboratory
space in Albuquerque, New Mexico. The lease provides for rental payments of
approximately $8,600 per month. The Company believes that such property is
adequately insured and is suitable for its intended purposes.
LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Creve Maples................................ 56 Chairman of the Board and Chief Technical
Officer
Curtiz J. Gangi................................. 53 President and Director
Douglas Harless................................. 51 Vice President--Sales and Marketing
Brian Clark..................................... 40 Chief Financial Officer, Secretary and Treasurer
Craig Peterson.................................. 35 Senior Software Development Manager
David Durgin.................................... 59 Director
Benjamin Huberman............................... 60 Director
Edward A. Masi.................................. 51 Director
</TABLE>
Dr. Creve Maples has been Chairman of the Board since the Company's
inception in 1995. He was the Company's President and Chief Executive Officer
from February 1997 until May 1998 and Vice President from the Company's
inception until February 1997. For more than three years prior to the
organization of the Company, Dr. Maples was employed by Sandia, where he headed
the development team responsible for the development of MuSE. Dr. Maples is a
nationally recognized expert and authority on synthetic environments, advanced
computer systems, including highly interactive graphic systems, language
extensions, parallel mass storage and applications development. He holds a
doctorate degree in nuclear science from the University of California (Berkeley)
and is an honors baccalaureate graduate of Massachusetts Institute of
Technology. From 1972 to 1974, he held a fellowship from the National Science
Foundation. Dr. Maples is the author of more than 100 papers and articles on
physics and computing. He is the recipient of a number of awards including, in
October 1995, the New Mexico Entrepreneur Association's Software Inventor of the
Year award for his work on MuSE.
Curtiz J. Gangi has been President of the Company since May 1998 and
a Director since November 1997. From September 1996 until May 1998, he served as
the Company's Chief Operating Officer. Mr. Gangi was Chief Operating Officer of
Visual Information Service, Inc., a hardware and software development company
from December 1995 to September 1996, Chief Executive Officer and President of
Foton, Inc., a computer software developer from August 1994 to December 1995,
President and General Manager of Timeworks, Inc., a software publisher from
March 1992 to July 1994, Director of Marketing and Sales of Commodore
International Ltd, a computer manufacturer and software publisher from October
1990 to January 1992. In addition, Mr. Gangi was a member of the Chicago Board
of Trade and a licensed financial commodities broker.
Douglas Harless has been the Vice-President--Sales and Marketing of the
Company since September 1997. Prior to becoming associated with the Company,
Mr. Harless was National Account Specialist of NCR, Inc., a
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<PAGE>
computer hardware company, from July 1996 to August 1997, Regional Sales Manager
of Maximum Strategy, Inc., a computer hardware company, from March 1995 until
June 1996, Sales Manager of Minnesota Supercomputer Center, Inc. from January
1994 until January 1995, and Director of Sales of Petroleum Industry, a computer
hardware company, from 1988 until January 1994.
Brian Clark has been Chief Financial Officer of the Company since October
1996 and is also the Company's Treasurer and Secretary. Prior to becoming
associated with the Company, Mr. Clark was an executive with Optimax Securities
Corporation, a corporation engaged in investment banking, from 1995 until
October 1996; Chief Financial Officer of Softcop International, a software
development company, from 1993 to 1995; Manager of Business Development for
Royal Insurance Company of Canada, from 1989 to 1993; and a Chartered Accountant
with Deloitte & Touche from 1985 to 1989.
Craig Peterson has been the Company's Senior Software Development Manager
since the Company's inception. For more than three years prior to his
involvement with the Company, Mr. Peterson was Senior Technician of Synthetic
Environment Laboratory at Sandia, where he was a principal developer of the MuSE
software with Dr. Maples.
David L. Durgin has been a Director of the Company since its inception.
Mr. Durgin was also the Company's Executive Vice President from the Company's
inception until April 1997. He is a founder, executive officer and director of
Quatro Corporation ("Quatro"), Technology Business Associates Inc. ("TBA"), a
technology commercialization firm, and a founder, director and past chairman of
Industry Network Corporation, a non-profit economic development company.
Mr. Durgin was previously a Senior Vice President with Booz Allen & Hamilton,
Inc. and a Vice President of BDM International, a leading defense contractor.
Benjamin Huberman has been a Director of the Company since its inception.
Since 1990, Mr. Huberman has been the President of the Huberman Consulting
Group, based in Washington, D.C., and consults on technology issues, including
the areas of aerospace, electronics, and nuclear power. Mr. Huberman is a member
of the Chief of Naval Operations' Executive Panel, which provides strategic and
topical assistance to the Chief of Naval Operations. Mr. Huberman is a past
member of the Secretary of Energy's Advisory Board and of the Galvin Task Force
evaluating alternative futures for the national laboratories of the Department
of Energy. From 1977 to 1980, he was Associate Director of the White House
Office of Science and Technology Policy ("OSTP") and a member of the National
Security Council Staff. In 1981, Mr. Huberman served as Deputy Director of OSTP.
Edward A. Masi has been a Director of the Company since January 1997. Since
June 1997, Mr. Masi has been a private consultant for a variety of companies.
From March 1992 until June 1997, Mr. Masi was a corporate Vice President at
Intel Corporation, responsible for the management of the super-computer business
and the commercial server product development division. From May 1980 until June
1992, Mr. Masi was Executive Vice President of Sales, Marketing, and Service at
Cray Research. Prior to his work for Cray, Mr. Masi held various sales and
marketing positions at IBM, where he began his career.
There is no family relationship among any of the Company's directors and
executive officers. There are no arrangements or understandings pursuant to
which any person has been elected as a director or executive officer.
The Company has agreed that, during the five-year period following the date
of this Prospectus, the Underwriter will have the right to designate one member
to the Company's Board of Directors. See "Underwriting."
EXECUTIVE COMPENSATION
The following tables set forth the compensation earned by the Company's
Chief Executive Officer and all other executive officers earning in excess of
$100,000 for the fiscal years ended September 30, 1998, 1997 and 1996.
28
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
- --------------------------- ---- -------- -------- ------------------
<S> <C> <C> <C> <C>
Dr. Creve Maples, ......................................... 1998 $137,585 $ 20,000 458,028
Chief Executive Officer 1997 $120,000 -- --
and Chairman of the Board 1996 $100,000 -- --
Curtiz J. Gangi, President................................. 1998 $178,846 $172,467(1) 466,447
1997 $112,500 -- 361,842
Brian Clark, Chief Financial Officer, ..................... 1998 $130,000 $172,467(1) 150,385
Secretary and Treasurer 1997 $120,000 -- 197,368
Douglas Harless, Vice President-- ......................... 1998 $134,785 $478,155(1) 124,079
Sales and Marketing 1997 $ 10,000(2) -- 378,229
</TABLE>
- ------------------
(1) Includes bonus received in connection with the CRI transaction.
(2) Reflects that portion of Mr. Harless' salary earned in fiscal 1997.
The information in the table below sets forth each grant and exercise of
stock options during the last completed fiscal year by each of the named
executive officers and the fiscal year-end value of unexercised options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR BASE PRICE DATE
- ------------------------------------------------------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Dr. Creve Maples....................................... 117,500 8.3% $7.50 06/08
310,528 21.9% $2.50(1) 02/08
Curtiz J. Gangi........................................ 375,000 26.5% $7.50 06/08
91,447 6.5% $2.50(1) 02/08
Brian Clark............................................ 117,500 8.3% $7.50 06/08
32,885 2.3% $2.50(1) 02/08
Douglas Harless........................................ 117,500 8.3% $7.50 06/08
6,579 0.5% $2.50(1) 02/08
</TABLE>
- ------------------
(1) Exercise price of options granted under the Company's Stock Option Plan were
repriced from $7.60 to $2.50 in April 1998.
The table below sets forth information with respect to option exercises
during the last fiscal year and the value of all options held at fiscal year end
for each of the named executive officers. No SARs have been granted by the
Company to date and no options were exercised by the named executive officers
during fiscal 1998.
29
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING EXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE OPTIONS OF FY-END AT FY-END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- --------------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Dr. Creve Maples................. -- -- 310,528/117,500 $ 1,707,904/$58,750
Curtiz J. Gangi.................. -- -- 348,873/479,166 $ 1,918,801/$700,413
Brian Clark...................... -- -- 263,160/117,500 $ 1,447,380/$58,750
Douglas Harless.................. -- -- 264,205/117,500 $ 1,453,127/$58,750
</TABLE>
- ------------------
(1) The values of unexercised in-the-money options represent the aggregate
amount of the excess of $8.00, the market value of the Common Stock as of
the fiscal year-end, over the relevant exercise price of such options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (each an "Employment
Agreement" and collectively, the "Employment Agreements") with each of
Dr. Creve Maples, Curtiz Gangi, Brian Clark and Douglas Harless (each, an
"Executive" and collectively, the "Executives"). Under the Employment
Agreements, each Executive must devote his full business time and attention to
the affairs of the Company.
Dr. Creve Maples has entered into a three year Employment Agreement with
the Company which commenced as of June 1, 1998, to serve as a Chief Technical
Officer of the Company at an annual base salary of $175,000. Dr. Maples is
entitled to receive a bonus of up to $76,563 upon the Company achieving certain
performance objectives. Prior to entering into such Employment Agreement,
Dr. Maples received an annual salary of $120,000. In connection with his
Employment Agreement, Dr. Maples received options to purchase 117,500 shares of
Common Stock of the Company at an exercise price of $7.50 per share, which
options vest as follows: 30,000 shares on June 1, 1999, 37,500 shares on
June 1, 2000, and 50,000 shares on June 1, 2001.
Curtiz Gangi has entered into a three year Employment Agreement with the
Company which commenced on June 1, 1998, to serve as President at an annual base
salary of $215,000. Mr. Gangi is also entitled to receive a bonus of up to
$134,375 upon the Company achieving certain performance objectives. Prior to
entering into such Employment Agreement, Mr. Gangi received an annual salary of
$150,000. In connection with his Employment Agreement, Mr. Gangi received
options to purchase 375,000 shares of Common Stock of the Company at an exercise
price of $7.50 per share, which vests as follows: 100,000 shares on June 1,
1999, 125,000 shares on June 1, 2000 and 150,000 shares on June 1, 2001. Upon
the closing of this Offering, Mr. Gangi will have the right to receive a
five-year loan in the amount of $150,000 at 5% annual interest in connection
with his relocation to New Mexico. The loan will be secured by vested stock
options having a value equal to the principal amount of the loan. In
consideration of services rendered in connection with the CRI transactions,
Mr. Gangi received a bonus of $172,000.
Douglas Harless has entered into a three year Employment Agreement with the
Company which commenced on June 1, 1998, to serve as Vice-President--Sales and
Marketing at an annual base salary of $150,000. Mr. Harless will receive
commissions under a sales commission plan established by the Board, which
commissions range from 2% to 6.5% of revenues generated. Prior to entering into
such Employment Agreement, Mr. Harless received an annual salary of $120,000. In
connection with his Employment Agreement, Mr. Harless received options to
purchase 117,500 shares of Common Stock of the Company at an exercise price of
$7.50 per share, which vests as follows: 30,000 shares on June 1, 1999, 37,500
shares on June 1, 2000 and 50,000 shares on June 1, 2001. Upon the closing of
this Offering, Mr. Harless will have the right to receive a five year loan in
the amount of $75,000 at 5% annual interest in connection with his relocation to
New Mexico. The loan will be secured by vested stock options having a value
equal to the principal amount of the loan. In consideration of services rendered
by Mr. Harless in connection with the CRI Agreement and the sale of securities
to CRI, options to purchase 197,369 shares of Common Stock previously granted to
Mr. Harless became exercisable at an exercise price of $7.60 per share and the
Company paid him a special bonus of approximately $176,000. In 1997,
Mr. Harless also purchased 11,514 shares of Common Stock for $87,500.
Mr. Harless borrowed the purchase
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<PAGE>
price from the Company, which loan is secured by a pledge of such shares and
must be repaid out of any net proceeds received upon the disposition of any
securities held by Mr. Harless. Mr. Harless has agreed to pay such loan
within six months from the date hereof.
Brian Clark has entered into a three year Employment Agreement with the
Company which commenced on June 1, 1998, to act as Chief Financial Officer at an
annual base salary of $150,000. Mr. Clark is also entitled to receive a bonus of
up to $65,625 upon the Company achieving certain performance objectives. Prior
to entering into such Employment Agreement, Mr. Clark received up to $10,000 a
month under a Consultant Service Agreement. In connection with his Employment
Agreement, Mr. Clark received options to purchase 117,500 shares of Common Stock
of the Company at an exercise price of $7.50 per share, which vests as follows:
30,000 shares on June 1, 1999, 37,500 shares on June 1, 2000 and 50,000 shares
on June 1, 2001. Upon the closing of this Offering, Mr. Clark will have the
right to receive a five year loan in the amount of $75,000 at 5% annual interest
in connection with his relocation to New Mexico. The loan will be secured by
vested stock options having a value equal to the principal amount of the loan.
In consideration of services rendered in connection with the CRI transactions,
Mr. Clark received a bonus of $12,000.
Under the Employment Agreements, if the Executive is terminated by the
Company other than "for cause" (as defined in each Employment Agreement), or if
the Executive dies or becomes permanently disabled or terminates for "good
reason" (as defined in each Employment Agreement), all stock options of the
Executive shall immediately vest upon such termination and such Executive shall
receive severance payments in an amount equal to one year's base salary in the
case of Messrs. Gangi and Clark, two year's base salary in the case of
Dr. Maples, and either three months base salary if termination occurs prior to
March 1, 1999 or one year's base salary if termination occurs thereafter in the
case of Mr. Harless. Each of the Employment Agreements also contain provisions
relating to severance payments equal to one year's base salary (two year's base
salary in the case of Dr. Maples) in the event of a change of control (as
defined in the Employment Agreement).
Each of the Employment Agreements prohibits disclosure of proprietary and
confidential information regarding the Company and its business to anyone
outside the Company both during and subsequent to employment. In addition, each
Executive has agreed, for the duration of his employment with the Company and
for a period of one year thereafter (three years in the case of Dr. Maples), if
the Executive is terminated for any reason or resigns, not to engage in any
competitive business activity; provided, however, that such non-compete shall be
in effect for so long as the Company continues to pay the Executive's monthly
base salary.
The Employment Agreements provide that the Company will indemnify the
Executive to the fullest extent permitted by the laws of Delaware and in
accordance with the Company's By-Laws and Certificate of Incorporation.
DIRECTORS' COMPENSATION
The Company pays each non-employee director a fee of $500 for attendance at
each board meeting and reimburses its non-employee directors for expenses
incurred in connection with their attendance at such meetings. Non-employee
directors receive options to purchase 5,000 shares of Common Stock upon initial
election to the Board of Directors and options to purchase 8,000 shares of
Common Stock upon re-election at each annual meeting of stockholders,
exercisable after one-year at an exercise price equal to the fair market value
on the date of grant. Additionally, current non-employee directors, Messrs.
Durgin, Masi and Huberman, shall each receive options to purchase 5,000 shares
of Common Stock upon the consummation of this Offering, exercisable after one
year at an exercise price equal to $7.50 per share.
STOCK OPTION PLANS
The Company's Board of Directors and stockholders adopted the 1995 Stock
Option Plan (the "1995 Plan") on November 10, 1995, and the 1996 Stock Option
Plan (the "1996 Plan") on November 7, 1996, to induce certain individuals or
entities providing service to the Company to remain in the employ of, or
continue to serve as directors of, or as independent consultants to, the
Company, and to attract new employees, consultants and non-employee directors.
The terms of the 1995 Plan and the 1996 Plan (together, the "Plans") are
generally identical, except as otherwise indicated.
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<PAGE>
The Plans are administered by the Board of Directors, which has the
exclusive power to select the individuals or entities eligible for option grants
(each a "Participant"), and to determine the terms and conditions of any options
granted, including but not limited to the option price, method of exercise and
the term during which the options may be exercised. The 1995 Plan was terminated
on January 7, 1997 as to the granting of new options. As of the date of this
Prospectus, options to purchase 92,105 shares of Common Stock have been granted
under the 1995 Plan and options to purchase 2,266,644 shares of Common Stock (of
which options to purchase 627,500 shares were granted in connection with the
Employment Agreements have been granted under the 1996 Plan. The 1996 Plan will
terminate not later than November 1, 2005. In October 1998, the Company's
stockholders approved amendments to the 1996 Plan to increase the number of
additional shares subject to options available for grant by 3,500,000 shares to
5,148,026 shares (of which options to purchase 2,266,644 shares are
outstanding).
As a result of the 1-for-3.04 reverse stock split in March 1998, the
exercise price of options granted under the Plans increased from $2.50 to $7.60.
In April 1998, the Board of Directors of the Company repriced all options under
the Plans and reduced the exercise price from $7.60 to $2.50, resulting in a
non-cash imputed compensation expense of $948,000. See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations."
Additional shares of Common Stock may become available for grant under the
Plans as a result of cancellations or expiration of outstanding options. Options
granted under the Plans may be non-qualified options or options qualifying as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The initial exercise option price
of each incentive stock option granted under the Plans shall be not less than
the fair market value (110% of the fair market value if the grant is to an
employee owning more than 10% of the outstanding Common Stock) of the Common
Stock subject to the option. The option price of each non-qualified option shall
not be less than 85% of the fair market value of the Common Stock subject to the
option.
No option granted pursuant to the Plans may be exercised more than ten
years after the date of grant, except that incentive stock options granted to
Participants who own more than 10% of the total combined voting power of all
classes of stock of the Company at the time the incentive stock option is
granted may not be exercised after five years after the date of grant. No
Participant may be granted incentive stock options which are exercisable for the
first time in any one calendar year with respect to Common Stock having an
aggregate fair market value in excess of $100,000 on the date of grant, the
options vest over a three year period (unless otherwise determined by the Board
of Directors), commencing on the first anniversary date of the grant. No option
granted under the Plans is transferable by the optionee other than by death or
to immediate family members.
Generally, an option may be exercised only while the recipient is in the
active employ or service of the Company, or within 30 days after termination of
a participant's employment or service as a director other than by reason of
retirement or death, or within one year after termination of employment or
service by reason of death, or within 90 days after termination of a
participant's termination of employment or service by reason of retirement. In
the event of the death or retirement of an optionee, each option granted to him
shall become immediately exercisable in full.
LIMITATION ON LIABILITY
The Company's Certificate of Incorporation eliminates the personal
liability of directors for monetary damages to the corporation for breach of
fiduciary duty, except for liability for (i) breaches of the director's duty of
loyalty to the Company or its stockholders; (ii) acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) transactions from which the director received an improper
personal benefit.
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PRINCIPAL STOCKHOLDERS
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock of which 8,763,893 are currently outstanding. After giving effect
to this Offering, there will be 9,963,893 shares of Common Stock issued and
outstanding (assuming no exercise of the Warrants). The following table sets
forth information as of the date hereof with respect to the beneficial ownership
of the outstanding Common Stock of the Company by each director, all 5%
stockholders of the Company and all officers and directors as a group. Unless
otherwise indicated, each person has the sole voting and sole investment power
and direct beneficial ownership of the shares:
<TABLE>
<CAPTION>
PERCENT OF COMMON STOCK OUTSTANDING
NUMBER OF -----------------------------------------
NAME OF BENEFICIAL OWNER SHARES(1) BEFORE THE OFFERING AFTER THE OFFERING
- -------------------------------------------------------------- --------- ------------------- ------------------
<S> <C> <C> <C>
Creve Maples(2)
1601 Randolph SE
Albuquerque, NM 87106....................................... 1,261,514 13.9% 12.3%
Continuum Resources International ASA
2424 Wilcrest
Houston, TX................................................. 1,000,000 11.4% 10.0%
Craig Peterson(3)
1601 Randolph SE
Albuquerque, NM 87106....................................... 745,067 8.3% 7.3%
Curtiz J. Gangi(4)............................................ 348,873 3.8% 3.4%
David Durgin(5)............................................... 323,028 3.7% 3.2%
Douglas Harless(6)............................................ 269,190 3.0% 2.6%
Brian Clark(7)................................................ 230,265 2.6% 2.3%
Benjamin Huberman(8).......................................... 83,553 * *
Edward A. Masi(9)............................................. 8,442 * *
Directors and executive officers as a group (7 persons)(10)... 3,270,842 32.2% 28.8%
</TABLE>
- ------------------
* Less than one percent.
(1) Includes currently exercisable options and warrants to purchase shares of
Common Stock issuable upon the exercise of such options and warrants for
each named person.
(2) Includes 310,528 shares of Common Stock issuable upon the exercise of
options.
(3) Includes 65,789 shares of Common Stock issuable upon the exercise of
options.
(4) Includes 348,873 shares of Common Stock issuable upon the exercise of
options. Does not include 104,166 shares subject to options exercisable
through September 1999.
(5) Includes 240,790 shares of Common Stock held by Quatro Corporation, of
which Mr. Durgin is an officer and director, 57,566 shares of Common Stock
held by Technology Business Associates, Inc., of which Mr. Durgin is a
principal, and 24,672 shares of Common Stock issuable upon the exercise of
options.
(6) Includes 257,676 shares of Common Stock issuable upon the exercise of
options.
(7) Represents shares of Common Stock issuable upon the exercise of options.
(8) Includes 16,448 shares of Common Stock issuable upon the exercise of
options.
(9) Represents shares of Common Stock issuable upon the exercise of options.
(10) Includes an aggregate of 1,873,029 shares of Common Stock and 1,397,813
shares of Common Stock issuable upon the exercise of options.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION OF THE COMPANY; TRANSACTIONS WITH VIGA
The Company was organized in October 1995. Prior to the organization of the
Company, Dr. Creve Maples, Thomas Murphy, Arlan Andrews, David Durgin and Craig
Peterson and certain minority stockholders formed Viga for the purpose of
entering into the License Agreement with Sandia.
In October 1995, the Company issued, for nominal consideration, 6,694,080
shares of Common Stock to the stockholders of Viga, of which 950,987; 679,276;
475,758; 475,658; 339,474 and 67,105 shares were issued to Dr. Maples and
Messrs. Peterson, Murphy, Andrews, Durgin and Huberman, respectively.
Dr. Maples and Messrs. Peterson, Murphy, Andrews, Durgin and Huberman may be
deemed founders of the Company.
In December 1995, Viga agreed to transfer it assets, including the License
Agreement to the Company, which required the consent of Sandia. Pending such
transfer, Viga granted the Company a sublicense to the MuSE technology. On
July 15, 1996, the assignment was effected, and the sublicense was terminated.
The purchase price for the Viga assets was $1,152,000 (exclusive of assumed
liabilities), reflecting $752,000 of computer and office equipment and a
$400,000 license fee for the sublicense of the MuSE technology. The Company
issued notes in the amounts of $222,670, representing the difference between
assets acquired and liabilities assumed, and $400,000, representing the
sublicense fee for the MuSE technology. The two notes were paid, without
interest, in 1996 from the proceeds of the 1996 Private Placement. See
"Financings." In 1997, Viga agreed to reduce the sublicense fee by $55,000, for
which Viga issued its 6.5% note for such amount due November 2001.
During fiscal 1996, the Company paid Viga $15,250 in license fees and
royalties pursuant to the sublicense agreement. In addition, during fiscal 1996,
Viga advanced the Company $193,000, and the Company advanced Viga $23,628 in
separate transactions. All of such advances were interest free and were repaid
by September 30, 1996.
CONSULTING RELATIONSHIPS
The Company entered into a consulting agreement with "TBA," a minority
stockholder of the Company. David Durgin, a director of the Company is the
founder, a director and executive officer of TBA. The Company received executive
and marketing consulting services and marketing support services from TBA.
During 1996, the Company paid $51,326 to TBA under the agreement, which expired
on September 30, 1996.
The Company entered into a consulting agreement with Quatro, a minority
stockholder of the Company, pursuant to which Quatro provided accounting
services, financial and business support, as well as executive, marketing and
manufacturing consulting services to the Company. David Durgin a director of the
Company, is also a stockholder, director and executive officer of Quatro. During
fiscal 1997 and 1996, the Company paid $19,324 and $33,564, respectively, to
Quatro for these services. This agreement expired on September 30, 1997 and
restricts Quatro from competing with the Company until September 30, 1998.
OTHER TRANSACTIONS
In connection with his employment with the Company in September 1997,
Mr. Harless purchased 11,514 shares of Common Stock for a purchase price of
$7.60 per share, or an aggregate of $87,500. Mr. Harless borrowed the purchase
price for such shares from the Company and issued a non-recourse 5% promissory
note to the Company. The loan is secured by a pledge of such shares, and any
proceeds received by Mr. Harless upon the disposition of any securities owned by
him must be remitted to the Company to repay such loan. Mr. Harless has agreed
to pay such loan within six months from the date hereof.
Pursuant to his employment agreement, in connection with the CRI Agreement,
Mr. Harless received options to purchase 197,369 shares of Common Stock at an
exercise price of $7.60 per share. Additionally, in connection with the CRI
transactions, Mr. Harless received a bonus of $176,000 and Messrs. Gangi and
Clark each received bonuses of $172,000.
Upon the closing of this Offering, Messrs. Gangi, Clark and Harless will
have the right to receive five year loans from the Company in the amounts of
$150,000, $75,000 and $75,000, respectively, in connection with their
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<PAGE>
relocation to New Mexico. The loans will bear interest at the rate of 5% per
annum and will be secured by the pledge of vested stock options having a value
equal to the principal amount of the loan.
See "Business--The CRI Agreement" in connection with loans from the Company to
CRI.
Additionally, for prior and continuing services rendered to the Company,
each of Messrs. Durgin, Masi and Huberman, directors of the Company, will
receive options to purchase 5,000 shares of Common Stock upon the closing of
this offering exercisable after one year at an exercise price of $7.50 per
share.
From its inception, the Company has maintained and it intends to continue
to maintain at least two independent directors on its Board of Directors. In
connection therewith, any and all material transactions, including material
loans with officers, directors, stockholders holding greater than 5% of the
outstanding shares or affiliates, have been ratified and/or approved and, in the
future, will be ratified and/or approved by a majority of independent directors
who do not have an interest in the transactions, and will be on terms which are
at least as favorable to the issuer as those that can be obtained by
unaffiliated third parties, and all such transactions shall be entered into by
the Company for a bona fide purpose. Such independent directors will have full
access, at the Company's expense, to the Company's counsel or other independent
counsel in connection with such ratification or approval of any transaction. The
current independent directors are Edward A. Masi, Benjamin Huberman and David
Durgin.
FINANCINGS
1995 PRIVATE PLACEMENT
In December 1995, the Company sold, to four accredited investors, an
aggregate of four investment units (the "1995 Units") for $250,000 per 1995
Unit. Each 1995 Unit consisted of $249,900 face amount of 10% one-year mandatory
convertible promissory notes (the "1995 Notes") and warrants (the "1995
Warrants") to purchase 8,224 shares of Common Stock at a price of $7.60 per
share. The net proceeds of $900,000 were used to pay certain liabilities assumed
in connection with the acquisition of assets from Viga and to finance the
Company's operations. The 1995 Notes, which were unsecured, were convertible
into one share of Common Stock for each $7.60 face amount of the 1995 Note.
Investors Associates, Inc. ("IAI") acted as placement agent for the 1995 Private
Placement and received a selling commission of $100,000, and warrants to
purchase up to 16,448 shares of Common Stock at $7.60 per share. In April 1996,
the 1995 Notes were converted into an aggregate of 131,579 shares of Common
Stock.
1996 PRIVATE PLACEMENT
From April through September 1996, the Company sold an aggregate of 250,921
shares of Common Stock at $7.60 per share to 21 accredited investors (the "1996
Private Placement"). The net proceeds from the 1996 Private Placement were
approximately $1,700,000, which was used to pay certain notes to Viga and for
working capital. IAI acted as placement agent for the 1996 Private Placement,
for which it received a fee of $190,700 and warrants to purchase 121,710 shares
of Common Stock at $7.60 per share. The warrants expire five years from the date
of issuance, except that warrants to purchase 16,448 shares expire three years
from the date of issuance.
JUNE 1997 PRIVATE PLACEMENT
In June 1997, the Company received net proceeds of $1,113,750 from the
issuance of notes (the "June 1997 Notes") in the principal amount of $1,237,500
to 15 accredited investors (the "1997 Private Placement"). All of the June 1997
Notes, and accrued interest thereon, were paid from the proceeds of the April
1998 Private Placement (except $300,000 of such June 1997 Notes, which were
converted into equity on the same terms as the April 1998 Private Placement).
IAI acted as placement agent in connection with the placement of the June 1997
Notes and received commissions equal to $123,750.
DECEMBER 1997 PRIVATE PLACEMENT
In December 1997, the Company completed a private placement to 18
accredited investors, of units consisting of 8% promissory notes in the
aggregate principal amount of $875,000 and an aggregate of 57,566 shares of
Common Stock (the "December 1997 Shares"). The net proceeds to the Company from
the issuance
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<PAGE>
and sale of the 1997 Notes and December 1997 Shares was approximately $688,000
and were used for the purchase of equipment and working capital purposes. The
1997 Notes are payable one year from the date of issuance, together with accrued
interest thereon, in October, November and December 1998. The Company will use a
portion of the proceeds of this Offering to pay the 1997 Notes, together with
accrued interest thereon. See "Use of Proceeds." The Company engaged Worthington
Capital Group, Inc. ("Worthington") to act as placement agent in connection with
the December 1997 Private Placement. As compensation for its services as
placement agent, Worthington received a fee of $138,750. See "Description of
Securities."
APRIL 1998 PRIVATE PLACEMENT
In April and May 1998, the Company sold to 14 accredited investors, an
aggregate of 35.5 investment units, each unit consisting of 10,000 shares of
Common Stock and a warrant to purchase 10,000 shares of Common Stock, at a per
unit price of $45,000 (the "April 1998 Private Placement"). The net proceeds of
$1,372,250 were used to pay a portion of the June 1997 Notes. The Company used
the Underwriter to act as Placement Agent in connection with the April 1998
Private Placement. As compensation for Placement Agent, the Placement Agent
received a commission of 10% of the gross proceeds from the sale of the units.
In addition, the Company reimbursed the Placement Agent for its expenses
incurred in connection with the April 1998 Private Placement offering of
$25,000. Pursuant to the terms of the April 1998 Warrants, upon completion of
this Offering, the April 1998 Warrants will be automatically converted into
Warrants. All references in this Prospectus to the warrants issued in the April
1998 Private Placement assume such automatic conversion. The Company has given
the holders of the Common Stock and warrants issued in the April 1998 Private
Placement registration rights with respect to such shares and warrants and the
shares of Common Stock issuable upon exercise of such warrants.
CRI PRIVATE PLACEMENT
In July 1998, the Company sold 1,000,000 shares of Common Stock and CRI
Warrants to purchase an additional 1,000,000 shares of Common Stock to CRI for
an aggregate purchase price of $8,000,000 (the "CRI Private Placement"). The CRI
Warrants are exercisable at $9.60 per share commencing on the date hereof
through June 30, 2003. The CRI Warrants are redeemable by the Company at any
time after December 31, 1998 at $.01 per CRI Warrant upon 30 days prior notice,
provided that (i) the following criteria are satisfied: (A) with respect to
redemption of up to 50% of the CRI Warrants, the average closing price of the
Common Stock as listed on the Nasdaq Stock Market (or other securities exchange)
is at least $14.40 for the twenty day period ending at least two days before the
redemption date, or (B) with respect to redemption of up to 100% of the CRI
Warrants, the average closing price of the Common Stock as listed on the Nasdaq
Stock Market (or other securities exchange) is at least $19.20 for the twenty
day period ending at least two days before the redemption date, and (ii) the
Company is engaged in a subsequent underwritten public offering of its
securities in which the managing underwriter thereof requires redemption of the
CRI Warrants. CRI received both demand and piggyback registration rights in
connection with such purchase commencing one year from consummation of this
Offering. CRI also has the right to send an observer to all Board meetings.
SALES BY SELLING SECURITYHOLDERS
This registration statement also related to the sale by the Selling
Securityholders of an aggregate of 423,881 shares of Common Stock and Warrants
to purchase 423,881 shares of Common Stock as well as the 423,881 shares of
Common Stock issuable upon exercise of the Warrants. The Selling Securityholders
acquired their shares of Common Stock and Warrants in the April 1998 Private
Placement. See "Financings--April 1998 Private Placement." With respect to the
shares of Common Stock issuable upon exercise of the Warrants, the registration
statement covers both the issuance of the Common Stock upon such exercise and
the subsequent sale by the holders thereof. The sale of such securities by the
Selling Securityholders is to be made by a separate Prospectus dated the date of
this Prospectus. None of the Selling Securityholders has had any position,
office or other material relationship with the Company or any of its affiliates
since the Company's organization.
The Selling Securityholders have advised the Company that any sales of the
outstanding shares of Common Stock and Warrants and any shares of Common Stock
which are issuable upon exercise of the Warrants may be effected from time to
time in transactions (which may include block transactions by or for the account
of the
36
<PAGE>
Selling Securityholder) on the Nasdaq SmallCap Market or in negotiated
transactions, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices or in negotiated
transactions, a combination of such methods of sale or otherwise. In addition,
Selling Securityholders may transfer any of the shares of Common Stock or
Warrants covered by this registration statement by gift. The Selling
Securityholders have agreed that they will not sell any of their Securities
pursuant to this Registration Statement prior to one year from the date of this
Prospectus without the consent of the Underwriter. Any donee of the securities
would be subject to the same restriction.
The Selling Securityholders may effect such transactions by selling such
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase Warrants or
shares of Common Stock as principals and thereafter sell the securities from
time to time on the Nasdaq SmallCap Market, in negotiated transactions or
otherwise. In any such transaction, the Underwriter may act as broker-dealer for
the Selling Securityholder and/or for the purchasing party or the Underwriter
may purchase shares of Common Stock or Warrants for its own account although the
Underwriter has no agreement or understanding, either formal or informal, with
any Selling Securityholder with respect to any such transactions. Such
broker-dealers, if any, including the Underwriter, may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholder and/or the purchasers from whom such broker-dealer may act as
agents or to whom they may sell as principals or otherwise (which compensation
as to a particular broker-dealer may exceed customary commissions). Pursuant to
the Subscription Agreement dated March 13, 1998 between the Company and each
Selling Securityholder, the Company has agreed to pay on behalf of the Selling
Securityholders, all expenses related to the registration of their shares of
Common Stock and Warrants.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Security Act and any commission received by them and any
profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock of which 8,763,893 are currently outstanding. The following
description of the Common Stock and certain provisions of the Company's
Certificate of Incorporation, as amended (the "Certificate") and its By-Laws
(the "By-Laws") is a summary and is qualified in its entirety by reference to
the provisions of the Certificate and the By-Laws, copies of which are available
from the Company upon request. After giving effect to this Offering, there will
be 9,963,893 of Common Stock issued and outstanding.
COMMON STOCK
The holders of the outstanding shares of Common Stock are entitled to one
vote per share, and are entitled to receive dividends as and when declared by
the Board of Directors out of funds legally available therefor. The holders of
the outstanding shares of Common Stock have no preemptive or cumulative voting
rights and no rights to convert their shares of Common Stock into any other
securities. All of the outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company hereby will be, fully paid and non
assessable. On liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata the net assets of the
Company remaining after the payment of all creditors and liquidation
preferences, if any.
CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
The holder of each Warrant is entitled to purchase one share of Common
Stock at an aggregate exercise price $9.60 per share. The Warrants are
exercisable immediately following the date of this Prospectus, and terminate
five years from the date of this Prospectus. Holders of the Warrants will only
be able to exercise the Warrants if (a) a current prospectus under the
Securities Act relating to the shares of Common Stock issuable upon exercise of
the Warrants is then in effect, and (b) such securities are qualified for sale
or exemption from qualification under the applicable securities laws of the
states in which the various holders of Warrants reside.
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<PAGE>
Commencing one year from the date of this Prospectus, or earlier with the
consent of the Underwriter, the Warrants are subject to redemption by the
Company, on not more than 60 nor less than 30 days' written notice, at a price
of $.01 per Warrant, if the average closing price per share of the Common Stock
is at least $12.00, subject to adjustment, for the twenty day period ending not
earlier than five days prior the date the Warrants are called for redemption.
Holders of Warrants will automatically forfeit their rights to purchase the
shares of Common Stock issuable upon exercise of such Warrants unless the
Warrants are exercised before the close of business on the business day
immediately prior to the date set for redemption. All of the outstanding
Warrants must be redeemed if any are redeemed. A notice of redemption shall be
mailed to each of the registered holders of the Warrants by first class, postage
prepaid, within five business days (or such longer period to which the
Underwriter may consent) after the Warrants are called for redemption, but no
earlier than the sixtieth nor later than the thirtieth day before the date fixed
for redemption. The notice of redemption shall specify the redemption price, the
date fixed for redemption, the place where the Warrant certificates shall be
delivered and the redemption price to be paid, and that the right to exercise
the Warrants shall terminate at 5:00 p.m. (New York City time) on the business
day immediately preceding the date fixed for redemption. The Warrants can only
be redeemed if, on the date the Warrants are called for redemption, there is an
effective registration statement covering the shares of Common Stock issuable
upon exercise of the Warrants and the Common Stock is listed on the Nasdaq Stock
Market or such other stock market which is acceptable to the Underwriter.
The Warrants may be exercised upon surrender of the certificate(s) therefor
on or prior to 5:00 p.m. New York City time on the expiration date of the
Warrants or, if the Warrants are called for redemption, the day prior to the
redemption date at the offices of the Company's warrant agent (the "Warrant
Agent") with the form of "Election to Purchase" on the reverse side of the
certificate(s) filled out and executed as indicated, accompanied by payment of
the full exercise price for the number of shares as to which the Warrant is
being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, sale of substantially all of the Company's
assets, and for other extraordinary events. The holder of the Warrants will not
possess any rights as a stockholder of the Company unless and until the holder
exercises the Warrants.
OTHER WARRANTS
In addition to the Warrants, there are also outstanding warrants to
purchase 445,362 shares of Common Stock at an exercise price of $7.60 per share,
which expire as follows: warrants to purchase 49,342 shares in December 1998;
warrants to purchase 6,579 shares in October 1999; warrants to purchase 65,789
shares in December 1999; and warrants to purchase 323,652 shares in April 2001.
Additionally, the CRI Warrants entitle CRI to purchase 1,000,000 shares of
Common Stock at $9.60 per share. The CRI Warrants expire on June 30, 2003. Such
warrants contain provisions that protect the holders thereof against dilution by
adjustment of the exercise price in certain events, such as stock dividends,
stock splits, mergers, sale of substantially all of the Company's assets, and
for other extraordinary events. The holders of certain of these warrants have
registration rights with respect to the underlying shares of Common Stock. See
"Financings" for information relating to the issuance of certain of these
warrants. See "Underwriting" with respect to the Underwriter's Unit Purchase
Option and the Class B Redeemable Common Stock Purchase Warrants thereunder.
The holders of the outstanding warrants have been given the opportunity to
profit from a rise in the market for the shares of the Company's Common Stock
with a resulting dilution in the interests of stockholders. The holders of the
outstanding warrants can be expected to exercise them at a time when the Company
would, in all likelihood, be able to obtain equity capital, if then needed, by a
new equity offering on terms more favorable than those provided by the
outstanding warrants. Such facts may adversely affect the terms on which the
Company could obtain additional financing.
DIVIDEND POLICY
The Company presently intends to retain future earnings, if any, in order
to provide funds for use in the operation and expansion of its business and
accordingly does not anticipate paying cash dividends on its Common Stock in the
foreseeable future.
38
<PAGE>
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and Warrant Agent for the Warrants
is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
ANTI-TAKEOVER PROTECTIONS
The Company is a Delaware corporation, and the Delaware General Corporation
Law contains certain provisions applicable to the Company which may have the
effect of preventing a non-negotiated change of control of the Company. These
provisions, among other things, prevent anyone who owns 15% or more of the
outstanding voting stock of the Company or who is an affiliate or associate of
the Company and owned 15% or more of the outstanding shares of stock of the
Company at any time within the prior three years (in either case, an "interested
stockholder") from engaging in any business combination with the Company for a
period of three years after becoming an interested stockholder, unless
(i) prior to the date the stockholder became an interested stockholder, the
Board of Directors approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) the
interested stockholder, while acquiring his or her 15%, acquires at least 85% of
the outstanding shares, excluding shares held by directors who are also officers
and certain shares held under employee stock option plans; or (iii) on or
subsequent to such date, the business combination is approved by the Company's
Board of Directors and by the affirmative vote of two-thirds of the shares
voting at a stockholders' meeting, excluding shares held by the interested
stockholder.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering the Company will have 9,963,893
shares of Common Stock outstanding (10,143,893 shares if the Underwriter's
over-allotment option is exercised in full), excluding shares issuable upon the
exercise of the outstanding stock options and warrants and the Underwriter's
Unit Purchase Option. Of these outstanding shares, the 1,200,000 shares offered
hereby (1,380,000 if the Underwriter's over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, except for any shares purchased by an "affiliate" of the
Company (in general, a person who has a control relationship with the Company)
which will be subject to the limitations of Rule 144 adopted under the
Securities Act. All of the remaining shares of Common Stock are deemed to be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act and will be eligible for sale under Rule 144 within
90 days of the date of this Prospectus, provided, however, that certain of such
shares are subject to certain contractual restrictions on the sale or transfer
of such shares for a period of twelve months from the date of this Prospectus,
without the prior written consent of the Underwriter.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or person whose shares are aggregated), who has owned restricted
Common Stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1%
(99,638 shares after the Offering) of the total number of outstanding shares of
the same class or, if the Common Stock is quoted on the Nasdaq Stock Market, the
average weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned such shares
of Common Stock for at least two years is entitled to sell such shares under
Rule 144 without regard to any of the limitations described above.
The directors, officers and major stockholders of the Company, have agreed
not to sell or otherwise dispose of their Common Stock (or securities
convertible into Common Stock) for a period of twelve months from the completion
of this Offering without the prior written consent of the Underwriter. In
addition, the Underwriter has received certain registration rights under the
Securities Act with respect to the Underwriter's Unit Purchase Option and the
Common Stock issuable upon exercise of the Underwriter's Unit Purchase Option.
See "Underwriting."
39
<PAGE>
UNDERWRITING
HD Brous & Co., Inc. (the "Underwriter") has agreed, on the terms and
subject to the conditions of the Underwriting Agreement, to purchase from the
Company, and the Company has agreed to sell to the Underwriter, 1,200,000 Units.
The Underwriter is committed to purchase and pay for all of the Units offered
hereby on a "firm commitment" basis if any are purchased.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the initial public offering prices set forth on the cover page
of this Prospectus. The Underwriter may allow to certain dealers, who are
members of the National Association of Security Dealers, Inc. ("NASD"),
concessions not exceeding $ per Unit, of which not more than $ per Unit may
be reallowed to other dealers who are members of the NASD. After the initial
public offering, the offering price, the concession and the reallowance may be
changed.
The Company has granted an option to the Underwriter, exercisable during
the 45 day period from the date of this Prospectus, to purchase up to a maximum
of 180,000 additional Units at the public offering price set forth on the Cover
Page of this Prospectus, less the underwriting discount, for the sole purpose of
covering over-allotments of the Units.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 3% of the aggregate public offering price of all Units sold
(including any Units sold pursuant to the Underwriter's over-allotment option).
The Underwriting Agreement also provides for the Company to pay the
Underwriter a fee in the event that the Underwriter introduces the Company to a
party which enters into a business combination or other business transaction
with the Company.
All of the Company's officers, directors and major stockholders have agreed
not to sell (including any short sale or sale against the box) publicly or
otherwise transfer, subject to certain exceptions for transfers to related
parties, any of their securities without the written consent of the Underwriter
for a period of twelve months from the date of this Prospectus. The Company has
agreed that, during the 18 months following the date of this Prospectus, it will
not, without the consent of the Underwriter, register any securities pursuant to
the Securities Act without the consent of the Underwriter, except that such
restrictions do not apply to the registration of stock issuable pursuant to the
Company's present stock option plans on a Form S-8 registration statement.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the registration statement, including liabilities under the Securities Act.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, Underwriter's Unit Price Options to
purchase from the Company up to 120,000 Units at an exercise price of $13.20 per
Unit. The warrants issuable upon exercise of the Underwriter's Unit Purchase
Options are identical to the Warrants included in the Units offered hereby,
except that such warrants will be designated Class B Redeemable Common Stock
Purchase Warrants (the "Class B Warrants") and the exercise price thereof will
be $11.52 per share and Class B Warrants are redeemable if the average closing
price of the Common Stock is at least $14.40 for the twenty day period ending
not earlier than five days before the Class B Warrants are called for
redemption. The Underwriter's Unit Purchase Options are exercisable for a
four-year period commencing one year from the date of this Prospectus, except
that if the Warrants are redeemed prior to the exercise of the Underwriter's
Unit Purchase Option, upon such exercise, the Underwriter will be required to
exercise the underlying Class B Warrants at the same time as the Underwriter's
Unit Purchase Option is exercised or waive the right to receive the Class B
Warrants. During the one-year period commencing on the date of this Prospectus,
the Underwriter's Unit Purchase Options may not be sold, transferred, assigned
or hypothecated, except to the officers of the Underwriter or to selling group
members or officers or partners or members thereof, all of which shall be bound
by such restrictions. The Underwriter's Unit Purchase Options will contain
anti-dilution provisions providing for adjustment under certain circumstances
similar to those applicable to the Warrants. The holders of the Underwriter's
Unit Purchase Options have no voting, dividend or other rights
40
<PAGE>
as stockholders of the Company with respect to securities underlying the
Underwriter's Unit Purchase Options until the Underwriter's Unit Purchase Option
or the underlying Class B Warrants, as the case may be, are exercised. The
holders of the Underwriter's Unit Purchase Options have been given the
opportunity to profit from a rise in the market for the Company's securities at
a nominal cost, with a resulting dilution in the interests of stockholders. The
holders of the Underwriter's Unit Purchase Options can be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain
equity capital, if then needed, by a new equity offering on terms more favorable
than those provided by the Underwriter's Unit Purchase Options. Such facts may
adversely affect the terms on which the Company could obtain additional
financing. Any profit received by the Underwriter on the sale of the
Underwriter's Unit Purchase Options or the securities issuable upon exercise of
the Underwriter's Unit Purchase Options may be deemed additional underwriting
compensation.
The Company has agreed during the term of the Underwriter's Unit Purchase
Options and for two years thereafter to give advance notice to the holders of
the Underwriter's Unit Purchase Option or underlying securities of its intention
to file a registration statement, and in such case, the holders of the
Underwriter's Unit Purchase Options and underlying securities shall have the
right to require the Company to include the underlying securities in such
registration statement at the Company's expense. At the demand of the holders of
a majority of the Underwriter's Unit Purchase Options and underlying Common
Stock, including Common Stock issued or issuable upon exercise of the Class B
Warrants issuable upon exercise of the Underwriter's Unit Purchase Options,
during the term of the Underwriter's Unit Purchase Options, the Company will
also be required to file one such registration statement at the Company's
expense. In addition, the Company has agreed to cooperate with the holders of
the Underwriter's Unit Purchase Options in filing a second registration at the
expense of the holders of the Underwriter's Unit Purchase Options or underlying
securities.
The Underwriting Agreement provides that, during the five-year period
following the date of this Prospectus, the Underwriter will have the right to
designate one member to the Company's board of directors. The Underwriting
Agreement also requires the Company to maintain key man life insurance on the
lives of Dr. Creve Maples ($1,000,000), Curtiz J. Gangi ($500,000) and Craig
Peterson ($500,000) during their respective terms of employment with the
Company.
Prior to this Offering, there has been no public market for the Common
Stock or Warrants of the Company. The public offering price and composition of
the Units and the exercise price and other terms of the Warrants have been
determined by negotiation between the Company and the Underwriter and are not
related to the Company's assets, book value, financial condition or any other
recognized criteria of value. In determining such price and terms, the Company
and the Underwriter considered a number of factors, including estimates of the
Company's business potential, the amount of dilution to public investors, the
Company's prospects, and the general condition of the securities markets.
The Underwriter has informed the Company that sales to any account over
which the Underwriter exercises discretionary authority will not exceed 1% of
this Offering.
LEGAL MATTERS
The legality of the issue of the shares of Common Stock and Warrants
offered hereby will be passed upon for the Company by Proskauer Rose LLP, New
York, New York. Certain legal matters will be passed upon for the Underwriter by
Esanu Katsky Korins & Siger, LLP, New York, New York.
EXPERTS
The balance sheet as of September 30, 1997 and the statements of
operations, stockholders' equity and cash flows for the years ended September
30, 1997 and for the period from inception (October 1995) to September 30, 1996
of the Company included in this Prospectus, have been included herein in
reliance on the report, which includes an explanatory paragraph with respect to
the entity's ability to continue as a going concern as described in Note 3 to
Notes to Financial Statements, of Feldman Sherb Ehrlich & Co., P.C. (formerly
Feldman Radin & Co., P.C.), independent certified public accountants, given on
the authority of that firm as experts in accounting and auditing.
41
<PAGE>
ADDITIONAL INFORMATION
The Company will be subject to certain informational requirements of the
Exchange Act, and, in accordance therewith, will file reports and other
information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional
offices of the Commission at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http//www.sec.gov.
A registration statement on Form SB-2 relating to the securities offered
hereby has been filed by the Company with the Commission. The Prospectus does
not contain all of the information set forth in such registration statement. For
further information with respect to the Company and to the Securities offered
hereby, reference is made to such registration statement, including the exhibits
thereto. Statements contained in this Prospectus as to the content of any
contract or other document referred to in this Prospectus are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
42
<PAGE>
MUSE TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report....................................... F-2
Balance Sheets..................................................... F-3
Statements of Operations........................................... F-4
Statement of Stockholders' Equity.................................. F-5
Statements of Cash Flows........................................... F-6
Notes to Financial Statements...................................... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors of
Muse Technologies, Inc.
We have audited the accompanying balance sheet of Muse Technologies, Inc.
as of September 30, 1997, and the related statements of operations,
stockholders' equity and cash flows, for the year ended September 30, 1997, and
for the period from October 24, 1995 (inception) through September 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Muse Technologies, Inc. as
of September 30, 1997, and the results of its operations and cash flows, for the
year ended September 30, 1997, and for the period from October 25, 1995
(inception) through September 30, 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company incurred significant net losses in the amounts
of $2,049,102 and $1,203,745 in 1997 and 1996, respectively. Additionally, the
Company has a working capital deficiency of approximately $880,000 at
September 30, 1997. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with respect to these
matters are also discussed in Note 3 to the financial statements. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company not be able
to continue as a going concern.
/s/ FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants
(Formerly Feldman Radin & Co., P.C.)
New York, NY
November 7, 1997
(except notes 1, 3, 7, 9
and 14, as to which
the date is July 15, 1998)
F-2
<PAGE>
MUSE TECHNOLOGIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................................. $ 924,348 $ 287,436
Accounts receivable............................................................... 162,467 215,449
Prepaid insurance................................................................. 13,248 23,254
----------- -----------
TOTAL CURRENT ASSETS...................................................... 1,100,063 526,139
PROPERTY AND EQUIPMENT--NET......................................................... 444,619 762,173
NOTE RECEIVABLE--AFFILIATE.......................................................... 55,000 55,000
DEFERRED OFFERING COSTS............................................................. 91,270 --
OTHER ASSETS........................................................................ 19,052 22,652
----------- -----------
TOTAL ASSETS.............................................................. $ 1,710,004 $ 1,365,964
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 36,381 $ 211,992
Accrued liabilities............................................................... 94,907 203,687
Capital lease--current portion.................................................... 10,785 7,904
Notes payable (net of discount of $129,792 and $305,157).......................... 794,129 932,343
Line of credit.................................................................... -- 50,000
----------- -----------
TOTAL CURRENT LIABILITIES................................................. 936,202 1,405,926
CAPITAL LEASE, less current portion................................................. -- 17,740
----------- -----------
TOTAL LIABILITIES......................................................... 936,202 1,423,666
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.015 par value, 50,000,000 shares authorized, issued and
outstanding 7,763,893 and 7,278,279, respectively.............................. 116,458 109,174
Additional paid-in capital........................................................ 6,459,091 3,518,471
Stock subscription receivable..................................................... (87,500) (87,500)
Accumulated deficit............................................................... (5,714,247) (3,597,847)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................................ 773,802 (57,702)
----------- -----------
$ 1,710,004 $ 1,365,964
----------- -----------
----------- -----------
</TABLE>
See notes to the financial statements.
F-3
<PAGE>
MUSE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 24,
1995
NINE MONTHS ENDED (INCEPTION)
JUNE 30, YEAR ENDED THROUGH
---------------------------- SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1997 1996
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE.............................................. $ 1,761,251 $ 533,351 $ 755,705 $ 355,392
------------- ------------- ----------- -----------
EXPENSES:
Selling, general and administrative expenses....... 1,321,018 849,604 1,467,240 675,898
Research and development........................... 710,068 606,488 741,910 599,026
Non-cash imputed compensation expense.............. 948,355 -- -- --
Depreciation....................................... 343,334 309,885 427,735 251,954
Interest expense................................... 554,876 32,172 167,922 32,259
------------- ------------- ----------- -----------
TOTAL EXPENSES....................................... 3,877,651 1,798,149 2,804,807 1,559,137
------------- ------------- ----------- -----------
NET LOSS............................................. $ (2,116,400) $ (1,264,798) $(2,049,102) $(1,203,745)
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
NET LOSS PER SHARE--BASIC............................ $ (0.29) $ (0.18) $ (0.28) $ (0.18)
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
SHARES............................................. 7,418,768 7,191,398 7,193,169 6,871,642
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
See notes to the financial statements.
F-4
<PAGE>
MUSE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK STOCK TOTAL
--------------------- ADDITIONAL SUBSCRIPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL RECEIVABLE DEFICIT EQUITY
--------- -------- --------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--
October 24, 1995 (inception)... -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock..... 6,694,079 100,411 (80,061) -- -- 20,350
Dividend..................... (400,000) (400,000)
Sale of common stock......... 250,921 3,764 1,651,379 -- -- 1,655,143
Conversion of notes into
common stock............... 131,579 1,974 865,957 -- -- 867,931
Net loss..................... (1,203,745) (1,203,745)
--------- -------- ----------- -------- ----------- -----------
BALANCE--
September 30, 1996............. 7,076,579 106,149 2,437,275 -- (1,603,745) 939,679
Sale of common stock pursuant
to private placement....... 99,014 1,485 584,000 -- -- 585,485
Sale of common stock in
connection with notes...... 81,415 1,221 335,855 -- -- 337,076
Issuance of common stock
pursuant to consulting
agreement.................. 9,758 146 74,014 -- -- 74,160
Sale of Stock to officer..... 11,513 173 87,327 (87,500) -- --
Dividend adjustment.......... -- -- -- -- 55,000 55,000
Net loss..................... -- -- -- -- (2,049,102) (2,049,102)
--------- -------- ----------- -------- ----------- -----------
BALANCE--
September 30, 1997............. 7,278,279 109,174 3,518,471 (87,500) (3,597,847) (57,702)
Issuance of common stock
pursuant to consulting
agreements................. 4,058 61 30,780 -- -- 30,841
Sale of common stock pursuant
to private placements...... 412,566 6,188 1,652,285 -- -- 1,658,473
Conversion of notes into
common stock............... 68,880 1,033 308,927 -- -- 309,960
Exercise of stock options.... 110 2 273 -- -- 275
Non-cash imputed compensation
expense...................... -- -- 948,355 -- -- 948,355
Net loss....................... (2,116,400) (2,116,400)
--------- -------- ----------- -------- ----------- -----------
BALANCE--
June 30, 1998 (unaudited)...... 7,763,893 $116,458 $ 6,459,091 $(87,500) $(5,714,247) $ 773,802
--------- -------- ----------- -------- ----------- -----------
--------- -------- ----------- -------- ----------- -----------
</TABLE>
See notes to the financial statements.
F-5
<PAGE>
MUSE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(OCTOBER 24,
1995)
NINE MONTHS ENDED JUNE 30, YEAR ENDED THROUGH
----------------------------- SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1997 1996
------------- ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(2,116,400) $(1,264,798) $(2,049,102) $(1,203,745)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation...................................... 343,334 309,885 427,735 257,071
Amortization of discount.......................... 491,575 -- 127,968 --
Non-cash imputed compensation expense............. 948,355 -- -- --
Retirement of fixed assets........................ -- -- 17,028 --
Issuance of shares under consulting agreements.... 30,841 -- -- --
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable........ 52,982 40,459 (45,015) (170,434)
Decrease (Increase) in prepaid assets............. 10,007 -- (23,254) --
Decrease in other assets.......................... 3,600 24,308 47,224 --
(Decrease) Increase in accounts payable........... (175,611) 195,658 190,326 21,666
Increase in accrued interest...................... 48,921 -- -- --
(Decrease) in accrued liabilities................. (116,684) (146,077) (14,784) 218,471
----------- ------------ ----------- -----------
CASH USED IN OPERATING ACTIVITIES................. (479,080) (840,565) (1,321,874) (876,971)
----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................ (25,780) (222,528) (273,555) (979,374)
----------- ------------ ----------- -----------
CASH USED IN INVESTING ACTIVITIES................. (25,780) (222,528) (273,555) (979,374)
----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid upon acquiring assets............... -- -- -- (400,000)
Net proceeds from sale of stock................... 1,658,748 676,903 629,062 1,643,424
Net proceeds from issuance of convertible notes... -- 1,113,750 1,113,750 900,000
Proceeds from issuance of notes................... 568,749 -- -- --
Deferred offering costs........................... (91,270) -- -- --
Due from affiliate................................ -- -- 23,627 (23,627)
Increase in notes payable--affiliates............. -- -- -- 815,000
(Repayments) Increase in capital lease payable.... (6,955) -- 25,644 --
Repayment of notes payable--affiliates............ -- -- -- (1,037,670)
Repayment of notes payable--others................ (937,500) -- -- --
(Repayments) Borrowings-line of credit............ (50,000) 50,000 50,000 --
----------- ------------ ----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES............. 1,141,772 1,840,653 1,842,083 1,897,127
----------- ------------ ----------- -----------
NET INCREASE IN CASH 636,912 777,560 246,654 40,782
CASH--Beginning of year............................... 287,436 40,782 40,782 --
----------- ------------ ----------- -----------
CASH--End of year..................................... $ 924,348 $ 818,342 $ 287,436 $ 40,782
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................... $ 49,894 $ 32,172 $ 167,922 $ 32,259
Non-cash financing and investing activities:
(1) In connection with the acquisition from an
affiliate:
Assets acquired................................ -- -- -- 751,664
Liabilities assumed............................ -- -- -- 528,994
----------- ------------ ----------- -----------
Notes issued -- -- -- 222,670
(2) Convertible notes converted to common stock... 309,960 -- -- 900,000
(3) Common stock issued in connection with note
issuance..................................... -- -- $ 433,125 --
</TABLE>
See notes to the financial statements.
F-6
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
1. THE COMPANY
Muse Technologies, Inc. (the "Company") was incorporated in Delaware on
October 24, 1995 to develop and market software products, designed to enhance
the user's ability to understand and analyze data and information and to provide
solutions to complex data integration and data management problems. The
multisensory capabilities of the software ("MuSE"), enables the user to present
information in real time using visual, auditory, tactical and other analytical
tools. MuSE is based on software licensed to the Company by Sandia Corporation
("Sandia") pursuant to a license agreement dated October 9, 1995 (the "License
Agreement"). The Company has also developed a proprietary software product,
"Continuum", designed for multiuser, real-time collaboration within the MuSE
environment.
In December, 1995 the Company acquired substantially all assets and
liabilities from Viga Technologies Corporation ("Viga"), an affiliate with
common ownership. As part of the acquisition Viga agreed to transfer the License
Agreement to the Company. Pending completion of the transfer Viga sublicensed
its rights under the License Agreement to the Company. On July 15, 1996, the
License Agreement was formally assigned to the Company.
The Company commenced operations in December 1995. To date, the majority of
the Company's revenue has been generated from products utilizing the Muse
technology and applied research and development services for customers in the
Federal, corporate and nonprofit markets of the United States. Sales to the
United States government represented $528,748, or 70%, and $256,892 or 72%, of
revenue in 1997 and 1996, respectively. Accounts receivable from the United
States government were $98,125 at September 30, 1997. The Company does not
require collateral on its accounts receivable.
The Company effected two stock splits since inception, a 1000-for-1 forward
stock split on November 9, 1995 and a 1-for-3.04 reverse stock split on
March 5, 1998. In addition, in conjunction with the 1-for-3.04 reverse stock
split, the par value of the Company's stock was changed from $0.01 per share to
$0.015 per share. All references to the number of shares of common stock and per
share amounts in the accompanying financial statements and related footnotes
have been restated as appropriate to reflect the splits for all periods
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
b. Revenue Recognition--The Company licenses software to end users under
license agreements. The Company recognizes revenues in accordance with Statement
of Position 91-1 entitled "Software Revenue Recognition" ("SOP-91"), issued by
the American Institute of Certified Public Accountants ("AICPA"). SOP-91
requires that software license revenue be recognized upon the receipt of a valid
order and product shipment, provided no significant obligation to the customer
exists. Maintenance (post-contract support) revenues are recognized on a
straight-line basis over the term of the maintenance agreement (generally, one
year). Maintenance revenues not currently recognized are recorded as deferred
revenues. Revenues for other services and training are recognized upon
performance of the service.
The AICPA has issued SOP 97-2 with regards to recognizing revenues on
software transactions. SOP 97-2, which supersedes SOP 91-1, is effective on a
prospective basis for fiscal years beginning after December 15, 1997. The
adoption of the new SOP is not expected to have a material effect on the
Company's financial statements.
F-7
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
c. Research and Development--Research and development expenditures are
charged to operations as incurred. Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed," requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have been immaterial.
d. Property and Equipment--Property and equipment are stated at cost.
Depreciation is calculated on the straight-line method over three years, which
is the estimated useful life of the assets.
e. Net Income (Loss) Per Share--Basic earnings (loss) per share is computed
using the weighted average number of shares of outstanding common stock. Diluted
per share amounts also include the effect of dilutive common stock equivalents
from the assumed exercise of stock options.
f. Income Taxes--Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which is
an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
g. Cash Equivalents--Cash equivalents are carried at cost, which
approximates market value. For purposes of the statement of cash flows, the
Company considers all highly liquid short-term investments that are readily
convertible to cash and have original maturities of three months or less from
their date of purchase to be cash equivalents. Cash equivalents consist of
overnight interest funds.
h. Fair Value of Financial Instruments--The Company's financial instruments
under Statement of Financial Accounting Standards No. 107 ("SFAS 107")
"Disclosures About Fair Value of Financial Instruments," includes cash, accounts
receivable, notes receivable, accounts payable, notes payable, borrowings under
line of credit facility, and long-term debt. The Company believes that the
carrying amounts of these accounts are a reasonable estimate of their fair value
because of the short-term nature of such instruments.
3. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate the continuation of
the Company as a going concern. However, the Company reported net losses of
$2,049,102 and $1,203,745 in 1997 and 1996, respectively. Additionally, the
Company has a working capital deficiency of approximately $880,000 at
September 30, 1997. Consequently, recoverability of a major portion of the
recorded asset amounts shown in the accompanying balance sheet is dependent upon
the Company's ability to obtain financing and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue in existence.
During 1996, in connection with the private placement offering and the
issuance of convertible notes, the Company sold 386,312 shares of common stock
for net proceeds of $2,523,074. During the fiscal year ended September 30, 1997,
an additional 99,014 shares were sold for net proceeds of $585,485. In December
1997, the Company sold, through a private placement offering, 35 units, each
unit consisting of a one year, 8% promissory note in the principal amount of
$25,000 and 1,645 shares of common stock. The Company believes that future
operations, together with the additional capital from future sales of stock
through private or public financings, will provide sufficient liquidity for the
Company to continue as a going concern.
F-8
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1997 is as follows:
Computer equipment.................................... $ 1,328,952
Furniture and fixtures................................ 111,227
------------
1,440,179
Less: accumulated depreciation........................ (678,006)
------------
$ 762,173
------------
------------
5. ISSUANCES OF STOCK AND DEBT
(i) In October 1995, the Company issued, for nominal consideration,
6,694,080 shares of Common Stock to the stockholders of Viga. (See Note 9)
(ii) In December 1995, the Company received net proceeds of $900,000 from
the sale of four units, each of which consisted of $249,900 face amount of 10%
convertible promissory notes and warrants to purchase 8,306 shares of common
stock at $7.60 per share. In April 1996, the notes were converted into 131,579
shares of common stock at a conversion price of $7.60 per share.
(iii) During 1996, the Company sold 250,921 shares of common stock for net
proceeds of $1,655,143. During the year ended September 30, 1997, an additional
99,014 shares were sold for net proceeds of $585,485.
(iv) In June 1997, the Company issued $1,237,500 principal amount of, 8%
promissory notes and shares of the Company's common stock for which it received
net proceeds of $1,113,750. The principal balance and accrued interest are due
and payable upon the earlier of the one year anniversary of the date of the note
or seven days after the consummation of an initial public offering. For
valuation purposes, $433,125 was allocated to the common stock and the remainder
to the notes. Accordingly, the notes were issued at a discount from their face
value. The discount will be amortized over the one year term of the notes. At
September 30, 1997, the unamortized discount and related amortization expense
was $305,157 and $127,968, respectively.
(v) In September 1997, the Company sold to an officer 11,514 shares of
Common Stock at a purchase price of $7.60 per share or an aggregate of $87,500.
Payment of the purchase price was made by issuance of a non-recourse promissory
note secured by a pledge of the shares purchased.
6. STOCK OPTIONS AND WARRANTS
The Company currently has two stock option plans with essentially identical
terms and conditions. Under the 1995 Stock Option Plan, the Company may grant
non-qualified stock options to purchase up to 565,449 shares of common stock.
Under the 1996 Stock Option Plan, the Company may grant non-qualified or
incentive stock options to purchase up to 1,644,737 shares of common stock.
Options may be granted to employees, officers, directors, consultants and
independent contractors. Under the Plans, options may be for periods up to ten
years and become exercisable in varying amounts based on a vesting schedule. In
general, the options become exercisable in three installments beginning on the
first anniversary of the grant. All options allow for the purchase of common
stock at prices equal to market value at the date of the grant.
The Company accounts for its stock option plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25"), under which no
compensation cost is recognized. In fiscal 1997, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") for disclosure
purposes: accordingly, no compensation has been recognized in the results of
operations for its stock option plans as required by APB 25.
F-9
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
6. STOCK OPTIONS AND WARRANTS--(CONTINUED)
For disclosure purposes the fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for stock options granted during
the years ended September 30, 1997 and 1996; annual dividends of $0.00, expected
volatility of 50%, risk-free interest rate of 5.7%, and expected option lives of
six years. The weighted average fair value of the stock options granted for the
years ended September 30, 1997 and 1996 was $1.89 and $1.38, respectively.
See Notes 5 and 9 with respect to the issuance of warrants by the Company.
The following table summarizes the changes in options and warrants
outstanding, and the related exercise price for shares of the Company's common
stock:
<TABLE>
<CAPTION>
STOCK OPTIONS WARRANTS
------------------------------------------- -----------------------------------
EXERCISE EXERCISE
SHARES PRICE(1) EXERCISABLE SHARES PRICE EXERCISABLE
--------- --------------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
October 24, 1995...................... -- $ -- -- -- $ -- --
Granted............................ 141,447 2.50 -- -- -- --
Canceled........................... (49,342) 2.50 -- 121,710 7.60 --
--------- --------------- ------- -------- ------ -------
Outstanding at
September 30, 1996.................... 92,105 2.50 16,630 121,710 7.60 --
------- -------
------- -------
Granted............................ 906,907 2.50 -- 419,112 7.60 --
Granted............................ 197,368 7.60 -- -- -- --
Canceled........................... (13,158) 2.50 -- (102,039) 7.60 36,033
--------- --------------- ------- -------- ------ -------
Outstanding at
September 30, 1997.................... 1,183,222 $ 2.50-7.60 307,610 438,783 $ 7.60 438,783
--------- --------------- ------- -------- ------ -------
--------- --------------- ------- -------- ------ -------
</TABLE>
- ------------------
(1) As a result of the March 5, 1998 1-for-3.04 reverse stock split, the
exercise price of the options under the Company's 1995 and 1996 stock option
plans was $7.60. In April 1998, the exercise price of the options was
reduced to $2.50 per share. The above table reflects such repricing.
Had compensation cost for the Company's two option plans been determined in
accordance with SFAS 123, the Company's net loss and loss per share would have
been increased to the pro forma amounts indicated below for the years ended
September 30:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C> <C>
Net Loss................................................... As reported $(2,049,102) $(1,203,745)
Pro forma $(2,241,718) $(1,214,318)
Net Loss per Common Share.................................. As reported $ (0.28) $ (0.18)
Pro forma $ (0.31) $ (0.18)
</TABLE>
7. EMPLOYMENT AGREEMENTS
Effective June 1, 1998 the Company has entered into three year employment
agreements with various officers of the Company as follows:
The Chief Technical Officer of the Company will receive an annual base
salary of $175,000 and a bonus of up to $76,000 upon the Company achieving
certain performance objectives. This officer also received options to purchase
Common Stock of the Company at an exercise price of $7.50 per share, which vests
as follows: 30,000 shares on June 1, 1999, 37,500 shares on June 1, 2000, and
50,000 shares on June 1, 2001.
F-10
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
7. EMPLOYMENT AGREEMENTS--(CONTINUED)
The President of the Company will receive an annual base salary of $215,000
and a bonus of up to $134,000 upon the Company achieving certain performance
objectives. The President also received options to purchase Common Stock of the
Company at an exercise price of $7.50 per share, which vests as follows: 100,000
shares on June 1, 1999, 125,000 shares on June 1, 2000 and 150,000 shares on
June 1, 2001. The President will also receive a five year loan in the amount of
$150,000 at 5% annual interest in connection with his relocation to New Mexico
upon the successful completion of an initial public offering ("IPO") of the
Company's securities.
The Vice-President of Sales and Marketing will receive an annual base
salary of $150,000. This officer will receive commissions under the Company's
Sales Compensation Plan and will be entitled to receive a bonus as determined by
the Board of Directors. The officer also received options to purchase Common
Stock of the Company at an exercise price of $7.50 per share, which vests as
follows: 30,000 shares on June 1, 1999, 37,500 shares on June 1, 2000 and 50,000
shares on June 1, 2001. Such officer will also receive a five year loan in the
amount of $75,000 at 5% annual interest in connection with his relocation to New
Mexico upon the successful completion of an IPO.
The Chief Financial Officer will receive an annual base salary of $150,000
and a bonus of up to $65,000 upon the Company achieving certain performance
objectives. This officer also received options to purchase Common Stock of the
Company at an exercise price of $7.50 per share, which vests as follows: 30,000
shares on June 1, 1999, 37,500 shares on June 1, 2000 and 50,000 shares on
June 1, 2001. The Chief Financial Officer will also receive a five year loan in
the amount of $75,000 at 5% annual interest in connection with his relocation to
New Mexico upon the successful completion of an IPO.
Under the above agreements, if such the officer is terminated by the
Company other than for cause (as defined in each employment agreement), or if
the officer dies or becomes permanently disabled or terminates for good reason
(as defined in each employment agreement), all stock options held by such
officer shall immediately vest upon such termination and such officer shall
receive severance payments in an amount equal to one year's base salary for the
President, Chief Financial Officer and the Vice President of Sales and Marketing
(if terminated after February 28, 1999), and two year's base salary for the
Chief Technical Officer. Each of the employment agreements also contain
provisions relating to severance payments equal to one year's base salary in the
event of a change of control (as defined in the employment agreement).
8. RETIREMENT PLAN
In October 1996, the Company established a defined contribution plan
(401(k) plan) covering substantially all employees. Under the terms of the plan,
eligible employees may contribute up to fifteen percent of their compensation,
subject to statutory limitations. The Company expensed $23,249, representing
three percent of eligible employees compensation, for their contribution to the
plan for the year ended September 30, 1997.
9. RELATED PARTY TRANSACTIONS
a. Viga Technologies Corporation--In October 1995, the Company issued
6,694,080 shares of Common Stock to the stockholders of Viga, including certain
officers, directors and principal stockholders of the Company in proportion to
the beneficial stock ownership of Viga. In December 1995, the Company acquired
the assets of Viga, including its rights under the License Agreement. As part of
the acquisition, Viga sublicensed the Muse technology to the Company until the
License Agreement could be transferred to the Company, which transfer was
completed in July 1996. The purchase price for the Viga assets was $1,152,000
(not including assumption of certain liabilities). The Company issued notes in
the amount of $222,670 representing the difference between the assets acquired
and liabilities assumed, and $400,000 representing the sublicense fee. The two
notes were paid, without interest, in 1996. In 1997, Viga reduced the purchase
price by $55,000, for which Viga issued its 6.5% note due November 2001. (See
Note 1).
F-11
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
9. RELATED PARTY TRANSACTIONS--(CONTINUED)
Since the Company and Viga were controlled by substantially the same
persons, the excess of purchase price over book value of net assets acquired was
recorded as a dividend to stockholders. A summary of the transaction is as
follows:
Purchase Price............................................... $ 622,670
Assets Acquired.............................................. (751,664)
Liabilities Assumed.......................................... 528,994
-----------
Dividend..................................................... $ 400,000
-----------
-----------
The above mentioned License Agreement, which was amended in July 1998,
grants the Company exclusive rights to develop and commercialize MuSE until
October 2005 and thereafter provides a non-exclusive right through 2015. At the
end of such ten year period of exclusivity, the Company may request the licensor
to extend exclusivity through 2015, which determination shall be made in the
licensor's sole discretion. The licensor has the right to terminate the license
or make the license non-exclusive in the event the Company fails to pay the
required royalties under the license agreement, with an annual minimum royalty
of $20,000 through the year ended December 31, 2006. The Company is also
obligated to pay an annual license fee of $10,000 through the year ending
December 31, 1999 and a one-time payment of $20,000 prior to July 1999.
b. Investment Banking Agreement--The Company has entered into an investing
banking agreement with Investors Associates, Inc. ("IAI"). Certain owners of IAI
are stockholders of the Company. In general, the Company has engaged IAI to
provide investment banking services relating to the financings described in
Note 5. On June 30, 1997, the investment banking agreement with IAI was mutually
terminated.
For services as placement agent for such transactions, in 1997, the Company
paid IAI fees of $123,750 and issued to IAI warrants to purchase 317,073 of
common stock at $7.60 per share, and in 1996, the Company paid IAI fees of
$203,490 and issued to IAI warrants to purchase 121,710 shares of common shares
at $7.60 per share. The warrants expire at various times from December 31, 1998
to April 2001.
c. Transactions With Stockholders--The Company had entered into a
consulting agreement expiring September 30, 1997 with Quatro Corporation
("Quatro"), a minority shareholder, in which Quatro will provide accounting
services, financial and business support, executive and marketing consulting,
and manufacturing consulting services to the Company. The Company paid $19,324
and $33,564 to Quatro for these services in 1997 and 1996, respectively.
The Company entered into an executive marketing and consulting agreement
with Technology Business Associates ("TBA"), a minority shareholder of the
Company, which expired September 30, 1996. During 1996, the Company paid $51,326
to TBA under the agreement. An officer and director of the Company is also the
founder, a director and executive officer of both Quatro and TBA.
d. Consulting Agreement--In March 1997, the Company entered into a
consulting agreement with an independent contractor, wherein the contractor will
act as an advisor to the Company with respect to business development and
strategic alliance matters. The contractor was granted options to purchase
23,688 shares of Company common stock at a price of $7.60 per share, vesting at
1,974 shares per month.
10. INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
which generally requires the recognition of deferred income tax assets and
liabilities based on the future income tax consequences of events that have
previously been recognized in the Company's financial statements or tax returns.
Since the Company cannot currently conclude that it is more likely than not that
some or all of the deferred income tax asset will be
F-12
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
10. INCOME TAXES--(CONTINUED)
realized, the related net deferred tax assets have been fully offset by a
valuation allowance. The Company has reported net operating losses of
approximately $1,924,000 and $1,594,000 for income tax purposes in 1997 and
1996, respectively. Utilization of this loss as a carryforward to offset future
taxable income is dependent on the Company having taxable income. The net
operating loss carryforwards expire beginning 2011, if not utilized.
Significant components of the deferred tax assets are as follows as of
September 30, 1997:
Net operating loss carryforward.......................... $ 1,263,000
-------------
Total gross deferred tax asset........................... 1,263,000
Less valuation allowance................................. (1,263,000)
-------------
Net deferred tax assets.................................. $ --
-------------
-------------
11. LEASES
The Company leases its laboratory and office facilities under
non-cancellable lease arrangements. Rent expense for 1997 and 1996 was $109,583
and $85,182, respectively. Future minimum lease payments under noncancellable
operating leases are:
1998.................................................. $ 104,712
1999.................................................. 109,105
2000.................................................. 18,306
----------
$ 232,123
----------
----------
12. GOVERNMENT CONTRACTS
The Company derives significant revenue from contracts with the Federal
government. Recognition of revenue is generally conditioned upon compliance with
terms and conditions of the contracts and applicable Federal regulations.
Substantially all contracts are subject to audit by agencies of the Federal
government or their designees. Disallowances by Federal officials as a result of
these audits may become liabilities of the Company. The Company has not recorded
any liability for disallowances which may be determined in the future.
13. LINE OF CREDIT FACILITY
In November 1996, the Company obtained a revolving line of credit in the
amount of $50,000. Outstanding balances on the line bear interest at prime plus
one and one-half percent and the line expires on November 1, 1997. In addition,
the Company received a credit card with an available borrowing limit of $25,000.
As part of the borrowing arrangements, the Company is required to maintain a
compensating cash balance in the amount of $75,000. Borrowings against the line
of credit were $50,000 as of September 30, 1997. The line of credit agreement
has been extended to February 1, 1998.
14. OTHER SUBSEQUENT EVENTS
a. Private Placement--In April and May 1998, the Company received net
proceeds of $1,411,500 from the sale in a private placement of 35.5 units at
$45,000 per unit. Each unit consists of 10,000 shares of the Company's common
stock and a series A common stock purchase warrant to purchase 10,000 shares of
common stock.
b. Marketing Agreement--In July 1998, the Company entered into an agreement
with an entity which grants such entity the rights to market, sell and
distribute the Company's products.
F-13
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
14. OTHER SUBSEQUENT EVENTS--(CONTINUED)
Under the terms of the agreement, the Company will receive a $5,000,000 fee
granting the entity exclusive worldwide selling rights of the Company's products
in the oil and gas industry. As of June 30, 1998, the Company has received
$1,000,000 of the $5,000,000, with the balance due in two equal installments on
September 30, 1998 and November 30, 1998.
The agreement is for an initial term of three years with a provision for
three successive three year renewal periods. The agreement provides for the
Company to receive a minimum of $12,000,000 from the entity for the sale of MuSE
software over the initial and renewal terms of the agreement.
In connection with this agreement, the Company's Vice President of Sales
and Marketing earned previously granted options to purchase 197,369 shares at an
exercise price of $7.60 per share.
c. Subscription Agreement--On July 15, 1998, the Company entered into a
subscription agreement with an entity for the sale of 1,000,000 shares of common
stock and a series stock purchase warrant for the purchase up to 1,000,000
shares of common stock. The stock and the warrants were sold as a unit for
$8,000,000. The Company paid its Vice President--Sales and Marketing a bonus of
$176,000 and two other executive officers $172,000 each in connection with this
sale.
d. Proposed Public Offering--In February 1998, the Company entered into a
letter of intent with respect to an initial public offering of its securities.
F-14
<PAGE>
[INSIDE BACK COVER -- PANELS 1 AND 2]
[LOGO] MUSE Technologies, Inc.
Leading the New Age of Perceptual Computing
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
TRAINING & EDUCATION
Logarithmically scaled, mathematically accurate running model of the solar
system. Developed using MuSE at Sandia National Laboratories in 1992.
<PAGE>
[INSIDE BACK COVER -- PANEL 3]
[LOGO] MUSE Technologies, Inc.
Leading the New Age of Perceptual Computing
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
AEROSPACE
Mission simulation of Stardust spacecraft approaching Wild 2 comet to collect
comet material and information for return to Earth. Developed in 1996.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
DESIGN ANALYSIS
Component analysis of elements in tire design. Colors indicate time-dependent
effects of stress on different materials. Developed using MuSE at Sandia
National Laboratories in 1995.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
OIL & GAS RESERVOIR EXPLORATION
Fusion of well, surface, and seismic information. Developed in 1998.
View within a MuSE environment
[GRAPHIC IMAGE OMITTED]
ELECTRONICS MANUFACTURING
Performance analysis of electronic chip design prior to construction. Developed
using MuSE at Sandia National Laboratories in 1993.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OFFERED BY THIS SHARES PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY, BY ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, IMPLY
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................. 3
Summary Financial Information.................. 6
Risk Factors................................... 7
Dilution....................................... 16
Use of Proceeds................................ 17
Capitalization................................. 18
Dividend Policy................................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 21
Management..................................... 27
Principal Stockholders......................... 33
Certain Relationships and Related
Transactions................................. 34
Sales by Selling Securityholders............... 36
Description of Securities...................... 37
Shares Eligible for Future Sale................ 39
Underwriting................................... 40
Legal Matters.................................. 41
Experts........................................ 41
Additional Information......................... 42
Index to Financial Statements.................. F-1
------------------------
UNTIL DECEMBER , 1998 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
1,200,000 UNITS
MUSE TECHNOLOGIES, INC.
CONSISTING OF
1,200,000 SHARES OF COMMON STOCK AND
CLASS A REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
TO PURCHASE 600,000 SHARES
OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
HD BROUS & CO., INC.
NOVEMBER , 1998
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<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
ALTERNATE PAGE
PRELIMINARY PROSPECTUS DATED OCTOBER 26, 1998 SUBJECT TO COMPLETION
PROSPECTUS
MUSE TECHNOLOGIES, INC.
423,881 SHARES OF COMMON STOCK AND CLASS A REDEEMABLE COMMON STOCK PURCHASE
WARRANTS TO PURCHASE 423,881 SHARES OF COMMON STOCK
This Prospectus relates to the sale or other disposition of 423,881
outstanding shares of common stock, par value $.015 per share ("Common Stock"),
of Muse Technologies, Inc. (the "Company"), and outstanding Class A Redeemable
Common Stock Purchase Warrants (the "Warrants") to purchase 423,881 shares of
Common Stock owned by certain selling securityholders (the "Selling
Securityholders"), and the issuance of 423,881 shares of Common Stock upon
exercise of such Warrants. The outstanding shares of Common Stock and Warrants
were issued by the Company in connection with a private placement and upon
conversion of certain outstanding debt of the Company.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock represented by such Warrant at an exercise price of $9.60 per share,
subject to adjustment, until November , 2003, subject to prior redemption by
the Company. The Warrants are redeemable by the Company at a redemption price of
$.01 per share of Common Stock represented by such Warrant, upon at least
30 days' prior written notice, during the period commencing one year from the
date of this Prospectus or earlier with the consent of the HD Brous & Co., Inc.,
the underwriter of the Company's initial public offering (the "Underwriter"),
provided that the average closing price of Common Stock is at least $12.00 per
share, subject to adjustment, for the twenty day period ending not earlier than
five days prior to the date on which the Warrants are called for redemption. See
"Description of Securities--Class A Redeemable Common Stock Purchase Warrants."
The Selling Securityholders' securities may be sold from time to time
commencing one year from the date of this Prospectus or earlier with the consent
of the Underwriter. The Selling Securityholders may effect such transactions by
selling securities directly to purchasers, through broker-dealers, including the
Underwriter, acting as agents for the Selling Securityholders or to
broker-dealers, including the Underwriter, who may purchase securities as
principals and thereafter sell the securities from time to time in the Nasdaq
SmallCap Market, in negotiated transactions or otherwise. Such broker-dealers,
if any, may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholder and/or the purchasers from whom such
broker-dealer may act as agents or to whom they may sell as principals or
otherwise (which compensation as to a particular broker-dealer may exceed
customary commissions). Such securities may also be transferred by gift.
The Selling Securityholders and brokers through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Securities Act.
The registration statement of which this Prospectus is a part also relates
to an underwritten public offering (the "Offering") of 1,200,000 Units by the
Company. The Units are comprised of a total of 1,200,000 shares of Common Stock
Warrants to purchase 600,000 shares of Common Stock.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders other than the exercise price of any
Warrants which are exercised. The cost of the registration of the securities
being sold by the Selling Securityholders will be paid by the Company.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE DISCUSSION UNDER THE CAPTIONS "RISK FACTORS," WHICH BEGINS ON PAGE 9, AND
"DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1998
A-1
<PAGE>
ALTERNATE
SALES BY SELLING SECURITYHOLDERS
This registration statement also relates to the sale by the Selling
Securityholders named below of an aggregate of 423,881 shares of Common Stock
and Warrants to purchase 423,811 shares of Common Stock as well as the 423,811
shares of Common Stock issuable upon exercise of the Warrants. The Selling
Securityholders acquired their shares of Common Stock and Warrants in the April
1998 Private Placement. See "Financings--April 1998 Private Placement." With
respect to the shares of Common Stock issuable upon exercise of the Warrants,
the registration statement covers both the issuance of the Common Stock upon
such exercise and the subsequent sale by the holders thereof.
The following table sets forth (i) the name of each Selling Securityholder,
(ii) the number of shares of Common Stock and Warrants owned by each Selling
Securityholder prior to the offering, (iii) the number of shares of Common Stock
and Warrants offered for each Selling Securityholder's account and (iv) the
percentage of the Common Stock owned by each Selling Securityholder after
completion of the offering. None of the Selling Securityholders has had any
position, office or other material relationship with the Company or any of its
affiliates since the Company's organization.
<TABLE>
<CAPTION>
NUMBER OF SHARES AND NUMBER OF SHARES
NUMBER OF SHARES WARRANTS OFFERED FOR AND WARRANTS
AND WARRANTS OWNED ACCOUNT OF SELLING OWNED
PRIOR TO OFFERING SECURITYHOLDER AFTER OFFERING
--------------------- -------------------------------------------- ----------------
SELLING SECURITYHOLDER SHARES(1) WARRANTS SHARES WARRANTS
- --------------------------------- --------- -------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
James Scannell................... 10,000 10,000 10,000 10,000 0
Irene C. Snyder.................. 5,000 5,000 5,000 5,000 0
Stephen J. Thomas................ 10,000 10,000 10,000 10,000 0
David P. Franco.................. 206,447 190,000 190,000 190,000 16,447
D. Max Bruce and Ruth A. Bruce as
Trustees of the Ruth Ann Bruce
Trust.......................... 10,000 10,000 10,000 10,000 0
Abbey E. Blatt................... 10,000 10,000 10,000 10,000 0
Allan Y. Cohen................... 11,645 10,000 10,000 10,000 1,645
Sterling Furniture Co............ 20,000 20,000 20,000 20,000 0
Lee Ginsberg..................... 20,000 20,000 20,000 20,000 0
Edward C. Smith.................. 5,000 5,000 5,000 5,000 0
Tim Connolly..................... 10,000 10,000 10,000 10,000 0
Valerie Cramer................... 10,000 10,000 10,000 10,000 0
Bruce H. Elliott................. 5,000 5,000 5,000 5,000 0
Stephen F. Bergen................ 10,000 10,000 10,000 10,000 0
Paul McCarthy.................... 30,000 30,000 30,000 30,000 0
Ting H. Liu and
Elizabeth S. Liu............... 44,524 34,656 34,656 34,656 9,868
Nino Selimaj..................... 44,093 34,225 34,225 34,225 9,868
<CAPTION>
PERCENTAGE
OWNED AFTER
OFFERING
-----------
SELLING SECURITYHOLDER
- ---------------------------------
<S> <C>
James Scannell................... 0
Irene C. Snyder.................. 0
Stephen J. Thomas................ 0
David P. Franco.................. *
D. Max Bruce and Ruth A. Bruce as
Trustees of the Ruth Ann Bruce
Trust.......................... 0
Abbey E. Blatt................... 0
Allan Y. Cohen................... *
Sterling Furniture Co............ 0
Lee Ginsberg..................... 0
Edward C. Smith.................. 0
Tim Connolly..................... 0
Valerie Cramer................... 0
Bruce H. Elliott................. 0
Stephen F. Bergen................ 0
Paul McCarthy.................... 0
Ting H. Liu and
Elizabeth S. Liu............... *
Nino Selimaj..................... *
</TABLE>
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* Less than one percent.
(1) Does not include shares of Common Stock issuable upon the exercise of the
Warrants owned by such Selling Securityholder.
The Selling Securityholders have advised the Company that any sales of the
outstanding shares of Common Stock and Warrants and any shares of Common Stock
which are issuable upon exercise of the Warrants may be effected from time to
time in transactions (which may include block transactions by or for the account
of the Selling Securityholder) on the Nasdaq SmallCap Market or in negotiated
transactions, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices or in negotiated
transactions, a combination of such methods of sale or otherwise. In addition,
Selling Securityholders
A-2
<PAGE>
may transfer any of the shares of Common Stock or Warrants covered by this
Prospectus by gift. The Selling Securityholders have agreed that they will not
sell any of the their Securities pursuant to this Prospectus prior to one year
from the date of this Prospectus without the consent of the Underwriter. Any
donee of the securities would be subject to the same restriction.
The Selling Securityholders may effect such transactions by selling such
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase Warrants or
shares of Common Stock as principals and thereafter sell the securities from
time to time on the Nasdaq SmallCap Market, in negotiated transactions or
otherwise. In any such transaction, the Underwriter may act as broker-dealer for
the Selling Securityholder and/or for the purchasing party or the Underwriter
may purchase shares of Common Stock or Warrants for its own account although the
Underwriter has no agreement or understanding, either formal or informal, with
any Selling Securityholder with respect to any such transactions. Such
broker-dealers, if any, including the Underwriter, may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholder and/or the purchasers from whom such broker-dealer may act as
agents or to whom they may sell as principals or otherwise (which compensation
as to a particular broker-dealer may exceed customary commissions). Pursuant to
the Subscription Agreement or Conversion Agreement governing this transaction,
the Company has agreed to pay all expenses of registration on behalf of each
Selling Securityholder.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholder's securities may not
simultaneously engage in market-making activities with respect to any securities
of the Company during the applicable restricted period (which may be one or five
days or such other period as Regulation M of the Commission under the Exchange
Act may provide) prior to the commencement of such distribution. Accordingly, in
the event the Underwriter is engaged in a distribution of a Selling
Securityholder's securities, it will not be able to make a market in the
Company's securities during the applicable restrictive period. However, the
Underwriter has not agreed to and is not obligated to act as broker-dealer in
the sale of any Selling Securityholder's securities and the Selling
Securityholders may be required, and in the event the Underwriter is a
market-maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Securityholder desiring to sell
securities will be subject to the applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of the purchases and sales of shares of
the Company's securities by such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discount and commissions under the Securities Act.
A-3
<PAGE>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY, BY ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, IMPLY
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
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TABLE OF CONTENTS
PAGE
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Prospectus Summary............................. 3
Summary Financial Information.................. 6
Risk Factors................................... 7
Dilution....................................... 16
Use of Proceeds................................ 17
Capitalization................................. 18
Dividend Policy................................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 21
Management..................................... 27
Principal Stockholders......................... 33
Certain Relationships and Related
Transactions................................. 34
Sales by Selling Securityholders............... 38
Description of Securities...................... 39
Shares Eligible for Future Sale................ 41
Legal Matters.................................. 43
Experts........................................ 43
Additional Information......................... 43
Index to Financial Statements.................. F-1
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UNTIL DECEMBER , 1998 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
MUSE TECHNOLOGIES, INC.
423,881 SHARES OF COMMON STOCK AND
CLASS A REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
TO PURCHASE 423,881 SHARES
OF COMMON STOCK
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PROSPECTUS
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NOVEMBER , 1998
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A-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation,
within certain limitations, to indemnify any person by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees) judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
an action, suit or proceeding, if such person acted, in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
Article Eight of the Registrant's Certificate of Incorporation, as amended,
provides that:
EIGHTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and
all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities, or other matters
referred to in or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be
a director, officer, employee, or agent and shall inure to the benefit of
the heirs, executors, and administrators of such a person.
In addition, Article VII Section 1 of the By-Laws of the Registrant
provides that:
The Corporation hereby agrees to hold harmless and indemnify any of
its officers, directors, employees or agents from and against, and to
reimburse such persons for, any and all judgments, fines, liabilities,
amounts paid in settlement and expenses, including attorneys' fees,
incurred directly or indirectly as a result of or in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, whether or not such action, suit
or proceeding is by or in the right of the Corporation to procure a
judgment in its favor, including an action, suit or proceeding by or in the
right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise for which such person served in any capacity at the request of
the Corporation, to which such person is, was or at any time becomes a
party, or is threatened to be made a party, or a result of or in connection
with any appeal therein, by reason of the fact that such person, is, was or
at any time becomes a director, officer, employee or agent of the
Corporation or is or was serving or at any time serves such other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity, whether arising out of any breach of such
person's fiduciary duty as a director, officer, employee or agent of such
other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise under any state or federal law or otherwise; provided,
however, that (i) indemnification shall be paid pursuant to this Article
VII if and only if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; and (ii) no
indemnification shall be payable pursuant to this Article VII if a court
having jurisdiction in the matter shall determine that such indemnification
is not lawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful. No indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but
II-1
<PAGE>
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which the Court of
Chancery or such other court shall deem proper.
The Registrant intends to maintain director and officer liability insurance
which would provide coverage against certain securities law liabilities.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a Director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts) are estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................................................ $ 7,984
National Association of Securities Dealers, Inc. Fee........................................ 5,871
Underwriter's Non Accountable Expense Allowance............................................. 288,000
Printing and Engraving Expenses............................................................. 75,000
Legal Fees and Expenses..................................................................... 175,000
Accounting Fees and Expenses................................................................ 30,000
State Securities Qualification and Legal Fees............................................... 25,000
Nasdaq Listing Fee.......................................................................... 10,000
Boston Stock Exchange Listing Fee........................................................... 10,000
The Pacific Exchange Listing Fee............................................................ 10,000
Transfer Agent's Fee........................................................................ 5,000
Miscellaneous............................................................................... 13,145
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Total.................................................................................. $655,000
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</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
(a) In connection with the organization of the Company in October 1995, the
Company issued an aggregate of 6,694,080 shares of Common Stock to the then
existing shareholders of Viga Technologies Corporation ("Viga"), an entity under
common ownership for nominal consideration. Of such shares issued, 950,987;
679,276; 475,658; 475,658;339,474 and 67,105 shares were issued to Dr. Maples
and Messrs. Peterson, Murphy, Andrews, Durgin and Huberman, respectively, who
may be deemed founders of the Company.
(b) In December 1995, the Company sold, to four accredited investors, an
aggregate of four investment units (the "1995 Units") for $250,000 per 1995
Unit. Each 1995 Unit consisted of $249,900 face amount of 10% one-year mandatory
convertible promissory notes (the "1995 Notes") and warrants (the "1995
Warrants") to purchase 8,224 shares of Common Stock at a price of $7.60 per
share. The net proceeds of $900,000 were used to pay certain liabilities assumed
in connection with the acquisition of assets from Viga and to finance the
Company's operations. The 1995 Notes, which were unsecured, were convertible
into one share of Common Stock for each $7.60 face amount of the 1995 Note.
Investors Associates, Inc. ("IAI") acted as placement agent for the 1995 Private
Placement and received a selling commission of $100,000, and warrants to
purchase up to 16,448 shares of Common Stock at $7.60 per share. In April 1996,
the 1995 Notes were converted into an aggregate of 131,579 shares of Common
Stock.
II-2
<PAGE>
(c) From April through September 1996, the Company sold an aggregate of
250,921 shares of Common Stock at $7.60 per share to 21 accredited investors
(the "1996 Private Placement"). The net proceeds from the 1996 Private Placement
were approximately $1,700,000, which was used to pay certain notes to Viga and
for working capital. IAI acted as placement agent for the 1996 Private
Placement, for which it received a fee of $190,700 and warrants to purchase
121,710 shares of Common Stock at $7.60 per share. The warrants expire five
years from the date of issuance, except that warrants to purchase 16,448 shares
expire three years from the date of issuance.
(d) In June 1997, the Company received net proceeds of $1,113,750 from the
issuance of notes (the "June 1997 Notes") in the principal amount of $1,237,500
to 15 accredited investors (the "1997 Private Placement"). All of the June 1997
Notes, and accrued interest thereon, were paid from the proceeds of the April
1998 Private Placement (except $300,000 of such June 1997 Notes, which were
converted into equity on the same terms as the April 1998 Private Placement).
IAI acted as placement agent in connection with the placement of the June 1997
Notes and received commissions equal to $123,750.
(e) In December 1997, the Company completed a private placement to 18
accredited investors of units consisting of 8% promissory notes (the "1997
Notes") in the aggregate principal amount of $875,000 and an aggregate of 57,566
shares of Common Stock (the "December 1997 Shares"). The net proceeds to the
Company from the issuance and sale of the 1997 Notes and December 1997 Shares
was approximately $688,000. The 1997 Notes are payable one year from the date of
issuance, together with accrued interest thereon, in October, November and
December 1998. The Company will use a portion of the proceeds of this Offering
to pay the 1997 Notes, together with accrued interest thereon. The Company
engaged Worthington Capital Group, Inc. ("Worthington") to act as placement
agent in connection with the December 1997 Private Placement. As compensation
for its services as placement agent, Worthington received a fee of $138,750.
(f) In April and May 1998, the Company sold to 14 accredited investors, an
aggregate of 34.5 investment units, each unit consisting of 10,000 shares of
Common Stock and a warrant to purchase 10,000 shares of Common Stock, at a per
unit price of $45,000 (the "April 1998 Private Placement"). The net proceeds of
$1,372,250 were used to pay a portion of the June 1997 Notes. The Company used
the Underwriter to act as Placement Agent in connection with the April 1998
Private Placement. As compensation for Placement Agent, the Placement Agent
received a commission of 10% of the gross proceeds from the sale of the units.
In addition, the Company reimbursed the Placement Agent for its expenses
incurred in connection with the April 1998 Private Placement offering of
$25,000. Pursuant to the terms of the April 1998 Warrants, upon completion of
this Offering, the April 1998 Warrants will be automatically converted into
Warrants. All references in this Prospectus to the warrants issued in the April
1998 Private Placement assume such automatic conversion. The Company has given
the holders of the Common Stock and warrants issued in the April 1998 Private
Placement registration rights with respect to such shares and warrants and the
shares of Common Stock issuable upon exercise of such warrants.
(g) In July 1998, the Company sold 1,000,000 shares of Common Stock and
warrants (the "CRI Warrants") to purchase an additional 1,000,000 shares of
Common Stock to CRI for an aggregate purchase price of $8 million. Three
officers of the Company were paid special bonuses aggregating $520,000 in
connection with this transaction. The CRI Warrants are exercisable at $9.60
through June 30, 2003.
All of the transactions described above were sold to accredited investors
and are exempt from the registration requirements of the Securities Act pursuant
to Sections 3(b) or 4(2) thereof as transactions by an issuer not involving a
public offering.
ITEM 27. EXHIBITS
1.1 -- Revised Form of Underwriting Agreement.
1.2 -- Revised Form of Underwriter's Unit Purchase Option.
3.1 -- Certificate of Incorporation of the Registrant, as amended.*
3.2 -- By-Laws of the Registrant.*
3.3 -- Amendment No. 1 to By-Laws of Registrant.
4.1 -- Specimen Stock Certificate.
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<PAGE>
<TABLE>
<S> <C> <C>
4.2 -- Revised Form of Warrant Agreement between the Registrant and American Stock Transfer & Trust Company,
including the revised form of Class A Redeemable Common Stock Purchase Warrant and the form of Class
B Redeemable Common Stock Purchase Warrant.
5.1 -- Securities Opinion of Proskauer Rose LLP.
10.1 -- License Agreement dated October 9, 1995 between the Company and Sandia, as amended.**
10.2 -- Office Lease dated September 6, 1995 between the Company and Airpark Associates, as amended.*
10.3 -- 1995 Stock Option Plan.*
10.4 -- 1996 Stock Option Plan.*
10.4(a) -- Amendment No. 1 to 1996 Stock Option Plan.
10.5 -- Employment Agreement, dated as of June 1, 1998 between Creve Maples and the Registrant.
10.6 -- Employment Agreement, dated as of August 1, 1998, between Craig Peterson and the Registrant.
10.7 -- Employment Agreement, dated as of June 1, 1998, between Curtiz J. Gangi and the Registrant.
10.8 -- Employment Agreement, dated as of June 1, 1998, between Brian Clark and the Registrant.
10.9 -- Employment Agreement, dated as of June 1, 1998, between Douglas Harless and the Registrant.
10.10 -- Super Value-Added Reseller (S-VAR) Agreement, dated June 19, 1998 between Continuum Resources
International ASA and the Registrant.**
23.1 -- Consent of Proskauer Rose LLP (included in Exhibit 5.1 of this registration statement).
23.2 -- Consent of Feldman Sherb Ehrlich & Co., P.C. (formerly Feldman Radin & Co., P.C.).
24.1 -- Powers of Attorney appear on the signature page in Part II of the registration statement.*
27.1 -- Financial Data Schedule.*
</TABLE>
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* Previously filed.
** Subject to Commission approval of confidential treatment.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) That, for determining liability under the Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such
II-4
<PAGE>
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business
issuer of expenses incurred or paid by a Director, officer or controlling
person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) For determining any liability under the Securities Act, to treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424 (b) (1), or
(4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of these securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Pre-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Albuquerque, New Mexico on the 26th
day of October, 1998.
MUSE TECHNOLOGIES, INC.
By: /s/ CURTIZ J. GANGI
---------------------------
Curtiz J. Gangi
President
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to Registration Statement has been signed by the
following persons in the capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CURTIZ J. GANGI President and Director (Principal Executive October 26, 1998
- ------------------------------------------ Officer)
Curtiz J. Gangi
*/s/ CREVE MAPLES Director October 26, 1998
- ------------------------------------------
Creve Maples
/s/ BRIAN CLARK Chief Financial Officer (Principal October 26, 1998
- ------------------------------------------ Financial and Accounting Officer)
Brian Clark
*/s/ DAVID DURGIN Director October 26, 1998
- ------------------------------------------
David Durgin
*/s/ BENJAMIN HUBERMAN Director October 26, 1998
- ------------------------------------------
Benjamin Huberman
*/s/ EDWARD A. MASI Director October 26, 1998
- ------------------------------------------
Edward A. Masi
</TABLE>
- ------------------
* Executed on behalf of the named individual by Curtiz J. Gangi pursuant to a
power of attorney contained in the Signature Page of the Registration
Statement filed August 28, 1998.
II-6
<PAGE>
1,200,000 Units
MUSE TECHNOLOGIES, INC.
Each Unit consisting of one share of Common Stock and
one-half Class A Redeemable Common Stock Purchase Warrant
Underwriting Agreement
As of November , 1998
HD Brous & Co, Inc.
40 Cuttermill Road
Great Neck, New York 11021
Dear Sirs:
Muse Technologies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to HD Brous & Co., Inc., a New York corporation
("Brous" or the "Underwriter"), upon the basis of the representations,
warranties, and agreements of the Company contained in this Underwriting
Agreement (the "Agreement") and, subject to the terms and conditions of this
Agreement, the Underwriter proposes to purchase from the Company, an aggregate
of 1,200,000 Units, each Unit to consist of one (1) share of the Company's
common stock, par value $.015 per share ("Common Stock"), and one-half (1/2)
Class A Redeemable Common Stock Purchase Warrants ("Warrant"). Each Warrant
entitles the holder to purchase one (1) share of Common Stock shall be
required for the purchase of one share of Common Stock at a price of $9.60 per
share, subject to adjustment. The 1,200,000 Units are hereinafter collectively
referred to as the "Firm Units." The Common Stock issuable upon exercise of
the Warrants are presently authorized but unissued shares of the Common Stock
of the Company. In addition, the Company proposes to grant the Underwriter the
option to purchase from the Company up to an additional 180,000 Units
(collectively "Option Units") solely for the purpose of covering
over-allotments, if any, in connection with the sale of the Firm Units. The
Company also proposes to issue and sell to the Underwriter or its designees,
Unit Purchase Options (the "Unit Purchase Options") to purchase 120,000 Units
(collectively the "Purchase Option Units") as more fully described in
Paragraph 5(a) of this Agreement. The Warrants included in the Firm Units, the
Option Units and the Purchase Option Units are referred to in this Agreement
collectively as the "Warrants." The Firm Units, Option Units and Purchase
Option Units are referred to in this Agreement collectively as the
"Securities."
The Company hereby confirms the agreement made by it with respect to
the purchase of the Firm Units and the Option Units by the Underwriter, as
follows.
1. Purchase, Sale, and Delivery of the Securities
(a) Purchase and Sale of Firm Units. Subject to the terms
and conditions of this Agreement, and upon the basis of the representations
and warranties contained in this Agreement, the Company agrees to issue and
sell to the Underwriter, and Underwriter agrees to
<PAGE>
purchase from the Company, the Firm Units at a price of seven and 20/100
dollars ($7.20) per Unit. The Underwriter plans to offer the Firm Units for
sale to the public at the price and upon the terms set forth in the Prospectus
(the "Public Offering") as soon as practicable after the date the Registration
Statement, as hereinafter defined, is declared effective (the "Effective
Date"). The Company acknowledges that the Underwriter shall have the right to
enter into agreements with selected dealers for the sale of the Units to the
public.
(b) Over-Allotment Option.
(i) The Company hereby grants to the Underwriter
an option (the "Over-Allotment Option") to purchase from the Company, solely for
the purpose of covering over-allotments in connection with the sale of Firm
Units, all or any portion of the Option Units for a period of forty-five (45)
days from the date of this Agreement at the same purchase price payable by the
Underwriter for Firm Units as provided in Paragraph 1(a) of this Agreement. The
Option Units shall be purchased from the Company, for the account of
Underwriter.
(ii) The Over-Allotment Option may be exercised
during the term thereof by written notice to the Company from the Underwriter.
Such notice shall set forth the aggregate number of Option Units as to which
the option is being exercised and the time and date of payment and delivery
therefor. Such time and date of delivery shall not be earlier than either the
Closing Date (as defined below) or the second business day after the day on
which the option shall have been exercised, nor later than the fifth business
day after the date of such exercise, as determined by the Underwriter (the
"Option Closing Date"). Delivery and payment for such Option Units shall be at
the offices set forth above for delivery and payment of the Firm Units.
(iii) The obligation of the Underwriter to
purchase and pay for any of the Option Units is subject to the accuracy and
completeness (as of the date of this Agreement and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company in this Agreement, to the accuracy and completeness
of the statements of the Company or its officers made in any certificate or
other documents to be delivered by the Company pursuant to this Agreement, to
the performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions as of the date
of this Agreement and as of the Option Closing Date, set forth in Paragraph
1(c) of this Agreement and to the delivery to the Underwriter an opinion,
certificates and letters dated the Option Closing Date substantially similar
in scope to those specified in Paragraph 6 of this Agreement, but with each
reference to the "Closing Date" being deemed to be the "Option Closing Date."
Notwithstanding the exercise of the Over-Allotment Option, the Underwriter
may, at any time prior to the payment for the purchase price of the Option
Units, cancel, in whole or in part, the exercise of the Over-Allotment Option,
in which event, the Underwriter shall only be obligated to purchase and pay
for those only Option Units, if any, remaining subject to the exercise of the
Over-Allotment Option after such cancellation.
(c) Delivery of and Payment for Securities.
(i) Delivery of the stock and warrant
certificates representing the securities comprising the Firm Units shall be
made to the Underwriter at the offices of Brous, 40 Cuttermill Road, Great
Neck, New York 11021, or such other location as you shall determine and advise
the Company upon at least two (2) full business days' notice in writing,
against payment
- 2 -
<PAGE>
therefor by certified or bank cashier's check drawn in New York clearing house
funds or similar next day funds payable to the order of the Company, at 10:00
A.M., Eastern Time, on November , 1998, or at such other time and business day
(Saturdays, Sundays, and legal holidays in New York, New York not being
considered business days for the purposes of this Agreement), not later than
the 10th business day following the Effective Date, as shall be agreed upon by
you and the Company, which time and date are herein called the "Closing Date."
(ii) Delivery of certificates for the Common
Stock and Warrants comprising the Units shall be made in registered form in
such name or names and in such denominations as you shall specify to the
Company upon at least two (2) full business days' notice in writing prior to
the Closing Date or the Option Closing Date, as the case may be. The Company
will make the certificates available to the Underwriter for examination at the
offices of Brous, 40 Cuttermill Road, Great Neck, New York 11021, Attention:
Howard D. Brous, Chairman, or at such other location as you shall specify to
the Company, not later than 2:00 P.M., Eastern Time, on the business day
immediately preceding the Closing Date or the Option Closing Date, as the case
may be.
(d) Use of Preliminary Prospectus. The Company hereby
confirms its authorization to the Underwriter to use, and to make available
for use by prospective dealers, the Preliminary Prospectus, and the Company
hereby authorizes the Underwriter, all selected dealers, and all other dealers
to whom any of the Securities may be sold by the Underwriter or Selected
Dealers, to use the Prospectus, as from time to time amended or supplemented,
in connection with the sale of the Securities in accordance with the
applicable provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and
applicable state law until completion of the Public Offering and for such
longer period as Underwriter may request if the Prospectus is required to be
delivered in connection with sales of the Securities by Underwriter or a
dealer.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) Filing of Registration Statement. The Company has
prepared in conformity with the requirements under the Securities Act and the
Regulations, and has filed with the Commission under the Securities Act, a
registration statement on Form SB-2, File No. 333-62495, including the related
preliminary prospectus, for the registration of the Securities. The conditions
for the use of a registration statement on Form SB-2 set forth in the General
Instructions thereto have been satisfied with respect to the Company, the
transactions contemplated by this Agreement, and the Registration Statement.
As used in this Agreement, the term "Registration Statement" means such
registration statement of the Company, as amended, on file with the Commission
at the time the registration statement becomes effective under the Securities
Act (including all financial statements and financial schedules, exhibits, all
other documents filed as a part thereof or incorporated by reference therein,
and all the information contained in any final prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act or deemed by
virtue of Rule 430A of this Commission under the Securities Act to be part of
the Registration Statement). The term "Prospectus" as used in this Agreement
means the final prospectus included as part of the Registration Statement,
including, if applicable, the information contained in any final prospectus
filed with the Commission pursuant to Rule 424(b) of the Commission under the
Securities Act or deemed by virtue of Rule 430A of the Commission under the
- 3 -
<PAGE>
Securities Act to be part of the Registration Statement. The term "Preliminary
Prospectus" refers to and means any prospectus included in the Registration
Statement or any amendment thereto prior to the Registration Statement
becoming effective under the Securities Act.
(b) Use and Accuracy of Preliminary Prospectus. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus or any part thereof, and each Preliminary Prospectus
delivered to the Underwriter for dissemination in connection with the
offering, at the time of filing thereof and delivery to the Underwriter for
such dissemination, did 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 the light of the circumstances under which
they were made, not misleading; the foregoing shall not apply, however, to
statements in, or omissions from, any Preliminary Prospectus that are based
upon and conform to written information furnished to the Company with respect
to Underwriter (or any affiliate or associate thereof) by or on behalf of the
Underwriter or such Underwriter specifically for use in the preparation
thereof.
(c) Effectiveness and Accuracy of Registration Statement.
The Registration Statement and the Prospectus, from the Effective Date through
the Closing Date and, if Option Units are purchased, up to the Option Closing
Date, will comply in all material respects with the applicable requirements of
the Securities Act and the Regulations, and neither the Registration Statement
nor the Prospectus will, on such dates, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and, on such dates, no event will
have occurred that should have been set forth in an amendment or supplement to
the Registration Statement or the Prospectus that has not then been set forth
in such an amendment or supplement; the foregoing shall not apply, however, to
statements in, or omissions from, the Registration Statement or Prospectus
that are based upon and conform to written information furnished to the
Company with respect to Underwriter (or any affiliate or associate thereof) by
or on behalf of you or Underwriter specifically for use in the preparation
thereof. The descriptions in the Registration Statement and the Prospectus of
contracts and other documents of the Company are accurate and present fairly
the information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement under the Securities
Act or the regulations which have not been so described or filed as required.
(d) Independent Public Accountants. Feldman Sherb
Ehrlich & Co., P.C., the accountants whose reports on the financial statements
of the Company are filed with the Commission as a part of the Registration
Statement, are, and were during the periods covered by its report, independent
public accountants with respect to the Company as required by the Securities Act
and the Regulations.
(e) Organization and Qualification. The Company is (i) a
corporation duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
to own its properties and to carry on its business as now being conducted and
(ii) qualified to conduct business as a foreign corporation to do business and
in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. The Company has no subsidiaries
and has no loans to or guarantee
- 4 -
<PAGE>
of obligations of any other corporation, limited liability company,
partnership or other entity. As used in this Agreement, the term "Material
Adverse Effect" means any material adverse effect on (A) the Securities; (B)
the ability of the Company to perform its obligations under this Agreement or
under the Securities or (C) the business, operations, properties, financial
condition or prospects of the Company.
(f) No Subsidiaries. The Company does not have any
subsidiaries, does not control, directly or indirectly, or have any direct or
indirect interest or investment in any corporation, firm, partnership,
association, limited liability company, business trust or other business
organization, and does not own any shares of stock or any other securities of
(other than bank certificates of deposit, shares or units of interest in
"money market" funds, or as set forth in the Prospectus) and the Company has
not made any loans (other than advances to employees in the ordinary course of
business, none of which are material or made to officers or directors) to or
guaranteed any obligations of, any other corporation, firm, partnership,
association, limited liability company, business trust or other business
organization.
(g) Capitalization and Legality of Securities. The
authorized, issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization." The capital stock
and other securities of the Company conform to the descriptions thereof
contained in the Prospectus under the caption "Description of Capital Stock."
Except as otherwise set forth in the Prospectus, there are no outstanding
options, warrants, or other rights to purchase any shares of Common Stock or
other capital stock, or to purchase any other securities convertible into or
exchangeable for Common Stock. The outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
All the shares of Common Stock and Warrants to be offered by the Prospectus,
or which comprise the Purchase Option Units, have been duly authorized and,
when issued and delivered against payment therefor as provided in this
Agreement, the Prospectus, or the Unit Purchase Options, as applicable, will
be validly issued, fully paid and nonassessable. The Unit Purchase Options
will constitute, when sold and delivered as contemplated, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
similar laws and court decisions now or hereafter in effect relating to or
affecting creditors' rights and remedies generally and (ii) general principles
of equity (regardless of whether such enforcement is considered in a
proceeding at law or in equity). A sufficient number of shares of Common Stock
have been reserved for issuance upon sale of the Securities and Purchase
Option Units and upon the exercise of all of the above-referenced Warrants.
(h) Financial Statements. The financial statements
(audited and unaudited) of the Company and the related financial exhibits and
schedules included in the Prospectus or filed with and as part of the
Registration Statement present fairly the financial position of the Company as
of the balance sheet dates and the results of its operations and cash flows
for the respective periods then ended, and such financial statements have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods involved; all adjustments that
are necessary for a fair presentation of the results for such periods have
been made. The financial statements filed with the Registration Statement or
included in the Prospectus are the only financial statements required under
the Securities Act or the Regulations to be included in the Registration
Statement and Prospectus.
- 5 -
<PAGE>
(i) Material Loss. The Company has not, since the date of
the latest financial statements included in the Prospectus, sustained any
material loss or interference with its business from fire, explosion, flood,
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order, or decree, other than as set
forth in the Prospectus. Since the respective dates as of which information is
set forth in the Prospectus, and except as otherwise set forth therein: (i)
there has not been any change in the capital stock, or material increase in
the long-term debt, of the Company; (ii) there has not been any material
adverse change in the condition (financial or otherwise), business, prospects
(financial or otherwise), results of operations, general affairs, or
management of the Company, whether or not arising in the ordinary course of
business; (iii) no event has occurred that would result in a material
write-down of assets of the Company; (iv) the Company has not incurred any
material liability or obligation, direct or contingent, or entered into any
material transaction, other than those in the ordinary course of business; (v)
the Company has not purchased any of its outstanding capital stock; (vi) there
has been no dividend or distribution of any kind declared, paid, or made by
the Company in respect of the Common Stock; (vii) there has not been any
material interruption in the availability of materials, supplies, or equipment
necessary for the conduct of the business of the Company; and (viii) there has
not been any execution or imposition of any material lien, charge, or
encumbrance upon any property or assets of the Company.
(j) Compliance with Documents and Laws. The Company is
not in violation of its Certificate of Incorporation, By-Laws, or other
governing documents, or in material default in the due performance of any
material lease or other material contract, indenture, mortgage, deed of trust,
note, loan, or other material agreement or instrument to which the Company is
a party or by which it or any of its properties or businesses are subject or,
to the best knowledge of the Company, any applicable material license,
franchise, certificate, permit, authorization, statute, rule or regulation of
or from any public, regulatory, or governmental agency or authority having
jurisdiction over the Company or any of its properties or assets, or any
approval, consent, order, judgment or decree, except such as could not
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), earnings, business, assets, results of operations,
or prospects (financial or otherwise) of the Company (hereinafter a "Material
Adverse Effect"). The execution and performance of this Agreement by the
Company will not conflict with or result in a breach or violation of, or
default under, any material lease or other material contract, indenture,
mortgage, deed of trust, note, loan, or other material agreement or instrument
to which the Company is a party or by which the Company or any of its
properties or businesses are subject, and no consent, approval, authorization,
or order of any court or governmental authority or agency having jurisdiction
over any of the Company or any of its properties or assets is required to be
obtained by the Company for the consummation by the Company of the
transactions contemplated by this Agreement, except such as have been obtained
or may be required under the Securities Act or the Regulations or under state
securities (or "Blue Sky") laws or the applicable rules and regulations
promulgated thereunder.
(k) Authorization of Agreements. Each of this Agreement,
the Warrant Agreement, the Warrant, the Unit Purchase Options, the Financial
Consulting Agreement, as hereinafter defined, and the M/A Agreement, as
hereinafter defined, has been duly authorized, executed, and delivered by the
Company and constitutes the valid and binding obligation of the Company. The
execution, delivery and performance of this Agreement, the Warrant Agreement,
the Warrants, the Unit Purchase Options, the Financial Consulting Agreement
and the M/A Agreement, by the Company, the consummation by the Company of the
transactions herein and
- 6 -
<PAGE>
therein contemplated, and the compliance by the Company with the terms of this
Agreement, the Warrant Agreement, the Warrants, the Unit Purchase Options, the
Financial Consulting Agreement and the M/A Agreement, have been duly
authorized by all necessary corporate action and do not and will not, with or
without the giving of notice or the lapse of time, or both, (i) result in any
violation of the Certificate of Incorporation and By-Laws of the Company, (ii)
result in a breach of or conflict with any of the terms or provisions of, or
constitute a default under, or result in the modification or termination of,
or result in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the properties or assets of the Company pursuant to
any indenture, mortgage, note, contract, commitment or other agreement or
instrument to which the Company is a party over which the Company or any of
its properties or assets are or may be bound or affected, (iii) violate any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any of its properties or business, or (iv) violate any permit,
certification, registration, approval, consent, license or franchise
applicable to the business or properties of the Company.
(l) Title to Property. The Company has good and
marketable title to, and valid and enforceable leasehold estates in, all items
of property described in the Registration Statement or Prospectus as owned or
leased by it, as the case may be, or that are material to the conduct of the
Company's businesses, free and clear of all liens, encumbrances, claims,
security interests, and other restrictions, other than those described in the
Prospectus and those that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. The leases, licenses
or other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company,
and all rentals, royalties or other payments accruing thereunder which became
due prior to the date of this Agreement have been duly paid, and neither the
Company nor, to the best of its knowledge, any other party is in default
thereunder and, to the best of the Company's knowledge, no event has occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. The Company has not received notice of any
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties except any such violation that
could not reasonably be expected to have a Material Adverse Effect. The
Company and has insured their respective properties against loss or damage by
fire or other casualty and maintain such other insurance which management of
the Company believes is adequate for the Company's present and proposed
business operations.
(m) Copyrights, Trademarks and Intellectual Property
Rights. Except as set forth in the Prospectus, the Company owns or possesses
the requisite licenses or rights to use all trademarks, copyrights, service
marks, service names, and trade names, if any, presently used in or necessary
to conduct their respective businesses as described in the Prospectus. The
Company has not knowingly infringed the rights of another in any trademark,
copyright, service mark, service name, trade name, trade secret, confidential
information, or any other such intellectual property, and there is no
outstanding claim of others alleging any such infringement. There is no claim
or action by any person pertaining to, or proceeding pending, or threatened,
which challenges the exclusive rights of the Company with respect to any
trademarks, copyrights, service marks, service names and trade names used in
the conduct of the Company's business.
- 7 -
<PAGE>
(n) Litigation. There is no litigation or governmental or
other proceeding or investigation before any court or before or by any public,
regulatory, or governmental agency or authority (or any judgment, decree, or
order of such court, agency, or authority) pending or, to the best knowledge
of the Company, threatened, to which the Company is a party or of which the
business or property of the Company is the subject that is material to the
Company and is not properly disclosed in the Prospectus. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Company and enjoining the Company from taking, or
requiring the Company to take, any action, or to which the Company or its
respective properties or businesses are bound or subject.
(o) Prohibited Payments. Neither the Company nor any of
its directors or officers acting in any capacity on behalf of the Company nor,
to the Company's knowledge after due inquiry, any of its foreign sales agents,
directly or indirectly, has used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment.
(p) Internal Accounting Controls. The Company maintains a
system of internal accounting controls which, taken as a whole, is sufficient
to meet the broad objectives of preventing and detecting errors or
irregularities in amounts that would be material to the Company's financial
statements. Except as specifically disclosed in the Prospectus, neither the
Company nor any of its employee or agent has made any payment or transfer of
any funds or assets of the Company, conferred any personal benefit by the use
of the assets of the Company or received any funds, assets, or personal
benefit in violation of any law, rule, or regulation, which is required to be
stated in the Prospectus or necessary to make the statements therein not
misleading.
(q) Tax Returns. The Company has filed all Federal,
state, and local tax returns required to be filed through the date of this
Agreement, including but not limited to franchise tax returns, or has obtained
valid extensions with respect to such filings not made; the Company is not in
default in the payment of any taxes or other amounts that were payable
pursuant to said returns or any assessments with respect thereto; and the
Company is not aware of any tax or other payment deficiency outstanding,
proposed, or assessed against the Company that could, in the aggregate, have a
Material Adverse Effect. Except as disclosed in writing to the Underwriter,
the Company has not executed or filed with any taxing authority, foreign or
domestic, any agreement extending the period for assessment or collection of
any income taxes and is not a party to any pending action or proceeding by and
foreign or domestic governmental agency for assessment or collection of taxes;
and no claims for assessment or collection of taxes have been asserted against
the Company.
(r) Employee Plans. Except as set forth in the
Prospectus, the Company does not have any employee benefit plans (including,
without limitation, pension, profit sharing, and welfare benefit plans) or
deferred compensation arrangements.
- 8 -
<PAGE>
(s) Labor Disputes. No labor dispute exists or, to the
best knowledge of the Company, is imminent with the employees or other persons
engaged by the Company which could reasonably be expected to result in a
Material Adverse Effect.
(t) Registration Rights. Except for the Selling
Securityholders, as described in the Prospectus under the caption "Sales by
Selling Securityholders," no person, firm or entity of any nature whatsoever
has any right to require the Company to register or attempt to register under
the Securities Act or any other securities law any shares of Common Stock or
securities convertible into or exchangeable or exercisable for any shares of
Common Stock, by reason of the filing of the Registration Statement with the
Commission or otherwise or which may require the Company to file a
registration statement within eighteen (18) months from the Effective Date.
(u) Stabilization. Neither the Company nor any person
that controls, is controlled by or is under common control with the Company
has taken or will take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), stabilization or
manipulation of the price of any security in order to facilitate the sale or
resale of any of the Securities.
(v) Finder or Broker. The Company has not retained or
dealt with any broker or finder with respect to the transactions contemplated
hereby, and the Company knows of no outstanding claims for services in the
nature of a finder's fee or origination fee with respect to the sale of the
Securities. The Company will indemnify and hold harmless Underwriter with
respect to any claim for a finder's fee by any party claiming to be owed such
fee based on contacts, conversations or arrangements with the Company.
(w) Employment Agreements. The employment agreements
between the Company and its officers named under the caption "Management --
Employment Agreements" in the Prospectus, are binding and enforceable
obligations upon the respective parties thereto in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws or arrangements
affecting creditors' rights generally and subject to principles of equity, and
public policy considerations. Except for such employment agreements, the
Company does not have any employment, severance or similar agreement with any
officers, directors or employees.
(x) Contracts. Each contract or other instrument (however
characterized or described) to which the Company is a party or by which it or
its property or business is or may be bound or affected and to which reference
is made in the Prospectus has been duly and validly executed by the Company,
is in full force and effect in all material respects and, assuming that each
other party has full power, corporate or other, to execute, deliver and
perform such contracts, is enforceable against the parties thereto in
accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of
time or the giving of notice, or both, would constitute a default thereunder.
None of the material provisions of such contracts or instruments violates any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any of
its assets or businesses, where such violation or default would have a
Material Adverse Effect.
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(y) Year 2000 Compliance. To the best of its knowledge,
except as disclosed in the Registration Statement, the Company's computer
systems and products are Year 2000 Compliant, and the Company has implemented
a program designed to confirm that all software provided by third parties is
or will be Year 2000 Compliant. The disclosure in the Registration Statement
concerning Year 2000 Compliance is true and correct in all material respects.
3. Covenants of the Company. The Company covenants and agrees with
the Underwriter that:
(a) Effectiveness of Registration Statement. The Company
will use its best efforts to cause the Registration Statement and any
subsequent amendments thereto to become effective as promptly as possible. The
Company will notify you promptly (i) when the Registration Statement or any
subsequent amendment thereto has become effective or any supplement to the
Prospectus has been filed and (ii) of the receipt of any requests, and the
nature and substance thereof, by the Commission for any amendment or
supplement to the Registration Statement or Prospectus or for any other
additional information. The Company will prepare and file with the Commission,
promptly upon your reasonable request, any amendments or supplements to the
Registration Statement or Prospectus that may be necessary or advisable in
connection with the distribution of the Securities or any of the Securities.
The Company will file no amendment or supplement to the Registration Statement
or Prospectus (other than any document required to be filed under the Exchange
Act that upon filing is deemed to be incorporated by reference therein) to
which you shall reasonably object by notice to the Company after having been
furnished a copy within a reasonable time, but no later than three (3)
business days, prior to the proposed filing thereof. The Company will furnish
to you at or prior to the filing thereof a copy of any document that upon
filing is deemed to be incorporated by reference in whole or in part in the
Registration Statement or Prospectus.
(b) Notice of Stop Order. The Company will advise you
promptly, and confirm in writing, when and if it receives notice or obtains
knowledge of (i) the issuance by the Commission of any stop order or other
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or the effectiveness of the Registration Statement, (ii) the
suspension of the qualification of any of the Securities for offering or sale
in any jurisdiction in which they were previously qualified, or (iii) the
initiation or threat of any proceeding for that purpose. The Company will
promptly use its reasonable best efforts to prevent the issuance, and to
obtain the withdrawal if such issuance is not prevented, of any such stop
order or other suspension.
(c) Compliance with the Securities Act and the Exchange
Act. Within the time during which a prospectus relating to the Securities is
required to be delivered under the Securities Act, the Company will use its
best efforts to comply with all requirements imposed upon it by the Securities
Act and the Exchange Act, as now and hereafter amended, and by the
Regulations, as from time to time in force to permit the continuance of sales
of or dealings in the distribution of the Securities as contemplated by the
provisions therein, in this Agreement, and in the Prospectus. If during such
period any event as to which the Company has knowledge occurs as a result of
which the Prospectus as then amended or supplemented includes an untrue
statement of a material fact or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with
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<PAGE>
the Securities Act, the Company will notify you promptly, will amend the
Registration Statement or supplement the Prospectus to comply with the
Securities Act, the Company will notify you promptly, will amend the
Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or otherwise to effect
such compliance, and will furnish without charge to Underwriter and to any
dealer in securities as many copies of such amended or supplemented Prospectus
as you may from time to time reasonably request.
(d) Copies of Registration Statement. The Company will
deliver to Underwriter, from time to time without charge, such number of
copies of the Registration Statement (at least one of which delivered to you
shall be manually signed and will include all exhibits), each Preliminary
Prospectus, the Prospectus, and all amendments and supplements thereto, in
each case as soon as available and in such quantities and to such persons as
requested by you.
(e) Blue Sky Qualifications. The Company will use its
best efforts, in cooperation with you and your counsel, to register or qualify
the Securities for offering and sale under the securities laws of such
jurisdictions as you reasonably designate, and will continue such
qualifications in effect for so long as may be necessary to complete the
distribution of such Securities; provided that in no event shall the Company
be required in connection therewith to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
would subject it to general service of process in any jurisdiction where it is
not now so subject.
(f) Section 11(a) Earnings Statement. The Company will
make generally available to its security holders (within the meaning of
Section 11(a) of the Securities Act) and deliver to you as soon as practicable
(but not later than fifteen (15) months after the Effective Date), an earnings
statement that shall satisfy the requirements of Section 11(a) and Rule 158
under the Securities Act, covering a period of at least twelve (12)
consecutive months after the Effective Date.
(g) Information to the Underwriter. Until the earlier of
the fifth anniversary of the Effective Date or such date as of which the
Warrants and the Unit Purchase Options have been exercised or have expired,
the Company will furnish or cause to be furnished to you and your counsel,
with reasonable promptness, copies of (i) annual audited balance sheets and
audited statements of operations and changes in cash flows of the Company, and
quarterly balance sheets and statements of income of the Company (which need
not be audited), (ii) all reports, if any, to its stockholders, (iii) all
reports filed by the Company with the Commission, and any securities exchange
or the National Association of Securities Dealers, Inc. ("NASD") and (iv) such
other material documents and information with respect to the Company and its
affairs as you may from time to time reasonably request and which the Company
can produce at reasonable cost; provided, however, that the Company shall not
be required to produce such information or documents if the Company has
received a written opinion of its counsel that providing such information to
Underwriter is reasonably likely to create liability under applicable Federal
and state securities laws and a copy of such opinion is furnished to
Underwriter. Upon request of the Underwriter, the Company shall cause its
transfer agent to provide the Underwriter with copies of the Company's monthly
transfer sheets and Depository Trust Company transfer sheets. Upon request,
the Company shall also provide the Underwriter with current lists of its
stockholders.
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(h) Listing in Securities Manual; Investor Relations
Firm. The Company shall, as soon as practicable after the Effective Date, use
its reasonable best efforts to obtain listing on an expedited basis in
Standard and Poor's Corporation Records or such other recognized securities
manuals for which it may qualify for listing, and the Company shall use its
reasonable best efforts to maintain such listings for at least five (5) years
after the Closing Date. The Company further agrees at any time during the five
(5) year period following the Closing Date, to engage within sixty (60) days
of a written request by you, the services of an investor relations firm
reasonably, acceptable to you, who will act as investor relations liaison
during such five (5) year period, which spokesperson is not required to be the
same person during the duration of the five (5) year period, to consult with
and advise the Company regarding communications and relations with
stockholders and the financial and investment communities.
(i) Listing on Nasdaq and Boston Stock Exchange. The
Company shall apply for the inclusion of the Units, Common Stock and Warrants
on The Nasdaq SmallCap Market (the "SmallCap Market") and, if requested by the
Underwriter, the Boston Stock Exchange ("BSE") under proposed symbols
acceptable to the Underwriter, to take effect on the Effective Date; provided,
that if the Common Stock and Warrants are not separately transferable on the
Effective Date, then the Common Stock and Warrants need not be included in the
SmallCap Market at such date; provided, however, that, on the date on which
the Common Stock and Warrants first become separately transferable, the Common
Stock and Warrants are listed on the Small Cap Market. At such time as the
Company meets the eligibility requirements for the inclusion of the Common
Stock and Warrants on the Nasdaq National Market ("NNM"), the Company shall
use its best efforts to obtain such listing. The Company shall use its best
efforts to maintain the Nasdaq inclusion provided for in this Paragraph 3(i)
for at least five (5) years after the date of this Agreement.
(j) Exchange Act Filings. The Company shall file such
registration statement and take such other action to register Common Stock and
the Warrants pursuant to Section 12(g) of the Exchange Act, such registration
statement to become effective simultaneously with the effectiveness of the
Registration Statement, and shall thereafter keep such registration effective.
The Company shall comply with the Securities Act, the Regulations, the
Exchange Act and the rules and regulations promulgated Commission under the
Exchange Act, the applicable rules and regulations of the NASD and BSE, and
applicable state securities laws so as to permit the continuance of sales of
and dealings in the Securities in compliance with applicable provisions of
such laws, rules, and regulations, including the filing with the Commission
and the NASD and BSE of all reports required to be so filed, and the Company
will deliver to the holders of the Securities all reports required to be
provided to such holders pursuant to such laws, rules, or regulations. The
Company shall promptly file with the Commission and deliver to you, from time
to time as required to make the same reasonably current, such statements and
reports as are required under Rule 15c2-11 of the Exchange Act.
(k) Use of Proceeds. The Company shall apply the net
proceeds received from the sale of the Securities in the manner set forth
under the caption "Use of Proceeds" in the Prospectus. The Company report the
use of proceeds from the Offering in accordance with Rule 463 of the
Regulations and will provide a copy of each such report to you and your
counsel.
(l) Board Meetings and Membership. For a period of five
(5) years commencing on the Closing Date, the Underwriter shall have the right
to designate one nominee
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(reasonably acceptable to the Company) for election to the Company's Board of
Directors. The Company shall cause the officers, directors and holders of five
percent (5%) or more of the outstanding Common Stock of the Company to agree
in writing at or prior to the Closing Date to vote their shares during such
five (5) year period in favor of the election of such nominees. Following the
election of such nominees as directors, such person shall receive no more or
less compensation than is paid to other non-employee directors of the Company
for attendance at meetings of the Board of Directors of the Company and shall
be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings including, but not limited to, food, lodging and
transportation. The Company agrees to indemnify and hold such director
harmless to the maximum extent permitted by law, against any and all claims,
actions, awards and judgments arising out of his service as a director and, in
the event the Company maintains a liability insurance policy affording
coverage for the acts of its officers and directors, to include such director
as an insured under such policy. The rights and benefits of such
indemnification and the benefits of such insurance shall, to the extent
possible, extend to the Underwriter insofar as it may be or may be alleged to
be responsible for such director, without additional cost to the Company.
(m) Future Sales. Except for the permitted issuances, for
a period of two years from the Effective Date, the Company shall not sell or
otherwise dispose of any Common Stock (or securities convertible into or
exercisable for Common Stock) or Preferred Stock of the Company or any
subsidiary of the Company without the Underwriter's prior written consent.
Permitted issuance shall mean shares of Common Stock issuable (i) upon the
exercise of options or warrants specifically contemplated in the Registration
Statement or provided for in this Agreement, (ii) pursuant to and in order to
consummate a merger with or acquisition from an unaffiliated party in a
transaction negotiated at arms' length and approved by (A) a majority of the
Company's Board of Directors, and (B) all of the non-employee directors; (iii)
in a public offering approved by the Underwriter, and (iv) pursuant to a
private placement, at a price per share, or, with respect to convertible
securities and warrants, having an exercise or conversion price, not less than
90% of the average of the closing bid prices of the Common Stock for ten (10)
consecutive trading days ending not earlier than five (5) days prior to the
date of such sale or on other terms acceptable to the Underwriter.
(n) Press Releases. Prior to the later of the Closing
Date or the Option Closing Date, if any, the Company will not issue, directly
or indirectly, without your prior written consent (which consent shall not be
unreasonably withheld), any press release or other public communication or
hold any press conference with respect to the Company, its activities, or the
public offering, other than trade releases in the ordinary course of the
Company's business.
(o) Undertakings. The Company will comply with the
provisions of all undertakings contained in the Registration Statement or made
in connection with any application to register or qualify any of the
Securities under blue sky laws.
(p) Certain Deliveries to the Underwriter. The Company
will use its best efforts to obtain from its officers, counsel, and
accountants those certificates, opinions, and letters referred to in
Paragraphs 6 of this Agreement.
(q) Key Man Life Insurance. The Company will use its best
efforts to obtain on or before the Closing Date, and maintain thereafter for
the term of their respective employment with the Company, key man life
insurance policies insuring the lives of Dr. Creve Maples and
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Messrs. Curtiz J. Gangi and Craig Peterson, with the Company named as sole
beneficiary, in a policy amount of not less than $1,000,000, $500,000 and
$500,000, respectively.
(r) Employment Agreements. The Company has entered into
employment agreements with Dr. Creve Maples and Messrs. Curtiz J. Gangi,
Douglas Harless, Brian Clark and Craig Peterson on the terms that are
disclosed in the Prospectus.
(s) Redemption and Dividends. For a period of two (2)
years from the Closing Date, the Company shall not redeem any of its
securities (other than redemptions that may be required in connection with
possible termination of employment agreements with the Company under the terms
of Employment Agreements in effect on the Effective Date and repurchases of
Warrants, or as otherwise provided in this Agreement), and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived
after the Closing Date, without obtaining the Underwriter's prior written
consent, which consent shall not be unreasonably withheld. The Underwriter
shall either approve or disapprove such contemplated redemption of securities
or dividend payment or distribution within ten (10) business days from the
date the Underwriter receives written notice of the Company's proposal with
respect thereto; a failure of the Underwriter to respond within the ten (10)
business day period shall be deemed approval of the transaction. Nothing in
this Paragraph 3(s) shall be construed to prohibit the Company from calling
the Warrants for redemption subsequent to one year from the Effective Date.
(t) Restrictions on Sales, Options by Affiliates. The
Company will cause each of its officers, directors, five percent (5%)
stockholders and other major stockholders designated by the Underwriter to
agree in writing that such person (i) will not, during the twelve (12) month
period immediately following the Effective Date (the "Lockup Period"), offer,
pledge, sell (which term includes a short sale or sale against the box),
contract to sell, grant any option for the sale of, or otherwise transfer or
dispose of, directly or indirectly, any shares of the Company's Common Stock
without obtaining the Underwriter's prior written approval.
(u) Outstanding Warrants, Options and Other Rights.
Unless the Underwriter has given its written consent prior to the Effective
Date, which consent shall not be unreasonably withheld, there shall not be
outstanding on the Closing Date any warrants, options, or other rights to
purchase any shares of Common Stock, except as otherwise set forth in the
Prospectus. During the three (3) years following the Effective Date, the
Company shall not, without the prior written consent of the Underwriter, grant
options, rights or warrants or sell any securities to its officers, directors,
employees or consultants under its stock option plans as described in the
Prospectus or otherwise except at an exercise, purchase or conversion price
which is not less than the market price of the Common Stock on the date of
grant, issuance or sale, as the case may be.
(v) Restrictions on Filing Registration Statements.
During the eighteen (18) months following the Effective Date, the Company will
not, without the prior written consent of the Underwriter, register any
securities pursuant to the Securities Act, except that such restriction shall
not apply to the registration of Common Stock issuable pursuant to the
Company's present stock option plans, as described in the Prospectus, on a
Form S-8 registration statement.
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<PAGE>
(w) Waiver of Registration Rights. The Company shall
obtain a waiver of so-called "piggy-back" registration rights from any holders
of any securities of the Company who have the right to require inclusion of
any or all of their securities in the Registration Statement contemplated by
this Agreement, except that, with respect to the shares listed as being sold
by the Selling Securityholders in the Prospectus, the Company shall obtain the
agreement of the holders of such shares not to sell or otherwise transfer or
distribute such shares except as disclosed in the Prospectus.
(x) Directors and Officers Liability Insurance. Within
ninety (90) days after the effective date of the Registration Statement, the
Company will use its best efforts to obtain Directors and Officers Liability
Insurance in an amount no less than $5,000,000, so long as the cost thereof is
reasonable, as determined by the Board of Directors.
(y) Accounting Firm. The Company shall retain an
independent public accounting firm reasonably acceptable to the Underwriter
for a period of five years from the Effective Date. The Underwriter agrees
that the firm of Feldman Sherb Ehrlich & Co., P.C. is acceptable to the
Underwriter. In addition, for a period of two years from the Effective Date,
the Company, at its expense, shall cause its independent accounting firm to
review, but not audit, the Company's financial statements for each of the
first three fiscal quarters prior to the announcement of quarterly financial
information, the filing of the Company's quarterly report on Form 10-QSB and
the mailing of quarterly financial information to stockholders, if applicable.
(z) Restrictions on Acquisitions. During the eighteen
(18) months following the Closing Date, without the prior consent of the
Underwriter, the Company shall not enter into any agreement to acquire any
other business or the assets of any other business. The term "acquire" shall
be broadly construed and shall include the acquisition of assets, the merger
with or into another corporation or entity, whether directly by the Company or
through a subsidiary, or the acquisition of stock or other equity interests,
however defined, of another corporation, partnership, limited liability
company, business trust, sole proprietorship or other entity of any kind or
description.
4. Offering Expenses and Related Matters
(a) General. Whether or not the Public Offering is
consummated, the Company will pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including without
limiting the generality of the foregoing, (i) the preparation, printing,
filing, and copying of the Registration Statement, Prospectus, this Agreement,
blue sky memoranda, the Agreement Among Underwriter, if any, the Selected
Dealers Agreement, and other underwriting documents, if any, and any drafts,
amendments or supplements thereto, including the cost of all copies thereof
supplied to the Underwriter in such quantities as reasonably requested by the
Underwriter, the costs of mailing Prospectuses to offerees and purchasers of
the Securities, and the out-of-pocket travel expenses of the Underwriter and
counsel to the Underwriter or other professionals designated by the
Underwriter to visit the Company's facilities for purposes of discharging due
diligence responsibilities; (ii) the printing, engraving, issuance and
delivery of certificates representing Common Stock and Warrants, including any
transfer or other taxes payable thereon; (iii) the registration or
qualification of the Securities under state securities or "blue sky" laws,
including the reasonable fees and disbursements of counsel (regardless of
whether such counsel is also counsel to the Underwriter, subject to the
limitation set forth in
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Paragraph 4(c) of this Agreement) and filing fees in connection therewith;
(iv) all reasonable fees and expenses of the Company's counsel and
accountants; (v) all costs, expenses and filing fees in connection with review
of the terms of the Public Offering by the NASD; (vi) all costs and expenses
of any listing of the Securities, Common Stock and Warrants on the SmallCap
Market or the NNM and/or a stock exchange and/or in Standard and Poor's Stock
Guide and/or any other securities manuals; (vii) all costs and expenses of
four (4) bound volumes provided to the Underwriter and its counsel of all
closing documents, paper exhibits, correspondence and records forming the
materials included in the Public Offering; (viii) the reasonable costs and
expenses of all pre-closing and post-closing advertisements relating to the
Public Offering (such as tombstone adds) up to an aggregate of $20,000, in
addition to fifteen (15) lucite cubes;(ix) all costs of holding informational
meetings and "road shows;" and (x) all other costs and expenses incurred or to
be incurred by the Company in connection with the transactions contemplated by
this Agreement. The obligations of the Company under this Paragraph 4(a) shall
survive any termination or cancellation of this Agreement.
(b) Non-Accountable Expense Allowance. In addition to the
Company's responsibility for payment of the foregoing expenses, the Company
shall pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds of the Public Offering, including in
such amount the proceeds from any sale of Option Units. The non-accountable
expense allowance due shall be paid at the Closing Date and any Option Closing
Date, as applicable, and shall include fees and disbursements of Underwriter's
counsel (exclusive of legal fees for state registration and qualification as
provided in Paragraph 4(c) of this Agreement), but shall not include fees of
the Company's counsel, state registration filing fees, NASD filing fees,
Nasdaq listing fees, printing and mailing to members of the underwriting or
selling group, and any and all other expenses customarily paid by the issuer
in a public offering of securities.
You hereby acknowledge your prior receipt from the Company
of $10,000, which amount shall be applied to the non-accountable expense
allowance due when and if the Public Offering is closed. If the Public
Offering does not close, then any portion of such amount in excess of your
accountable reimbursable expenses shall be returned promptly by you to the
Company.
(c) Compliance with Blue Sky Laws. You shall determine in
which states or jurisdictions the Securities shall be registered or qualified
for sale. Copies of all applications and related documents for the
registration or qualification of securities (except for the Registration
Statement and Prospectus) filed with the various states shall be supplied to
the Company's counsel not later than one business day following their
transmission to the various states, and copies of all comments and orders
received from the various states shall be made available promptly to the
Company's counsel. Immediately prior to the Effective Date, counsel for the
Underwriter shall advise counsel for the Company in writing of all states in
which the offering has been registered or qualified for sale or has been
canceled, withdrawn, or denied, the date of each such event, and the number of
Securities registered or qualified for sale in each such state. The Company
shall be responsible for the cost of state registration or qualification
filing fees and the legal fees of Underwriter's counsel in connection with
such filings, which filing fees are payable to Underwriter's counsel in
advance of such filings. The legal fees payable by the Company with respect to
blue sky filings by Underwriter's counsel shall be forty thousand dollars
($40,000), of which twenty thousand dollars ($20,000) has been paid. The
Company hereby acknowledges
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that any remaining balance with respect to legal fees or blue sky filing fees
is immediately due and payable.
5. Unit Purchase Options; Other Financial Arrangements
(a) Unit Purchase Options. On the Closing Date, the
Company will sell to the Underwriter, for an aggregate price of $100, Unit
Purchase Options to purchase an aggregate of one hundred twenty thousand
(120,000) Units from the Company at an exercise price equal to one hundred
sixty five percent (165%) of the public offering price of the Units. The Unit
Purchase Options and the underlying securities shall be non-transferable
(other than to officers or partners of members of the underwriting or selling
group or as otherwise may be permitted by the NASD) during the one (1) year
period commencing on the Effective Date. The Unit Purchase Options and the
terms of the underlying securities shall be exercisable for a period of four
(4) years commencing one (1) year from the Effective Date. The Unit Purchase
Options shall be in the forms provided by the Underwriter and filed as an
Exhibit to the Registration Statement.
(b) M/A Agreement.
(i) The Company hereby agrees that if, during
the five (5) year period commencing on the Effective Date, the Underwriter
shall introduce to the Company another party or entity (the "Introduced
Party"), and, as a result of such introduction, a Transaction is consummated
with such Introduced Party, the Company shall pay to the Underwriter a
finder's fee (the "Fee") equal to six percent (6%) of the first five million
dollars ($5,000,000) of the consideration paid or received in such
Transaction; plus five percent (5%) of the consideration in excess of five
million dollars ($5,000,000) and up to six million dollars ($6,000,000); plus
four percent (4%) of the consideration in excess of six million dollars
($6,000,000) and up to seven million dollars ($7,000,000); plus three percent
(3%) of the consideration in excess of seven million dollars ($7,000,000) and
up to eight million dollars ($8,000,000); plus two percent (2%) of the
consideration in excess of eight million dollars ($8,000,000) and up to nine
million dollars ($9,000,000); plus one percent (1%) of the consideration in
excess of nine million dollars ($9,000,000).
(ii) The Fee shall be paid in cash at the closing
of the particular Transaction, regardless of whether the Transaction involves
installment payments or the consideration paid includes securities or a
combination of securities and cash; provided, however, that in the event that
the Transaction is a marketing or license or other agreement pursuant to which
a stream of revenue or cash receipts may be generated or other Transaction
where it is impossible to determine the value of the consideration to be paid
or received or in the event that there are contingent payments, the Fee shall
be paid with respect to each payment at the same time as the payment is made
or received, as the case may be, regardless of when the payment is received as
long as the original agreement pursuant to which the payment is made was
entered into during the five (5) year period commencing on the Effective Date.
No modification of payment or other terms of any agreement shall impair the
Underwriter's right to the Fee. In the event that the Transaction involves a
merger or sale of assets or tender offer or sale of stock where the
consideration is paid to any or all of the Company's stockholders, the
consideration paid to such stockholders shall be included in the consideration
paid or received for purposes of computing the Fee. All references to the
Company in the context of a Transaction shall include Muse
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Technologies, Inc., any of its present or future subsidiaries or any affiliate
of the Company,regardless of whether such party shall pay or receive the
consideration paid in the Transaction.
(iii) In determining the value of the
consideration paid or received, the following provisions shall apply:
(A) Any securities which are regularly
traded on a securities exchange or in the over-the-counter market shall be
valued at the average of the closing prices in the case of securities listed
on the New York or American Stock Exchange or the Nasdaq Stock Market (or the
closing bid price if there are no transactions on any of such days) or the
average of the closing bid prices, as reported by Nasdaq or the National
Quotation Bureau, Inc. or similar recognized reporting agency, in the case of
securities not traded on such exchanges or in such markets on the ten (10)
trading days prior to the earlier of (I) the date of the agreement or (II) in
the event that a press release or other announcement is made by the Company
and/or the Introduced Party concerning the Transaction and the consideration
provided for in the agreement includes the transfer of a fixed number of
securities, the date of such press release or announcement.
(B) Any debt securities which are not
regularly traded on a securities exchange or on the over-the-counter market
shall be valued at the principal amount thereof if such obligations bear a
stated interest rate or, if no interest rate is stated, at the present value
of the payments due, discounted using an interest rate equal to the prime rate
of Chemical Bank in effect on the second business day prior to the closing
date.
(C) The consideration received in a
joint venture shall be based on the consideration paid to the joint venture by
both the Introduced Party and the Company; plus any additional consideration
paid by the Company to the joint venture partner or by the joint venture
partner to the Company.
(D) In the event that the Transaction
involves the receipt by the Company of property or equipment the consideration
shall be fair value of the property and equipment.
(E) In the event that the fair market
value of any property cannot be determined pursuant to the application of
Paragraph 5(b)(iii) of this Agreement and the Company and the Underwriter
shall not be able to agree on a value, the value shall be determined by an
appraiser jointly selected by the Company and the Underwriter.
(iv) Notwithstanding anything in this Paragraph
5(b) to the contrary, if the Company shall, within one hundred eighty (180)
days immediately following the expiration of five (5) years from the Effective
Date, consummate a Transaction with an Introduced Party which was introduced
by the Underwriter to the Company during such five (5) year period, the
Company shall pay the Underwriter the Fee in the same manner as is otherwise
provided in this Paragraph 5(b).
6. Conditions to the Obligations of the Underwriter. The
obligation of Underwriter to purchase and pay for the Securities shall be
subject to the accuracy in all material respects, as of the date of this
Agreement and each Closing Date (whether the Closing Date with respect to the
Firm Units or an Option Closing Date with respect to the Option Units), as if
made on such
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<PAGE>
Closing Date, of the representations and warranties of the Company contained
in this Agreement and the following additional conditions:
(a) Effectiveness of Registration Statement.
(i) The Registration Statement shall have become
effective not later than 5:30 P.M., Eastern Time, on the date of this
Agreement, or such later time or date as shall have been consented to by you
in writing (the "Effective Date").
(ii) On the Closing Date, no stop order
suspending the effectiveness of the Registration Statement or the
qualification or registration of the Securities under the blue sky laws of any
jurisdiction (whether or not a jurisdiction specified by the Underwriter)
shall have been issued, and no proceeding for that purpose shall have been
initiated or shall be threatened or contemplated by the Commission or the
authorities of any such jurisdiction.
(iii) Any request of the Commission or any such
authorities for additional information to be included in the Registration
Statement or Prospectus or otherwise shall have been complied with to the
reasonable satisfaction of counsel for the Underwriter.
(b) Representations; Compliance with Agreement. The
representations and warranties of the Company in this Agreement shall be true
and correct on and as of the Closing Date, with the same effect as if made on
the Closing Date, and the Company shall have complied with all the agreements
and satisfied all the obligations required to be performed or satisfied by it
at or prior to the Closing Date.
(c) No Untrue Statements. The Registration Statement and
the Prospectus shall contain all statements required to be stated therein in
accordance with the Securities Act and the Regulation and the Registration
Statement and the Prospectus 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 not misleading, and, since the
Effective Date, there shall not have occurred any event required to be set
forth in an amended or supplemented Prospectus that has not been so set forth
(except any such statement or omission based upon information furnished in
writing by or on behalf of the Underwriter for inclusion in the Registration
Statement).
(d) No Material Change. Subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus, and except as set forth or contemplated in the Prospectus, (i)
there shall have been no material adverse changes with respect to the
officers, directors, operations, capitalization, contractual obligations,
legal proceedings, proposed use of proceeds from the sale of the Securities,
business, plans or prospects, net assets or liabilities or obligations,
properties, or any other aspect of the financial condition or results of
operations of the Company, (ii) the Company shall not have entered into any
material transaction not in the ordinary course of business, (iii) the Company
shall not have paid or declared any dividends or other distributions on its
capital stock, (iv) the conduct of the business and operations of the Company
shall not have been materially interfered with by strike, fire, flood,
hurricane, accident or other calamity (whether or not insured), or by any
court or governmental action, order or decree, and the properties of the
Company shall not have sustained any material loss or damage (whether or not
insured) as a result of any such occurrence, and (v)
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<PAGE>
except as set forth in the Prospectus, there are no actions, suits,
proceedings or investigations pending before any arbitrator, court or
governmental agency, authority or body or, to the knowledge of the Company,
threatened, to which the Company is a party or of which the business or
property of the Company is the subject and which, if adversely decided, could
reasonably be expected to have a material adverse affect on the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company, and there have been no material adverse development in
any such suits, actions, proceedings or investigations.
(e) NASD. The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the
Securities by the Underwriter. No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date, for any member firm of the NASD to execute
transactions (as principal or as agent) in the Securities, Common Stock or
Warrants and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the best of the Underwriter's or
the Company's knowledge, shall be contemplated by the Commission or the NASD.
The Company represents at the date of this Agreement, and shall represent as
of the Closing Date or Option Closing Date, as the case may be, that it has no
knowledge that any such action is in fact contemplated by the Commission or
the NASD.
(f) Certificates, Bylaws and Proceedings. The Company's
Certificate of Incorporation and By-Laws, and all proceedings taken in
connection with the authorization, issuance, or sale of the Securities as
herein contemplated, shall be reasonably satisfactory in form and substance to
you.
(g) Officers' Certificate. The Company shall have
furnished to the Underwriter a certificate of the President and of the Chief
Financial Officer of the Company, dated the day of the Closing Date, to the
effect that each signer of such certificate has examined the Registration
Statement, the Prospectus, and this Agreement, and confirming, in form
satisfactory to the Underwriter, that the compliance by the Company of the
conditions set forth in Paragraphs 6(a) through (d) of this Agreement have
been satisfied.
(h) Opinion of Company Counsel. The Company shall have
furnished to the Underwriter the opinion of Proskauer Rose LLP, counsel for
the Company, dated the Closing Date, in form and substance reasonably
satisfactory to counsel to the Underwriter and substantially in the form of
Exhibit A attached hereto. In rendering the opinion, such counsel may rely as
to matters of fact, to the extent they deem proper, upon certificates of the
Company's officers and governmental officials.
(i) Accountants' Letter. At the time this Agreement is
executed and as of the Closing Date, Feldman Sherb Ehrlich & Co., P.C.,
independent public accountants for the Company, shall have furnished to you a
letter addressed to the Underwriter and dated the date of this Agreement or
the Closing Date, as applicable, in form and substance previously approved by
the Underwriter and its counsel.
(j) Agreements with Stockholders. The Underwriter shall
have received the agreements, in form and substance satisfactory to the
Underwriter, as contemplated by Paragraphs 3(l) and (t) of this Agreement.
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<PAGE>
(k) Change in Capitalization. Subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there shall not have been any material adverse
change or decrease in the capital stock or long-term debt obligations of the
Company or any changes or decreases in stockholders' equity, net assets or
current net assets of the Company or any material adverse change in the
financial position, revenues, expenses or results of operations of the
Company, each as compared with the amounts shown in the most recent financial
statements included in the Registration Statement, except as disclosed in the
Prospectus, that makes it impractical or inadvisable in the reasonable
judgment of the Underwriter to proceed with the Public Offering or the
delivery of the Securities, as the case may be, as contemplated in the
Prospectus.
(l) Other Agreements. The Company shall have executed and
delivered to the Underwriter the Warrant Agreement and the Unit Purchase
Options to purchase one hundred twenty thousand (120,000) Units.
(m) Opinion of Underwriter's Counsel. The Underwriter
shall have received an opinion from Esanu Katsky Korins & Siger, LLP, counsel
for the Underwriter, as to the organization of the Company, the validity of
the Securities, the form of the Registration Statement and the Prospectus, and
such other related matters as you may request, and such counsel shall
have been furnished by the Company such papers and information as they request
to enable them to pass upon such matters. It is understood that such counsel
will express no opinion with respect to the financial statements and other
financial, accounting, and statistical data included in the Registration
Statement and the Prospectus. In rendering the foregoing opinion, such counsel
shall be entitled to rely upon the opinion delivered to the Underwriter
pursuant to Paragraph 6(h) of this Agreement as to matters of Federal
securities law, and may rely as to matters of fact upon such certificates and
other documents and information as they may reasonably request for purposes of
such opinion.
(n) Other Information. Prior to the Closing Date, the
Company shall have furnished to the Underwriter such further information,
certificates, and documents in connection with the Company's obligations set
forth in this Agreement as you may reasonably request.
If any of the conditions specified in this Paragraph 6 shall
not have been fulfilled when and as required by this Agreement, this Agreement
and all obligations of the Underwriter hereunder may be terminated by you at,
or at any time prior to, the Closing Date. Notice of such termination shall be
given to the Company in writing, or by facsimile transmission or telephone and
confirmed in writing.
7. Indemnification
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless Underwriter and each person who controls any
Underwriter within the meaning of the Securities Act, from and against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, the Exchange Act, or
other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact made by the Company in this
Agreement, (ii) any untrue statement or alleged untrue statement of a material
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<PAGE>
fact made by the Company contained in the Registration Statement, or any
amendment thereof, or in any Preliminary Prospectus or the Prospectus, or any
amendment thereof or supplement thereto, or in any blue sky application or
other document executed by the Company specifically for that purpose (or based
upon written information furnished by the Company) filed in any state or other
jurisdiction in order to qualify any of the Securities or other Securities
under the securities laws thereof (any such application, document or
information being referred to as a "Blue Sky Application"); or (iii) the
omission or alleged omission to state in any such Registration Statement,
Preliminary Prospectus or Prospectus, or amendment thereof or supplement
thereto, or Blue Sky Application a material fact required to be stated therein
or necessary to make the statements made therein not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses
reasonably incurred by it in connection with investigating or defending
against any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage, or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein or omitted therefrom in reliance upon and in conformity with
written information furnished to the Company by or on behalf of you or such
Underwriter specifically for use in connection with the preparation thereof,
and further provided, however, that the foregoing indemnity with respect to
any untrue statement, alleged untrue statement, omission, or alleged omission
contained in any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such loss, claims any of,
damage, or liability purchased any of the securities that are the subject
thereof (or to the benefit of any person who controls such Underwriter), if a
copy of the Prospectus was not delivered to such person with or prior to the
written confirmation of the sale of such security to such person. This
indemnity agreement will be in addition to any liability that the Company may
otherwise have.
(b) Indemnification by Underwriter. Underwriter agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed or signs the Registration Statement, and each person
who controls the Company within the meaning of the Securities Act, from and
against any and all losses, claims, damages or liabilities, joint or several,
to which they or any of them may become subject under the Securities Act, the
Exchange Act, or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or any amendment thereof or supplement thereto,
or in a Blue Sky Application, or (ii) the omission or the alleged omission to
state in any such Registration Statement, Preliminary Prospectus or
Prospectus, amendment thereof or supplement thereto, or Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements made therein not misleading, in each case to the extent, but only
to the extent, that the same was made therein or omitted therefrom in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of you or such Underwriter specifically for use in the preparation
thereof, and agrees to reimburse each such indemnified party for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending against any such loss, claim, damage, liability or action. This
indemnity agreement will be in addition to any liability that the Underwriter
may otherwise have.
(c) Claims. Within five (5) days after receipt by an
indemnified party under Paragraph 7(a) or (b) of this Agreement of notice of
the commencement of any action, such
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<PAGE>
indemnified party shall, if a claim in respect thereof is to be made against
an indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; the failure so to notify the indemnifying
party shall relieve the indemnifying party from any liability under this
Paragraph 7 as to the particular item for which indemnification is then being
sought, unless such indemnifying party has otherwise received actual notice of
the action at least thirty (30) days before any answer or response is required
by the indemnifying party in its defense of such action, but will not relieve
it from any liability that it may have to any indemnified party otherwise than
under this Paragraph 7. If any such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof; provided, that if the defendants in any such
action include both the indemnified party and the indemnifying party and
either (i) the indemnifying party or parties agree, or (ii) representation of
both the indemnifying party or parties and the indemnified party or parties by
the same counsel is inappropriate under applicable standards of professional
conduct because of actual or potential conflicting interests between them,
then the indemnified party or parties shall have the right to select separate
counsel to assume such legal defense and to otherwise participate in the
defense of such action. The indemnifying party will not be liable to such
indemnified party under this Paragraph 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed counsel in
connection with the assumption of legal defenses in accordance with the
proviso to the immediately preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel approved by the indemnifying party for all indemnified
parties), (ii) the indemnifying party shall not have employed counsel to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall an indemnifying party be liable under
this Paragraph 7 for any settlement, effected without its written consent,
which consent shall not be unreasonably withheld, of any claim or action
against an indemnified party.
(d) Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) an
indemnified party makes a claim for indemnification pursuant to Paragraphs
7(a) or (b) of this Agreement (subject to the limitations thereof) but is
judicially determined, by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal, that such indemnification may not be enforced in
such case not withstanding that the provisions of this Paragraph 7 provide for
indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified or indemnifying party in
circumstances for which indemnification is provided under Paragraphs 7(a) or
(b) of this Agreement, then, and in each such case, the Company and the
Underwriter shall contribute to the aggregate losses, claims, damages, or
liabilities to which they may be subject (after contribution from all others)
in such proportion so that the Underwriter are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the Public Offering Price appearing
thereon, and the Company is responsible for the remaining portion; provided,
however, that if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriter in connection with the
statements or omissions that resulted in such losses, liabilities, claims, and
damages and other relevant equitable considerations shall
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<PAGE>
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of a material
fact or the omission to state a material fact, such statement or omission
relates to information supplied by the Company or by the Underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Paragraph 7(d) were to be determined by pro rata or per capita allocation of
the aggregate damages (even if the Underwriter and their respective
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this
Paragraph 7(d). For purposes of this Paragraph 7(d), the term "damages" shall
include any legal or other expenses reasonably incurred by the indemnified
party in connection with investigating or defending against or appearing as a
third party witness in any action or claim that is the subject of the
contribution provisions of this Paragraph 7(d). Notwithstanding the provisions
of this Paragraph 7(d), an Underwriter and its controlling persons
collectively shall not be required to contribute any amount in excess of the
difference between the total price of the Securities purchased by the
Underwriter, directly or indirectly, from the Company pursuant to this
Agreement and the amount of any damages that such Underwriter and its
controlling persons collectively have been required to pay by reason of such
untrue statement or omission other than pursuant to this Paragraph 7(d). No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For the purposes of
this Paragraph 7(d), any person who controls an Underwriter within the meaning
of Paragraph 15 of the Securities Act or Paragraph 20(a) of the Exchange Act
shall have the same rights to contributions as the Underwriter and each
director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within Paragraph 15 of the Securities Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as the Company.
The foregoing contribution agreement shall in no way
affect the contribution liabilities of any person having liability under
Section 11 of the Securities Act other than the Company and the Underwriter
and persons controlling the Company or the Underwriter.
After receipt by any party to this Agreement of
notice of the commencement of any action, suit, or proceeding, such person
will, if a claim for contribution in respect thereof is to be made against
another party (the "contributing party"), notify the contributing party of the
commencement thereof within a reasonable time thereafter, but the failure so
to notify the contributing party will not relieve the contributing party from
any liability that it may have to any party other than for contribution
pursuant to this Paragraph 7(d). Any notice given pursuant to any other
provision of this Paragraph 7 shall be deemed to be like notice pursuant to
this Paragraph 7(d). If any such action, suit or proceeding is brought against
any party, and such person notifies a contributing party of the commencement
thereof, the contributing party will be entitled to participate therein with
the notifying party and any other contributing party similarly notified,
subject to the provisions of Paragraph 7(c) of this Agreement.
(e) Survival. The respective indemnity and contribution
agreements by the Underwriter and the Company contained in this Paragraph 7,
and the covenants, representations and warranties of the Company set forth in
this Agreement, shall remain operative and in full force
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<PAGE>
and effect regardless of (i) any investigation made by the Underwriter or on
their behalf or by or on behalf of any person who controls any Underwriter, by
the Company or any controlling person of the Company or any director or any
officer of the Company, (ii) acceptance of the Securities and payment
therefor, or (iii) any termination of this Agreement, and shall survive the
delivery of the Securities, and any successor to the Company or to any
Underwriter or any person who controls any Underwriter or the Company, as the
case may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements.
8. Effectiveness. This Agreement shall become effective
contemporaneously with the effectiveness of the Registration Statement, or at
such date after the effective time of the Registration Statement as you, in
your discretion, shall first release the Securities for sale to the public;
provided, however, that the provisions of Paragraphs 4, 6, and 7 of this
Agreement shall at all times be in full force and effect. For the purposes of
this Paragraph 8, the Securities shall be deemed to have been released for
sale to the public upon release by you after effectiveness of the Registration
Statement of a newspaper advertisement relating to the Securities or upon
release by you thereafter of telegrams advising securities dealers of the
effectiveness of the Registration Statement, whichever shall first occur.
9. Termination. This Agreement may be terminated, in your
absolute discretion, by notice given to the Company prior to the Closing Date
if the Company shall have failed, refused, or been unable, prior to the
Closing Date, to perform any material agreement required to be performed by it
hereunder, or if any other condition of the Underwriter' obligations hereunder
required to be fulfilled by the Company is not fulfilled. In addition, this
Agreement may be terminated, as set forth above, if, prior to the Closing
Date, any of the following shall have occurred: (a) material governmental
restrictions (not in force and effect on the date of this Agreement) have been
imposed on trading in securities on the New York Stock Exchange or American
Stock Exchange or in the over-the-counter market; (b) a material adverse
change, beyond normal fluctuations, in general financial market or economic
conditions from such conditions on the date of this Agreement; (c) a material
interruption in mail or telecommunications service or other general means of
communications within the United States after the execution and delivery of
this Agreement; (d) a banking moratorium has been declared by Federal or New
York or Florida state authorities; (e) an outbreak of major international
hostilities or other national or international calamity has occurred; (f) the
passage by the Congress of the United States or by any state legislative body
of any act or measure, or the adoption of any orders, rules, or regulations by
any governmental body or executive or any authoritative accounting institute
or board, that you believe will have a Material Adverse Effect on the
business, financial condition, or financial statements of the Company or the
distribution of the Securities or market for the Securities; or (g) any
material adverse change has occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
condition of the Company, financial or otherwise, whether or not arising in
the ordinary course of business. Any such termination shall be without
liability of any party to any other party, except as provided in Paragraph 7
in this Agreement and except that the Company shall remain obligated to pay
costs and expenses pursuant to Paragraph 5 in this Agreement. If you elect to
prevent this Agreement from becoming effective, or to terminate this
Agreement, as provided in this Paragraph 9, you shall promptly notify the
Company by telecopier or telephone, and confirm by letter, and the Underwriter
shall not be under any liability to the Company.
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<PAGE>
10. Survival of Representations, Warranties, and Indemnities. The
respective agreements, representations, warranties, and indemnities contained
in this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of you, any Underwriter or the Company, or
any of your or their respective officers or directors or controlling persons,
and will survive delivery of and payment for the Securities and the Unit
Purchase Options.
11. Notices. All notices and other communications hereunder
(unless otherwise expressly provided for in this Agreement) shall be in
writing and shall be deemed given when delivered in person or by overnight
courier service or Express Mail, on the business day (before 5:00 P.M.)
transmitted if sent by facsimile transmission or similar means of
communication if receipt if confirmed or if transmission is confirmed as
otherwise provided in this Paragraph 12, or the fifth (5th) day after mailing
if mailed if sent by registered or certified mail (return receipt requested)
to the party to receive the same at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to the Company: Muse Technologies, Inc.
1601 Randolph, SE
Suite 210
Albuquerque, New Mexico 87104
Facsimile: (505) 766-9123
Attention: Curtiz J. Gangi, President
With a copy to: Proskauer Rose, LLP
1585 Broadway
New York, New York 10036
Facsimile: (212) 969-2900
Attention: Neil S. Belloff, Esquire
If to the Underwriter: HD Brous & Co., Inc.
40 Cuttermill Road
Great Neck, New York 11021
Facsimile: (516) 773-1829
Attention: Mr. Howard D. Brous, Chairman
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
Facsimile: (212) 953-6899
Attention: Asher S. Levitsky P.C.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors. The terms
"successor" and "successors and assigns" as used in this Agreement shall not
include any buyer, as such, of any of the Securities from the Underwriter.
13. Entire Understanding. This Agreement contains the entire
understanding between the parties to this Agreement and supersedes any prior
or contemporaneous oral or prior written
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<PAGE>
agreement, understandings or letter of intent, and may not be modified or
amended nor may any right be waived except by a writing signed by all parties
in the case of a modification or amendment or the party to be charged in the
case of a waiver. No course of conduct or dealing and no trade custom or
practice shall be construed to modify any of the provisions of this Agreement.
14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which taken
together shall constitute one and same agreement.
15. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to agreements executed and to be performed wholly within such
State.
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<PAGE>
Please confirm, by signing and returning to the Company
counterparts of this Underwriting Agreement, that the foregoing correctly sets
forth the understanding between the Company and you, whereupon this Agreement
will constitute a binding agreement among us.
Very truly yours,
MUSE TECHNOLOGIES, INC.
By:
---------------------------------------------
Curtiz J. Gangi, President
Confirmed and Accepted as of
the date first above-written:
HD BROUS & CO, INC.
By:
--------------------------
Howard D. Brous, Chairman
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<PAGE>
Exhibit A
Opinion of Company Counsel
1. The Company (a) has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware,
with full corporate power and authority to own and operate its properties and
to carry on its business as set forth in the Registration Statement and
Prospectus; (b) on the Effective Date has authorized and, to such counsel's
knowledge, outstanding capital stock as set forth in the Prospectus, and (c)
is duly licensed or qualified as a foreign corporation in New Mexico and all
other jurisdictions in which by reason of owning or leasing real property in
such jurisdiction it is required to be so licensed or qualified except where
failure to be so qualified or licensed would have no material adverse effect.
2. All of the outstanding shares of Common Stock are duly and validly
authorized and issued and outstanding, fully paid and non-assessable, conform
to the description set forth in the Prospectus and do not have any, and were
not issued in violation of any, preemptive rights under the Company's
certificate of incorporation or by-laws or any other agreement known to such
counsel.
3. The Company has authorized and reserved for issuance the shares of
Common Stock issuable (a) upon exercise of the outstanding options or warrants
(other than the Warrants) in accordance with the terms of the applicable
options or warrants, (b) upon exercise of the Warrants, including Warrants
issued upon exercise of the Unit Purchase Option and Warrants held by the
Selling Securityholders, pursuant to the terms of the Warrants and the Warrant
Agreement, and (c) upon exercise of the Unit Purchase Option, and when issued
upon such exercise, such shares of Common Stock will be duly and validly
authorized and issued, fully paid and nonassessable and not subject to any
preemptive rights or rights of first refusal pursuant to the Company's
certificate of incorporation or bylaws or other agreement known to such
counsel.
4. The shares of Common Stock included in the Units offered pursuant
to the Prospectus (a) are duly and validly authorized and issued, fully paid
and non-assessable, (b) have not been issued in violation of the pre-emptive
rights or rights of first refusal pursuant to the Company's certificate of
incorporation or any agreement known to such counsel and (c) are not subject
to any restrictions on voting or transfer other than as may be imposed by the
Securities Act.
5. The Warrants and the Unit Purchase Options conform to the
descriptions thereof that are contained in the Prospectus (excluding financial
statements) and, when issued as provided in this Agreement and/or the Unit
Purchase Option, will constitute the valid, binding and enforceable
obligations of the Company, subject to bankruptcy, insolvency and other laws
of general applications affecting the enforceability of creditors' rights and
subject to the discretionary nature of any remedies in the nature of equitable
relief and except that no opinion is given with respect to the indemnification
and contribution provisions of the Underwriter's Warrants.
6. The shares of Common Stock and Warrant included in the Units
offered pursuant to the Prospectus, when issued pursuant to this Agreement
upon payment of the consideration provided for in this Agreement, will, to the
best of such counsel's knowledge, be free of all liens, encumbrances, claims,
security interests, restrictions (other than those imposed by Federal or
A-1
<PAGE>
state securities laws), stockholders' agreements and voting trusts resulting
from agreements known to such counsel to which the Company is a party.
7. The shares of Common Stock issuable upon exercise of the Unit
Purchase Option and upon exercise of the Warrants issuable upon exercise of
the Unit Purchase Option have been duly and validly authorized for issuance,
and when issued pursuant to the terms of the Unit Purchase Option and/or the
Warrant Agreement, as the case may be, will be validly issued, fully paid and
non-assessable; the Warrants issuable upon exercise as provided in the Unit
Purchase Option, will constitute the valid and binding obligations of the
Company, subject to bankruptcy, insolvency and other laws of general
applications affecting the enforceability of creditors' rights and subject to
the discretionary nature of any remedies in the nature of equitable relief in
any legal or equitable action.
8. Except as set forth in or contemplated by the Prospectus, to the
best of such counsel's knowledge, as of the date of this Agreement, there were
no outstanding options, warrants or other rights providing for the issuance of
any class of capital stock of the Company, or any security convertible into,
or exchangeable for, any shares of any class of capital stock of the Company.
9. To the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering of the Units as contemplated by this
Agreement gives rise to any registration rights or other rights, other than
those which have been waived or satisfied, relating to the registration under
the Act of any shares of Common Stock.
10. The certificate evidencing the shares of Common Stock and
Warrants are in proper legal form.
11. To the best of such counsel's knowledge, no consents, approvals,
authorizations or orders of agencies, officers or other regulatory authorities
are necessary for the valid authorization, issue or sale of the Securities
pursuant to this Agreement, except such as may be required under the Act or
state securities or blue sky laws or pursuant to the NASD's rules, regulations
and policies.
12. Based solely upon a review of a lien search delivered at the
Closing (the "Lien Search") and an officer's certificate, such counsel does
not know of any liens on any of the Company's assets not disclosed in the Lien
Search or the Prospectus.
13. This Agreement, the Warrant Agreement and the Unit Purchase
Options have been duly authorized and executed by the Company and constitute
the valid and binding agreements of the Company, enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency and other laws
of general applications affecting the enforceability of creditors' rights and
subject to the discretionary nature of any remedies in the nature of equitable
relief and except that no opinion is given with respect to the provisions of
Paragraph 7 of this Agreement.
14. The Company has full corporate power and authority to authorize,
issue and sell the Securities on the terms and conditions set forth in this
Agreement, the Warrant Agreement, the Unit Purchase Option, as the case may
be, and in the Registration Statement and in the Prospectus, and the execution
and delivery of this Agreement, the consummation of the
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<PAGE>
transactions contemplated by this Agreement, the Warrant Agreement and the
Unit Purchase Option and compliance by the Company with the terms of this
Agreement, the Warrant Agreement and the Unit Purchase Agreement will not
conflict with, or constitute a default under, the certificate of incorporation
or by laws of the Company or any indenture, mortgage, deed or trust, note or
any other agreement or instrument known to such counsel to which the Company
is a party or by which they or their businesses or their properties are bound,
or, to such counsel's knowledge, any law, order, rule or regulation, writ,
injunction or decree of any government, governmental instrumentality, or court
having jurisdiction over the Company or its business or properties.
15. Such counsel knows of no actions, suits or proceedings at law or
in equity of a material nature pending, or to such counsel's knowledge,
threatened, against the Company before or by any state commission, regulatory
body, or administrative agency or other governmental body, wherein an
unfavorable ruling, decision or finding would materially adversely affect the
business or financial condition of the Company or which question either (a)
the validity of the Securities, the Underwriting Agreement, the Warrant
Agreement or the Unit Purchase Option, or (b) any action taken or to be taken
by the Company pursuant to the Underwriting Agreement, the Warrant Agreement
or the Unit Purchase Option, which are not disclosed in or contemplated by the
Prospectus.
16. The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act.
Furthermore, the Registration Statement and the Prospectus (except as
to the financial statements and other financial information contained therein
and thereto, as to which no opinion is expressed), comply as to form in all
material respects with the requirements of the Act and the rules and
regulations (the "Rules") of the Commission under the Act. In passing upon the
form of such documents, such counsel has assumed the correctness and
completeness of the statements made or included therein by the Company and
take no responsibility for the accuracy, completeness or fairness of the
statements contained therein except insofar as such statements relate to the
description of the Securities or relate to such counsel. However, in the
course of the preparation by the Company of the Registration Statement and the
Prospectus, such counsel had conferences with officers and directors of the
Company with a view to imparting to them a clear understanding of the
requirements of the Act and the Rules with reference to the preparation of
registration statements and prospectuses, and such counsel's examination of
the Registration Statement and the Prospectus and their discussions in the
above-mentioned conferences did not disclose to such counsel any information
which gave such counsel reason to believe that the Registration Statement, as
of the effective date thereof (except as to the financial statements and other
financial information contained therein, as to which no opinion is expressed),
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; or that the Prospectus (except as to the
financial statements and other financial information contained therein, as to
which no opinion is expressed) contained any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Such counsel have reviewed all contracts filed as exhibits to the
Registration Statement, and such counsel does not know of any agreements to
which the
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<PAGE>
Company is a party required to be filed as exhibits to the Registration
Statement which have not been so filed.
A-4
<PAGE>
UPO-
Option to Purchase
Units
MUSE TECHNOLOGIES, INC.
Unit Purchase Option
--------------------
Dated: , 1998
THIS CERTIFIES THAT and its registered assigns
(herein sometimes called the "Holder") is entitled to purchase from Muse
Technologies, Inc., a Delaware corporation (hereinafter called the "Company"),
at the price and during the period as hereinafter specified, up to
Units ("Units"), each Unit consisting of one share of the Company's Common
Stock, par value $.015 per share ("Common Stock"), and one Class B Redeemable
Common Stock Purchase Warrant of the Company (a "Warrant" and collectively, the
"Warrants") to purchase one-half (1/2) share of Common Stock.
1. This option (this "Option"), together with options of like tenor,
constituting in the aggregate options (the "Options") to purchase an aggregate
of one hundred twenty thousand (120,000) Units, was originally issued pursuant
to an underwriting agreement (the "Underwriting Agreement") between the Company
and HD Brous & Co., Inc. ("Brous" or the "Underwriter") in connection with a
public offering of one million two hundred thousand (1,200,000) Units, at an
aggregate price of $100 for the Options. Except as specifically otherwise
provided in this Option, the Common Stock and the Warrants issued upon exercise
of the Option shall bear the same terms and conditions as described under the
captions "Description of Securities" and "Underwriting" in the Company's
Registration Statement on Form SB-2, File No. 333-62495 (the "Registration
Statement") which was declared effective by the Securities and Exchange
Commission (the "Commission") on November , 1998 (the "Effective Date").
Pursuant to the Underwriting Agreement, Options to purchase one hundred twenty
thousand (120,000) Units are being issued to the Underwriter and/or selected
dealers. The Holder shall have registration rights under the Securities Act of
1933, as amended (the "Securities Act"), for this Option, the Units issuable
upon exercise of this Option, the Common Stock and the Warrants included in the
Units issuable upon exercise of this Option and the shares of Common Stock
issuable upon exercise of the Warrants, as more fully described in Paragraph 7
of this Option. The Warrants issuable upon exercise of this Option shall be
issued pursuant to the warrant agreement (the "Warrant Agreement") dated as of
November , 1998, between the Company and American Stock Transfer & Trust
Company, as warrant agent.
<PAGE>
2. During the four-year period commencing one year from the Effective
Date until 5:30 P.M., New York City time, on , 2003, inclusive
(the "Term"), the Holder shall have the option to purchase the Units pursuant to
this Option at a price of thirteen and 20/100 dollars ($13.20) per Unit (the
"Initial Exercise Price"), representing 165% of the initial public offering
price of the Units offered pursuant to the Registration Statement.
3. This Option may be exercised at any time during the Term, in whole
or in part, by the surrender of this Option (with the purchase form at the end
of this Option properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company) accompanied by payment to the Company of the Option
Exercise Price, as hereinafter defined, for the number of Units specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any, and delivery to the Company of a duly executed agreement (an "Assumption
Agreement"), which may be incorporated in the purchase form, signed by the
person(s) designated in the purchase form as the person in whose name the
underlying securities are to be issued (the "Purchaser") to the effect that such
person(s) agree(s) to be bound by the provisions of Paragraphs 8(b), (c) and (d)
of this Option. This Option shall be deemed to have been exercised, in whole or
in part to the extent specified in said purchase form, immediately prior to the
close of business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this Paragraph 3, and the person or
persons in whose name or names the certificates for shares of Common Stock and
Warrants shall be issuable upon such exercise shall become the holder or holders
of record of such Common Stock and Warrants at that time and date. The Common
Stock and Warrants and the certificates for the Common Stock and Warrants so
purchased shall be delivered to the Holder or other Purchaser within a
reasonable time, not exceeding ten (10) days, after this Option shall have been
so exercised; provided, that the Company shall not be required to deliver
certificates for the securities unless the Purchaser shall have delivered the
Assumption Agreement to the Company. If the Option is exercised subsequent to
expiration or redemption of the Warrants (including any extensions thereof), the
Holder of the Option shall exercise the Warrants contemporaneously with the
exercise of the Option.
4. Neither this Option nor the Common Stock or Warrants comprising the
Units issuable upon exercise of this Option nor the Common Stock issuable upon
exercise of such
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<PAGE>
Warrants shall be transferred, sold, assigned, or hypothecated during the during
the one-year period commencing on the Effective Date, except that such
securities may be transferred during such period to successors of the Holder,
and may be assigned in whole or in part to any person who is an officer of the
Underwriter, a member of the selling group or any officer or partner of a member
of the selling group. Any person who is a permitted transferee may transfer the
Option by will or trust or pursuant to the laws of descent and distribution.
Commencing one year from the Effective Date, this Option and the securities
issuable upon exercise of this Option may be transferred without restriction as
long as such transfer is in compliance with applicable Federal and state
securities laws. Any such assignment during such period shall be effected by the
Holder executing the form of assignment at the end of this Option and
surrendering this Option for cancellation at the office of the Company or other
office or agency as provided in Paragraph 3 of this Agreement accompanied by a
certificate (signed by an officer of the Holder if the Holder is a corporation),
stating that each transferee is a permitted transferee under this Paragraph 4;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Units as are purchasable
hereunder.
5. The Company covenants and agrees that all shares of Common Stock
which are sold as part of the Units purchased pursuant to this Option, and all
shares of Common Stock which may be issued upon exercise of the Warrants have
been, and will be, duly authorized and, will, upon issuance, be duly and validly
issued, fully paid and nonassessable and no personal liability will attach to
the holder thereof. The Company covenants and agrees that the Warrants which are
issued as part of the Units purchased pursuant to this Option have been duly
authorized and, when issued and delivered, will have been duly executed, issued
and delivered and will constitute the valid and legally binding obligations of
the Company enforceable in accordance with their terms. The Company further
covenants and agrees that during the period within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants.
6. This Option shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
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<PAGE>
7. (a) The Company shall advise the Holder, whether the Holder holds
this Option or has exercised this Option and holds Units or any of the
underlying securities, as hereinafter defined, by written notice (certified or
registered mail) at least thirty (30) days prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Securities
Act covering any securities of the Company (other than a registration statement
on Form S-8, S-4 or subsequent similar forms), and will during the term of the
Option and for a period of two years thereafter, upon the request of the Holder,
at the Company's cost and expense, include in any such post-effective amendment
(if permitted by law) or registration statement, such information as may be
required to permit a public offering of all or any of the Units underlying this
Option, the Common Stock or Warrants issued as part of the Units, or the Common
Stock issuable upon the exercise of the Warrants (collectively "underlying
securities"). In connection with any such registration statement, the Company
shall supply prospectuses, use its best efforts to qualify any of the described
securities for sale in such states as such Holder reasonably designates and
furnish indemnification in the manner provided in Paragraph 8 of this Option.
The Holder(s) participating in any such registration shall furnish information
and indemnification as set forth in said Paragraph 8.
(b) In connection with any underwritten public offering
relating solely to an offering of the Company's securities by the Company, the
Holder will agree to defer any sale of such securities for up to sixty (60) days
from the effective date of the applicable registration statement, unless the
applicable registration statement is filed pursuant to Paragraph 7(c) of this
Option, provided that the underwriter or managing underwriter has requested such
deferral on the grounds that the offering by the Company would be materially
adversely affected by the earlier sale of such securities and the Company agrees
to keep the registration statement current for nine (9) months after the
effective date of the registration statement or such longer period as such
registration statement is otherwise being kept effective. This Paragraph 7(b)
shall not be applicable with respect to any registration statement filed
pursuant to Paragraph 7(c) of this Option.
(c) If any majority holder (as defined below) shall give
notice to the Company at any time to the effect that such holder desires to
register under the Securities Act the Units or any of the underlying securities
under such circumstances that a public distribution (within the meaning of the
Securities Act) of any such securities will be involved then the Company will
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<PAGE>
promptly, but no later than thirty (30) business days after date such notice is
given (the "Notice Date"), time being of the essence, file a post-effective
amendment to the current Registration Statement or a new registration statement
pursuant to the Securities Act, to the end that the Units and/or any of the
underlying securities, as the Holder shall determine, may be publicly sold under
the Securities Act as promptly as practicable thereafter and the Company will
use its best efforts to cause such registration to become effective; provided,
that such holder shall furnish the Company with appropriate written information
as to the Holder and the proposed plan of distribution and indemnification as
set forth in Paragraph 8. The majority holder may, at its option, request the
filing of a post-effective amendment to the Registration Statement or a new
registration statement under the Securities Act on two occasions during the term
of the Option. In the event that the registration statement or post-effective
amendment shall not have been declared effective by the Commission within one
hundred fifty (150) days after the Notice Date (such period being referred to as
the "Filing Period"), other than as a result of action by the majority
shareholder to delay the effective date, then the Initial Exercise Price of the
Units shall be reduced by forty eight cents ($.48) per Unit at the end of each
twenty-eight (28) day period after the expiration of the Filing Period, in which
such registration statement or post-effective amendment to the Registration
Statement, has not been declared effective by the Commission; provided that such
exercise price shall not be less than nine and 60/100 dollars ($9.60) per Unit;
provided, that if the Underwriter advises the Company that any such reduction
requires the prior approval of the National Association of Securities Dealers,
Inc. ("NASD") in order to effect such reduction, no reduction shall become
effective until the Underwriting shall have advised the Company that NASD
approval shall have been obtained. The Initial Exercise Price as so adjusted is
herein called the "Adjusted Initial Exercise Price." As used in this Option, the
term "Option Exercise Price" shall refer to the Initial Exercise Price or the
Adjusted Initial Exercise Price, as the case may be. Within ten (10) business
days after receiving any such notice pursuant to this Paragraph 7(c), the
Company shall give notice to the other Holders of the Options, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the Units and/or the underlying
securities of the other Holders, provided that they shall furnish the Company
with such appropriate information (relating to the intentions of such holders)
in connection therewith as the Company shall request in writing. The costs and
expense of the first such post-effective amendment or new registration statement
shall be borne
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<PAGE>
by the Company, except that each Holder shall bear the fees of his own counsel
and/or accountants and any underwriting discounts or commissions applicable to
any of the securities sold by him. The costs and expenses of the second such
registration statement shall be borne by the Holders. The Company will maintain
and keep such registration statement current under the Securities Act for a
period of at least nine (9) months from the effective date of such registration
statement. The Company shall supply prospectuses, use its best efforts to
qualify any of the described securities for sale in such states as such holder
reasonably designates and furnish indemnification in the manner provided in
Paragraph 8 of this Agreement.
(d) If, on the date of receipt by the Company of notice from
any majority holder requesting registration of Units and/or any of the
underlying securities pursuant to Paragraph 7(c) of this Option, the Company has
previously notified the Holder pursuant to Paragraph 7(a) of this Option that
the Company intends to file a post-effective amendment to the Registration
Statement or a new registration statement under the Securities Act covering any
securities of the Company and offering to include the Units and/or the
underlying securities of the Holder in such Registration Statement or provides
notice to the Holder pursuant to Paragraph 7(a) of this Option within seven (7)
days after receipt of such notice from any majority holder, the Holder agrees
that the demand registration request shall be withdrawn and that if he so
elects, he may participate in the Registration Statement filed by the Company
pursuant to Paragraph 7(a) of this Option; provided that (x) the Registration
Statement or post-effective amendment to the Registration Statement covering the
Holder's Units and/or underlying securities is filed within sixty (60) days and
declared effective within one hundred fifty (150) days after the earlier of the
date of such notice to the Company from the majority holder pursuant to
Paragraph 7(c) or the date of such notice to the Holder from the Company
pursuant to Paragraph 7(a); and (y) the majority holder will not be deemed to
have exercised any demand registration right pursuant to Paragraph 7(c) of this
Option.
(e) The term "majority holder" as used in this Paragraph 7
shall mean the holder of at least a majority of the Common Stock (including the
Common Stock issued or issuable upon exercise of the Warrants) for which the
Options (considered in the aggregate) are exercisable and shall include any
owner or combination of owners of such securities, which ownership shall be
calculated by determining the number of shares of Common Stock held by such
owner or owners resulting from the exercise of any Option after giving effect to
any stock dividend, split, reverse
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<PAGE>
split or other recapitalization, the number of shares of Common Stock issuable
upon exercise of any unexercised Option, the number of shares of Common Stock
issuable upon exercise of any then outstanding Warrants issued upon exercise of
any Option, and the number of shares of Common Stock issuable upon exercise of
any Warrants issuable upon exercise of any Option.
(f) In connection with any registration described in Paragraph
7(a) of this Option, the Holder may request inclusion of the Option in such
registration statement; provided, however, that the Company shall not be
required to maintain any public market in the Options.
8. (a) Whenever, pursuant to Paragraph 7 of this Option, a registration
statement relating to this Option or any underlying securities is filed under
the Securities Act or is amended or supplemented, the Company will indemnify and
hold harmless each holder of the securities covered by such registration
statement, amendment or supplement (such holder being hereinafter called the
"Distributing Holder"), and each person, if any, who controls (within the
meaning of the Securities Act) the Distributing Holder, and each underwriter
(within the meaning of the Securities Act) of such securities and each person,
if any, who controls (within the meaning of the Securities Act) any such
underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or action in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof or
any amendment or supplement thereto, or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse the
Distributing Holder and each such controlling person and underwriter for any
legal or other expenses reasonably incurred by the Distributing Holder or such
controlling person or underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or for any other Distributing
Holder, expressly for use in the preparation thereof.
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<PAGE>
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any who controls the Company (within the meaning of the Securities Act) and
each underwriter participating in such offering (within the meaning of the
Securities Act) and each person, if any, who controls (within the meaning of the
Securities Act) any such underwriter, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, controlling
person or underwriter may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
said registration statement, said preliminary prospectus, said final prospectus,
or said amendment or supplement, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder expressly for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, join with any other indemnifying party similarly notified to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Paragraph 8 for any legal or
other expenses subsequently incurred by such indemnified
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<PAGE>
party in connection with the defense thereof other than reasonable costs of
investigation; provided, that if the defendants in any such action include both
the indemnified party and the indemnifying party and either (i) the indemnifying
party or parties agree, or (ii) representation of both the indemnifying party or
parties and the indemnified party or parties by the same counsel is
inappropriate under applicable standards of professional conduct because of
actual or potential conflicting interests between them, then the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defense and to otherwise participate in the defense of such action. The
indemnifying party will not be liable to such indemnified party under this
Paragraph 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed counsel in connection with the assumption
of legal defenses in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel approved by the
indemnifying party for all indemnified parties), (ii) the indemnifying party
shall not have employed counsel to represent the indemnified party within a
reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall an
indemnifying party be liable under this Paragraph 8 for any settlement, effected
without its written consent, which consent shall not be unreasonably withheld,
of any claim or action against an indemnified party.
9. The number and kind of securities purchasable upon the exercise of
the Option shall be subject to adjustment from time to time upon the happening
of certain events as hereinafter provided, except that, unless the Company
elects to issue additional Warrants pursuant to Paragraph 9(i) of the Warrant
Agreement, the provisions of this Paragraph 9 shall not apply to the Warrants
issuable upon exercise of this Option. The number and kind of securities
purchasable upon exercise of the Option shall be subject to adjustment (with no
change in the Option Exercise Price) as follows:
(a) In case the Company shall pay a dividend or make a
distribution or a split with respect to its shares of Common Stock in shares of
Common Stock, subdivide or reclassify its outstanding Common Stock into a
greater number of shares, or combine or reclassify its outstanding Common Stock
into a smaller number of shares or otherwise effect a reverse split, the number
of shares of Common Stock issuable upon exercise of this Option shall, as of the
time
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<PAGE>
of the record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification, be proportionately adjusted
so that the Holder of any Option exercised after such date shall be entitled to
receive the aggregate number and kind of shares which, if such Option had been
exercised immediately prior to such time, he would have owned upon such exercise
and such shares as he would have been entitled to receive upon such dividend,
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed in this Paragraph 9(a) shall occur.
(b) No adjustment in the Option Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least five cents ($.05) in such price; provided, however, that any adjustments
which by reason of this Paragraph 9(b) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Paragraph 9 shall be made to the nearest cent or to the
nearest one-hundredth of a share of Common Stock as the case may be. Anything in
this Paragraph 9 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Option Exercise Price, in
addition to those required by this Paragraph 9, as it in its discretion shall
determine to be advisable in order that any dividend or distribution in shares
of Common Stock, subdivision, reclassification or combination of Common Stock,
issuance of warrants to purchase Common Stock or distribution of evidences of
indebtedness or other assets (excluding cash dividends) referred to hereinabove
in this Paragraph 9 hereafter made by the Company to the holders of its Common
Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
(c) Whenever the Option Exercise Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Option Exercise Price and adjusted number of shares of Common Stock issuable
upon exercise of the Option as to each Unit to be mailed to the Holders at their
last address appearing in the Option register maintained by the Company, and
shall cause a certified copy thereof to be mailed to its transfer agent. The
Company may retain a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by this Paragraph 9,
and a certificate signed by such firm shall be evidence of the correctness of
such adjustment.
-10-
<PAGE>
(d) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Option, the Holder of any
Option thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Option shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Paragraph 9.
(e) Irrespective of any adjustments in the Option Exercise
Price or the number or kind of shares purchasable upon exercise of Options,
Options theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the similar Options initially
issuable pursuant to this Agreement.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its duly authorized officers this day of , 1998.
MUSE TECHNOLOGIES, INC.
Attest:
By:
----------------------
Curtiz J. Gangi
President
- ----------------------
Brian Clark, Secretary
- 11 -
<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder, Units of Muse Technologies, Inc., each Unit
consisting of one share of Common Stock and one Class A Redeemable Common Stock
Purchase Warrant (the "Warrants") to purchase one-half (1/2) share of Common
Stock and herewith makes payment of $ thereof, agrees to be bound by
the provisions of Paragraphs 8(b), (c) and (d) of the Option, and requests that
the certificates for shares of Common Stock and Warrants be issued in the
name(s) of, and delivered to whose address(es) is (are)
--------------------------
- -------------------------------------------------------------------------------
- ----------------------------------.
Dated: , 19 .
-------------------------
By:
--------------------
Address:
-----------------------------
-----------------------------
- 12 -
<PAGE>
TRANSFER FORM
-------------
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase Units represented by the foregoing Option
to the extent of Units, and appoints
attorney to transfer such rights on the books of MUSE TECHNOLOGIES, INC. with
full power of substitution in the premises.
Dated: , 19 .
-----------------------------
By:
--------------------------
Signature Medallion Guaranteed
- -----------------------
- 13 -
<PAGE>
AMENDMENT NO. 1
TO THE BY-LAWS OF
MUSE TECHNOLOGIES, INC.
Article I, Section 2. of the By-Laws of Muse Technologies,
Inc. is amended and restated in its entirety to read as follows:
"Section 2. Special Meetings. Special Meetings of the stockholders of
the Corporation may be called at any time and from time to time by
the President or by a majority of the directors then in office, and
shall be called by the Secretary upon the written request of
stockholders holding of record (in the aggregate) at least ten
percent (10%) of the issued and outstanding shares of the Corporation
entitled to vote at such meeting. Special meetings shall be held at
such place within or without the State of Delaware, at such time and
on such date as shall be specified in the call thereof."
<PAGE>
COMMON STOCK [MUSE TECHNOLOGIES LOGO] COMMON STOCK
MTC-
--------- MUSE TECHNOLOGIES, INC. ------------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE SIDE
CERTAIN DIRECTIONS
CUSIP 627487 10 1
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE
$0.015 PER SHARE, OF MUSE TECHNOLOGIES, INC. transferable on the books of the
Corporation by the owner thereof in person or by duly authorized attorney in
writing upon surrender of the certificate properly endorsed. This certificate
and the shares represented hereby are issued subject to the laws of the State of
Delaware and all the provisions of the Certificate of Incorporation and By-laws
of the Corporation, each as now in effect or hereafter amended and copies of
which are on file with the Transfer Agent, of which the holder hereof by
acceptance of this Certificate assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[MUSE TECHNOLOGY SEAL LOGO]
/s/ BRIAN CLARK /s/ CURTIZ J. GANGI
- --------------------- ------------------------
Secretary President
<PAGE>
The Company is authorized to issue more than one class and series of stock.
The Company will furnish without charge to each stockholder who so requests in
writing a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Such request may be addressed to the Secretary of the Company or
the Transfer Agent and Registrar named on the face of this certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM- as tenants in common UNF GIFT MIN ACT- Custodian
TEN ENT- as tenants by the entireties ----- -------
JT TEN- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants
in common under Uniform Gifts to Minors
Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Recieved, ____________ hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the Common Stock represented by the within certificate, and do(es) hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
-------------------
--------------------------------------------------------------
THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
NOTICE: AS WRITTEN UPON THE PAGE OF THIS CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
-----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this day of , 1998, by and
between Muse Technologies, Inc., a Delaware corporation (the "Company") and
American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,200,000 units (the
"Units"), each Unit consisting of one share of common stock, par value $.015
per share ("Common Stock"), and a Class A Redeemable Common Stock Purchase
Warrant (collectively, the "Class A Warrants") to purchase one-half share of
Common Stock, pursuant to an underwriting agreement (the "Underwriting
Agreement") dated as of November , 1998, between the Company and HD Brous &
Co., Inc. (the "Underwriter"), the Company may issue up to six hundred ninety
thousand (690,000) Warrants; and
WHEREAS, in connection with the issuance, pursuant to the
Underwriting Agreement, to the Underwriter or its designees of a unit purchase
option (the "Underwriter's Option"), the Company may issue up to sixty
thousand (60,000) Class B Redeemable Common Stock Purchase Warrants (the
"Class B Warrants"), the Class A Warrants and the Class B Warrants being
collectively referred to as the Warrants; and
WHEREAS, at the date of this Agreement there are outstanding four
hundred twenty three thousand eight hundred eighty one (423,881) Class A
Warrants held by certain selling securityholders; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection with
the issuance, registration, transfer, exchange and redemption of the Warrants,
as hereinafter defined, the issuance of certificates representing the
Warrants, the exercise of the Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders
of certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date of this
Agreement at 40 Wall Street, 46th floor, New York, New York 10005.
<PAGE>
(b) "Effective Date" shall mean the date that the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Commission").
(c) "Exercise Date" shall mean, as to any Warrant, the date
on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the Purchase Price; provided, however, that, subject to
Paragraph 4 of this Agreement, if payment shall be made by personal or
corporate check, the exercise of the Warrant shall not be effective until the
Warrant Agent shall be satisfied that the check shall have cleared; provided,
further, that if such payment is made prior to the Warrant Expiration Date or
the expiration of a period during which a reduced Purchase Price is in effect
pursuant to Paragraph 9(f) of this Agreement and the check shall not have
cleared until after the Warrant Expiration Date or such other date, then the
Warrant shall be deemed to have been exercised immediately prior to 5:00 P.M.
New York City time on the Warrant Expiration Date.
(d) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be nine and 60/100 dollars ($9.60) per share for the Class A
Warrants and eleven and 52/100 dollars ($11.52) per share for the Class B
Warrants, subject to adjustment from time to time pursuant to the provisions
of Paragraph 9 of this Agreement.
(e) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
of this Agreement, which price shall be one cent ($.01) per Warrant. The
Redemption Price shall not be subject to adjustment pursuant to this
Agreement.
(f) "Registration Statement" shall mean the Company's
registration statement on Form SB-2, File No. 333-62495, which was declared
effective by the Commission on November , 1998.
(g) "Registered Holder" shall mean, as to any Warrant and as
of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Paragraph 6 of this Agreement.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor,
as such.
- 2 -
<PAGE>
(i) "Warrant Certificate" shall mean the certificates for
the Warrants in the forms attached as Exhibits A and B to this Agreement.
(j) "Warrant Expiration Date" shall mean 5:00 P.M. New York
City time on the first to occur of (i) November , 2003, or (ii) the business
day immediately preceding the Redemption Date, as defined in Paragraph 8(c) of
this Agreement; provided, that if such date shall in the State of New York be
a holiday or a day on which banks are authorized or required to close, the
Warrant Expiration Date shall be the next day which is not such a date. Upon
notice to all warrant holders the Company shall have the right to extend the
Warrant Expiration Date.
(k) "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
(l) "Warrants" shall mean the Class A Warrants and the Class
B Warrants.
2. Warrants and Issuance of Warrants Certificates.
(a) Each Warrant initially shall entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase one
(1) share of Common Stock upon the exercise thereof, in accordance with the
terms of this Agreement, subject to modification and adjustment as provided in
Paragraph 9 of this Agreement.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants initially issuable pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing the shares of Common Stock
issuable upon the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except (i) those
initially issued hereunder or otherwise issuable pursuant to the Underwriting
Agreement, including those issuable in exchange for certain outstanding
warrants, (ii) those issued on or after the date of this Agreement, upon the
exercise of fewer than all Warrants represented by any Warrant Certificate, to
evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued
- 3 -
<PAGE>
upon any transfer or exchange pursuant to Paragraph 6 of this Agreement; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Paragraph 7 of this Agreement; (v) those issued
pursuant to the Underwriter's Option, and (vi) at the option of the Company,
in such form as may be approved by the Board of Directors, to reflect any
adjustment or change in the Purchase Price or the number of shares of Common
Stock purchasable upon exercise of the Warrants made pursuant to Paragraph 9
of this Agreement. In addition, at the discretion of the Company, the Company
may authorize the issuance of additional Warrants, which shall be subject to
the provisions of this Agreement.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates for the Class A Warrants and
the Class B Warrants shall be substantially in the form annexed as Exhibits A
and B, respectively, to this Agreement, (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may
be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage or to the requirements of
Paragraph 2(b) of this Agreement. The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer or exchange
in lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and
issued in registered form. Warrant Certificates shall be numbered serially
with the letter M or other letters acceptable to the Company and the Warrant
Agent.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of
the Company's seal. Warrant Certificates shall be manually countersigned by
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be an officer of the Company or to
hold the particular office referenced in the Warrant Certificate before the
date of issuance of the Warrant Certificates or before countersignature by the
Warrant Agent and issue and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed the Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent,
- 4 -
<PAGE>
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Paragraph 4 of this Agreement.
4. Exercise. Each Warrant may be exercised by the Registered
Holder thereof at any time after the issuance thereof, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date, the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrant. Promptly
following, and in any event within five (5) days after the date of such notice
from the Warrant Agent, the Warrant Agent, on behalf of the Company, shall
cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise, (plus a certificate for any
remaining unexercised Warrants of the Registered Holder) unless prior to the
date of issuance of such certificates the Company shall instruct the Warrant
Agent to refrain from causing such issuance of certificates pending clearance
of checks received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of the Underwriter or such other investment banks
and brokerage houses as the Company shall approve in writing to the Warrant
Agent, by the Underwriter or such other investment bank or brokerage house,
certificates shall immediately be issued without prior notice to the Company
or any delay. Upon the exercise of any Warrant and clearance of the funds
received, the Warrant Agent shall promptly remit the payment received for the
Warrant (the "Warrant Proceeds") to the Company or as the Company may direct
in writing.
5. Reservation of Shares; Listing; Payment of Taxes.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issue upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all Warrant Shares shall, at the time of delivery in
accordance with this Agreement, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge), and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system,
- 5 -
<PAGE>
if any, on which the other shares of outstanding Common Stock of the Company
are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any
Federal securities law before such securities may be validly issued or
delivered upon such exercise, then the Company will in good faith and as
expeditiously as reasonably possible, endeavor to secure such registration or
approval. The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws. With
respect to any such securities, however, Warrants may not be exercised by, or
shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants,
and the Company will authorize the Transfer Agent to comply with all such
proper requisitions. The Company will file with the Warrant Agent a statement
setting forth the name and address of the Transfer Agent of the Company for
shares of Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and upon satisfaction of the terms and provisions of this Agreement, the
Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer
- 6 -
<PAGE>
thereof in accordance with its regular practice. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the
Company shall execute and the Warrant Agent shall issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form
on the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory
to the Company and the Warrant Agent, duly executed by the Registered Holder
or his attorney-in-fact duly authorized in writing.
(d) A reasonable service charge may be imposed by the
Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any exchanges, registration or transfer of Warrant
Certificates.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of the Underwriter, disposed of or destroyed, at the
direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by
any notice to the contrary.
(g) Notwithstanding any other provisions of this Agreement,
no Warrants issued upon exercise of the Underwriter's Option and no shares of
Common Stock issuable upon exercise of such Warrants may be sold, transferred,
assigned or hypothecated for a period of one year from the Effective Date
except to the officers of the Underwriters or to selling group members or
officers or partners thereof, all of whom shall be bound by such restrictions.
Until the expiration of such one-year period, Warrant certificates and stock
certificates shall be marked with a legend referring to such restriction.
7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and
- 7 -
<PAGE>
(in the case of mutilation) upon surrender and cancellation thereof, the
Company shall execute and the Warrant Agent shall (in the absence of notice to
the Company and/or Warrant Agent that the Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the Registered
Holder in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Commencing twelve (12) months from the Effective Date or
earlier with the consent of the Underwriter, the Company shall have the right,
on not less than thirty (30) nor more than sixty (60) days notice given prior
to the Redemption Date, as hereinafter defined, at any time to redeem the then
outstanding Class A Warrants and/or Class B Warrants at the Redemption Price,
provided that the Market Price of the Common Stock shall equal or exceed the
"Target Price" with respect to the class of Warrants as to which the Company
is exercising its right of redemption. The "Target Price" shall mean one
hundred twenty five percent (125%) of the Purchase Price with respect to the
applicable class of Warrants. Market Price for the purpose of this Paragraph 8
shall mean, if the Common Stock is listed on the Nasdaq Stock Market or the
New York or American Stock Exchange, the average last reported sales price
(or, if no sale is reported on any such trading day, the average of the
closing bid and asked prices) on the principal market for the Common Stock or,
if the Common Stock is not so listed or traded, the average the last reported
bid prices of the Common Stock, during the twenty (20) day period ending
within five (5) days of the date the Warrants are called for redemption.
Notice of redemption shall be mailed by first class mail, postage prepaid, not
later than five (5) business days (or such longer period to which the
Underwriter may consent) after the date the Warrants are called for
redemption. All Warrants of any class of Warrants must be redeemed if any
Warrants of such class are redeemed.
(b) If the conditions set forth in Paragraph 8(a) of this
Agreement are met, and the Company desires to exercise its right to redeem the
Warrants, it shall request the Underwriter or the Warrant Agent to mail the
notice of redemption referred to in said Paragraph 8(a) to each of the
Registered Holders of the Warrants to be redeemed, first class, postage
prepaid, not earlier than the sixtieth (60th) day nor later than the thirtieth
(30th) day before the date fixed for redemption, at their last addresses as
shall appear on the records maintained pursuant to Paragraph 6(b) of this
Agreement. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives
- 8 -
<PAGE>
such notice. The Warrant Agent agrees to mail such notice if requested by the
Company or the Underwriter.
(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the date fixed for redemption, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price to be
paid, and (iv) that the right to exercise the Warrants shall terminate at 5:00
p.m. (New York City time) on the business day immediately preceding the date
fixed for redemption. The date fixed for the redemption of the Warrants shall
be the Redemption Date. No failure to mail such notice nor any defect therein
or in the mailing thereof shall affect the validity of the proceedings for
such redemption except as to a Registered Holder (A) to whom notice was not
mailed or (B) whose notice was defective. An affidavit of the Warrant Agent or
of the Secretary or an Assistant Secretary of the Representative or the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) If either class of Warrant shall have been redeemed, any
right to exercise a Warrant of such class shall terminate at 5:00 p.m. (New
York City time) on the business day immediately preceding the Redemption Date.
After such time, Holders of the Warrants shall have no further rights except
to receive, upon surrender of the Warrant, the Redemption Price without
interest, subject to the provisions of applicable laws relating to the
treatment of abandoned property. In the event that the Warrants or the Warrant
Shares shall not be subject to a current and effective registration statement
under the Securities Act of 1933, as amended, at any time subsequent to the
date the Warrants are called for redemption, the notice of redemption shall
not be effective and shall be deemed for all purposes not to have been given.
Nothing in the preceding sentence shall be construed to prohibit or restrict
the Company from thereafter calling the Warrants for redemption in the manner
provided for, and subject to the provisions of, this Paragraph 8.
(e) From and after the Redemption Date with respect to the
Warrants, the Company shall, at the place specified in the notice of
redemption, upon presentation and surrender to the Company by or on behalf of
the Registered Holder thereof of one or more Warrant Certificates evidencing
Warrants to be redeemed, deliver or cause to be delivered to or upon the
written order of such Holder a sum in cash equal to the Redemption Price of
each such Warrant. From and after the Redemption Date and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void and all
rights hereunder and under the Warrant Certificates, except the right to
receive payment of the Redemption Price, shall cease.
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(f) Notwithstanding any other provision of this Agreement,
the Company shall not call the Warrants for redemption unless there is, at the
time the Warrants are called for redemption, a current and effective
registration statement or a post-effective amendment to the registration
statement covering the issuance of the shares of Common Stock issuable upon
exercise of the Warrants.
(g) In the event that the Underwriter's Option is exercised
at a time subsequent to the redemption of the Warrants but prior to the
Warrant Expiration Date, as defined in Paragraph 1(j) of this Agreement, then,
notwithstanding any other provisions of this Agreement, the Warrants issued
upon such exercise may be redeemed by the Company at any time after issuance.
9. Adjustment of Exercise Price and Number of Securities Issuable
upon Exercise of Warrants.
(a) In case the Company shall, at any time or from time to
time after the date of this Agreement, pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock, subdivide or
reclassify its outstanding Common Stock into a greater number of shares, or
combine or reclassify its outstanding Common Stock into a smaller number of
shares or otherwise effect a combination of shares or reverse split, the
Purchase Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares which, if such Warrant had been exercised
immediately prior to such time, he would have owned upon such exercise and
been entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any
event listed in this Paragraph 9(a) shall occur.
(b) In case the Company shall, at any time or from time to
time after the date of this Agreement, issue rights or warrants to all holders
of its Common Stock entitling them to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in Paragraph 9(e) of this Agreement) on the record
date mentioned below, the Purchase Price shall be adjusted so that the same
shall equal the price determined by multiplying the Purchase Price in effect
immediately prior to the date of such issuance by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of
Common Stock so offered (or the
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aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and of
which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent
that shares of Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such rights or
warrants, the Purchase Price shall be readjusted to the Purchase Price which
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall, at any time or from time to
time after the date hereof, distribute to all holders of Common Stock
evidences of its indebtedness or assets (excluding cash dividends or
distributions paid out of current earnings and dividends or distributions
referred to in Paragraph 9(a) of this Agreement) or subscription rights or
warrants (excluding those referred to in Paragraph 9(b) of this Agreement),
then in each such case the Purchase Price in effect thereafter shall be
determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding multiplied by the current market price per
share of Common Stock (as defined in Paragraph 9(e) of this Agreement), less
the fair market value (as determined by the Company's Board of Directors) of
said assets or evidences of indebtedness so distributed or of such rights or
warrants, and of which the denominator shall be the total number of shares or
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(d) Whenever the Purchase Price payable upon exercise of
each Warrant is adjusted pursuant to Paragraphs 9(a), (b) or (c) of this
Agreement, the number of shares of Common Stock purchasable upon exercise of
each Warrant shall simultaneously be adjusted by multiplying the number of
shares issuable upon exercise of each Warrant in effect on the date thereof by
the Purchase Price in effect on the date thereof and dividing the product so
obtained by the Purchase Price, as adjusted.
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(e) For the purpose of any computation pursuant to
Paragraphs 9(b) and (c) of this Agreement, the current market price per share
of Common Stock at any date shall be deemed to be the average of the daily
closing prices for thirty (30) consecutive business days commencing forty-five
(45) business days before such date. The closing price for each day shall be
the reported last sale price regular way or, in case no such reported sale
takes place on such day, the average of the last reported high bid and low
asked prices regular way, in either case on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, if the
Common Stock is admitted to trading or listing on the New York or American
Stock Exchange or on The Nasdaq Stock Market if included in such system or if
not listed or admitted to trading on such exchange or system, the average of
the highest bid and lowest asked prices as reported by Nasdaq, or the National
Quotation Bureau, Inc. or another similar organization if Nasdaq is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors of the Company.
(f) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least two
cents ($0.02) in such price; provided, however, that any adjustments which by
reason of this Paragraph 9(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph 9 shall be made to the nearest cent or to the nearest
one-tenth of a share, as the case may be. Anything in this Paragraph 9 to the
contrary notwithstanding, the Company may, upon notice to the record holders
of the Warrants, in its sole discretion, reduce the Purchase Price of the
Warrants, and, if such reduction is not otherwise required by this Paragraph
9, such reduction (i) will not, unless the Board of Directors otherwise
determines, result in any change in the number or class of shares of Common
Stock issuable upon exercise of such Warrants, and (ii) may be of limited
duration, in which event the reduction in Purchase Price shall not apply to
any Warrants exercised after the expiration of the time during which the
reduced Purchase Price is in effect.
(g) The Company may retain a firm of independent public
accountants (who may be the regular accountants employed by the Company) of
recognized standing selected by the Board of Directors of the Company to make
any computation required by this Paragraph 9, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Agreement, the holder of
any Warrant thereafter shall become entitled to receive any shares of the
Company, other than Common Stock, thereafter the number of such
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<PAGE>
other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Paragraphs 9(a) to (f), inclusive, of this Agreement.
(i) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Warrants outstanding, in
lieu of the adjustment in the number of shares of Common Stock purchasable
upon the exercise of each Warrant as hereinabove provided, so that each
Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record and each
Warrant issuable upon exercise of the Underwriter's Option prior to such
adjustment of the number of Warrants shall become that number of Warrants or
an Underwriter's Option to purchase that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number
of Warrants pursuant to this Paragraph 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Paragraph 10 of this Agreement, the number of additional Warrants
to which such Holder shall be entitled as a result of such adjustment or, at
the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the
Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment. With respect to the
Representative's Option, the Company shall give the registered holders of the
Representative's Option notice as to the number of Warrants issuable in
respect of such Representative's Option reflecting such adjustment. Any
Warrants or notice to registered holders of Representative's Option may be
mailed by the Warrant Agent or by first class mail, postage prepaid.
(j) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the
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<PAGE>
right thereafter, by exercising such Warrant, to purchase the kind and number
of shares of stock or other securities or property (including cash) receivable
upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provisions shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph 9. The Company
shall not effect any such consolidation, merger or sale unless, prior to or
simultaneously with the consummation thereof, the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common
Stock and to successive consolidations, mergers, sales or conveyances. In the
event that, as a result of any merger, consolidation or similar transaction,
all of the holders of Common Stock receive and are entitled to receive no
consideration other than cash in respect of their shares of Common Stock,
then, at the effective time of the transaction, the rights to purchase Common
Stock pursuant to the Warrants shall terminate, and the holders of the
Warrants shall, notwithstanding any other provisions of this Agreement or the
Warrants, receive in respect of each Warrant to purchase one (1) share of
Common Stock, upon presentation of the Warrant Certificate, the amount by
which the consideration per share of Common Stock payable to the holders of
Common Stock at such effective time exceeds the Purchase Price in effect on
such effective date, without giving effect to the transaction. In the event
that, subsequent to the effective time, additional cash or other consideration
is payable to the holders of Common Stock of record as of the effective time,
the same consideration shall be payable to the holders of the Warrants to the
extent that the total cash then received by the holders of Common Stock
exceeds the Purchase Price in effect at such effective date, without giving
effect to the transaction, with the same effect as if the Warrants had been
exercised on and as of such effective time. In the event of any merger,
consolidation, sale or lease of substantially all of the Company's assets or
reorganization whereby the Company is not the surviving corporation, in lieu
of the foregoing provisions of this Paragraph 9(j), the Company may provide in
the agreement relating to the transaction that each Warrant shall become, be
converted into
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<PAGE>
or be exchanged for, such securities of the surviving or acquiring corporation
or other entity as has a value equal to the value of the Warrants (which shall
not exceed the amount by which the consideration to be received per share of
Common Stock (valued on such date as the Company's board of directors shall
determine) exceeds the exercise price of the Warrant), the value of the
Warrants and securities being issued in exchange therefor to be determined by
the Company's Board of Directors, such determination to be final, binding and
conclusive on the Company and the holders of the Warrants. In the event that,
in such a transaction, the value of the consideration to be received per share
of Common Stock is not greater than the exercise price of the Warrants, the
Warrants shall terminate and no consideration will be paid with respect
thereof.
(k) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new
Warrant Certificates pursuant to Paragraphs 2(e) and 9(i) of this Agreement,
continue to express the Purchase Price per share, the number of shares
purchasable thereunder and the Redemption Price therefor as to the Purchase
Price per share, and the number of shares purchasable and the Redemption Price
therefore were expressed in the Warrant Certificates when the same were
originally issued.
(l) After any adjustment of the Purchase Price pursuant to
this Paragraph 9, the Company will promptly prepare a certificate signed by
the Chairman, President, Vice President or Treasurer, of the Company setting
forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of
Common Stock purchasable upon exercise of each Warrant after such adjustment,
and, if the Company shall have elected to adjust the number of Warrants, the
number of Warrants to which the registered holder of each Warrant shall then
be entitled, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by first class mail to the
Representative and to each registered holder of Warrants at his last address
as it shall appear on the registry books of the Warrant Agent. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity thereof. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, constitute prima facie evidence of the
facts stated therein.
(m) As used in this Paragraph 9, the term "Common Stock"
shall mean and include the Company's Common Stock authorized on the Effective
Date and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage
in respect of the rights of the holders thereof to participate in dividends
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<PAGE>
and in the distribution of assets upon the voluntary liquidation, dissolution
or winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include only shares of such class designated in
the Company's Certificate of Incorporation as Common Stock on the Effective
Date or, in the case of any reclassification, change, consolidation, merger,
sale or conveyance of the character referred to in Paragraph 9(j) of this
Agreement, the stock, securities or property provided for in such section or,
in the case of any reclassification or change in the outstanding shares of
Common Stock issuable upon exercise of the Warrants as a result of a
subdivision or combination or consisting of a change in par value, or from par
value to no par value, or from no par value to par value, such shares of
Common Stock as so reclassified or changed.
(n) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to this Paragraph 9,
or as to the amount of any such adjustment, if required, shall be binding upon
the holders of the warrants and the Company if made in good faith by the Board
of Directors of the Company.
(o) In lieu of an adjustment pursuant to Paragraph 9(b) of
this Agreement, if the Company shall grant to the holders of Common Stock, as
such, rights or warrants to subscribe for or to purchase Common Stock or
securities convertible into or exchangeable for or carrying a right or warrant
to purchase Common Stock, the Company may concurrently therewith grant to each
Registered Holder as of the record date for such transaction of the Warrants
then outstanding, the rights or warrants to which each Registered Holder would
have been entitled if, on the record date used to determine the stockholders
entitled to the rights or warrants being granted by the Company, the
Registered Holder were the holder of record of the number of whole shares of
Common Stock then issuable upon exercise of his Warrants. If the Company
exercises such right no adjustment which otherwise might be called for
pursuant to said Paragraph 9(b) shall be made.
10. Fractional Warrants and Fractional Shares. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is
adjusted pursuant to Paragraph 9 of this Agreement, the Company nevertheless
shall not be required to issue fractions of shares, upon exercise of the
Warrants or otherwise, or to distribute certificates that evidence fractional
shares. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(a) If the Common Stock is listed on the New York or
American Stock Exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq
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Stock Market, the current value shall be the reported last sale price of the
Common Stock on such exchange or system on the last business day prior to the
date of exercise of this Warrant, or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange or system;
or
(b) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the last reported bid
price reported by the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained in this
Agreement be construed to confer upon the holder of Warrants, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such Holder shall have exercised such
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provide in the Warrant
Certificate and this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance of the Warrants, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory
to the
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Warrant Agent and the Company in their sole discretion, together with payment
of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and
as the absolute, true and lawful owner of the Warrants represented thereby for
all purposes, and neither the Company nor the Warrant Agent shall be affected
by any notice or knowledge to the contrary, except as otherwise expressly
provided in Paragraph 6 of this Agreement.
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and canceled by it and retired.
15. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined
solely by the provisions of this Agreement. The Warrant Agent shall not, by
issuing and delivering Warrant certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of Warrant Certificates to make or cause
to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of
the Company to comply with any of its covenants and obligations contained in
this Agreement or in any Warrant Certificate, or (iii) be liable for any act
or omission in connection with this Agreement except for its own negligence or
wilful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
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<PAGE>
(d) Any notice, statement, instrument, request, direction,
order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, President, any Vice President,
its Secretary, or Assistant Secretary, unless other evidence in respect
thereof is specifically prescribed in this Agreement. The Warrant Agent shall
not be liable for any action taken, suffered or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or demand
believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save
it harmless against any and all costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of the
Warrant Agent's negligence or wilful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent's own negligence or
wilful misconduct), after giving thirty (30) days' prior written notice to the
Company. At least fifteen (15) days prior to the date such resignation is to
become effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Holder of each Warrant Certificate
at the Company's expense. Upon such resignation, or any inability of the
Warrant Agent to act as such under this Agreement, the Company shall appoint a
new warrant agent in writing. If the Company shall fail to make such
appointment within a period of fifteen (15) days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason, it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning
Warrant Agent. Not later than the effective date of any such appointment the
Company shall file notice thereof with the resigning Warrant Agent and shall
forthwith cause a copy of such notice to be mailed to the Registered Holder of
each Warrant Certificate.
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<PAGE>
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as successor
to the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holder of each
Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants
or other securities of the Company and otherwise deal with the Company in the
same manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company
may, by supplemental agreement, make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not
less than fifty percent (50%) of the Warrants then outstanding; and provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing
such Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed or are made in compliance with applicable
law; and provided, further, that Paragraphs 4(b) and 4(c) may not be modified
or amended without the consent of the Underwriter.
17. Notices. All notices provided for in this Agreement shall be
in writing signed by the party giving such notice, and, unless otherwise
expressly provided in this Agreement, delivered personally or sent by
overnight courier or messenger against receipt thereof or sent by registered
or certified mail (air mail if overseas), return receipt requested, or by
facsimile transmission or similar means of communication. Notices sent by
facsimile transmission or similar means of communication shall be confirmed by
acknowledged receipt or by registered or certified mail,
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<PAGE>
return receipt requested. Notices shall be deemed to have been received on the
date of personal delivery or telecopy or, if sent by certified or registered
mail, return receipt requested, shall be deemed to be delivered on the third
business day after the date of mailing. Notices shall be sent to the
Registered Holders at their respective addresses on the Warrant Agent's
warrant register, to the Company at 1601 Randolph, SE, Suite 210, Albuquerque,
NM 87106, telecopier (505) 766- 9123, Attention: Mr. Curtiz J. Gangi,
President and Chief Executive Officer, and to the Warrant Agent at its
Corporate Office, telecopier (718) 236-2641. Either party may, by like notice,
change the address, person or telecopier number to which notice should be
given.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements entered and to be performed wholly within such State, without
regard to principles of conflicts of laws. The parties hereby (a) irrevocably
consent and agree that any legal or equitable action or proceeding arising
under or in connection with this Agreement shall be brought exclusively in any
Federal or state court situated in New York County, New York, (b) irrevocably
submit to and accept, with respect to their respective properties and assets,
generally and unconditionally, the in personam jurisdiction of the aforesaid
courts and (c) agree that any process in any action commenced in such court
under this Agreement may be served upon such party personally, by certified or
registered mail, return receipt requested, or by overnight courier service
which obtains evidence of delivery, with the same full force and effect as if
personally served upon such party in New York City, in addition to any other
method of service permitted by law.
19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it, and the provisions of Paragraph 15
of this Agreement shall survive any such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
- 21 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
MUSE TECHNOLOGIES, INC
By:
------------------------------------
Curtiz J. Gangi, President and CEO
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
------------------------------------
, Authorized Officer
- 22 -
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. M- Warrant to Purchase
---------
Shares of Common Stock
Void after November __, 2003 (or earlier upon redemption).
MUSE TECHNOLOGIES, INC
CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED _______________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one (1) fully paid and
nonassessable share of Common Stock, par value $.015 per share ("Common
Stock"), of Muse Technologies, Inc., a Delaware corporation (the "Company"),
at any time during the period commencing with the issuance of this Warrant and
ending on the Expiration Date, as hereinafter defined, by delivery of this
Warrant, with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$9.60, subject to adjustment as provided in the Warrant Agreement (the
"Purchase Price") in lawful money of the United States of America in cash or
by official bank or certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
November__, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject
to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificates or Warrant Certificates
of like tenor, which the Warrant Agent shall countersign, for the balance of
such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York City time)
on November __, 2003 or earlier upon redemption as hereinafter provided. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized or required to close, then the Expiration Date shall mean
5:00 P.M. (New York City time) the next following day which in the State of
New York is not a holiday or a day on which banks are authorized or required
to close. Under certain circumstances as provided in the Warrant Agreement,
the period during which the Warrant may be exercised may be extended.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its commercially reasonably efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a
new Warrant Certificate or Warrant Certificates of like tenor representing an
equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall
- 23 -
<PAGE>
be designated by such Registered Holder at the time of such surrender. Upon
payment by the Registered Holder of any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificate
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Commencing, November __, 1999, or earlier as provided in the
Warrant Agreement, this Warrant may be redeemed at the option of the Company,
at a redemption price of $.01 per Warrant at any time, provided the average
closing price for the Common Stock issuable upon exercise of such Warrant
shall equal or exceed $12.00 per share, subject to adjustment, for the twenty
day period prior to the date which is five days before the date the Warrants
are called for redemption. Notice of redemption shall be given not earlier
than the thirtieth (30th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after 5:00 P.M. (New York City time)
on the business day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.01 per Warrant upon surrender of this Certificate. This Warrant
may only be called for redemption if, on the date the Warrant is called for
redemption, the issuance of the shares of Common Stock upon exercise of this
Warrant is subject to a current and effective registration statement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State, without regard to
principles of conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
MUSE TECHNOLOGIES, INC
Dated: By:
--------------------- --------------------------------
By:
--------------------------------
Countersigned:
AMERICAN STOCK TRANSFER & [Seal]
TRUST COMPANY
as Warrant Agent
By:
--------------------------------
Authorized Officer
- 24 -
<PAGE>
MUSE TECHNOLOGIES, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise______________ Warrants represented by this Warrant Certificiate to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
Please insert Social Security
or other identifying number
- ------------------------------------
and be delivered to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Date: X
---------------------- ----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
Address
-----------------------------------------
Taxpayer Identification Number
-----------------------------------------
Signature Medallion Guaranteed
- 25 -
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________________________________
hereby sells, assigns and transfers onto
Please insert social security
or other identifying number
- ------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
______________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
_______________________________________________________________________Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Date: X
------------------- ---------------------------------------
Signature Medallion Guaranteed
----------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. AND
MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15
UNDER THE SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL
BANK OR TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF
THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE
OR MIDWEST STOCK EXCHANGE.
- 26 -
<PAGE>
EXHIBIT B
[FORM OF FACE OF WARRANT CERTIFICATE]
No. MB- Warrant to Purchase
---------
Shares of Common Stock
Void after November __ , 2003 (or earlier upon redemption).
MUSE TECHNOLOGIES, INC
CLASS B REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED _______________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Class B Redeemable Common Stock Purchase Warrants ("Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one (1) fully paid and
nonassessable share of Common Stock, par value $.015 per share ("Common
Stock"), of Muse Technologies, Inc., a Delaware corporation (the "Company"),
at any time during the period commencing with the issuance of this Warrant and
ending on the Expiration Date, as hereinafter defined, by delivery of this
Warrant, with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$11.52, subject to adjustment as provided in the Warrant Agreement (the
"Purchase Price") in lawful money of the United States of America in cash or
by official bank or certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
November__, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject
to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificates or Warrant Certificates
of like tenor, which the Warrant Agent shall countersign, for the balance of
such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York City time)
on November __, 2003 or earlier upon redemption as hereinafter provided. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized or required to close, then the Expiration Date shall mean
5:00 P.M. (New York City time) the next following day which in the State of
New York is not a holiday or a day on which banks are authorized or required
to close. Under certain circumstances as provided in the Warrant Agreement,
the period during which the Warrant may be exercised may be extended.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its commercially reasonably efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a
new Warrant Certificate or Warrant Certificates of like tenor representing an
equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon payment by the Registered Holder of
- 27 -
<PAGE>
any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificate representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Commencing, November ____, 1999, or earlier as provided in the
Warrant Agreement, this Warrant may be redeemed at the option of the Company,
at a redemption price of $.01 per Warrant at any time, provided the average
closing price for the Common Stock issuable upon exercise of such Warrant
shall equal or exceed $14.40 per share, subject to adjustment, for the twenty
day period prior to the date which is five days before the date the Warrants
are called for redemption. Notice of redemption shall be given not earlier
than the thirtieth (30th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after 5:00 P.M. (New York City time)
on the business day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.01 per Warrant upon surrender of this Certificate. This Warrant
may only be called for redemption if, on the date the Warrant is called for
redemption, the issuance of the shares of Common Stock upon exercise of this
Warrant is subject to a current and effective registration statement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State, without regard to
principles of conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
MUSE TECHNOLOGIES, INC
Dated: By:
--------------------- --------------------------------
By:
--------------------------------
Countersigned:
AMERICAN STOCK TRANSFER & [Seal]
TRUST COMPANY
as Warrant Agent
By:
--------------------------------
Authorized Officer
- 28 -
<PAGE>
MUSE TECHNOLOGIES, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise______________ Warrants represented by this Warrant Certificiate to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
Please insert Social Security
or other identifying number
- ------------------------------------
and be delivered to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Date: X
---------------------- ----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
Address
-----------------------------------------
Taxpayer Identification Number
-----------------------------------------
Signature Medallion Guaranteed
- 29 -
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________________________________
hereby sells, assigns and transfers onto
Please insert social security
or other identifying number
- ------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
______________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
_______________________________________________________________________Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Date: X
------------------- ---------------------------------------
Signature Medallion Guaranteed
----------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. AND
MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15
UNDER THE SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL
BANK OR TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF
THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE
OR MIDWEST STOCK EXCHANGE.
- 30 -
<PAGE>
[LETTERHEAD OF PROSKAUER ROSE LLP]
October 22, 1998
The Board of Directors
Muse Technologies, Inc.
1601 Randolph, SE, Suite 210
Albuquerque, NM 87106
Ladies and Gentlemen:
We are acting as counsel to Muse Technologies, Inc., a Delaware corporation
(the "Company"), in connection with the Registration Statement on Form SB-2
(Commission File No. 333-62495), as amended (the "Registration Statement"),
filed by the Company under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, relating to the registration of (i) 1,380,000 units,
including units to cover overallotments, consisting of 1,380,000 shares (the
"Shares"), of the Company's common stock, $.015 par value per share (the "Common
Stock"), redeemable Class A Common Stock Purchase Warrants (the "Warrants") to
purchase 690,000 shares of Common Stock and 690,000 shares of Common Stock
issuable upon exercise of the Warrants and (ii) an additional 423,881 shares of
Common Stock (the "Offered Shares"), Warrants to purchase 423,881 Shares of
Common Stock (the "Offered Warrants") and 423,881 shares of Common Stock
issuable upon exercise of the Offered Warrants, for sale by certain Selling
Securityholders (as such term is defined in the Registration Statement).
As such counsel, we have participated in the preparation of the
Registration Statement, and have reviewed the corporate proceedings of the
Company in connection therewith and have also examined and relied upon originals
or copies, certified or otherwise authenticated to our satisfaction of all such
corporate records, documents, agreements, instruments relating to the Company
and certificates of public officials and of representatives of the Company, and
have also made such investigations of law and have discussed with
representatives of the Company and such other persons such questions of fact, as
we have deemed proper and necessary as a basis for rendering this opinion.
<PAGE>
Based upon, and subject to, the foregoing, we are of the opinion that:
(i) the Shares, the Warrants, the shares of Common Stock issuable upon
exercise of the Warrants, the Offered Shares, the Offered Warrants and the
shares of Common Stock issuable upon exercise of the Offered Warrants have
been duly authorized;
(ii) the Shares, when duly delivered and paid for, pursuant to the terms of
a validly authorized and executed underwriting agreement, substantially in
the form attached as Exhibit 1.1 to the Registration Statement, will be
duly and validly issued, fully paid and non-assessable;
(iii) the Warrants and Offered Warrants, when duly delivered and paid for,
pursuant to the terms of a validly authorized and executed warrant
agreement, substantially in the form attached as Exhibit 4.2 to the
Registration Statement (the "Warrant Agreement"), will constitute legal,
valid and binding obligations of the Company, enforceable (except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
rights of creditors generally) as to the Company in accordance with its
terms;
(iv) the shares of Common Stock issuable upon exercise of the Warrants and
the Offered Warrants, pursuant to the terms of a validly authorized and
executed Warrant Agreement, will be duly and validly issued, fully paid and
non-assessable; and
(v) the Offered Shares are duly and validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. In giving the foregoing consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Proskauer Rose LLP
<PAGE>
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
LICENSE AGREEMENT
BETWEEN
SANDIA CORPORATION
AND
VIGA TECHNOLOGIES CORPORATION
LICENSE NUMBER 95-C00154
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I--DEFINITIONS........................................................2
ARTICLE II--LICENSE AND OWNERSHIP.............................................3
ARTICLE III--THE PARTIES' DUTIES..............................................5
ARTICLE IV--ROYALTY AND LICENSE FEES..........................................5
ARTICLE V--STATEMENTS, REPORTS AND PAYMENTS...................................5
ARTICLE VI--NONDISCLOSURE.....................................................6
ARTICLE VII--DURATION AND TERMINATION.........................................8
ARTICLE VIII--WARRANTY, LIABILITY AND INDEMNIFICATION........................10
ARTICLE IX--GENERAL PROVISIONS...............................................11
ARTICLE X--ASSIGNMENT .......................................................12
ARTICLE XI--PREFERENCE FOR U.S. INDUSTRY.....................................13
ARTICLE XII--GOVERNMENT SPONSORSHIP..........................................13
ARTICLE XIII--EXPORT CONTROL.................................................13
ARTICLE XIV--PATENT PROSECUTION..............................................13
ARTICLE XIV--MARCH IN RIGHTS.................................................14
ARTICLE XVI--CONTROLLING LAW.................................................14
ARTICLE XVII--ENTIRE AGREEMENT...............................................14
EXHIBIT A1...................................................................15
EXHIBIT A2...................................................................16
EXHIBIT A3...................................................................17
EXHIBIT B....................................................................18
EXHIBIT C....................................................................19
EXHIBIT D....................................................................22
<PAGE>
LICENSE AGREEMENT
PREAMBLE
This License Agreement, effective upon gaining permission from the DOE, if
required, to grant this license and on the date of last signature hereto, is
by and between Sandia Corporation ("Sandia"), a corporation whose principal
place of business is located in Albuquerque, New Mexico, and VIGA Technologies
Corporation ("VIGA"), a corporation whose principal place of business is
located in Albuquerque, New Mexico.
WITNESSETH THAT:
WHEREAS, Sandia manages and operates a federally-owned facility known
as Sandia National Laboratories for the United States Department of
Energy ("DOE") under contract DE-AC04-94AL85000 ("Contract");
WHEREAS, Sandia has developed and acquired, and may further develop
and acquire, Sandia Software and Sandia Promotional Materials (as
defined herein); and Sandia is, and may further become, the assignee
of Sandia Patent Rights (defined herein);
WHEREAS, Sandia has either been granted or will request a waiver of
title from DOE for Sandia Patent Rights and permission from DOE to
assert copyright for Sandia Software. Under the terms of such
permission, the United States Government reserves a nonexclusive
license in Sandia Patent Rights and Sandia Software for use by or on
behalf of the United States Government;
WHEREAS, Sandia desires to license Sandia Patent Rights, Sandia
Software and Sandia Promotional Materials in support of technology
transfer to United States industries to enhance the United States'
competitiveness;
WHEREAS, VIGA desires access to a Sandia virtual reality development
laboratory in order to advance its technology;
WHEREAS, VIGA has stated in writing that it will have as principals
of its company certain Sandia employees and/or Sandia contractors;
WHEREAS, under the terms of its Contract, Sandia must ". . . obtain
approval of the Contracting Officer prior to any . . . exclusive
licensing, . . . of Intellectual Property to any person who currently
is, or within the preceding two years has been, a Contractor/
Laboratory employee and/or consultant or to a company in which said
person is a principal . . .".
WHEREAS, the United States Government is neither a party to nor
assumes any liability for activities of Sandia in connection with
this License Agreement; and
<PAGE>
WHEREAS, at the time of conception of the invention comprising Sandia
Patent Rights, Sandia was operated by American Telephone & Telegraph
Company ("AT&T") under Contract No. DE-AC04-76DP00789 with the DOE
under which AT&T reserved nonexclusive licenses in Sandia Patent
Rights. Under the AT&T contract, AT&T's rights to the patent do not
extend to the copyrights to the Sandia Software which is being
licensed under this License Agreement.
NOW, THEREFORE, in consideration of the agreement between Sandia and VIGA, and
in consideration of the faithful performance of this License Agreement, it is
hereby agreed as follows:
ARTICLE I--DEFINITIONS
1.1 "Sandia" and "VIGA"' may each be referred to as a "Party" or,
collectively, as "Parties," to this License Agreement.
1.2 "Sandia Software" shall mean all technical information and data
relating to the Sandia-developed computer program as described in
EXHIBIT A2 and EXHIBIT A3, including any improvements and
modifications relating to the Sandia-developed computer program prior
to April 30, 1995. However, the term Sandia Software shall not
include technical information or data acquired from third parties
which are subject to nondisclosure restrictions, thereby preventing
disclosure. Further, the term Sandia Software shall not include
technical information or data acquired from third parties which
require accounting to the third parties.
1.3 "Derivative Works" shall mean any work which is based on one or more
existing works, and includes any revision, modification, translation,
abridgment, condensation, expansion, enhancement, collection,
compilation or any other form in which the work may be recast,
transformed or adopted.
1.4 "Sandia Patent Rights" shall mean the United States patent
application(s) set forth in EXHIBIT Al, which are incorporated by
reference hereto and made a part hereof, and any division,
continuation, continuation-in-part, or reissue thereof, or any
foreign counterpart thereof.
1.5 "VIGA Software" shall mean all Derivative Works of Sandia Software
developed by VIGA, or software which operates under one or more
claims of Sandia Patent Rights.
1.6 "VIGA Systems" shall mean those products relating to existing user
tools, application handler packages, and multidimensional
visualization display environments of virtual reality systems which
use any part, portion or routine of VIGA Software (EXHIBIT A2 and
EXHIBIT A3).
1.7 "VIGA Business Activities" shall mean those activities entered into
by VIGA whereby VIGA Systems or VIGA Software is used, sold, leased,
transferred or developed
-2-
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
by VIGA.
1.8 "Sandia Promotional Material" shall mean reproducible, single copies
of text, brochures, pictures and video information related to Sandia
Software and listed in EXHIBIT B.
1.9 "Sublicensee" shall mean third party entities that have been licensed
by VIGA to use the VIGA Software.
1.10 "Value Added Reseller (VAR)" shall mean Sublicensees having the right
to market and distribute VIGA Software as well as produce Derivative
Works thereof.
1.11 "Net Selling Price" shall mean [ * ]
1.12 "Gross Revenue" is the total amount invoiced to a customer for VIGA
Software or VIGA Systems.
1.13 "Adjustments" shall include [ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
1.14 "Cost of Goods Sold" shall include [ * ]
[ * ]
[ * ]
1.15 "Government" shall mean the United States of America and agencies
thereof.
1.16 An "Affiliate" of a Party shall mean any person, partnership, company
or entity which, directly or indirectly is controlled by or is under
common control with such Party. For the purpose of this definition,
ownership or control, directly or indirectly, of greater than fifty
percent (50%) of the capital stock of a corporation or other entity
carrying the right to vote for or elect directors shall be deemed to
constitute ownership or control thereof.
ARTICLE II--LICENSE AND OWNERSHIP
2.1 Subject to the terms and conditions of this License Agreement, and
the rights reserved to DOE and AT&T, Sandia hereby grants VIGA a
nontransferable, limited exclusive, worldwide right and license to
use and reproduce Sandia Software, a license to develop Derivative
Works of Sandia Software, and a right to distribute and sublicense
VIGA Software.
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2.2 Provided that VIGA meets its performance obligations under Article
III, Sandia agrees to refrain from executing additional licenses of
Sandia Software and Sandia Patent Rights for a period of five (5)
years from the effective date of this License Agreement. At the end
of the five (5) year period, VIGA may request an extension of time in
which Sandia will refrain from executing additional licenses. Sandia
has the right to make the final decision concerning such an extension
at this time. In the event that VIGA's request for such an extension
of time is denied by Sandia, a nonexclusive license will
automatically issue and continue in force to VIGA upon payment of
royalties as set forth in this License Agreement.
2.3 Sandia further grants to VIGA the right to extend the right and
license granted it under Paragraph 2.1 of Article II to each of
VIGA's Affiliates upon Sandia's prior written approval of each such
extension, which approval will not be unreasonably withheld, provided
that each such Affiliate licensed by extension, hereinafter "Licensed
Affiliate," agrees to be bound by all of the terms and conditions of
this License Agreement to the same extent as VIGA. Upon such
extension to a Licensed Affiliate, VIGA as used herein shall be
deemed to include any and all Licensed Affiliates. For the purposes
of this License Agreement, the operations of such Licensed Affiliates
shall be deemed to be the operations of VIGA who shall be primarily
responsible therefor.
2.4 Sandia further grants VIGA the right to use, reproduce and distribute
Sandia Promotional Material provided that the Sandia Thunderbird logo
and references to Sandia, Sandia National Laboratories, SNL or Sandia
Corporation are removed from any and all reproductions of Sandia
Promotional Material which VIGA distributes.
2.5 Sandia further grants VIGA the right to sublicense VIGA Software to
others, including VARs, to market and distribute VIGA Software to
end-users, alone or in combination with other software, as well as
the right to produce Derivative Works of VIGA Software, provided that
such Sublicensees agree to be bound to the terms of this License
Agreement to the same extent as VIGA.
2.6 Subject to the terms and conditions of this License Agreement, VIGA
hereby grants Sandia, a paid-up, irrevocable, nonexclusive, license
to use and reproduce VIGA Software, and to develop Derivative Works
based on VIGA Software. Sandia's right and license to use and copy
VIGA Software shall be limited to internal use at Sandia.
2.7 Sandia shall retain ownership of Sandia Software at all times.
Therefore, no ownership interest in Sandia Software is transferred to
VIGA under this License Agreement. Sandia reserves the right to
create derivative works to Sandia Software.
2.8 VIGA shall retain ownership of VIGA Software at all times. Therefore,
no ownership interest in VIGA Software is transferred to Sandia under
this License Agreement.
2.9 Express or implied rights beyond the scope of Article II are
expressly excluded. Specifically excluded from the grants under
Article II are the right to sell, lease or transfer all or any part
of Sandia Software to others separate and apart from VIGA Software.
-4-
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
ARTICLE III--THE PARTIES' DUTIES
3.1 Within thirty (30) days of the effective date of this License
Agreement, Sandia shall make available to VIGA the Sandia Software as
specified in EXHIBIT A2 and EXHIBIT A3, and Sandia Promotional
Material as specified in EXHIBIT B.
3.2 VIGA agrees to undertake a thorough, vigorous and diligent effort for
commercializing Licensed Product and to conduct business activities
as set forth in EXHIBIT D.
3.3 If and when VIGA makes enhancements, modifications, or corrections
(improvements) to VIGA Software, VIGA agrees to provide to Sandia a
copy of the latest released version of VIGA Software reflecting the
improvements within three (3) months of the development of such
improvements.
3.4 If and when Sandia makes improvements to the VIGA Software, Sandia
agrees to make such improvements available to VIGA when available for
use at Sandia. VIGA has no obligation to incorporate such
improvements into VIGA Software.
ARTICLE IV--ROYALTY AND LICENSE FEES
4.1 In consideration of Sandia granting the rights and licenses under
Article II, VIGA agrees to pay to Sandia fees and royalties on VIGA
Software and VIGA Systems as set forth in EXHIBIT C.
4.2 For VIGA Business Activities with the Government and for which VIGA
sells products covered by one or more claims of Sandia Patent Rights,
VIGA shall [ * ]
[ * ]
ARTICLE V--STATEMENTS, REPORTS AND PAYMENTS
5.1 For the purpose of computing royalties hereunder, VIGA Business
Activities shall be considered provided or sublicensed when payment
is received by VIGA.
5.2 VIGA shall render to Sandia by January 31st and July 31st of each
calendar year, while this License Agreement exists, a semi-annual
statement reporting each amount VIGA invoices its customers for VIGA
Business Activities during the preceding semiannual accounting period
beginning respectively on the preceding July 1st or January 1st. The
statement shall give all information necessary for the determination
of royalties payable hereunder. [ * ]
[ * ]
VIGA shall accompany each such statement with the payment of all such
royalties due Sandia, computed in accordance with Article IV. If for
any semiannual accounting period no royalty payment shall be due,
VIGA shall submit a written statement to that effect.
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
5.3 VIGA shall maintain true and accurate records in such manner and
detail as to permit the verification of all royalties paid and all
royalties due under this License Agreement. Such records shall be
made available during ordinary business hours for inspection at
VIGA's ordinary place of business by authorized representatives of
Sandia. VIGA shall be obligated to retain these records for five (5)
years after the last semi-annual statement is rendered to Sandia.
5.4 All royalties payable by VIGA hereunder shall be paid to Sandia at
the address specified in Article IX hereof in United States of
America dollars in the total amounts provided for in this License
Agreement.
5.5 Any taxes, assessments or charges assessed or imposed by a foreign
entity or government that Sandia shall be required to pay on
royalties due Sandia, shall be borne by VIGA.
5.6 The rate of exchange to be used in calculating royalties payable by
VIGA for an accounting period shall be the rate of exchange published
by the Wall Street Journal on the nearest business day of the month
in which VIGA received payment.
5.7 Without excusing prompt payment of fees and royalties due, any and
all royalties left unpaid after becoming due as specified in
Paragraphs 4.1 and 5.2 shall bear interest at [ * ]
in effect at the First Security Bank of Albuquerque, New Mexico, on the
date the payment of royalties becomes due [ * ]
5.8 The DOE may require Sandia to report on the utilization or the effect
of using Sandia Software and Sandia Patent Rights in the commercial
marketplace. In this regard, VIGA agrees to cooperate with and assist
Sandia in making all such reports.
ARTICLE VI--NONDISCLOSURE
6.1 VIGA shall treat all Sandia Software as proprietary which Sandia has
now made or in the future will make available to VIGA. VIGA further
agrees not to disclose Sandia Software to third parties, except as
provided for in Paragraphs 6.3, 6.4 and 6.5. VIGA agrees to use
Sandia Software, only to the extent necessary, for the enjoyment of
VIGA's right and license granted under this License Agreement.
6.2 VIGA's obligations of nondisclosure and non-use of Sandia Software
under this License Agreement shall continue for fifteen (15) years
from the effective date of this License Agreement, regardless of
termination of any right and license granted under Article II for any
reason.
6.3 VIGA shall limit access to Sandia Software, and may disclose Sandia
Software to only those employees and contractors who require access
for VIGA's enjoyment of its right and license under this License
Agreement. VIGA shall ensure that such employees and contractors are
obligated to treat Sandia Software as proprietary in the same manner
and
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to an equivalent extent as VIGA is required to treat Sandia Software
proprietary under this License Agreement.
6.4 This License Agreement does not restrict or impair the right of VIGA
to use, disclose or otherwise deal with any part of technical
information or data which
(a) is or becomes generally available to the public through no
wrongful act of VIGA;
(b) was in the possession of VIGA prior to the time Sandia
Software was acquired by VIGA, and was not acquired directly
or indirectly from Sandia or from others under an obligation
of nondisclosure;
(c) is independently made available to VIGA by a third party
without the legal obligation of secrecy, provided the third
party did not acquire it directly or indirectly from Sandia;
(d) is independently developed by VIGA without the use of
Sandia's proprietary information.
6.5 For the purpose of Paragraph 6.4 of Article VI, a specific aspect of
technical information or data shall not be deemed to be publicly
available or in the possession of VIGA because the specific aspect is
embraced by general disclosures generally available to the public or
in the possession of VIGA, unless the specific aspect is embraced by
general disclosures generally available to the public or in the
possession of VIGA, unless the specific aspect and its specific
principle of operation is also generally available to the public or
in the possession of VIGA prior to disclosure by Sandia.
6.6 Sandia shall treat all VIGA Software as proprietary which VIGA has
now made or in the future will make available to Sandia. Sandia
further agrees not to disclose VIGA Software to third parties, except
as provided for in Paragraphs 6.8, 6.9 and 6.10. Sandia agrees to use
VIGA Software, only to the extent necessary, for the enjoyment of
Sandia's right and license granted under this License Agreement.
6.7 Sandia's obligations of nondisclosure and non-use of VIGA Software
under this License Agreement shall continue for five (5) years from
the effective termination date of this License Agreement.
6.8 Sandia shall limit access to VIGA Software, and may disclose VIGA
Software only to those employees, contractors and customers who
require access for Sandia's enjoyment of its right and license under
this License Agreement. Sandia shall ensure that such employees,
contractors and customers are obligated to treat VIGA Software as
proprietary in the same manner and to an equivalent extent as Sandia
is required to treat VIGA Software proprietary under this License
Agreement.
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<PAGE>
6.9 This License Agreement does not restrict or impair the right of
Sandia to use, disclose or otherwise deal with any part of technical
information or data which:
(a) is or becomes generally available to the public through no
wrongful act of Sandia;
(b) was in the possession of Sandia prior to the time VIGA
Software was acquired by Sandia, and was not acquired
directly or indirectly from VIGA or from others under an
obligation of nondisclosure;
(c) is independently made available to Sandia by a third party
without the legal obligation of secrecy, provided the third
party did not acquire it directly or indirectly from VIGA;
or
(d) is independently developed by Sandia without the use of
VIGA's proprietary information.
6.10 For the purpose of Paragraph 6.9, a specific aspect of technical
information or data shall not be deemed to be publicly available or
in the possession of Sandia because the specific aspect is embraced
by general disclosures generally available to the public or in the
possession of Sandia, unless the specific aspect is embraced by
general disclosures generally available to the public or in the
possession of Sandia, unless the specific aspect and its specific
principle of operation is also generally available to the public or
in the possession of Sandia prior to disclosure by VIGA.
6.11 VIGA acknowledges that the DOE has audit and inspection rights
over all activities conducted at Sandia's location. VIGA hereby
permits the exercise of such rights in conjunction with Sandia's
activities which may involve VIGA Software to Sandia hereunder;
provided, however, that any disclosure to DOE is further protected
under 18 USC 1905.
ARTICLE VII--DURATION AND TERMINATION
7.1 The rights and licenses granted to VIGA under Article II and the
obligation to pay fees and royalties under Article IV shall continue
for twenty (20) years from the effective date of this License
Agreement unless earlier terminated as specified in Article VII. At
the end of this twenty (20) year period, the rights and licenses
granted to VIGA under this License Agreement shall convert to a
paid-up license. Except for the rights and licenses of Article II,
all other provisions relating to VIGA are intended to survive the
date set forth in Paragraph 7.1 and any such early termination, shall
survive.
7.2 If VIGA's rights and licenses under this License Agreement are
terminated for any reason, VIGA shall have no further right and
license as listed under Article II, and shall have no further right
to receive or possess Sandia Software, or to receive technical
assistance as specified in Article III. Furthermore, VIGA shall
immediately return to Sandia all drawings, data, memoranda and
information, in written or physical form, relating to
-8-
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Sandia Software, whether prepared by VIGA or Sandia, including all
copies in VIGA's possession. VIGA shall be permitted to retain one
(1) copy of Sandia Software received under this License Agreement, so
that VIGA can continue its maintenance services to the existing
Sublicensees of VIGA Software.
7.3 Termination of VIGA's right and license under this License Agreement
for any reason shall not relieve VIGA or Sandia of any obligation or
liability accrued either before or after the termination.
7.4 Sandia may terminate or reduce, by conversion to a nonexclusive
license, the right and license granted under Article II at its sole
discretion if VIGA, at any time:
(a) defaults in the payment of any fee or royalty due to Sandia;
(b) commits any material breach of this License Agreement;
(c) makes any false statement;
(d) does not meet performance obligations set forth in Article
III; or
(e) does not make available improvements (see Paragraph 3.3) of
VIGA Software Systems to Sandia as set forth in Article III.
and fails to remedy or cure the above-identified causes, within sixty
(60) days after Sandia gives written notice to VIGA of the default of
any of the above-identified causes.
7.5 Sandia may terminate or reduce the rights and licenses granted by
Article II at its sole discretion, if the royalties for any annual
accounting period are less than the minimum set forth in EXHIBIT C,
by giving VIGA a written notice of its election to do so, specifying
an effective date not less than sixty (60) days from the date of such
notice. VIGA may prevent such termination or reduction in rights by
paying before the effective date of such termination or reduction
specified in such notice, the difference between royalties accrued
and paid by VIGA for the annual accounting period and the minimum
due.
7.6 Sandia may terminate VIGA's rights and licenses granted by Article II
by giving written notice to VIGA in the event that VIGA experiences
any of the following events: dissolution, insolvency, filing of a
voluntary petition in bankruptcy, adjudication as a bankrupt pursuant
to an involuntary petition, appointment by a court of a temporary or
permanent receiver, trustee or custodian for its business, or an
assignment for the benefit of creditors. This termination will become
effective immediately upon Sandia giving written notice to VIGA.
7.7 The Parties further agree that VIGA shall be required to sublicense
Sandia Software to third parties seeking the right to use VIGA
Software under reasonable terms and conditions.
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Should VIGA refuse to grant such sublicense(s), Sandia shall consider
such refusal a breach of this License Agreement in accordance with
Paragraph 7.4.
7.8 Notwithstanding any early termination or reduction of VIGA's rights
and licenses under this License Agreement:
(a) the sublicenses of the VIGA Software to VIGA's existing
Sublicensees will survive and continue;
(b) VIGA shall be permitted to grant additional sublicenses to
VIGA Software for orders received prior to the effective
date of such termination; and
(c) VIGA shall be permitted to continue maintenance services to
its Sublicensees of VIGA Software.
7.9 VIGA may terminate the right and license granted under this License
Agreement if Sandia, at any time:
(a) commits any material breach of this License Agreement; or
(b) makes any false statement;
and fails to remedy or cure the above-identified breach of agreement
or making of false statement, within sixty (60) days after VIGA gives
written notice to Sandia of the breach or false statement.
ARTICLE VIII--WARRANTY, LIABILITY AND INDEMNIFICATION
8.1 Both Parties warrant that they have the right to grant the rights and
licenses in Article II.
8.2 Sandia makes no warranty, express or implied, as to the accuracy or
utility of any Sandia Software. Sandia further makes no warranty,
express or implied, that the use of any Sandia Software or Sandia
Patent Rights will not infringe any United States or foreign patent
or copyright. Sandia Software and Sandia Patent Rights are made
available to VIGA on an "AS-IS" basis.
EXCEPT FOR THE WARRANTIES EXPRESSLY PROVIDED HEREIN, ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE, ARE EXCLUDED HEREUNDER.
8.3 Sandia and the Government, and their agents, officers and employees
shall not be liable for any loss, damage, injury or other casualty of
whatsoever kind, or by whomsoever caused, to the person or property
of anyone, including VIGA, its Affiliates and Sublicensees, arising
out of or resulting from the licenses granted to VIGA herein, or the
accuracy and validity of Sandia Software. VIGA agrees for itself, its
successors and assigns, to defend, indemnify and hold Sandia and the
Government, harmless from and
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against all claims, demands, liabilities, suits or actions (including
all reasonable expenses and attorney's fees incurred by or imposed on
VIGA in connection therewith) for such loss, damage, injury or other
casualty.
8.4 Sandia shall retain the sole right to bring litigation for
infringement of Sandia Patent Rights or Sandia Software. VIGA shall
promptly bring to Sandia's attention any information of which VIGA is
aware relating to third party infringement of Sandia Patent Rights or
Sandia Software. If Sandia fails to initiate action to resolve such
third party infringement within six (6) months of receiving notice
from VIGA, VIGA may upon sixty (60) days advance written notice to
Sandia, initiate action to resolve such third party infringement.
ARTICLE IX--GENERAL PROVISIONS
9.1 VIGA shall not, without the express written consent of Sandia, make
any verbal or written statements or perform any act indicating that
Sandia endorses or approves, or has endorsed or approved, any VIGA
Software. VIGA may, however, indicate that VIGA Software is licensed
under rights and licenses granted by Sandia.
9.2 Any notice with respect to this License Agreement shall be deemed
given on the date when sent by facsimile transmission with receipt of
confirmation by the receiving party, or when mailed by registered
mail, return receipt requested, addressed to the Party at its address
set forth below:
For Sandia:
STATEMENTS AND NOTICES:
Sandia Corporation
Attention: Licensing Coordinator, Org. 4200
Reference: License # 95-C00154
Mailstop 1380
P.O. Box 5800
Albuquerque, NM 87185-1380
Phone: (505) 271-7828
Facsimile: (505) 271-7867
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PAYMENTS:
Sandia Corporation
Attention: Assistant Treasurer, Org. 10602
Reference: License # 95-C00154
Mailstop 0189
P.O. Box 5800
Albuquerque, NM 87185-0189
For VIGA:
VIGA Technologies Corporation
Attention: Thomas E. Murphy, CEO
3200 Don Quixote, NW
Albuquerque, NM 87104
Phone: (505) 242-2900
Fax: (505) 247-2134
9.3 The waiver of a breach of this License Agreement, or the failure of
either Party to exercise any right under this License Agreement,
shall not constitute a waiver as to any other breach, whether similar
or dissimilar in nature, or prevent the exercise of any right under
this License Agreement.
9.4 The Index and Headings used in this License Agreement are for
reference purposes only and shall not be used in the interpretation
of this License Agreement.
9.5 VIGA agrees to affix appropriate statutory patent and copyright
markings to all materials including VIGA Software covered by Sandia
Patent Rights and copyrights and otherwise to modify such notice as
Sandia may from time to time direct in conformity with the patent and
copyright statutes.
ARTICLE X--ASSIGNMENT
10.1 VIGA shall not, without the prior written consent of Sandia, assign
this License Agreement or any rights hereunder except to a successor
to the business of VIGA who shall agree to be bound to the same
extent as VIGA by all the terms and conditions of this License
Agreement.
10.2 Sandia may assign or otherwise transfer this License Agreement or any
rights hereunder to any assignee or transferee and will notify VIGA
of such assignment or transfer.
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ARTICLE XI--PREFERENCE FOR U.S. INDUSTRY
11.1 VIGA agrees that VIGA Software will be designed, developed and
manufactured substantially in the United States.
ARTICLE XII--GOVERNMENT SPONSORSHIP
12.1 The Government is granted for itself and others acting on its behalf
a paid-up, nonexclusive, irrevocable worldwide license in Sandia
Software to reproduce, prepare derivative works, perform publicly and
display publicly. Beginning five (5) years after granted by DOE, July
7, 1994, the Government is granted for itself and others acting on
its behalf a paid-up, nonexclusive, irrevocable, worldwide license in
Sandia Software to reproduce, prepare derivative works, distribute
copies to the public, perform publicly and display publicly, and to
permit others to do so.
NEITHER THE GOVERNMENT, THE DOE, NOR ANY OF THEIR EMPLOYEES, MAKES
ANY WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY LEGAL LIABILITY OR
RESPONSIBILITY FOR THE ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY
INFORMATION, APPARATUS, PRODUCT, OR PROCESS DISCLOSED, OR REPRESENTS
THAT ITS USE WOULD NOT INFRINGE PRIVATELY OWNED RIGHTS.
ARTICLE XIII--EXPORT CONTROL
13.1 VIGA shall abide by the export control laws and regulations of the
United States Department of Commerce and other United States
governmental regulations relating to the export of VIGA Software and
Sandia Software. Failure to obtain an export control license or other
authority from the Government may result in criminal liability under
U.S. laws.
ARTICLE XIV--PATENT PROSECUTION
14.1 The cost of preparing, filing, prosecuting and maintaining Sandia
Patent Rights shall be borne by Sandia.
14.2 VIGA shall have the right to request that Sandia obtain patent
protection for Sandia Patent Rights in foreign countries if available
and if VIGA so desires. VIGA must notify Sandia of its decision to
obtain foreign patents. Such a notice concerning foreign filing shall
be in writing and must identify the foreign countries in which patent
protection for Sandia Patent Rights is desired. The absence of such a
notice from VIGA to Sandia shall be considered an election by VIGA
not to secure foreign patent protection for Sandia Patent Rights.
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14.3 The preparation, filing and prosecuting of all foreign patent
applications filed at VIGA's request, as well as the maintenance of
all resulting patents, shall be at the sole expense of VIGA. Such
patents shall be held in the name of Sandia and shall be obtained
using counsel of Sandia's choice.
14.4 VIGA's obligation to underwrite and to pay patent prosecution costs
shall continue for so long as this License Agreement remains in
effect, provided, however, that VIGA terminate its obligations with
respect to any given patent application or patent upon three (3)
months written notice to Sandia. Sandia will use its best efforts to
curtail patent costs when such a notice is received from VIGA. Sandia
may continue prosecution and/or maintenance of such applications(s)
or patent(s) at its sole discretion and expense; provided, however,
that VIGA shall have no further rights or licenses thereunder.
14.5 Sandia shall have the right to file patent applications at its own
expense in any country in which VIGA has not elected to secure patent
rights, and such applications and resultant patents shall not be
subject to this License Agreement.
14.6 VIGA shall not be rebilled by Sandia for U.S. patent prosecution and
maintenance costs.
ARTICLE XIV--MARCH IN RIGHTS
15.3 The Parties agree and understand that the Government retains certain
"march-in" rights, in accordance with the procedures set forth in 35
USC 203 and any supplemental regulations promulgated by the DOE.
ARTICLE XVI--CONTROLLING LAW
16.1 This License Agreement is made in Albuquerque, New Mexico, U.S.A.,
and shall be governed by and construed in accordance with the laws of
the State of New Mexico except as these would require the application
of the laws of another jurisdiction. The Parties agree to the
exclusive jurisdiction of the courts of New Mexico or the United
States District Court of New Mexico.
ARTICLE XVII--ENTIRE AGREEMENT
17.1 Each Party warrants and represents that the execution and delivery of
this License Agreement by Sandia and VIGA have not been induced by
any promises, representations, warranties or other agreements, other
than those specifically expressed. This License Agreement includes
EXHIBITS Al, A2, A3, B, C and D and embodies the entire understanding
between VIGA and Sandia with respect to the subject matter described
within this License Agreement. This License Agreement shall supersede
all previous communications, representations or undertakings, either
verbal or written, between VIGA and Sandia with regard to Sandia
Software.
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17.2 No modification of this License Agreement shall be valid or binding
upon the Party against whom enforcement of the modification is
sought, unless the modification is made in writing and signed by duly
authorized representatives of both Sandia and VIGA.
IN CONSIDERATION OF THE FOREGOING TERMS AND CONDITIONS, VIGA Technologies
Corporation and Sandia Corporation have caused this License Agreement to be
executed in duplicate by their duly authorized representatives. This License
Agreement will be effective when executed and when all conditions as set forth
above in the preamble are completed.
SANDIA CORPORATION:
By: /s/ Warren D. Siemens
--------------------------------------------
Warren D. Siemens
Title: Director, Technology Transfer and
Commercialization Center
---------------------------------------
Date: 10/9/95
---------------------------------------
VIGA TECHNOLOGIES CORPORATION:
By: /s/ Thomas E. Murphy
--------------------------------------------
Thomas E. Murphy
Title: Chief Executive Officer
---------------------------------------
Date: September 29, 1995
---------------------------------------
THIS LICENSE AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY IN ANY MANNER
UNLESS DULY EXECUTED BY AN AUTHORIZED REPRESENTATIVE OF BOTH PARTIES.
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT A1
PATENT: Multidimensional, User-Oriented, Synthetic Environment (SD-5340)
(Patent Application 230,802)
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT A2
COPYRIGHT: Multidimensional, User-Oriented, Synthetic Environment (SCR-0158)
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT A3
APPLICATION HANDLER PACKAGES & DATA
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
-17-
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT B
Sandia Promotional Materials
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
-18-
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT C
LICENSING FEES AND ROYALTIES
C.1: Licensing Fee Schedule
VIGA shall pay Licensing Fees in accordance with the following:
Amount Year Ending
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1998
[ * ] December 31, 1999
------------- -----------------
[ * ] TOTAL
C.2: Earned Royalty Rates
[ * ]
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
-19-
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT C (CONTINUED)
LICENSING FEES AND ROYALTIES
C.2.a: Royalty Rate on VIGA Systems
VIGA shall pay earned royalties [ * ] in accordance with the following:
ROYALTY RATE
ON YEAR
VIGA SYSTEMS ENDING
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1998
[ * ] December 31, 1999
[ * ] December 31, 2000
[ * ] December 31, 2001
[ * ] and each year thereafter
[ * ]
C.2.b: Royalty Rate on VIGA Software
VIGA shall pay earned royalties [ * ] in accordance with the following:
ROYALTY RATE
ON YEAR
VIGA SOFTWARE ENDING
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1998
[ * ] December 31, 1999
[ * ] December 31, 2000
[ * ] December 31, 2001
[ * ] and each year thereafter
[ * ]
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
-20-
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT C (CONTINUED)
LICENSING FEES AND ROYALTIES
C.3: Minimum Annual Royalty Schedule
Minimum Royalty
Due Sandia Year Ending
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1999
--- -----------------
Thereafter
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
-21-
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT D
VIGA shall meet the following minimum standards of diligence in order to
maintain the rights as set forth in Article II.
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
THE CONTENTS OF THIS EXHIBIT ARE TRADE SECRETS OF LICENSEE AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO
THE PROVISIONS OF 18 USC 1905.
-22-
<PAGE>
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
Amendment 1
to License Agreement Between
Sandia Corporation and
VIGA Technologies Corporation (#95-C00154)
1.16 (AMENDED) An "Affiliate" of a Party shall mean any person,
partnership, company or entity which, directly or indirectly, is
controlled by or is under common control with such Party. For the
purpose of this License Agreement, MUSE Technology, Inc. shall be
deemed to be an Affiliate of Viga.
3.4 (AMENDED) If and when Sandia makes improvements to the VIGA Software,
Sandia agrees to make such improvements available to VIGA when
available for use at Sandia. VIGA has no obligation to incorporate
such improvements into VIGA Software. Moreover, VIGA will not be
required to pay any additional royalty than would otherwise be
required.
4.2 (AMENDED) For VIGA Business Activities with the Government and for
which VIGA sells products covered by one or more claim of Sandia Patent
Rights, VIGA shall
[ * ]
[ * ] That is, VIGA shall [ * ]
[ * ]
[ * ]
5.8 The DOE may require Sandia to report on the utilization or the effect
of using Sandia Software and Sandia Patent Rights in the commercial
marketplace. In this regard, VIGA agrees to cooperate with and assist
Sandia in making all such reports.
6.1 (AMENDED) VIGA shall treat all Sandia Software as proprietary which
Sandia has now made or in the future will make available to VIGA.
VIGA further agrees not to disclose Sandia Software to third parties,
except as provided for in Paragraphs 6.3, 6.4 and 6.5 or in
connection with a sublicense of VIGA Software. VIGA agrees to use
Sandia Software, only to the extent necessary, for the enjoyment of
VIGA's right and license granted under this License Agreement.
6.5 (AMENDED) For the purpose of Paragraph 6.4 of Article VI, a specific
aspect of technical information or data shall not be deemed to be
publicly available or in the possession of VIGA because the specific
aspect is embraced by general disclosures generally available to the
public or in the possession of VIGA, unless the specific aspect is
embraced by general disclosures generally available to the public or
in the possession
<PAGE>
of VIGA, [unless the specific aspect] and its specific principle of
operation is also generally available to the public or in the
possession of VIGA prior to disclosure by Sandia.
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
6.10 (AMENDED) For the purpose of Paragraph 6.9, a specific aspect of
technical information or data shall not be deemed to be publicly
available or in the possession of Sandia because the specific aspect
is embraced by general disclosures generally available to the public
or in the possession of Sandia, unless the specific aspect is
embraced by general disclosures generally available to the public or
in the possession of Sandia, [unless the specific aspect] and its
specific principle of operation is also generally available to the
public or in the possession of Sandia prior to disclosure by VIGA.
EXHIBIT C.3 (AMENDED):
C.3: Minimum Annual Royalty Schedule
Minium Royalty
Due Sandia Year Ending
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1998
[ * ] December 31, 1999
-----------------
Thereafter
VIGA Technologies Corporation and Sandia Corporation have caused this
Amendment 1 to be executed in duplicate by their duly authorized
representatives. This Amendment 1 will be effective when executed.
SANDIA CORPORATION: VIGA TECHNOLOGIES CORPORATION:
By: /s/ Warren D. Siemens By: /s/ Thomas E. Murphy
------------------------------------ --------------------------
Warren D. Siemens Thomas E. Murphy
Title: Director, Technology Transfer and Title: Chief Executive Officer
Commercialization Center -----------------------
---------------------------------
Date: 2/6/96 Date: 2/20/96
---------------------------------- ------------------------
<PAGE>
AMENDMENT TO LICENSE AGREEMENT
VIGA TECHNOLOGIES CORPORATION
#95-C00154
AMENDMENT #95-C00154-A002
The following change shall be made to the License Agreement between VIGA
Technologies Corporation and Sandia Corporation and will become effective on
the last day and year written below.
Pursuant to Paragraph 10.1 of this license agreement, Sandia approves the
assignment of this license agreement from VIGA Technologies Corporation to
MUSE Technologies, Inc.
Address:
MUSE Technologies, Inc.
1601 Randolph SE, Suite 210
Albuquerque, NM 87106
Phone: (505) 843-6875
Fax: (505) 766-9123
This License Agreement, together with its amendments, constitutes the entire
agreement of the Parties with respect to the subject matter hereof, and
supersedes all prior agreements, negotiations, representations and
understandings between the Parties related thereto.
Agreed for VIGA Technologies Corporation
by /s/ Thomas E. Murphy date 7/15/96
---------------------------- --------------------
Chief Executive Officer
Agreed for MUSE Technologies, Inc.
by /s/ Thomas E. Murphy date 7/15/96
----------------------------- --------------------
Chief Executive Officer
Agreed for Sandia Corporation:
by /s/ Warren D. Siemens date 7/8/96
---------------------------- --------------------
Warren D. Siemens
Director, Technology Partnerships
<PAGE>
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
AMENDMENT NO. 3
TO
LICENSE AGREEMENT DATED OCTOBER 9, 1995
BETWEEN
SANDIA CORPORATION
AND
MUSE TECHNOLOGIES, INC.
LICENSE NUMBER 95-C00154
This Amendment No. 3 to License Agreement Dated October 9, 1995 Between
Sandia Corporation ("Sandia") and Muse Technologies, Inc. ("Muse") License
Number 95-C00154 (the "License Agreement"), as amended, is made between Sandia
and Muse as of the date of the last signature fixed hereto.
WHEREAS, Sandia and Muse have entered into the License Agreement with
respect to certain software and related intellectual property rights as
described in said License Agreement. Capitalized terms used herein and not
defined shall have the meanings ascribed thereto in the License Agreement; and
WHEREAS, Sandia and Muse desire to amend certain terms of the License
Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. Amendment of License Agreement to extend the period of exclusivity
The parties hereto desire to extend the worldwide exclusivity of the
license granted pursuant to the License Agreement. Accordingly,
Section 2.2 of the License Agreement is hereby replaced as follows:
Provided Muse meets its performance obligations under
Article III, Sandia agrees to refrain from executing
additional licenses of Sandia Software and Sandia Patent
Rights for a period of ten (10) years from the effective
date of this License Agreement. At the end of the ten (10)
year period, Muse may request an extension of time in which
Sandia will refrain from executing additional licenses.
Sandia has the right to make the final decision concerning
such an extension at this time. In the event that Muse's
request for such an extension of time is denied by Sandia, a
non-exclusive license will automatically issue and continue
in force to Muse upon payment of royalties as set forth in
this License Agreement.
PAGE 1 OF 8
<PAGE>
MUSE SOFTWARE/PATENT LICENSE; LICENSE NUMBER; 95-C00154; AMENDMENT NO. 3
2. Effective date of the Amendment
This Amendment No. 3 shall become effective upon the date of the last
signature fixed hereto.
3. Licensing fees and royalties
In consideration of Sandia agreeing to amend the License Agreement
according to this Amendment No. 3, Muse agrees to pay to Sandia
license fees and royalties in accordance with Exhibit C of this
Amendment No. 3 which hereby replaces Exhibit C of the License
Agreement.
4. Effect on License Agreement
The License Agreement shall continue in full force and effect as
amended by this Amendment No. 3 and all prior amendments not
heretofore superceded. From and after the date hereof, all references
to the License Agreement shall be deemed to mean the License
Agreement as amended by this Amendment No. 3 and all prior amendments
not heretofore superceded.
5. Governing Law
This Amendment No. 3 shall be governed by and construed in accordance
with the domestic laws of the State of New Mexico without giving
effect to any choice of law or conflict of law provision or rule that
would cause the application of the laws of any jurisdiction other
than the State of New Mexico.
6. Counterparts
7. This Amendment No. 3 may be executed in any number of counterparts,
each of which will be deemed an original but all of which together will
constitute one and the same instrument.
8. Statements and Payments
Section 9.2 of the License Agreement is hereby replaced as follows:
Notices under this License Agreement shall be sufficient if
mailed by certified or registered mail, return receipt
requested, if sent by facsimile, if personally delivered to
the Parties or if deposited in a nationally recognized
overnight carrier. Notices by mail shall be deemed received
three days after deposited in the U.S. mail, certified or
return receipt requested or the third business day following
the
PAGE 2 OF 8
<PAGE>
MUSE SOFTWARE/PATENT LICENSE; LICENSE NUMBER; 95-C00154; AMENDMENT NO. 3
deposit of such notice in a nationally recognized overnight
carrier. Notices to the Parties as appropriate, shall be
sent to the address of such Party specified in Article IX of
this License Agreement:
For Sandia Corporation
Delivery of Muse Software:
Sandia National Laboratories
Attention: Sandia/Muse Technical Manager, Org. 9215
Reference License Number: 95-C00154
1515 Eubank SE
Mailstop 0318
Albuquerque, NM 87123
Telephone: (505) 844-7902
Facsimile: (505) 844-2415
Statements and Notices:
Sandia National Laboratories
Attention: Licensing Administrator, Org. 4211
Reference License Number: 95-C00154
1515 Eubank SE
Mailstop 1380
Albuquerque, NM 87123-1380
Telephone: (505) 843-4188
Facsimile: (505) 843-4163
Payments:
Sandia National Laboratories
Reference License Number: 95-C00154
c/o NationsBank
P.O. Box 25848
Albuquerque, NM 87125
PAGE 3 OF 8
<PAGE>
MUSE SOFTWARE/PATENT LICENSE; LICENSE NUMBER; 95-C00154; AMENDMENT NO. 3
For Muse
Muse Technologies, Inc.
Attention: Licensing Administration
Reference Sandia License Number: 95-C00154
1601 Randolph SE, Suite 210
Albuquerque, NM 87106
Telephone: 505-843-6873
Fax: 505-766-9123
IN WITNESS WHEREOF, this Amendment No. 3 has been duly executed and
delivered by the authorized officer of each party hereto as of the date first
above written.
SANDIA CORPORATION
By: /s/ Warren D. Siemens 7/14/98
-----------------------------------------
Name:
Title: Director
MUSE TECHNOLOGIES, INC.
By: /s/ Curtiz J. Gangi
-----------------------------------------
Name: Curtiz J. Gangi
Title: President
Sandia Legal Review
/s/ S.t
- -------------------
PAGE 4 OF 8
<PAGE>
MUSE SOFTWARE/PATENT LICENSE; LICENSE NUMBER; 95-C00154; AMENDMENT NO. 3
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT C
LICENSING FEES AND ROYALTIES
C.l: Licensing Fee Schedule
Muse shall pay Licensing Fees in accordance with the following:
Amount Year Ending
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
On or before thirty (30) days from
[ * ] the execution date of Amendment No. 3
[ * ] December 31, 1998
On or before twelve
months (12) from the
execution date of
[ * ] Amendment No. 3
[ * ] December 31, 1999
[ * ] TOTAL
PAGE 5 OF 8
<PAGE>
MUSE SOFTWARE/PATENT LICENSE; LICENSE NUMBER; 95-C00154; AMENDMENT NO. 3
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT C (CONTINUED)
LICENSING FEES AND ROYALTIES
C.2: Earned Royalty Rates
[ * ]
[ * ]
C.2.a: Royalty Rate on Muse Systems
Muse shall pay earned royalties [ * ]
in accordance with the following:
Royalty Rate Year Ending
on
MUSE Systems
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1998
[ * ] December 31, 1999
[ * ] December 31, 2000
[ * ] December 31, 2001
[ * ] December 31, 2002
[ * ] December 31, 2003
[ * ] December 31, 2004
[ * ] December 31, 2005
[ * ] December 31, 2006
[ * ] and each year thereafter
[ * ]
THIS EXHIBIT CONTAINS TRADE SECRETS AND SHALL NOT BE DISCLOSED TO ANY THIRD
PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO THE PROVISIONS OF
17 USC 1905.
PAGE 6 OF 8
<PAGE>
MUSE SOFTWARE/PATENT LICENSE; LICENSE NUMBER; 95-C00154; AMENDMENT NO. 3
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT C (CONTINUED)
LICENSING FEES AND ROYALTIES
C.2.b: Royalty Rate on Muse Systems
Muse shall pay earned royalties [ * ]
in accordance with the following:
Royalty Rate Year Ending
on
MUSE Systems
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1998
[ * ] December 31, 1999
[ * ] December 31, 2000
[ * ] December 31, 2001
[ * ] December 31, 2002
[ * ] December 31, 2003
[ * ] December 31, 2004
[ * ] December 31, 2005
[ * ] December 31, 2006
[ * ] and each year thereafter
[ * ]
THIS EXHIBIT CONTAINS TRADE SECRETS AND SHALL NOT BE DISCLOSED TO ANY THIRD
PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO THE PROVISIONS OF
17 USC 1905.
PAGE 7 OF 8
<PAGE>
MUSE SOFTWARE/PATENT LICENSE; LICENSE NUMBER; 95-C00154; AMENDMENT NO. 3
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT C (CONTINUED)
LICENSING FEES AND ROYALTIES
C.3: Minimum Annual Royalty Schedule
Royalty Rate Year Ending
on
MUSE Systems
[ * ] December 31, 1995
[ * ] December 31, 1996
[ * ] December 31, 1997
[ * ] December 31, 1998
[ * ] December 31, 1999
[ * ] December 31, 2000
[ * ] December 31, 2001
[ * ] December 31, 2002
[ * ] December 31, 2003
[ * ] December 31, 2004
[ * ] December 31, 2005
[ * ] December 31, 2006
[ * ] and each year thereafter
THIS EXHIBIT CONTAINS TRADE SECRETS AND SHALL NOT BE DISCLOSED TO ANY THIRD
PARTY EXCEPT TO GOVERNMENT PERSONNEL WHO ARE SUBJECT TO THE PROVISIONS OF
17 USC 1905.
PAGE 8 OF 8
<PAGE>
Amendment No. 1
to
Muse Technologies, Inc.
1996 Stock Option Plan
Section 2. of the Muse Technologies, Inc. 1996 Stock Option
Plan (the "1996 Stock Option Plan") is amended and restated in its entirety to
read as follows:
"Options may be granted to purchase up to 5,148,026 shares of
common stock, par value $0.015 per share (the "Common Stock"), of the
Company. For purposes of this Section 2, the number of shares purchased
upon the exercise of an Option shall be determined without giving
effect to the use by a Participant (as defined below) of the right set
forth in Section 8(C) hereof to deliver shares of Common Stock in
payment of all or a portion of the option price or the use by a
Participant of the right set forth in Section 12(C) hereof to cause the
Company to withhold from the shares of Common Stock otherwise
deliverable to him upon the exercise of an Option shares of Common
Stock in payment of all or a portion of his withholding obligation
arising from such exercise. If any Options expire or terminate for any
reason without having been exercised in full, new Options may
thereafter be granted to purchase the unpurchased shares subject to
such expired or terminated Options."
Section 3. of the 1996 Stock Option Plan is amended and
restated in its entirety to read as follows:
"(A) The Plan shall be administered by the Board and
Compensation and Stock Option Committee (the "Compensation
Committee") in the manner provided in Subsections (B), (C) and
(D) of this section.
(B) Except as stated in Subsection (C) and (D) of
this Section, subject to the express provisions of the Plan,
the Board or the Compensation Committee shall have complete
authority, in its discretion, to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to
it, to determine the terms and provisions of the respective
option agreements or certificates (which need not be
identical), to determine the service providers (each a
"Participant") to whom and the times and the prices at which
Options shall be granted, the periods during which each Option
shall be exercisable, the number of shares of Common Stock to
be subject to each Option and whether such Option shall be an
incentive stock option or a non-incentive stock option and to
make all other determinations necessary or advisable for the
<PAGE>
administration of the Plan. In making such determinations, the
Board may take into account the nature of the services
rendered by the respective service providers, their present
and potential contributions to the success of the Company and
the Subsidiaries and such other factors as the Board in its
discretion shall deem relevant. The Board's determination on
the matters referred to in this Section 3 shall be conclusive.
Any dispute or disagreement which may arise under or as a
result of or with respect to any Option shall be determined by
the Board, in its sole discretion, and any interpretations by
the Board of the terms of any Option shall be final, binding
and conclusive.
(C) The Compensation Committee shall have complete
authority, in its discretion, to prescribe, amend and rescind
rules and regulations relating to performance goals relating
to the Plan in accordance with Section 162(m)(4) of the Code.
The Compensation Committee shall be comprised solely of 2 or
more "outside directors," within contemplation of Section
162(m)(4)(C)(i) of the Code. Members of the Compensation
Committee shall be "non-employee directors" within the meaning
of Rule 16b-3(b)(3)(i) promulgated under the Securities and
Exchange Act of 1934.
(D) Except as stated in Subsection (C) of this
Section, the Board shall have complete authority, in its
discretion, to delegate its authority to act, with respect to
the grant of options to persons who are not and are not
expected to be "covered employees" within the meaning of
Section 162(m)(3) of the Code, to any of its members."
Section 4.of the 1996 Plan is amended and restated in its
entirety to read as follows:
"(A) An Option may be granted only to (i) employees
of the Company or a Subsidiary; (ii) directors of the Company
or a Subsidiary; (iii) employees of a corporation which has
been acquired by the Company or a Subsidiary, whether by way
of exchange or purchase of stock, purchase of assets, merger
or reverse merger, or otherwise, who hold options with respect
to the stock of such corporation which the Company has agreed
to assume, and (iv) independent consultants who render
services to the Company or a Subsidiary.
(B) A non-incentive stock option shall not be granted
to persons who are or may reasonably become "covered
employees"
2
<PAGE>
under Section 162(m)(3) of the Code at a price below fair
market value of the Common Stock on the date of the grant."
Section 7. of the 1996 Plan is amended and restated in its
entirety to read as follows:
"Except as otherwise provided in Section 17 hereof,
the aggregate number of shares of Common Stock for which any
Participant may be granted incentive stock options which are
exercisable for the first time in any calendar year (whether
under terms of the Plan or any other stock option plan of the
Company) shall not exceed one million (1,000,000) shares."
Section 9. of the 1996 Plan is amended and restated in its
entirety to read as follows:
"An Option shall not be assigned, alienated, pledged,
attached, sold, transferred or encumbered by a Participant
other than (i) by will or by the laws of descent and
distribution, (ii) in the case of a non-incentive stock
option, pursuant to a "domestic relations order" as defined in
Section 414 of the Code or Section 206 of ERISA, or (iii) by
transfer by a Participant, subject to such restrictions as the
Board or Compensation Committee may adopt (including, without
limitation, limiting assignability to Participants who are
directors or senior officers of the Company), to the following
persons:
(A) a member of the Participant's "Immediate Family";
(B) a trust established solely for the benefit of the
Participant and his or her Immediate Family;
(C) a partnership or limited liability company whose
only partners or members are the Participant and his or her
Immediate Family; or
(D) such other persons or entities as determined by
the Board or Compensation Committee.
Each transferee described in clauses (i), (ii) and
(iii) above are referred hereafter as "Permitted Transferees".
The above transactions with Permitted Transferees are subject
to the prior notification to, and approval of, the Board or
Compensation Committee. As used herein, "Immediate Family"
shall mean, with respect to a particular Participant, the
lineal descendants of
3
<PAGE>
Participant's or his or her spouse's parents (including
adopted children and stepchildren).
Options received by Permitted Transferees from a
Participant shall not be transferable other than by will or by
the laws of descent and distribution, and the terms of any
Option shall be binding upon the Permitted Transferee and his
beneficiaries, heirs, executors and administrators."
4
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of June 1, 1998 between
Muse Technologies, Inc., a Delaware corporation (the "Company"), and Creve
Maples (the "Executive").
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive, and the Executive accepts
employment with the Company, upon the following terms and conditions:
1.1 (a) Employment. The Company hereby employs the Executive, and the
Executive agrees to serve, as the Chief Technical Officer of the Company and its
subsidiaries (the "Subsidiaries") during the term of this Agreement. Subject to
the Board of Directors of the Company and the Board of Directors of each
Subsidiary, the Executive shall actively manage, and have responsibility for and
supervision over, the technical business activities and affairs of the Company
and the Subsidiaries, and he shall manage, supervise and direct its and their
officers, employees and agents with respect to the technical affairs and
activities of the Company and the Subsidiaries. The Executive agrees to devote
his full business time and attention and best efforts to the affairs of the
Company and the Subsidiaries during the term of this Agreement.
(b) Board of Directors. The Company agrees that during the
term of this Agreement it will use its best efforts to cause the Executive to be
nominated and elected to the
<PAGE>
Company's Board of Directors, and will vote its stock to elect the Executive to
the Board of Directors of each Subsidiary.
1.2 Term. The Employment of the Executive by the Company under the
terms and conditions of this Agreement will commence as of June 1, 1998 and
continue until May 31, 2001(the "Term") unless terminated sooner in accordance
with the provisions of Article IV.
ARTICLE II
COMPENSATION
2.1 (a) Annual Salary. During the Term the Company shall pay to the
Executive an annual salary of $175,000 (the "Base Salary") payable in equal
installments every two weeks. The Board of Directors shall review the
performance of the Executive annually and thereafter, at the sole discretion of
the Board of Directors, determine whether the Executive is entitled to an
increase in the Base Salary.
(b) Performance Bonus. In addition to any other compensation to be
received pursuant to this Agreement, the Executive shall be entitled to receive
an annual performance bonus (the "Performance Bonus") of up to forty-three and
three-quarters percent (43.75%) (the "Bonus Rate") of the Base Salary based upon
the Company achieving revenue and profit targets or other similar objectives
established by the Board of Directors or any compensation committee thereof for
each fiscal year which ends during the Term (or a partial fiscal year in the
case of death, a Permanent Disability determination or expiration of the Term).
The Board of Directors or compensation committee thereof shall review the
performance of the Executive annually and,
2
<PAGE>
thereafter, determine whether the Executive is entitled to an increase in the
Bonus Rate. The Performance Bonus shall be paid in cash periodically as the
Board of Directors directs, but no less frequently than annually, promptly after
the close of each fiscal year and of the preparation of fiscal year financial
statements, but in no event later than 90 days from such fiscal year end.
Notwithstanding the foregoing, the Performance Bonus for the Executive for
fiscal year 1998 shall be determined by the Board of Directors independent of
any established revenue and profit targets or other similar objectives
established by the Board of Directors or any compensation committee thereof for
1998.
2.2 Stock Options. The Executive will be eligible to receive grants of
stock options under the Company's Stock Option Plan as the Board of Directors
shall determine. As of the date of this Agreement, subject to the terms of the
Stock Option Plan, the Executive shall be entitled to receive stock options
under the Company's Stock Option Plan exercisable for 30,000, 37,500 and 50,000
shares of common stock of the Company and vesting on June 1, 1999, June 1, 2000
and June 1, 2001, respectively, at an exercise price per share of $7.50, in the
event the Executive's employment with the Company has not been terminated prior
to each such vesting date, as the case may be.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and living expenses while away from Albuquerque, NM on business at
the request of, or in the service of, the Company or any
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Subsidiary, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures and approved operating budget
established by the Company.
2.4 Benefits. The Executive shall be entitled to participate in and be
covered by all health, insurance, pension and other employee plans and benefits
established by the Company (collectively referred to herein as the "Company
Benefit Plans") for its executive employees generally, subject to meeting
applicable eligibility requirements. Additionally, the Company shall reimburse
the Executive for the annual cost of a life insurance policy on the life of the
Executive which provides for payment of an aggregate of at least one million
dollars to the Executive's designated beneficiaries.
2.5 Vacations and Holidays. During the Term, the Executive shall be
entitled to an annual vacation leave of a minimum of four weeks at full pay. The
Executive shall also be entitled to such holidays as are established by the
Company for all employees and such other religious holidays as is customary
pursuant to the Executive's religious practice.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. The Executive will not during his employment by
the Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use, or permit the use of, any trade secrets or confidential
information relating to the Company or any Subsidiary (the "Confidential
Information") except as required by law. "Confidential Information" shall
include, but shall not be limited to, the terms of any agreement for the
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development or commercialization of any hardware or software or technology
related thereto, the terms of any license, marketing, sales or distribution
agreement relating to any of the foregoing, and all information denominated as
"Confidential" and made available only on a restricted basis; provided however,
that "Confidential Information" shall not include information which comes into
the public domain through no fault of the Executive or which the Executive
obtains after the termination of employment with the Company or otherwise from a
third party who, to the knowledge of the Executive, has the right to disclose
such information.
3.2 Return of Company Material. The Executive shall promptly deliver to
the Company on termination of the Executive's employment with the Company, for
whatever the reason, or at any time the Company may so request, all Company or
Subsidiary memoranda, notes, records, reports, manuals, drawings, computer
software, and all documents containing Confidential Information belonging to the
Company, including all copies of such materials which the Executive may then
possess or have under the Executive's control irrespective of the format of such
materials.
3.3 Non-Competition. During the Term and for up to a three-year period
thereafter (the "Non-Compete Period") the Executive will not, directly or
indirectly, without the consent of the Board of Directors of the Company: (i)
own, manage, operate, join, control, or participate in or be connected with, as
an officer, employee partner, stockholder, director, adviser, consultant, or
agent (whether paid or unpaid), any business, which is at the time engaged in
any activities which compete with the business of the Company or any Subsidiary;
the foregoing provision being also intended to prohibit the Executive from
acquiring or holding in excess of 5% of any
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issue of stock or securities of any Company which has any securities listed on a
national securities exchange or quoted in the daily listing of over-the-counter
market securities; (ii) utilize any employees of the Company to perform any
service which conflicts with their full-time employment with the Company or
otherwise take actions which result in the termination of any employee's
relationship with the Company; provided, however, that notwithstanding any other
provision contained in this Agreement, in the event of termination of the
Executive for any reason, the restrictions contained in this Section 3.3 shall
be effective only for so long as the Company, at its sole discretion, continues
to pay the Executive his then monthly Base Salary in advance during the
Non-Compete Period.
3.4 Right to Injunctive and Equitable Relief As a result of the
Executive's position as an executive officer, director and principal shareholder
of the Company, the Executive's obligations not to disclose or use Confidential
Information and to refrain from the activities described in this Article III are
of a special and unique character which gives them a peculiar value, and which
is supported by valuable consideration. The Company cannot be reasonably or
adequately compensated in damages in an action at law in the event the Executive
breaches such obligations. Therefore, the Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess. Furthermore, the obligations of the
Executive and the rights and remedies of the Company under this Article III are
cumulative and in addition to, and not in lieu of, any obligations, rights, or
remedies created by applicable law relating to misappropriation or theft of
trade secrets or confidential information.
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ARTICLE IV
TERMINATION
4.1 Termination by the Company. The Board of Directors may terminate
the Executive's employment hereunder as follows:
(a) Upon the death of the Executive, whereupon this Agreement shall
immediately terminate;
(b) Upon a determination of Permanent Disability; "Permanent
Disability" shall mean a physical or mental incapacity as a result of which the
Executive becomes totally unable to continue the performance of his duties
hereunder for a period of 180 consecutive days or an aggregate of 270 days in
any 24 month period. A determination of Permanent Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company and the
Executive or, in the event of the Executive's incapacity to designate a doctor,
the Executive's legal representative. In the absence of agreement between the
Company and the Executive, each party shall nominate a qualified medical doctor
and the two doctors so nominated shall select a third doctor, who shall make the
determination as to the occurrence and continuance of a Permanent Disability; or
(c) For cause. "Cause" shall mean only the following:
(i) the willful and, after written notice and a reasonable
opportunity to cure, continued failure by the Executive to follow the reasonable
directions of the Board not
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inconsistent with this Agreement (other than such failure resulting from the
Executive's incapacity due to physical or mental illness);
(ii) willful and, after written notice and a reasonable
opportunity to cure, continued misconduct by the Executive that materially
adversely affects the Company;
(iii) conviction of a felony or guilty plea or plea of nolo
contendre to a crime or offense relating to the performance of the Executive's
duties to the Company;
(iv) willful theft from the Company;
(v) a willful violation of any law, rule or regulation, or the
imposition of a final order issued by any regulatory authority against the
Company, which, in any event, prohibits the Executive from holding an executive
position with the Company or any Subsidiary;
(vi) the Executive's habitual drunkenness or habitual use of
illegal substances, after notice to cease and the opportunity provided by the
Company to enter into and successfully complete a reputable rehabilitation
program at the expense of the Company; or
(vii) the Executive fails to substantially perform any material
term or provision of this Agreement.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company,
and no termination by the Company for "Cause" shall be effective unless the
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Executive shall have been given written notice of the breaches of this Section
4.1(c), (i) and (ii) for a period of 30 days within which to cure any such
breach provided that such curative period shall be permitted only once in any 12
month period, or if not curable, the Executive shall be given, within 30 days
after the giving of such notice of breach of this Section 4.1(c), (i) and (ii),
by the Company, an opportunity to make a presentation to the Board at a meeting
of the Board. Following such meeting, the Board shall determine whether to
terminate the Executive's services for "Cause" pursuant to this Section 4.1(c),
(i) and (ii) and shall notify the Executive of its decision.
4.2 Termination by Executive for Good Reason. The Executive may
terminate his employment hereunder for Good Reason. For purposes of this
Agreement, the term "Good Reason" shall mean and shall be deemed to exist if,
without the prior written consent or written waiver of the Executive, (i) the
Executive is assigned duties or responsibilities that are inconsistent in any
material respect with the scope of the duties or responsibilities associated
with his titles or position, as set forth in this Agreement (or which he may
receive during the Term), (ii) the Company fails to provide the Executive the
Performance Bonus as required under this Agreement, (iii) the Executive is asked
by the Company to take actions inconsistent with this Agreement or the
Executive's obligations to the public stockholders or regulatory agencies, (iv)
the Company fails to substantially perform any material term or provision of
this Agreement, (v) the Executive's office location is relocated to one that is
more than one hundred (100) miles from the location at which the Executive was
based immediately prior to the relocation, (vi) the Company fails to obtain the
full assumption of this Agreement by a successor entity (whether as a result of
merger, reorganization or otherwise) or (vii) the Executive is not elected to
the Board
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or is not reelected thereto or is forced to resign therefrom for any reason not
constituting Cause. Termination by the Executive pursuant to this Section 4.2
shall be effective on the date that is the 30 days after the Executive first
provides written notice to the Board of the events specified in this Section 4.2
(i-vi) unless earlier cured by the Company.
4.3 Severance Payments.
(a) Termination for Cause. In the event of termination pursuant to
Section 4.1(c), the Executive shall receive no severance, and shall be entitled
to receive, in lieu of any other payments or benefits, his accrued but unpaid
salary at the rate provided in Section 2.1(a) (as increased from time to time by
the Board), plus any amounts earned but unpaid for any prior completed fiscal or
calendar year including any Performance Bonus for such prior calendar year and
any discretionary bonuses for any prior calendar or fiscal year, and any
reimbursable expenses incurred prior to the date of termination (collectively,
the "Accrued Obligations").
(b) Termination as a Result of Death. In the event of termination
pursuant to Section 4.1(a), the Executive's estate or beneficiaries, as the case
may be, shall be entitled to receive, in addition to any other payments or
benefits hereunder, (i) the proceeds from any insurance policies paid for by the
Company in favor of the Executive's estate or beneficiaries, (ii) any Accrued
Obligations, and (iii) an amount equal to his earned and unpaid Performance
Bonus through the date of termination. Such amounts shall be paid promptly in a
lump sum in cash. In addition, all options that are unvested at the date of
termination shall vest, and the restriction on any options or stock held by the
Executive shall terminate.
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(c) Termination Without Cause or For Good Reason. In the event of
termination by the Company without Cause or by the Executive for Good Reason,
the Executive shall be entitled to receive (i) Accrued Obligations through the
date of termination, plus (ii) an amount equal to his Base Salary for two years
plus any Performance Bonus amounts earned and unpaid through the date of
termination (each of the amounts in subclauses (i) and (ii) payable in a lump
sum in cash within 30 days after the date of termination), (iii) continuation,
at the Company's expense, if allowable by law, of any group health (which may be
provided by payment of COBRA continuation coverage premiums), life insurance and
long-term disability coverages at the levels in effect on the Executive's date
of termination for a period of twenty-four months following such date of
termination (or the Executive shall receive from the Company the economic
equivalent of such coverages in cash), and (iv) all options held by the
Executive shall automatically vest, and the restriction on any options or stock
held by the Executive shall terminate.
(d) Voluntary Termination. If the Executive shall voluntarily
resign for other than Good Reason, he shall be entitled only to Accrued
Obligations through the effective date of such resignation or voluntary
termination, and that any such amounts shall be promptly paid in a lump sum in
cash.
(e) Termination due to Permanent Disability. If the Executive's
employment hereunder is terminated as a result of Permanent Disability, in lieu
of any other payments or benefits (other than any such disability benefits he
may receive), he shall be paid a single lump sum in cash within thirty (30) days
of the date of his termination, an amount equal to (i) all
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Accrued Obligations, (ii) all unpaid salary, whether or not accrued, remaining
through the Term, plus (iii) an amount equal to any Performance Bonus amounts
earned and unpaid through the date of termination. In addition the unvested
portion of any options held by the Executive on such date shall vest, and any
restriction on any options or stock held by the Executive shall terminate.
(f) General Release. Prior to the Executive's receipt of any
severance payment under this Section 4.3, the Executive shall issue a general
release to the Company in such form as the Company may reasonably require, which
release shall extinguish all actual or potential claims or causes of action he
has, may have had, or hereafter may have against the Company. The Company shall
simultaneously provide a release to the Executive in the form mutatis mutandis
given to the Company by the Executive.
(g) Other Payments Upon Termination. If notice of termination of
the Executive is given by the Executive or the Company, the Executive shall
continue to receive his Base Salary (as increased from time to time by the
Board), bonus payments and benefits as provided in Article II until the date of
termination, and shall also be entitled to reimbursement for reimbursable
expenses as set forth in Section 2.2.
(h) Company's Option to Terminate Executive after Notice of
Termination. The Company, or, if notice is given by the Company, the Executive,
may, at any time during the period after notice of termination by the Executive
or the Company and before the date of termination specified in the notice given
in accordance with Section 4.1 or Section 4.2, as the case may be (the "Notice
Period"), elect to terminate this Agreement and the Executive's
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employment hereunder immediately. In such event the Company shall pay the
Executive an amount equal to all Accrued Obligations he would have received or
been entitled to for the duration of the Notice Period at the rate provided in
Article II. Such amounts shall be paid within thirty (30) days after the
election pursuant to this Section 4.3(h). Nothing contained in this Section
4.3(h) shall be deemed to reduce in any way any amounts due the Executive
pursuant to any other term or provision of this Article IV.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Merger etc.; Change of Control
(a) In the event of a future disposition of the properties and
business of the Company substantially as an entirety by merger, consolidation,
sale of assets, reorganization or otherwise, then the Company may elect:
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring, surviving or reorganized entity;
provided that such entity shall assume in writing all of the obligations of the
Company hereunder; and provided further, that the Company (in the event and so
long as it remains in existence) shall remain liable for the performance of its
obligations hereunder in the event of a breach of this Agreement by the
acquiring, surviving or reorganized entity; or
(ii) in addition to its other rights of termination, to
terminate this Agreement upon at least 90 days' written notice and by paying the
Executive an amount equal to
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(a) all Accrued Obligations through the date of termination, plus (b) an amount
equal to his Base Salary for two years plus any Performance Bonus amounts earned
but unpaid through the date of termination, all such amounts pursuant to
subclauses (a) and (b) shall be payable in a single lump sum within 30 days
after the date of termination. In addition, upon the date of termination
hereunder, (A) all options which the Executive then holds which are not vested
shall immediately vest, (B) the restrictions on any stock held by the Executive
shall terminate, (C) the Executive, at the Company's expense, if allowable by
law, shall continue to be a participant in any group health (which may be
provided by payment of the COBRA continuation coverage premiums), life insurance
and long-term disability plans or programs maintained by the Company (or shall
receive from the Company the economic equivalent of such coverages in cash) at
the level in effect on the Executive's date of termination for a period of
twelve months following his date of termination.
(b) In the event of a change of control (a "Change of Control")
which is not agreed to in writing by the Executive (other than a Change of
Control pursuant to contractual obligations existing on the date hereof to which
the Company or the Executive are bound), the Executive may terminate this
Agreement, in which event the Company shall pay the Executive, upon the
Executive's execution of a general release of claims in lieu of any other
payments or benefits, an amount equal to (i) all Accrued Obligations through the
date of termination, plus (ii) an amount equal to his Base Salary for two years
plus any Performance Bonus amounts earned and unpaid through the date of
termination, all such amount pursuant to subclauses (i) and (ii) shall be paid
in a single lump sum within 30 days after the date of termination. In addition,
upon the date of termination hereunder, (A) all options which the Executive then
holds which are not
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vested shall immediately vest, (B) the restrictions on any stock held by the
Executive shall terminate and, (C) the Executive, at the Company's expense, if
allowable by law, shall continue to be a participant in any group health (which
may be provided by payment of COBRA continuation coverage premiums), life
insurance and long-term disability plans or programs maintained by the Company
(or shall receive from the Company the economic equivalent of such coverages in
cash) at the level in effect on the Executive's date of termination for a period
of twelve months following his date of termination.
(c) For purposes of this Agreement, "Change of Control" means any
of the following:
(i) the acquisition by any "person" (as such term is used in
Section 13(d) or 14(d) of the Securities Exchange Act of 1934) of 30% or more of
the voting power of securities of the Company (or securities convertible or
exchangeable into voting securities of the Company or beneficially owned by such
person); excluding, however, the following: (x) any acquisition of the Company's
securities by the Company or a Subsidiary of the Company, or (y) any acquisition
of the Company's securities by an employee benefit plan (or related trust)
sponsored or maintained by the Company or a Subsidiary of the Company; or
(ii) any merger, sale of substantially all of the assets, or
reorganization, of the Company, under circumstances where the holders of 50% or
more of the equity securities of the surviving, acquiring or reorganized entity
of such transaction were not holders of 50% or more of the Common Stock of the
Company immediately prior to the consummation of such transaction.
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(iii) any change in the composition of the Board of Directors
of the Company not approved by a majority of the Board prior to such change; or
(iv) the addition of more than two additional directors to the
Board of Directors or a change in 1/3 of the current members of the Board of
Directors, in either case, without the consent of the Executive.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt required, postage prepaid, as follows:
If to the Company:
Muse Technologies, Inc.
1601 Randolph, SE,
Albuquerque, NM 87106
Attn: Chairman, Compensation Committee of the Board of Directors
If to Executive:
Creve Maples
-----------------------
-----------------------
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
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6.2 No waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time or any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver or similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 No Mitigation; No Offset. In the event of the Executive's
termination of employment, he shall be under no obligation to seek other
employment and there shall be no offset against any amounts due the Executive
hereunder on account of any remuneration the Executive may obtain from any
subsequent employment.
6.4 Legal Fees. The Company shall promptly pay or reimburse the
Executive for his reasonable costs of enforcing this Agreement, including,
specifically, the fees and expenses of his counsel.
6.5 Arbitration. Any and all disputes or controversies arising out of
or relating to this Agreement, other than injunctive relief pursuant to Section
3.4, shall be resolved by arbitration at the American Arbitration Association at
its New Mexico offices before a panel of three arbitrators under the then
existing rules and regulations of the American Arbitration Association. The
parties agree that in any such arbitration, the arbitrators shall not have the
power to reform or modify this Agreement in any way and to that extent their
powers are so limited. The determination of the arbitrators shall be final and
binding on the parties hereto and judgment on it may be entered in any court of
competent jurisdiction. Except as required by law, neither the
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Company nor the Executive shall issue any press release or make any statement
which is reasonably foreseeable to become public with respect to any arbitration
or dispute between the parties without receiving the prior written consent of
the other party to the content of such press release or statement. In the event
the Executive prevails in such proceedings, as determined by the arbitrators,
the Company shall reimburse the Executive for all expenses (including, without
limitation, reasonable legal fees and expenses) incurred by the Executive in
connection with such proceeding or any other proceeding in which the Executive
prevails in contesting or defending any claim or controversy arising out of or
relating to this Agreement. All such amounts shall be paid promptly, but in any
event within ten (10) days after the Executive provides the Company with a
statement of such amounts to be recovered. In the event the Executive does not
prevail in such proceedings, as determined by the arbitrators, each party hereto
shall be responsible for their own expenses (including, without limitation,
legal fees and expenses) incurred in connection with such proceedings.
6.6 D&O Insurance. The Company agrees to use its best efforts to obtain
and maintain a directors and officers liability insurance policy covering the
Executive in an amount that is no less than the policy currently in effect for
senior executives or, if no such policy exists, a sufficient amount to provide
such indemnification, and to maintain such policy during the Term (and for so
long thereafter as is practicable in the circumstances, taking into account the
availability of such insurance).
6.7 Indemnification. In addition to the indemnification provided under
the Company's Articles of Incorporation and By-laws, the Company hereby agrees
to hold the
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Executive harmless and indemnify the Executive from and against, and to
reimburse the Executive for, any and all judgments, fines, liabilities, amounts
paid in settlement and expenses, including attorneys' fees, incurred directly or
indirectly as a result of or in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, whether or not such action, suit or proceeding is by or in the
right of the Company to procure a judgment in its favor, including an action,
suit or proceeding by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise for which the Executive served in any capacity
at the request of the Company, to which the Executive is, was or at any time
becomes a party, or is threatened to be made a party, or a result of or in
connection with any appeal therein, by reason of the fact that the Executive is
or was at any time a director, officer, employee or agent of the Company;
provided, however, that (i) indemnification shall be paid pursuant to this
paragraph if and only if the Executive acted in good faith and in a manner
reasonably believed by the Executive to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Executive's conduct was
unlawful; and (ii) no indemnification shall be payable pursuant to this
paragraph if a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
6.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the New Mexico without regard to its
Conflicts of Laws provisions.
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6.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.11 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understanding, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect of such terms as are
included in this agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statements of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.12 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties and obligations hereunder may not be assigned
or delegated by any party without the prior written consent of the other party.
Any such assignment or delegation without the prior written consent of the other
party shall be void and be of no effect. Notwithstanding the foregoing
provisions of this Section 6.12, the Company may assign or delegate its rights,
duties and obligations hereunder to any person or entity which succeeds to all
or substantially all of the business of the Company through merger,
consolidation, reorganization, or other business
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combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement in accordance with Section 5.1
6.13 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee, if there be no such designee, to the Executive's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MUSE TECHNOLOGIES, INC.
A Delaware corporation
By: /s/ Curtiz J. Gangi
--------------------------------
Name: Curtiz J. Gangi
Title: President
EXECUTIVE
/s/ Creve Maples
--------------------------------
Creve Maples
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Exhibit 10.6
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of August 1, 1998 between
Muse Technologies, Inc., a Delaware corporation (the "Company"), and Craig
Peterson (the "Employee").
ARTICLE I
EMPLOYMENT
The Company hereby employs the Employee, and the Employee accepts
employment with the Company, upon the following terms and conditions:
1.1 Employment. The Company hereby employs the Employee, and the
Employee agrees to serve, as the Director, Product Development of the Company
and its subsidiaries (the "Subsidiaries") during the term of this Agreement.
Subject to the Board of Directors of the Company and the Board of Directors of
each Subsidiary, the Employee shall actively manage, and have responsibility for
and supervision over, the business activities and affairs of the Company and the
Subsidiaries with respect to product development, and he shall manage, supervise
and direct its and their officers, employees and agents with respect to product
development. The Employee agrees to devote his full business time and attention
and best efforts to the affairs of the Company and the Subsidiaries during the
term of this Agreement.
1.2 Term. The Employment of the Employee by the Company under the terms
and conditions of this Agreement will commence as of August 1, 1998 and continue
until July 31, 2001(the "Term") unless terminated sooner in accordance with the
provisions of Article IV.
<PAGE>
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the Term the Company shall pay to the
Employee an annual salary of $90,000 (the "Base Salary") payable in equal
installments every two weeks. The Board of Directors shall review the
performance of the Employee annually and thereafter, at the sole discretion of
the Board of Directors, determine whether the Employee is entitled to an
increase in the Base Salary.
2.2 Reimbursement of Expenses. The Employee shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the Employee
in performing services hereunder, including all expenses of travel,
entertainment and living expenses while away from Albuquerque, NM on business at
the request of, or in the service of, the Company or any Subsidiary, provided
that such expenses are incurred and accounted for in accordance with the
policies and procedures and approved operating budget established by the
Company.
2.3 Benefits. The Employee shall be entitled to participate in and be
covered by all health, insurance, pension and other employee plans and benefits
established by the Company (collectively referred to herein as the "Company
Benefit Plans") for its employees generally, subject to meeting applicable
eligibility requirements. Additionally, the Company shall reimburse the Employee
for the annual cost of a life insurance policy on the life of the Employee which
provides for payment of an aggregate of at least five hundred thousand dollars
to the Employee's designated beneficiaries.
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2.4 Vacations and Holidays. During the Term, the Employee shall be
entitled to an annual vacation leave of a minimum of two weeks at full pay. The
Employee shall also be entitled to such holidays as are established by the
Company for all employees and such other religious holidays as is customary
pursuant to the Employee's religious practice.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. The Employee will not during his employment by the
Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use, or permit the use of, any trade secrets or confidential
information relating to the Company or any Subsidiary (the "Confidential
Information") except as required by law. "Confidential Information" shall
include, but shall not be limited to, the terms of any agreement for the
development or commercialization of any hardware or software or technology
related thereto, the terms of any license, marketing, sales or distribution
agreement relating to any of the foregoing, and all information denominated as
"Confidential" and made available only on a restricted basis; provided however,
that "Confidential Information" shall not include information which comes into
the public domain through no fault of the Employee or which the Employee obtains
after the termination of employment with the Company or otherwise from a third
party who, to the knowledge of the Employee, has the right to disclose such
information.
3.2 Return of Company Material. The Employee shall promptly deliver to
the Company on termination of the Employee's employment with the Company, for
whatever the reason, or at any time the Company may so request, all Company or
Subsidiary memoranda, notes, records, reports,
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manuals, drawings, computer software, and all documents containing Confidential
Information belonging to the Company, including all copies of such materials
which the Employee may then possess or have under the Employee's control
irrespective of the format of such materials.
3.3 Non-Competition. During the Term and for up to a one-year period
thereafter (the "Non-Compete Period") the Employee will not, directly or
indirectly, without the consent of the Board of Directors of the Company: (i)
own, manage, operate, join, control, or participate in or be connected with, as
an officer, employee partner, stockholder, director, adviser, consultant, or
agent (whether paid or unpaid), any business, which is at the time engaged in
any activities which compete with the business of the Company or any Subsidiary;
the foregoing provision being also intended to prohibit the Employee from
acquiring or holding in excess of 5% of any issue of stock or securities of any
Company which has any securities listed on a national securities exchange or
quoted in the daily listing of over-the-counter market securities; (ii) utilize
any employees of the Company to perform any service which conflicts with their
full-time employment with the Company or otherwise take actions which result in
the termination of any employee's relationship with the Company; provided,
however, that notwithstanding any other provision contained in this Agreement,
in the event of termination of the Employee for any reason, the restrictions
contained in this Section 3.3 shall be effective only for so long as the
Company, in its sole discretion, continues to pay the Employee his then monthly
Base Salary in advance during the Non-Compete Period.
3.4 Right to Injunctive and Equitable Relief As a result of the
Employee's position as an Employee officer, director and principal shareholder
of the Company, the Employee's obligations not to disclose or use Confidential
Information and to refrain from the activities described in this
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Article III are of a special and unique character which gives them a peculiar
value, and which is supported by valuable consideration. The Company cannot be
reasonably or adequately compensated in damages in an action at law in the event
the Employee breaches such obligations. Therefore, the Employee expressly agrees
that the Company shall be entitled to injunctive and other equitable relief
without bond or other security in the event of such breach in addition to any
other rights or remedies which the Company may possess. Furthermore, the
obligations of the Employee and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or confidential information.
ARTICLE IV
TERMINATION
4.1 Termination by the Company. The Board of Directors may terminate
the Employee's employment hereunder as follows:
(a) Upon the death of the Employee, whereupon this Agreement
shall immediately terminate;
(b) Upon a determination of Permanent Disability; "Permanent
Disability" shall mean a physical or mental incapacity as a result of which the
Employee becomes totally unable to continue the performance of his duties
hereunder for a period of 180 consecutive days or an aggregate of 270 days in
any 24 month period. A determination of Permanent Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company and
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the Employee or, in the event of the Employee's incapacity to designate a
doctor, the Employee's legal representative. In the absence of agreement between
the Company and the Employee, each party shall nominate a qualified medical
doctor and the two doctors so nominated shall select a third doctor, who shall
make the determination as to the occurrence and continuance of a Permanent
Disability; or
(c) For cause. "Cause" shall mean only the following:
(i) the willful and, after written notice and a
reasonable opportunity to cure, continued failure by the Employee to follow the
reasonable directions of the Board not inconsistent with this Agreement (other
than such failure resulting from the Employee's incapacity due to physical or
mental illness);
(ii) willful and, after written notice and a
reasonable opportunity to cure, continued misconduct by the Employee that
materially adversely affects the Company;
(iii) commission of a felony or guilty plea or plea
of nolo contendre to a crime or offense relating to the performance of the
Employee's duties to the Company;
(iv) willful theft from the Company;
(v) a willful violation of any law, rule or
regulation, or the imposition of a final order issued by any regulatory
authority against the Company, which, in any event, prohibits the Employee from
holding an Employee position with the Company or any Subsidiary;
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(vi) the Employee's habitual drunkenness or habitual
use of illegal substances, after notice to cease and the opportunity provided by
the Company to enter into and successfully complete a reputable rehabilitation
program at the expense of the Company; or
(vii) the Employee fails to substantially perform any
material term or provision of this Agreement.
For purposes of this Agreement, no act, or failure to act, on the
Employee's part shall be considered "willful" unless done, or omitted to be
done, by the Employee in bad faith and without a reasonable belief that such
action or omission by the Employee was in the best interests of the Company, and
no termination by the Company for "Cause" shall be effective unless the Employee
shall have been given written notice of the breaches of this Section 4.1(c) ,
(i) and (ii) and a period of 30 days within which to cure any such breach, if
curable, provided that such curative period shall be permitted only once in any
12 month period.
4.2 Termination by Employee for Good Reason. The Employee may terminate
his employment hereunder for Good Reason. For purposes of this Agreement, the
term "Good Reason" shall mean and shall be deemed to exist if, without the prior
written consent or written waiver of the Employee, (i) the Employee is assigned
duties or responsibilities that are inconsistent in any material respect with
the scope of the duties or responsibilities associated with his titles or
position, as set forth in this Agreement (or which he may receive during the
Term), (ii) the Employee is asked by the Company to take actions inconsistent
with this Agreement or the Employee's obligations to the public stockholders or
regulatory agencies, (iii) the Company fails to substantially perform any
material term or provision of this Agreement, (iv)
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the Employee's office location is relocated to one that is more than one hundred
(100) miles from the location at which the Employee was based immediately prior
to the relocation, (v) the Company fails to obtain the full assumption of this
Agreement by a successor entity (whether as a result of merger, reorganization
or otherwise). Termination by the Employee pursuant to this Section 4.2 shall be
effective on the date that is 30 days after the Employee first provides written
notice to the Board of the events specified in this Section 4.2(i-v) unless
earlier cured by the Company.
4.3 Severance Payments.
(a) Termination for Cause. In the event of termination
pursuant to Section 4.1(c), the Employee shall receive no severance, and shall
be entitled to receive, in lieu of any other payments or benefits, his accrued
but unpaid salary at the rate provided in Section 2.1(a) (as increased from time
to time by the Board), plus any amounts earned but unpaid for any prior
completed fiscal or calendar year including discretionary bonuses for any prior
calendar or fiscal year, and any reimbursable expenses incurred prior to the
date of termination (collectively, the "Accrued Obligations").
(b) Termination as a Result of Death. In the event of
termination pursuant to Section 4.1(a), the Employee's estate or beneficiaries,
as the case may be, shall be entitled to receive, in addition to any other
payments or benefits hereunder, (i) the proceeds from any insurance policies
paid for by the Company in favor of the Employee's estate or beneficiaries, and
(ii) any Accrued Obligations. Such amounts shall be paid promptly in a lump sum
in cash.
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In addition, all options that are unvested at the date of termination shall
vest, and the restriction on any options or stock held by the Employee shall
terminate.
(c) Termination Without Cause or For Good Reason. In the event
of termination by the Company without Cause or by the Employee for Good Reason,
the Employee shall be entitled to receive (i) Accrued Obligations through the
date of termination, plus (ii) an amount equal to one-quarter of his Base Salary
or a greater amount determined in the sole discretion of the Board of Directors
(each of the amounts in subclauses (i) and (ii) payable in a lump sum in cash
within 30 days after the date of termination), (iii) continuation, at the
Company's expense, if allowable by law, of any group health (which may be
provided by payment of COBRA continuation coverage premiums), life insurance and
long-term disability coverages at the levels in effect on the Employee's date of
termination for a period of twelve months following such date of termination,
and (iv) all options shall automatically vest, and the restriction on any
options or stock held by the Employee shall terminate.
(d) Voluntary Termination. If the Employee shall voluntarily
resign for other than Good Reason, he shall be entitled only to Accrued
Obligations through the effective date of such resignation or voluntary
termination, and that any such amounts shall be promptly paid in a lump sum in
cash.
(e) Termination due to Permanent Disability. If the Employee's
employment hereunder is terminated as a result of Permanent Disability, in lieu
of any other payments or benefits (other than any such disability benefits he
may receive), he shall be paid a single lump sum in cash within thirty (30) days
of the date of his termination, an amount equal to (i) all
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Accrued Obligations plus (ii) all unpaid salary, whether or not accrued,
remaining through the Term. In addition the unvested portion of any options held
by the Employee on such date shall vest, and any restriction on any options or
stock held by the Employee shall terminate.
(f) General Release. Prior to the Employee's receipt of any
severance payment under this Section 4.3, the Employee shall issue a general
release to the Company in such form as the Company may reasonably require, which
release shall extinguish all actual or potential claims or causes of action he
has, may have had, or hereafter may have against the Company. The Company shall
simultaneously provide a release to the Employee in the form mutatis mutandis
given to the Company by the Employee.
(g) Other Payments Upon Termination. If notice of termination
of the Employee is given by the Employee or the Company, the Employee shall
continue to receive his Base Salary (as increased from time to time by the
Board), bonus payments and benefits as provided in Article II until the date of
termination, and shall also be entitled to reimbursement for reimbursable
expenses as set forth in Section 2.2.
(h) Company's Option to Terminate Employee after Notice of
Termination. The Company, or, if notice is given by the Company, the Employee,
may, at any time during the period after notice of termination by the Employee
or the Company and before the date of termination specified in the notice given
in accordance with Section 4.1 or Section 4.2, as the case may be (the "Notice
Period"), elect to terminate this Agreement and the Employee's employment
hereunder immediately. In such event the Company shall pay the Employee an
amount equal to all Accrued Obligations he would have received or been entitled
to for the
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duration of the Notice Period at the rate provided in Article II. Such amounts
shall be paid within five (5) days after the election pursuant to this Section
4.3(h). Nothing contained in this Section 4.3(h) shall be deemed to reduce in
any way any amounts due the Employee pursuant to any other term or provision of
this Article IV.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Merger etc.; Change of Control
In the event of a future disposition of the properties and
business of the Company substantially as an entirety by merger, consolidation,
sale of assets, reorganization or otherwise, then the Company may elect:
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring, surviving or reorganized entity;
provided that such entity shall assume in writing all of the obligations of the
Company hereunder; and provided further, that the Company (in the event and so
long as it remains in existence) shall remain liable for the performance of its
obligations hereunder in the event of a breach of this Agreement by the
acquiring, surviving or reorganized entity; or
(ii) in addition to its other rights of termination, to
terminate this Agreement upon at least 90 days' written notice and by paying the
Employee an amount equal to (a) all Accrued Obligations through the date of
termination, plus (b) an amount equal to his Base Salary for one year, all such
amounts pursuant to subclauses (a) and (b) shall be payable in a single
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lump sum within 30 days after the date of termination. In addition, upon the
date of termination hereunder, (A) all options which the Employee then holds
which are not vested shall immediately vest , (B) the restrictions on any stock
held by the Employee shall terminate, (C) the Employee, at the Company's
expense, if allowable by law, shall continue to be a participant in any group
health (which may be provided by payment of the COBRA continuation coverage
premiums), life insurance and long-term disability plans or programs maintained
by the Company at the level in effect on the Employee's date of termination for
a period of twelve months following his date of termination.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt required, postage prepaid, as follows:
If to the Company:
Muse Technologies, Inc.
1601 Randolph, SE,
Albuquerque, NM 87106
Attn: Chairman, Compensation Committee of the Board of
Directors
If to Employee:
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Craig Peterson
-------------------------
-------------------------
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Employee and the Company. No waiver by either party hereto
at any time or any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver or similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
6.3 No Mitigation; No Offset. In the event of the Employee's
termination of employment, he shall be under no obligation to seek other
employment and there shall be no offset against any amounts due the Employee
hereunder on account of any remuneration the Employee may obtain from any
subsequent employment.
6.4 Arbitration. Any and all disputes or controversies arising out of
or relating to this Agreement, other than injunctive relief pursuant to Section
3.4, shall be resolved by arbitration at the American Arbitration Association at
its New Mexico offices before a panel of three arbitrators under the then
existing rules and regulations of the American Arbitration Association. The
parties agree that in any such arbitration, the arbitrators shall not have the
power to reform or modify this Agreement in any way and to that extent their
powers are so limited. The
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determination of the arbitrators shall be final and binding on the parties
hereto and judgment on it may be entered in any court of competent jurisdiction.
Except as required by law, neither the Company nor the Employee shall issue any
press release or make any statement which is reasonably foreseeable to become
public with respect to any arbitration or dispute between the parties without
receiving the prior written consent of the other party to the content of such
press release or statement. In the event the Employee prevails in such
proceedings, as determined by the arbitrators, the Company shall reimburse the
Employee for all expenses (including, without limitation, reasonable legal fees
and expenses) incurred by the Employee in connection with such proceeding or any
other proceeding in which the Employee prevails in contesting or defending any
claim or controversy arising out of or relating to this Agreement. All such
amounts shall be paid promptly, but in any event within ten (10) days after the
Employee provides the Company with a statement of such amounts to be recovered.
In the event the Employee does not prevail in such proceedings, as determined by
the arbitrators, each party hereto shall be responsible for their own expenses
(including, without limitation, legal fees and expenses) incurred in connection
with such proceedings.
6.5 Indemnification. In addition to the indemnification provided under
the Company's Articles of Incorporation and By-laws, the Company hereby agrees
to hold the Employee harmless and indemnify the Employee from and against, and
to reimburse the Employee for, any and all judgments, fines, liabilities,
amounts paid in settlement and expenses, including attorneys' fees, incurred
directly or indirectly as a result of or in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, whether or not such action, suit or proceeding
is by or in the right
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of the Company to procure a judgment in its favor, including an action, suit or
proceeding by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise for which the Employee served in any capacity at the
request of the Company, to which the Employee is, was or at any time becomes a
party, or is threatened to be made a party, or a result of or in connection with
any appeal therein, by reason of the fact that the Employee is or was at any
time a director, officer, employee or agent of the Company; provided, however,
that (i) indemnification shall be paid pursuant to this paragraph if and only if
the Employee acted in good faith and in a manner reasonably believed by the
Employee to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
the Employee's conduct was unlawful; and (ii) no indemnification shall be
payable pursuant to this paragraph if a court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
6.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the New Mexico without regard to its
Conflicts of Laws provisions.
6.7 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
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6.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.9 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understanding, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect of such terms as are
included in this agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statements of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.10 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties and obligations hereunder may not be assigned
or delegated by any party without the prior written consent of the other party.
Any such assignment or delegation without the prior written consent of the other
party shall be void and be of no effect. Notwithstanding the foregoing
provisions of this Section 6.10, the Company may assign or delegate its rights,
duties and obligations hereunder to any person or entity which succeeds to all
or substantially all of the business of the Company through merger,
consolidation, reorganization, or other business combination or by acquisition
of all or substantially all of the assets of the Company; provided that such
person assumes the Company's obligations under this Agreement in accordance with
Section 5.1
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6.11 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Employee's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisee, legatee,
or other designee, if there be no such designee, to the Employee's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MUSE TECHNOLOGIES, INC.
A Delaware corporation
By: /s/ Curtiz J. Gangi
-------------------
Name: Curtiz J. Gangi
Title: President
EMPLOYEE
/s/ Craig Peterson
-------------------
Craig Peterson
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Exhibit 10.7
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of June 1, 1998 between
Muse Technologies, Inc., a Delaware corporation (the "Company"), and Curtiz J.
Gangi (the "Executive").
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive, and the Executive accepts
employment with the Company, upon the following terms and conditions:
1.1 (a) Employment. The Company hereby employs the Executive, and the
Executive agrees to serve, as the President of the Company and its subsidiaries
(the "Subsidiaries") during the term of this Agreement. Subject to the Board of
Directors of the Company and the Board of Directors of each Subsidiary, the
Executive shall actively manage, and have responsibility for and supervision
over, the business activities and affairs of the Company and the Subsidiaries,
and he shall manage, supervise and direct its and their officers, employees and
agents. The Executive agrees to devote his full business time and attention and
best efforts to the affairs of the Company and the Subsidiaries during the term
of this Agreement.
(b) Board of Directors. The Company agrees that during the term of
this Agreement it will use its best efforts to cause the Executive to be
nominated and elected to the Company's Board of Directors, and will vote its
stock to elect the Executive to the Board of Directors of each Subsidiary.
<PAGE>
1.2 Term. The Employment of the Executive by the Company under the
terms and conditions of this Agreement will commence as of June 1, 1998 and
continue until May 31, 2001(the "Term") unless terminated sooner in accordance
with the provisions of Article IV.
ARTICLE II
COMPENSATION
2.1 (a) Annual Salary. During the Term the Company shall pay to the
Executive an annual salary of $215,000 (the "Base Salary") payable in equal
installments every two weeks. The Board of Directors shall review the
performance of the Executive annually and thereafter, at the sole discretion of
the Board of Directors, determine whether the Executive is entitled to an
increase in the Base Salary.
(b) Performance Bonus. In addition to any other compensation to be
received pursuant to this Agreement, the Executive shall be entitled to receive
an annual performance bonus (the "Performance Bonus") of up to sixty-two and
one-half percent (62.5%) (the "Bonus Rate") of the Base Salary based upon the
Company achieving revenue and profit targets or other similar objectives
established by the Board of Directors or any compensation committee thereof for
each fiscal year which ends during the Term (or a partial fiscal year in the
case of death, a Permanent Disability determination or expiration of the Term).
The Board of Directors or compensation committee thereof shall review the
performance of the Executive annually and, thereafter, determine whether the
Executive is entitled to an increase in the Bonus Rate. The Performance Bonus
shall be paid in cash periodically as the Board of Directors directs, but no
less frequently than annually, promptly after the close of each fiscal year and
of the preparation
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of fiscal year financial statements, but in no event later than 90 days from
such fiscal year end. Notwithstanding the foregoing, the Performance Bonus for
the Executive for fiscal year 1998 shall be determined by the Board of Directors
independent of any established revenue and profit targets or other similar
objectives established by the Board of Directors or any compensation committee
thereof for 1998.
2.2 Stock Options. The Executive will be eligible to receive grants of
stock options under the Company's Stock Option Plan as the Board of Directors
shall determine. As of the date of this Agreement, subject to the terms of the
Stock Option Plan, the Executive shall be entitled to receive stock options
under the Company's Stock Option Plan exercisable for 100,000, 125,000 and
150,000 shares of common stock of the Company and vesting on June 1, 1999, June
1, 2000 and June 1, 2001, respectively, at an exercise price per share of $7.50,
in the event the Executive's employment with the Company has not been terminated
prior to each such vesting date, as the case may be.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and living expenses while away from Albuquerque, NM on business at
the request of, or in the service of, the Company or any Subsidiary, provided
that such expenses are incurred and accounted for in accordance with the
policies and procedures and approved operating budget established by the
Company.
2.4 Benefits. The Executive shall be entitled to participate in and be
covered by all health, insurance, pension and other employee plans and benefits
established by the Company
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(collectively referred to herein as the "Company Benefit Plans") for its
executive employees generally, subject to meeting applicable eligibility
requirements. Additionally, the Company shall reimburse the Executive for the
annual cost of a life insurance policy on the life of the Executive which
provides for payment of an aggregate of at least one million dollars to the
Executive's designated beneficiaries.
2.5 Fringe Benefits. Upon completion of the Company's initial public
offering (the "IPO"), the Executive shall be entitled to receive a five-year
relocation loan from the Company (for the purpose of relocating to Albuquerque,
NM) in an aggregate amount of up to $150,000 at an interest rate of five percent
(5%) per annum (the "Loan"). The Loan shall be secured by the Executive's vested
stock options at the time of the IPO having a value equal to the principal
amount of the Loan (the "Vested Stock Options"). The value of the Vested Stock
Options shall be determined according to the price per share of the Company's
common stock, par value $.015 per share, offered to the public at the IPO less
the exercise price therefor.
2.6 Vacations and Holidays. During the Term, the Executive shall be
entitled to an annual vacation leave of a minimum of four weeks at full pay. The
Executive shall also be entitled to such holidays as are established by the
Company for all employees and such other religious holidays as is customary
pursuant to the Executive's religious practice.
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ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. The Executive will not during his employment by
the Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use, or permit the use of, any trade secrets or confidential
information relating to the Company or any Subsidiary (the "Confidential
Information") except as required by law. "Confidential Information" shall
include, but shall not be limited to, the terms of any agreement for the
development or commercialization of any hardware or software or technology
related thereto, the terms of any license, marketing, sales or distribution
agreement relating to any of the foregoing, and all information denominated as
"Confidential" and made available only on a restricted basis; provided however,
that "Confidential Information" shall not include information which comes into
the public domain through no fault of the Executive or which the Executive
obtains after the termination of employment with the Company or otherwise from a
third party who, to the knowledge of the Executive, has the right to disclose
such information.
3.2 Return of Company Material. The Executive shall promptly deliver to
the Company on termination of the Executive's employment with the Company, for
whatever the reason, or at any time the Company may so request, all Company or
Subsidiary memoranda, notes, records, reports, manuals, drawings, computer
software, and all documents containing Confidential Information belonging to the
Company, including all copies of such materials which the Executive may then
possess or have under the Executive's control irrespective of the format of such
materials.
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3.3 Non-Competition. During the Term and for up to a one-year period
thereafter (the "Non-Compete Period") the Executive will not, directly or
indirectly, without the consent of the Board of Directors of the Company: (i)
own, manage, operate, join, control, or participate in or be connected with, as
an officer, employee partner, stockholder, director, adviser, consultant, or
agent (whether paid or unpaid), any business, which is at the time engaged in
any activities which compete with the business of the Company or any Subsidiary;
the foregoing provision being also intended to prohibit the Executive from
acquiring or holding in excess of 5% of any issue of stock or securities of any
Company which has any securities listed on a national securities exchange or
quoted in the daily listing of over-the-counter market securities; (ii) utilize
any employees of the Company to perform any service which conflicts with their
full-time employment with the Company or otherwise take actions which result in
the termination of any employee's relationship with the Company; provided,
however, that notwithstanding any other provision contained in this Agreement,
in the event of termination of the Executive for any reason, the restrictions
contained in this Section 3.3 shall be effective only for so long as the
Company, at its sole discretion, continues to pay the Executive his then monthly
Base Salary in advance during the Non-Compete Period.
3.4 Right to Injunctive and Equitable Relief As a result of the
Executive's position as an executive officer, director and principal shareholder
of the Company, the Executive's obligations not to disclose or use Confidential
Information and to refrain from the activities described in this Article III are
of a special and unique character which gives them a peculiar value, and which
is supported by valuable consideration. The Company cannot be reasonably or
adequately compensated in damages in an action at law in the event the Executive
breaches such
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obligations. Therefore, the Executive expressly agrees that the Company shall be
entitled to injunctive and other equitable relief without bond or other security
in the event of such breach in addition to any other rights or remedies which
the Company may possess. Furthermore, the obligations of the Executive and the
rights and remedies of the Company under this Article III are cumulative and in
addition to, and not in lieu of, any obligations, rights, or remedies created by
applicable law relating to misappropriation or theft of trade secrets or
confidential information.
ARTICLE IV
TERMINATION
4.1 Termination by the Company. The Board of Directors may terminate
the Executive's employment hereunder as follows:
(a) Upon the death of the Executive, whereupon this Agreement shall
immediately terminate;
(b) Upon a determination of Permanent Disability; "Permanent
Disability" shall mean a physical or mental incapacity as a result of which the
Executive becomes totally unable to continue the performance of his duties
hereunder for a period of 180 consecutive days or an aggregate of 270 days in
any 24 month period. A determination of Permanent Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company and the
Executive or, in the event of the Executive's incapacity to designate a doctor,
the Executive's legal representative. In the absence of agreement between the
Company and the Executive, each
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party shall nominate a qualified medical doctor and the two doctors so nominated
shall select a third doctor, who shall make the determination as to the
occurrence and continuance of a Permanent Disability; or
(c) For cause. "Cause" shall mean only the following:
(i) the willful and, after written notice and a reasonable
opportunity to cure, continued failure by the Executive to follow the reasonable
directions of the Board not inconsistent with this Agreement (other than such
failure resulting from the Executive's incapacity due to physical or mental
illness);
(ii) willful and, after written notice and a reasonable
opportunity to cure, continued misconduct by the Executive that materially
adversely affects the Company;
(iii) conviction of a felony or guilty plea or plea of nolo
contendre to a crime or offense relating to the performance of the Executive's
duties to the Company;
(iv) willful theft from the Company;
(v) a willful violation of any law, rule or regulation, or the
imposition of a final order issued by any regulatory authority against the
Company, which, in any event, prohibits the Executive from holding an executive
position with the Company or any Subsidiary;
(vi) the Executive's habitual drunkenness or habitual use of
illegal substances, after notice to cease and the opportunity provided by the
Company to enter into and successfully complete a reputable rehabilitation
program at the expense of the Company; or
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(vii) the Executive fails to substantially perform any material
term or provision of this Agreement.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company,
and no termination by the Company for "Cause" shall be effective unless the
Executive shall have been given written notice of the breaches of this Section
4.1(c) , (i) and (ii) for a period of 30 days within which to cure any such
breach provided that such curative period shall be permitted only once in any 12
month period, or if not curable, the Executive shall be given, within 30 days
after the giving of such notice of breach of this Section 4.1(c) , (i) and (ii)
by the Company, an opportunity to make a presentation to the Board at a meeting
of the Board. Following such meeting, the Board shall determine whether to
terminate the Executive's services for "Cause" pursuant to this Section 4.1(c) ,
(i) and (ii) and shall notify the Executive of its decision.
4.2 Termination by Executive for Good Reason. The Executive may
terminate his employment hereunder for Good Reason. For purposes of this
Agreement, the term "Good Reason" shall mean and shall be deemed to exist if,
without the prior written consent or written waiver of the Executive, (i) the
Executive is assigned duties or responsibilities that are inconsistent in any
material respect with the scope of the duties or responsibilities associated
with his titles or position, as set forth in this Agreement (or which he may
receive during the Term), (ii) the Company fails to provide the Executive the
Performance Bonus as required under
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this Agreement, (iii) the Executive is asked by the Company to take actions
inconsistent with this Agreement or the Executive's obligations to the public
stockholders or regulatory agencies, (iv) the Company fails to substantially
perform any material term or provision of this Agreement, (v) the Executive's
office location is relocated to one that is more than one hundred (100) miles
from the location at which the Executive was based immediately prior to the
relocation, (vi) the Company fails to obtain the full assumption of this
Agreement by a successor entity (whether as a result of merger, reorganization
or otherwise), or (vii) the Executive is not elected to the Board or is not
reelected thereto or is forced to resign therefrom for any reason not
constituting Cause. Termination by the Executive pursuant to this Section 4.2
shall be effective on the date that is 30 days after the Executive first
provides written notice to the Board of the events specified in this Section
4.2(i-vii) unless earlier cured by the Company.
4.3 Severance Payments.
(a) Termination for Cause. In the event of termination pursuant to
Section 4.1(c), the Executive shall receive no severance, and shall be entitled
to receive, in lieu of any other payments or benefits, his accrued but unpaid
salary at the rate provided in Section 2.1(a) (as increased from time to time by
the Board), plus any amounts earned but unpaid for any prior completed fiscal or
calendar year including any Performance Bonus for such prior calendar year and
any discretionary bonuses for any prior calendar or fiscal year, and any
reimbursable expenses incurred prior to the date of termination (collectively,
the "Accrued Obligations").
(b) Termination as a Result of Death. In the event of termination
pursuant to Section 4.1(a), the Executive's estate or beneficiaries, as the case
may be, shall be entitled to
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receive, in addition to any other payments or benefits hereunder, (i) the
proceeds from any insurance policies paid for by the Company in favor of the
Executive's estate or beneficiaries, (ii) any Accrued Obligations, (iii) an
amount equal to his earned and unpaid Performance Bonus through the date of
termination. Such amounts shall be paid promptly in a lump sum in cash. In
addition, all options that are unvested at the date of termination shall vest,
and the restriction on any options or stock held by the Executive shall
terminate.
(c) Termination Without Cause or For Good Reason. In the event of
termination by the Company without Cause or by the Executive for Good Reason,
the Executive shall be entitled to receive (i) Accrued Obligations through the
date of termination, plus (ii) an amount equal to his Base Salary for one year
plus any Performance Bonus amounts earned and unpaid through the date of
termination (each of the amounts in subclauses (i) and (ii) payable in a lump
sum in cash within 30 days after the date of termination), (iii) continuation,
at the Company's expense, if allowable by law, of any group health (which may be
provided by payment of COBRA continuation coverage premiums), life insurance and
long-term disability coverage's at the levels in effect on the Executive's date
of termination for a period of twelve months following such date of termination
(or the Executive shall receive from the Company the economic equivalent of such
coverage's in cash), and (iv) all options held by the Executive shall
automatically vest, and the restriction on any options or stock held by the
Executive shall terminate.
(d) Voluntary Termination. If the Executive shall voluntarily
resign for other than Good Reason, he shall be entitled only to Accrued
Obligations through the effective date of
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such resignation or voluntary termination, and that any such amounts shall be
promptly paid in a lump sum in cash.
(e) Termination due to Permanent Disability. If the Executive's
employment hereunder is terminated as a result of Permanent Disability, in lieu
of any other payments or benefits (other than any such disability benefits he
may receive), he shall be paid a single lump sum in cash within thirty (30) days
of the date of his termination, an amount equal to (i) all Accrued Obligations,
(ii) all unpaid salary, whether or not accrued, remaining through the Term, plus
(iii) an amount equal to any Performance Bonus amounts earned and unpaid through
the date of termination. In addition the unvested portion of any options held by
the Executive on such date shall vest, and any restriction on any options or
stock held by the Executive shall terminate.
(f) General Release. Prior to the Executive's receipt of any
severance payment under this Section 4.3, the Executive shall issue a general
release to the Company in such form as the Company may reasonably require, which
release shall extinguish all actual or potential claims or causes of action he
has, may have had, or hereafter may have against the Company. The Company shall
simultaneously provide a release to the Executive in the form mutatis mutandis
given to the Company by the Executive.
(g) Other Payments Upon Termination. If notice of termination of
the Executive is given by the Executive or the Company, the Executive shall
continue to receive his Base Salary (as increased from time to time by the
Board), bonus payments and benefits as
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provided in Article II until the date of termination, and shall also be entitled
to reimbursement for reimbursable expenses as set forth in Section 2.2.
(h) Company's Option to Terminate Executive after Notice of
Termination. The Company, or, if notice is given by the Company, the Executive,
may, at any time during the period after notice of termination by the Executive
or the Company and before the date of termination specified in the notice given
in accordance with Section 4.1 or Section 4.2, as the case may be (the "Notice
Period"), elect to terminate this Agreement and the Executive's employment
hereunder immediately. In such event the Company shall pay the Executive an
amount equal to all Accrued Obligations he would have received or been entitled
to for the duration of the Notice Period at the rate provided in Article II.
Such amounts shall be paid within thirty (30) days after the election pursuant
to this Section 4.3(h). Nothing contained in this Section 4.3(h) shall be deemed
to reduce in any way any amounts due the Executive pursuant to any other term or
provision of this Article IV.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Merger etc.; Change of Control
(a) In the event of a future disposition of the properties and
business of the Company substantially as an entirety by merger, consolidation,
sale of assets, reorganization or otherwise, then the Company may elect:
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(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring, surviving or reorganized entity;
provided that such entity shall assume in writing all of the obligations of the
Company hereunder; and provided further, that the Company (in the event and so
long as it remains in existence) shall remain liable for the performance of its
obligations hereunder in the event of a breach of this Agreement by the
acquiring, surviving or reorganized entity; or
(ii) in addition to its other rights of termination, to
terminate this Agreement upon at least 90 days' written notice and by paying the
Executive an amount equal to (a) all Accrued Obligations through the date of
termination, plus (b) an amount equal to his Base Salary for one year plus any
Performance Bonus amounts earned but unpaid through the date of termination, all
such amounts pursuant to subclauses (a) and (b) shall be payable in a single
lump sum within 30 days after the date of termination. In addition, upon the
date of termination hereunder, (A) all options which the Executive then holds
which are not vested shall immediately vest , (B) the restrictions on any stock
held by the Executive shall terminate, (C) the Executive, at the Company's
expense, if allowable by law, shall continue to be a participant in any group
health (which may be provided by payment of the COBRA continuation coverage
premiums), life insurance and long-term disability plans or programs maintained
by the Company (or shall receive from the Company the economic equivalent of
such coverage's in cash) at the level in effect on the Executive's date of
termination for a period of twelve months following his date of termination.
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(b) In the event of a change of control (a "Change of Control")
which is not agreed to in writing by the Executive (other than a Change of
Control pursuant to contractual obligations existing on the date hereof to which
the Company or the Executive are bound), the Executive may terminate this
Agreement, in which event the Company shall pay the Executive, upon the
Executive's execution of a general release of claims in lieu of any other
payments or benefits, an amount equal to (i) all Accrued Obligations through the
date of termination, plus (ii) an amount equal to his Base Salary for one year
plus any Performance Bonus amounts earned and unpaid through the date of
termination, all such amount pursuant to subclauses (i) and (ii) shall be paid
in a single lump sum within 30 days after the date of termination. In addition,
upon the date of termination hereunder, (A) all options which the Executive then
holds which are not vested shall immediately vest, (B) the restrictions on any
stock held by the Executive shall terminate and, (C) the Executive, at the
Company's expense, if allowable by law, shall continue to be a participant in
any group health (which may be provided by payment of COBRA continuation
coverage premiums), life insurance and long-term disability plans or programs
maintained by the Company (or shall receive from the Company the economic
equivalent of such coverage's in cash) at the level in effect on the Executive's
date of termination for a period of twelve months following his date of
termination.
(c) For purposes of this Agreement, "Change of Control" means any
of the following:
(i) the acquisition by any "person" (as such term is used in
Section 13(d) or 14(d) of the Securities Exchange Act of 1934) of 30% or more of
the voting power of
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securities of the Company (or securities convertible or exchangeable into voting
securities of the Company or beneficially owned by such person); excluding,
however, the following: (x) any acquisition of the Company's securities by the
Company or a Subsidiary of the Company, or (y) any acquisition of the Company's
securities by an employee benefit plan (or related trust) sponsored or
maintained by the Company or a Subsidiary of the Company; or
(ii) any merger, sale of substantially all of the assets, or
reorganization, of the Company, under circumstances where the holders of 50% or
more of the equity securities of the surviving, acquiring or reorganized entity
of such transaction were not holders of 50% or more of the Common Stock of the
Company immediately prior to the consummation of such transaction; or
(iii) any change in the composition of the Board of Directors
of the Company not approved by a majority of the Board prior to such change; or
(iv) the addition of more than two additional directors to the
Board of Directors or a change in 1/3 of the current members of the Board of
Directors, in either case, without the consent of the Executive.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given
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when delivered or mailed by United States registered mail, return receipt
required, postage prepaid, as follows:
If to the Company:
Muse Technologies, Inc.
1601 Randolph, SE,
Albuquerque, NM 87106
Attn: Chairman, Compensation Committee of the Board of Directors
If to Executive:
Curtiz J. Gangi
---------------
---------------
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time or any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver or similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 No Mitigation; No Offset. In the event of the Executive's
termination of employment, he shall be under no obligation to seek other
employment and there shall be no
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offset against any amounts due the Executive hereunder on account of any
remuneration the Executive may obtain from any subsequent employment.
6.4 Legal Fees. The Company shall promptly pay or reimburse the
Executive for his reasonable costs of enforcing this Agreement, including,
specifically, the fees and expenses of his counsel.
6.5 Arbitration. Any and all disputes or controversies arising out of
or relating to this Agreement, other than injunctive relief pursuant to Section
3.4, shall be resolved by arbitration at the American Arbitration Association at
its New Mexico offices before a panel of three arbitrators under the then
existing rules and regulations of the American Arbitration Association. The
parties agree that in any such arbitration, the arbitrators shall not have the
power to reform or modify this Agreement in any way and to that extent their
powers are so limited. The determination of the arbitrators shall be final and
binding on the parties hereto and judgment on it may be entered in any court of
competent jurisdiction. Except as required by law, neither the Company nor the
Executive shall issue any press release or make any statement which is
reasonably foreseeable to become public with respect to any arbitration or
dispute between the parties without receiving the prior written consent of the
other party to the content of such press release or statement. In the event the
Executive prevails in such proceedings, as determined by the arbitrators, the
Company shall reimburse the Executive for all expenses (including, without
limitation, reasonable legal fees and expenses) incurred by the Executive in
connection with such proceeding or any other proceeding in which the Executive
prevails in contesting or defending any claim or controversy arising out of or
relating to this Agreement. All such amounts shall be
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paid promptly, but in any event within ten (10) days after the Executive
provides the Company with a statement of such amounts to be recovered. In the
event the Executive does not prevail in such proceedings, as determined by the
arbitrators, each party hereto shall be responsible for their own expenses
(including, without limitation, legal fees and expenses) incurred in connection
with such proceedings.
6.6 D&O Insurance. The Company agrees to use its best efforts to obtain
and maintain a directors and officers liability insurance policy covering the
Executive in an amount that is no less than the policy currently in effect for
senior executives or, if no such policy exists, a sufficient amount to provide
such indemnification, and to maintain such policy during the Term (and for so
long thereafter as is practicable in the circumstances, taking into account the
availability of such insurance).
6.7 Indemnification. In addition to the indemnification provided under
the Company's Articles of Incorporation and By-Laws, the Company hereby agrees
to hold the Executive harmless and indemnify the Executive from and against, and
to reimburse the Executive for, any and all judgments, fines, liabilities,
amounts paid in settlement and expenses, including attorneys' fees, incurred
directly or indirectly as a result of or in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, whether or not such action, suit or proceeding
is by or in the right of the Company to procure a judgment in its favor,
including an action, suit or proceeding by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise for which the
Executive served in
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any capacity at the request of the Company, to which the Executive is, was or at
any time becomes a party, or is threatened to be made a party, or a result of or
in connection with any appeal therein, by reason of the fact that the Executive
is or was at any time a director, officer, employee or agent of the Company;
provided, however, that (i) indemnification shall be paid pursuant to this
paragraph if and only if the Executive acted in good faith and in a manner
reasonably believed by the Executive to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Executive's conduct was
unlawful; and (ii) no indemnification shall be payable pursuant to this
paragraph if a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
6.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the New Mexico without regard to its
Conflicts of Laws provisions.
6.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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6.11 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understanding, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect of such terms as are
included in this agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statements of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.12 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties and obligations hereunder may not be assigned
or delegated by any party without the prior written consent of the other party.
Any such assignment or delegation without the prior written consent of the other
party shall be void and be of no effect. Notwithstanding the foregoing
provisions of this Section 6.12, the Company may assign or delegate its rights,
duties and obligations hereunder to any person or entity which succeeds to all
or substantially all of the business of the Company through merger,
consolidation, reorganization, or other business combination or by acquisition
of all or substantially all of the assets of the Company; provided that such
person assumes the Company's obligations under this Agreement in accordance with
Section 5.1.
6.13 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any
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amounts are still payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the Executive's devisee, legatee, or other designee, if there be no such
designee, to the Executive's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MUSE TECHNOLOGIES, INC.
A Delaware corporation
By: /s/ Brian Clark
--------------------------
Name: Brian Clark
Title: Chief Financial Officer,
Secretary and Treasurer
EXECUTIVE
/s/ Curtiz J. Gangi
--------------------------------
Curtiz J. Gangi
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Exhibit 10.8
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of June 1, 1998 between
Muse Technologies, Inc., a Delaware corporation (the "Company"), and Brian R.
Clark (the "Executive").
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive, and the Executive accepts
employment with the Company, upon the following terms and conditions:
1.1 Employment. The Company hereby employs the Executive, and the
Executive agrees to serve, as the Chief Financial Officer of the Company and its
subsidiaries (the "Subsidiaries") during the term of this Agreement. Subject to
the Board of Directors of the Company and the Board of Directors of each
Subsidiary, the Executive shall actively manage, and have responsibility for and
supervision over, the financial activities and affairs of the Company and the
Subsidiaries, and he shall manage, supervise and direct its and their officers,
employees and agents with respect to the finances of the Company and the
Subsidiaries. The Executive agrees to devote his full business time and
attention and best efforts to the affairs of the Company and the Subsidiaries
during the term of this Agreement.
1.2 Term. The Employment of the Executive by the Company under the
terms and conditions of this Agreement will commence as of June 1, 1998 and
continue until May 31, 2001(the "Term") unless terminated sooner in accordance
with the provisions of Article IV.
<PAGE>
ARTICLE II
COMPENSATION
2.1 (a) Annual Salary. During the Term the Company shall pay to the
Executive an annual salary of $150,000 (the "Base Salary") payable in equal
installments every two weeks. The Board of Directors shall review the
performance of the Executive annually and thereafter, at the sole discretion of
the Board of Directors, determine whether the Executive is entitled to an
increase in the Base Salary.
(b) Performance Bonus. In addition to any other compensation to be
received pursuant to this Agreement, the Executive shall be entitled to receive
an annual performance bonus (the "Performance Bonus") of up to forty-three and
three-quarters percent (43.75%) (the "Bonus Rate") of the Base Salary based upon
the Company achieving revenue and profit targets or other similar objectives
established by the Board of Directors or any compensation committee thereof for
each fiscal year which ends during the Term (or a partial fiscal year in the
case of death, a Permanent Disability determination or expiration of the Term).
The Board of Directors or compensation committee thereof shall review the
performance of the Executive annually and, thereafter, determine whether the
Executive is entitled to an increase in the Bonus Rate. The Performance Bonus
shall be paid in cash periodically as the Board of Directors directs, but no
less frequently than annually, promptly after the close of each fiscal year and
of the preparation of fiscal year financial statements, but in no event later
than 90 days from such fiscal year end. Notwithstanding the foregoing, the
Performance Bonus for the Executive for fiscal year 1998 shall be determined by
the Board of
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Directors independent of any revenue and profit targets or other similar
objectives established by the Board of Directors or any compensation committee
thereof for 1998.
2.2 Stock Options. The Executive will be eligible to receive grants of
stock options under the Company's Stock Option Plan as the Board of Directors
shall determine. As of the date of this Agreement, subject to the terms of the
Stock Option Plan, the Executive shall be entitled to receive stock options
under the Company's Stock Option Plan exercisable for 30,000, 37,500 and 50,000
shares of common stock of the Company and vesting on June 1, 1999, June 1, 2000
and June 1, 2001, respectively, at an exercise price per share of $7.50, in the
event the Executive's employment with the Company has not been terminated prior
to each such vesting date, as the case may be.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and living expenses while away from Albuquerque, NM on business at
the request of, or in the service of, the Company or any Subsidiary, provided
that such expenses are incurred and accounted for in accordance with the
policies and procedures and approved operating budget established by the
Company.
2.4 Benefits. The Executive shall be entitled to participate in and be
covered by all health, insurance, pension and other employee plans and benefits
established by the Company (collectively referred to herein as the "Company
Benefit Plans") for its executive employees generally, subject to meeting
applicable eligibility requirements. Additionally, the Company shall reimburse
the Executive for the annual cost of a life insurance policy on the life of the
Executive
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which provides for payment of an aggregate of at least five hundred thousand
dollars to the Executive's designated beneficiaries.
2.5 Fringe Benefits. Upon completion of the Company's initial public
offering (the "IPO"), the Executive shall be entitled to receive a five-year
relocation loan from the Company (for the purpose of relocating to Albuquerque,
NM) in an aggregate amount of up to $75,000 at an interest rate of five percent
(5%) per annum (the "Loan"). The Loan shall be secured by the Executive's vested
stock options at the time of the IPO having a value equal to the principal
amount of the Loan (the "Vested Stock Options"). The value of the Vested Stock
Options shall be determined according to the price per share of the Company's
common stock, par value $.015 per share, offered to the public at the IPO less
the exercise price therefor.
2.6 Vacations and Holidays. During the Term, the Executive shall be
entitled to an annual vacation leave of a minimum of four weeks at full pay. The
Executive shall also be entitled to such holidays as are established by the
Company for all employees and such other religious holidays as is customary
pursuant to the Executive's religious practice.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. The Executive will not during his employment by
the Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use, or permit the use of, any trade secrets or confidential
information relating to the Company or any Subsidiary (the "Confidential
Information") except as required by law. "Confidential Information" shall
include, but
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shall not be limited to, the terms of any agreement for the development or
commercialization of any hardware or software or technology related thereto, the
terms of any license, marketing, sales or distribution agreement relating to any
of the foregoing, and all information denominated as "Confidential" and made
available only on a restricted basis; provided however, that "Confidential
Information" shall not include information which comes into the public domain
through no fault of the Executive or which the Executive obtains after the
termination of employment with the Company or otherwise from a third party who,
to the knowledge of the Executive, has the right to disclose such information.
3.2 Return of Company Material. The Executive shall promptly deliver to
the Company on termination of the Executive's employment with the Company, for
whatever the reason, or at any time the Company may so request, all Company or
Subsidiary memoranda, notes, records, reports, manuals, drawings, computer
software, and all documents containing Confidential Information belonging to the
Company, including all copies of such materials which the Executive may then
possess or have under the Executive's control irrespective of the format of such
materials.
3.3 Non-Competition. During the Term and for up to a one-year period
thereafter (the "Non-Compete Period") the Executive will not, directly or
indirectly, without the consent of the Board of Directors of the Company: (i)
own, manage, operate, join, control, or participate in or be connected with, as
an officer, employee partner, stockholder, director, adviser, consultant, or
agent (whether paid or unpaid), any business, which is at the time engaged in
any activities which compete with the business of the Company or any Subsidiary;
the foregoing provision being also intended to prohibit the Executive from
acquiring or holding in excess of 5% of any issue of stock or
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securities of any Company which has any securities listed on a national
securities exchange or quoted in the daily listing of over-the-counter market
securities; (ii) utilize any employees of the Company to perform any service
which conflicts with their full-time employment with the Company or otherwise
take actions which result in the termination of any employee's relationship with
the Company; provided, however, that notwithstanding any other provision
contained in this Agreement, in the event of termination of the Executive for
any reason, the restrictions contained in this Section 3.3 shall be effective
only for so long as the Company, in its sole discretion, continues to pay the
Executive his then monthly portion of his Base Salary in advance during the
Non-Compete Period.
3.4 Right to Injunctive and Equitable Relief As a result of the
Executive's position as an executive officer and principal shareholder of the
Company, the Executive's obligations not to disclose or use Confidential
Information and to refrain from the activities described in this Article III are
of a special and unique character which gives them a peculiar value, and which
is supported by valuable consideration. The Company cannot be reasonably or
adequately compensated in damages in an action at law in the event the Executive
breaches such obligations. Therefore, the Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess. Furthermore, the obligations of the
Executive and the rights and remedies of the Company under this Article III are
cumulative and in addition to, and not in lieu of, any obligations, rights, or
remedies created by applicable law relating to misappropriation or theft of
trade secrets or confidential information.
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ARTICLE IV
TERMINATION
4.1 Termination by the Company. The Board of Directors may terminate
the Executive's employment hereunder as follows:
(a) Upon the death of the Executive, whereupon this Agreement shall
immediately terminate;
(b) Upon a determination of Permanent Disability; "Permanent
Disability" shall mean a physical or mental incapacity as a result of which the
Executive becomes totally unable to continue the performance of his duties
hereunder for a period of 180 consecutive days or an aggregate of 270 days in
any 24 month period. A determination of Permanent Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company and the
Executive or, in the event of the Executive's incapacity to designate a doctor,
the Executive's legal representative. In the absence of agreement between the
Company and the Executive, each party shall nominate a qualified medical doctor
and the two doctors so nominated shall select a third doctor, who shall make the
determination as to the occurrence and continuance of a Permanent Disability; or
(c) For cause. "Cause" shall mean only the following:
(i) the willful and, after written notice and a reasonable
opportunity to cure, continued failure by the Executive to follow the reasonable
directions of the Board not
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inconsistent with this Agreement (other than such failure resulting from the
Executive's incapacity due to physical or mental illness);
(ii) willful and, after written notice and a reasonable
opportunity to cure, continued misconduct by the Executive that materially
adversely affects the Company;
(iii) conviction of a felony or guilty plea or plea of nolo
contendre to a crime or offense relating to the performance of the Executive's
duties to the Company;
(iv) willful theft from the Company;
(v) a willful violation of any law, rule or regulation, or the
imposition of a final order issued by any regulatory authority against the
Company, which, in any event, prohibits the Executive from holding an executive
position with the Company or any Subsidiary;
(vi) the Executive's habitual drunkenness or habitual use of
illegal substances, after notice to cease and the opportunity provided by the
Company to enter into and successfully complete a reputable rehabilitation
program at the expense of the Company;or
(vii) the Executive fails to substantially perform any material
term or provision of this Agreement.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company,
and no termination by the Company for "Cause" shall be effective unless the
Executive
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shall have been given written notice of the breaches of this Section 4.1(c),
(i) and (ii) for a period of 30 days within which to cure any such breach
provided that such curative period shall be permitted only once in any 12 month
period, or if not curable, the Executive shall be given, within 30 days after
the giving of such notice of breach of this Section 4.1(c), (i) and (ii) by the
Company, an opportunity to make a presentation to the Board at a meeting of the
Board. Following such meeting, the Board shall determine whether to terminate
the Executive's services for "Cause" pursuant to this Section 4.1(c), (i) and
(ii) and shall notify the Executive of its decision.
4.2 Termination by Executive for Good Reason. The Executive may
terminate his employment hereunder for Good Reason. For purposes of this
Agreement, the term "Good Reason" shall mean and shall be deemed to exist if,
without the prior written consent or written waiver of the Executive, (i) the
Executive is assigned duties or responsibilities that are inconsistent in any
material respect with the scope of the duties or responsibilities associated
with his titles or position, as set forth in this Agreement (or which he may
receive during the Term), (ii) the Company fails to provide the Executive the
Performance Bonus as required under this Agreement, (iii) the Executive is asked
by the Company to take actions inconsistent with this Agreement or the
Executive's obligations to the public stockholders or regulatory agencies, (iv)
the Company fails to substantially perform any material term or provision of
this Agreement, (v) the Executive's office location is relocated to one that is
more than one hundred (100) miles from the location at which the Executive was
based immediately prior to the relocation, (vi) the Company fails to obtain the
full assumption of this Agreement by a successor entity (whether as a result of
merger, reorganization or otherwise). Termination by the Executive pursuant to
this Section 4.2 shall be effective on the date that is 30
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days after the Executive first provides written notice to the Board of the
events specified in this Section 4.2(i-vi) unless earlier cured by the Company.
4.3 Severance Payments.
(a) Termination for Cause. In the event of termination pursuant to
Section 4.1(c), the Executive shall receive no severance, and shall be entitled
to receive, in lieu of any other payments or benefits, his accrued but unpaid
salary at the rate provided in Section 2.1(a) (as increased from time to time by
the Board), plus any amounts earned but unpaid for any prior completed fiscal or
calendar year including any Performance Bonus for such prior calendar year and
any discretionary bonuses for any prior calendar or fiscal year, and any
reimbursable expenses incurred prior to the date of termination (collectively,
the "Accrued Obligations").
(b) Termination as a Result of Death. In the event of termination
pursuant to Section 4.1(a), the Executive's estate or beneficiaries, as the case
may be, shall be entitled to receive, in addition to any other payments or
benefits hereunder, (i) the proceeds from any insurance policies paid for by the
Company in favor of the Executive's estate or beneficiaries, (ii) any Accrued
Obligations, and (iii) an amount equal to his earned and unpaid Performance
Bonus through the date of termination. Such amounts shall be paid promptly in a
lump sum in cash. In addition, all options that are unvested at the date of
termination shall vest, and the restriction on any options or stock held by the
Executive shall terminate.
(c) Termination Without Cause or For Good Reason. In the event of
termination by the Company without Cause or by the Executive for Good Reason,
the Executive shall be entitled
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to receive (i) Accrued Obligations through the date of termination, plus (ii) an
amount equal to his Base Salary for one year plus any Performance Bonus amounts
earned and unpaid through the date of termination (each of the amounts in
subclauses (i) and (ii) payable in a lump sum in cash within 30 days after the
date of termination), (iii) continuation, at the Company's expense, if allowable
by law, of any group health (which may be provided by payment of COBRA
continuation coverage premiums), life insurance and long-term disability
coverages at the levels in effect on the Executive's date of termination for a
period of twelve months following such date of termination (or the Executive
shall receive from the Company the economic equivalent of such coverages in
cash), and (iv) all options held by the Executive shall automatically vest, and
the restriction on any options or stock held by the Executive shall terminate.
(d) Voluntary Termination. If the Executive shall voluntarily
resign for other than Good Reason, he shall be entitled only to Accrued
Obligations through the effective date of such resignation or voluntary
termination, and that any such amounts shall be promptly paid in a lump sum in
cash.
(e) Termination due to Permanent Disability. If the Executive's
employment hereunder is terminated as a result of Permanent Disability, in lieu
of any other payments or benefits (other than any such disability benefits he
may receive), he shall be paid a single lump sum in cash within thirty (30) days
of the date of his termination, an amount equal to (i) all Accrued Obligations,
(ii) all unpaid salary, whether or not accrued, remaining through the Term, plus
(iii) an amount equal to any Performance Bonus amounts earned and unpaid through
the date of termination. In addition
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the unvested portion of any options held by the Executive on such date shall
vest, and any restriction on any options or stock held by the Executive shall
terminate.
(f) General Release. Prior to the Executive's receipt of any
severance payment under this Section 4.3, the Executive shall issue a general
release to the Company in such form as the Company may reasonably require, which
release shall extinguish all actual or potential claims or causes of action he
has, may have had, or hereafter may have against the Company. The Company shall
simultaneously provide a release to the Executive in the form mutatis mutandis
given to the Company by the Executive.
(g) Other Payments Upon Termination. If notice of termination of
the Executive is given by the Executive or the Company, the Executive shall
continue to receive his Base Salary (as increased from time to time by the
Board), bonus payments and benefits as provided in Article II until the date of
termination, and shall also be entitled to reimbursement for reimbursable
expenses as set forth in Section 2.2.
(h) Company's Option to Terminate Executive after Notice of
Termination. The Company, or, if notice is given by the Company, the Executive,
may, at any time during the period after notice of termination by the Executive
or the Company and before the date of termination specified in the notice given
in accordance with Section 4.1 or Section 4.2, as the case may be (the "Notice
Period"), elect to terminate this Agreement and the Executive's employment
hereunder immediately. In such event the Company shall pay the Executive an
amount equal to all Accrued Obligations he would have received or been entitled
to for the duration of the Notice Period at the rate provided in Article II.
Such amounts shall be paid within thirty (30) days after the election
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pursuant to this Section 4.3(h). Nothing contained in this Section 4.3(h) shall
be deemed to reduce in any way any amounts due the Executive pursuant to any
other term or provision of this Article IV.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Merger etc.; Change of Control
(a) In the event of a future disposition of the properties and
business of the Company substantially as an entirety by merger, consolidation,
sale of assets, reorganization or otherwise, then the Company may elect:
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring, surviving or reorganized entity;
provided that such entity shall assume in writing all of the obligations of the
Company hereunder; and provided further, that the Company (in the event and so
long as it remains in existence) shall remain liable for the performance of its
obligations hereunder in the event of a breach of this Agreement by the
acquiring, surviving or reorganized entity; or
(ii) in addition to its other rights of termination, to
terminate this Agreement upon at least 90 days' written notice and by paying the
Executive an amount equal to (a) all Accrued Obligations through the date of
termination, plus (b) an amount equal to his Base Salary for one year plus any
Performance Bonus amounts earned but unpaid through the date of termination, all
such amounts pursuant to subclauses (a) and (b) shall be payable in a single
lump
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sum within 30 days after the date of termination. In addition, upon the date of
termination hereunder, (A) all options which the Executive then holds which are
not vested shall immediately vest , (B) the restrictions on any stock held by
the Executive shall terminate, (C) the Executive, at the Company's expense, if
allowable by law, shall continue to be a participant in any group health (which
may be provided by payment of the COBRA continuation coverage premiums), life
insurance and long-term disability plans or programs maintained by the Company
(or shall receive from the Company the economic equivalent of such coverages in
cash) at the level in effect on the Executive's date of termination for a period
of twelve months following his date of termination.
(b) In the event of a change of control (a "Change of Control")
which is not agreed to in writing by the Executive (other than a Change of
Control pursuant to contractual obligations existing on the date hereof to which
the Company or the Executive are bound), the Executive may terminate this
Agreement, in which event the Company shall pay the Executive, upon the
Executive's execution of a general release of claims in lieu of any other
payments or benefits, an amount equal to (i) all Accrued Obligations through the
date of termination, plus (ii) an amount equal to his Base Salary for one year
plus any Performance Bonus amounts earned and unpaid through the date of
termination, all such amount pursuant to subclauses (i) and (ii) shall be paid
in a single lump sum within 30 days after the date of termination. In addition,
upon the date of termination hereunder, (A) all options which the Executive then
holds which are not vested shall immediately vest, (B) the restrictions on any
stock held by the Executive shall terminate and, (C) the Executive, at the
Company's expense, if allowable by law, shall continue to be a participant in
any group health (which may be provided by payment of COBRA continuation
coverage premiums), life insurance and long-term disability plans or programs
maintained by the Company (or shall
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receive from the Company the economic equivalent of such coverages in cash) at
the level in effect on the Executive's date of termination for a period of
twelve months following his date of termination.
(c) For purposes of this Agreement, "Change of Control" means any
of the following:
(i) the acquisition by any "person" (as such term is used in
Section 13(d) or 14(d) of the Securities Exchange Act of 1934) of 30% or more of
the voting power of securities of the Company (or securities convertible or
exchangeable into voting securities of the Company or beneficially owned by such
person); excluding, however, the following: (x) any acquisition of the Company's
securities by the Company or a Subsidiary of the Company, or (y) any acquisition
of the Company's securities by an employee benefit plan (or related trust)
sponsored or maintained by the Company or a Subsidiary of the Company; or
(ii) any merger, sale of substantially all of the assets, or
reorganization, of the Company, under circumstances where the holders of 50% or
more of the equity securities of the surviving, acquiring or reorganized entity
of such transaction were not holders of 50% or more of the Common Stock of the
Company immediately prior to the consummation of such transaction.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when
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delivered or mailed by United States registered mail, return receipt required,
postage prepaid, as follows:
If to the Company:
Muse Technologies, Inc.
1601 Randolph, SE,
Albuquerque, NM 87106
Attn: Chairman, Compensation Committee of the Board of Directors
If to Executive:
Brian R. Clark
------------------
------------------
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time or any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver or similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 No Mitigation; No Offset. In the event of the Executive's
termination of employment, he shall be under no obligation to seek other
employment and there shall be no offset against any
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amounts due the Executive hereunder on account of any remuneration the Executive
may obtain from any subsequent employment.
6.4 Legal Fees. The Company shall promptly pay or reimburse the
Executive for his reasonable costs of enforcing this Agreement, including,
specifically, the fees and expenses of his counsel.
6.5 Arbitration. Any and all disputes or controversies arising out of
or relating to this Agreement, other than injunctive relief pursuant to Section
3.4, shall be resolved by arbitration at the American Arbitration Association at
its New Mexico offices before a panel of three arbitrators under the then
existing rules and regulations of the American Arbitration Association. The
parties agree that in any such arbitration, the arbitrators shall not have the
power to reform or modify this Agreement in any way and to that extent their
powers are so limited. The determination of the arbitrators shall be final and
binding on the parties hereto and judgment on it may be entered in any court of
competent jurisdiction. Except as required by law, neither the Company nor the
Executive shall issue any press release or make any statement which is
reasonably foreseeable to become public with respect to any arbitration or
dispute between the parties without receiving the prior written consent of the
other party to the content of such press release or statement. In the event the
Executive prevails in such proceedings, as determined by the arbitrators, the
Company shall reimburse the Executive for all expenses (including, without
limitation, reasonable legal fees and expenses) incurred by the Executive in
connection with such proceeding or any other proceeding in which the Executive
prevails in contesting or defending any claim or controversy arising out of or
relating to this Agreement. All such amounts shall be paid promptly, but in any
event within ten
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(10) days after the Executive provides the Company with a statement of such
amounts to be recovered. In the event the Executive does not prevail in such
proceedings, as determined by the arbitrators, each party hereto shall be
responsible for their own expenses (including, without limitation, legal fees
and expenses) incurred in connection with such proceedings.
6.6 D&O Insurance. The Company agrees to use its best efforts to obtain
and maintain a directors and officers liability insurance policy covering the
Executive in an amount that is no less than the policy currently in effect for
senior executives or, if no such policy exists, a sufficient amount to provide
such indemnification, and to maintain such policy during the Term (and for so
long thereafter as is practicable in the circumstances, taking into account the
availability of such insurance).
6.7 Indemnification. In addition to the indemnification provided under
the Company's Articles of Incorporation and By-laws, the Company hereby agrees
to hold the Executive harmless and indemnify the Executive from and against, and
to reimburse the Executive for, any and all judgments, fines, liabilities,
amounts paid in settlement and expenses, including attorneys' fees, incurred
directly or indirectly as a result of or in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, whether or not such action, suit or proceeding
is by or in the right of the Company to procure a judgment in its favor,
including an action, suit or proceeding by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise for which the
Executive served in any capacity at the request of the Company, to which the
Executive is, was or at any time becomes a party, or is threatened to be made a
party, or
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a result of or in connection with any appeal therein, by reason of the fact that
the Executive is or was at any time a director, officer, employee or agent of
the Company; provided, however, that (i) indemnification shall be paid pursuant
to this paragraph if and only if the Executive acted in good faith and in a
manner reasonably believed by the Executive to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Executive's conduct was
unlawful; and (ii) no indemnification shall be payable pursuant to this
paragraph if a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
6.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the New Mexico without regard to its
Conflicts of Laws provisions.
6.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.11 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understanding, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect of such terms as are
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included in this agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statements of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.12 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties and obligations hereunder may not be assigned
or delegated by any party without the prior written consent of the other party.
Any such assignment or delegation without the prior written consent of the other
party shall be void and be of no effect. Notwithstanding the foregoing
provisions of this Section 6.12, the Company may assign or delegate its rights,
duties and obligations hereunder to any person or entity which succeeds to all
or substantially all of the business of the Company through merger,
consolidation, reorganization, or other business combination or by acquisition
of all or substantially all of the assets of the Company; provided that such
person assumes the Company's obligations under this Agreement in accordance with
Section 5.1
6.13 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee, if there be no such designee, to the Executive's estate.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MUSE TECHNOLOGIES, INC.
A Delaware corporation
By: /s/ Curtiz J. Gangi
--------------------------------
Name: Curtiz J. Gangi
Title: President
EXECUTIVE
/s/ Brian R. Clark
--------------------------------
Brian R. Clark
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Exhibit 10.9
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of June 1, 1998 between
Muse Technologies, Inc., a Delaware corporation (the "Company"), and Doug
Harless (the "Executive").
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive, and the Executive accepts
employment with the Company, upon the following terms and conditions:
1.1 Employment. The Company hereby employs the Executive, and the
Executive agrees to serve, as the Vice President of Sales and Marketing of the
Company and its subsidiaries (the "Subsidiaries") during the term of this
Agreement. Subject to the Board of Directors of the Company and the Board of
Directors of each Subsidiary, the Executive shall actively manage, and have
responsibility for and supervision over, the business activities and affairs of
the Company and the Subsidiaries with respect to sales and marketing, and he
shall manage, supervise and direct its and their officers, employees and agents
with respect to sales and marketing. The Executive agrees to devote his full
business time and attention and best efforts to the affairs of the Company and
the Subsidiaries during the term of this Agreement.
1.2 Term. The Employment of the Executive by the Company under the
terms and conditions of this Agreement will commence as of June 1, 1998 and
continue until May 31, 2001 (the "Term") unless terminated sooner in accordance
with the provisions of Article IV.
<PAGE>
ARTICLE II
COMPENSATION
2.1 (a) Annual Salary. During the Term the Company shall pay to the
Executive an annual salary of $150,000 (the "Base Salary") payable in equal
installments every two weeks. The Board of Directors shall review the
performance of the Executive annually and thereafter, at the sole discretion of
the Board of Directors, determine whether the Executive is entitled to an
increase in the Base Salary.
(b) Commission Plan. In addition to any other compensation to be
received pursuant to this Agreement, the Executive shall be entitled to receive
commissions ("Commissions") pursuant to the Sales Compensation Plan and
Territory Assignment (attached as Annex A hereto).
2.2 Stock Options. The Executive will be eligible to receive grants of
stock options under the Company's Stock Option Plan as the Board of Directors
shall determine. As of the date of this Agreement, subject to the terms of the
Stock Option Plan, the Executive shall be entitled to receive stock options
under the Company's Stock Option Plan exercisable for 30,000, 37,500 and 50,000
shares of common stock of the Company and vesting on June 1, 1999, June 1, 2000
and June 1, 2001, respectively, at an exercise price per share of $7.50, in the
event the Executive's employment with the Company has not been terminated prior
to each such vesting date, as the case may be.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and living expenses while away from
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Albuquerque, NM on business at the request of, or in the service of, the Company
or any Subsidiary, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures and approved operating budget
established by the Company.
2.4 Benefits. The Executive shall be entitled to participate in and be
covered by all health, insurance, pension and other employee plans and benefits
established by the Company (collectively referred to herein as the "Company
Benefit Plans") for its executive employees generally, subject to meeting
applicable eligibility requirements. Additionally, the Company shall reimburse
the Executive for the annual cost of a life insurance policy on the life of the
Executive which provides for payment of an aggregate of at least five hundred
thousand dollars to the Executive's designated beneficiaries.
2.5 Fringe Benefits. Upon completion of the Company's initial public
offering (the "IPO"), the Executive shall be entitled to receive a five-year
relocation loan from the Company (for purpose of relocating to Albuquerque, NM)
in an aggregate amount of up to $75,000 at an interest rate of five percent (5%)
per annum (the "Loan"). The Loan shall be secured by the Executive's vested
stock options at the time of the IPO having a value equal to the principal
amount of the Loan (the "Vested Stock Options"). The value of the Vested Stock
Options shall be determined according to the price per share of the Company's
common stock, par value $.015 per share, offered to the public at the IPO less
the exercise price therefor.
2.6 Vacations and Holidays. During the Term, the Executive shall be
entitled to an annual vacation leave of a minimum of four weeks at full pay. The
Executive shall also be entitled
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to such holidays as are established by the Company for all employees and such
other religious holidays as is customary pursuant to the Executive's religious
practice.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. The Executive will not during his employment by
the Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use, or permit the use of, any trade secrets or confidential
information relating to the Company or any Subsidiary (the "Confidential
Information") except as required by law. "Confidential Information" shall
include, but shall not be limited to, the terms of any agreement for the
development or commercialization of any hardware or software or technology
related thereto, the terms of any license, marketing, sales or distribution
agreement relating to any of the foregoing, and all information denominated as
"Confidential" and made available only on a restricted basis; provided however,
that "Confidential Information" shall not include information which comes into
the public domain through no fault of the Executive or which the Executive
obtains after the termination of employment with the Company or otherwise from a
third party who, to the knowledge of the Executive, has the right to disclose
such information.
3.2 Return of Company Material. The Executive shall promptly deliver to
the Company on termination of the Executive's employment with the Company, for
whatever the reason, or at any time the Company may so request, all Company or
Subsidiary memoranda, notes, records, reports, manuals, drawings, computer
software, and all documents containing Confidential Information
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belonging to the Company, including all copies of such materials which the
Executive may then possess or have under the Executive's control irrespective of
the format of such materials.
3.3 Non-Competition. During the Term and for up to a one-year period
thereafter (the "Non-Compete Period") the Executive will not, directly or
indirectly, without the consent of the Board of Directors of the Company: (i)
own, manage, operate, join, control, or participate in or be connected with, as
an officer, employee partner, stockholder, director, adviser, consultant, or
agent (whether paid or unpaid), any business, which is at the time engaged in
any activities which compete with the business of the Company or any Subsidiary;
the foregoing provision being also intended to prohibit the Executive from
acquiring or holding in excess of 5% of any issue of stock or securities of any
Company which has any securities listed on a national securities exchange or
quoted in the daily listing of over-the-counter market securities; (ii) utilize
any employees of the Company to perform any service which conflicts with their
full-time employment with the Company or otherwise take actions which result in
the termination of any employee's relationship with the Company; provided,
however, that notwithstanding any other provision contained in this Agreement,
in the event of termination of the Executive for any reason, the restrictions
contained in this Section 3.3 shall be effective only for so long as the
Company, in its sole discretion, continues to pay the Executive his then monthly
Base Salary in advance during the Non-Compete Period.
3.4 Right to Injunctive and Equitable Relief As a result of the
Executive's position as an executive officer and principal shareholder of the
Company, the Executive's obligations not to disclose or use Confidential
Information and to refrain from the activities described in this Article III are
of a special and unique character which gives them a peculiar value, and which
is supported
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by valuable consideration. The Company cannot be reasonably or adequately
compensated in damages in an action at law in the event the Executive breaches
such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess. Furthermore, the obligations of the Executive and
the rights and remedies of the Company under this Article III are cumulative and
in addition to, and not in lieu of, any obligations, rights, or remedies created
by applicable law relating to misappropriation or theft of trade secrets or
confidential information.
ARTICLE IV
TERMINATION
4.1 Termination by the Company. The Board of Directors may terminate
the Executive's employment hereunder as follows:
(a) Upon the death of the Executive, whereupon this Agreement shall
immediately terminate;
(b) Upon a determination of Permanent Disability; "Permanent
Disability" shall mean a physical or mental incapacity as a result of which the
Executive becomes totally unable to continue the performance of his duties
hereunder for a period of 180 consecutive days or an aggregate of 270 days in
any 24 month period. A determination of Permanent Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company and the
Executive or, in the event of the Executive's incapacity to designate a doctor,
the Executive's legal
6
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representative. In the absence of agreement between the Company and the
Executive, each party shall nominate a qualified medical doctor and the two
doctors so nominated shall select a third doctor, who shall make the
determination as to the occurrence and continuance of a Permanent Disability; or
(c) For cause. "Cause" shall mean only the following:
(i) the willful and, after written notice and a reasonable
opportunity to cure, continued failure by the Executive to follow the reasonable
directions of the Board not inconsistent with this Agreement (other than such
failure resulting from the Executive's incapacity due to physical or mental
illness);
(ii) willful and, after written notice and a reasonable
opportunity to cure, continued misconduct by the Executive that materially
adversely affects the Company;
(iii) commission of a felony or guilty plea or plea of nolo
contendre to a crime or offense relating to the performance of the Executive's
duties to the Company;
(iv) willful theft from the Company;
(v) a willful violation of any law, rule or regulation, or the
imposition of a final order issued by any regulatory authority against the
Company, which, in any event, prohibits the Executive from holding an executive
position with the Company or any Subsidiary;
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(vi) the Executive's habitual drunkenness or habitual use of
illegal substances, after notice to cease and the opportunity provided by the
Company to enter into and successfully complete a reputable rehabilitation
program at the expense of the Company; or
(vii) the Executive fails to substantially perform any material
term or provision of this Agreement.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company,
and no termination by the Company for "Cause" shall be effective unless the
Executive shall have been given written notice of the breaches of this Section
4.1(c), (i) and (ii) for a period of 30 days within which to cure any such
breach, if curable, provided that such curative period shall be permitted only
once in any 12 month period.
4.2 Termination by Executive for Good Reason. The Executive may
terminate his employment hereunder for Good Reason. For purposes of this
Agreement, the term "Good Reason" shall mean and shall be deemed to exist if,
without the prior written consent or written waiver of the Executive, (i) the
Executive is assigned duties or responsibilities that are inconsistent in any
material respect with the scope of the duties or responsibilities associated
with his titles or position, as set forth in this Agreement (or which he may
receive during the Term), (ii) the Company fails to provide the Executive the
Commissions as required under this Agreement, (iii) the Executive is asked by
the Company to take actions inconsistent with this Agreement or the Executive's
obligations to the public stockholders or regulatory agencies, (iv) the Company
fails to substantially perform any
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material term or provision of this Agreement, (v) the Executive's office
location is relocated to one that is more than one hundred (100) miles from the
location at which the Executive was based immediately prior to the relocation,
(vi) the Company fails to obtain the full assumption of this Agreement by a
successor entity (whether as a result of merger, reorganization or otherwise).
Termination by the Executive pursuant to this Section 4.2 shall be effective on
the date that is 30 days after the Executive first provides written notice to
the Board of the events specified in this Section 4.2(i-vi) unless earlier cured
by the Company.
4.3 Severance Payments.
(a) Termination for Cause. In the event of termination pursuant to
Section 4.1(c), the Executive shall receive no severance, and shall be entitled
to receive, in lieu of any other payments or benefits, his accrued but unpaid
salary at the rate provided in Section 2.1(a) (as increased from time to time by
the Board), plus any amounts earned but unpaid for any prior completed fiscal or
calendar year including any Commissions for such prior calendar year and any
discretionary bonuses for any prior calendar or fiscal year, and any
reimbursable expenses incurred prior to the date of termination (collectively,
the "Accrued Obligations").
(b) Termination as a Result of Death. In the event of termination
pursuant to Section 4.1(a), the Executive's estate or beneficiaries, as the case
may be, shall be entitled to receive, in addition to any other payments or
benefits hereunder, (i) the proceeds from any insurance policies paid for by the
Company in favor of the Executive's estate or beneficiaries, (ii) any Accrued
Obligations, and (iii)(A) if termination occurs between June 1, 1998 and
February 28, 1999, an amount equal to one-quarter of his Base Salary for one
year and any earned and unpaid Commissions
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through the date of termination or (B) if termination occurs between March 1,
1999 through the end of the term of this Agreement, an amount equal to his Base
Salary for one year and any earned and unpaid Commissions through the date of
termination. Such amounts shall be paid promptly in a lump sum in cash. In
addition, all options that are unvested at the date of termination shall vest,
and the restriction on any options or stock held by the Executive shall
terminate.
(c) Termination Without Cause or For Good Reason. In the event of
termination by the Company without Cause or by the Executive for Good Reason,
the Executive shall be entitled to receive (i) Accrued Obligations through the
date of termination, plus (ii)(A) if termination occurs between June 1, 1998 and
February 28, 1999, an amount equal to one-quarter of his Base Salary for one
year and any earned and unpaid Commissions through the date of termination or
(B) if termination occurs between March 1, 1999 through the end of the term of
this Agreement, an amount equal to his Base Salary for one year and any earned
and unpaid Commissions through the date of termination (each of the amounts in
subclauses (i) and (ii) payable in a lump sum in cash within 30 days after the
date of termination), (iii) continuation, at the Company's expense, if allowable
by law, of any group health (which may be provided by payment of COBRA
continuation coverage premiums), life insurance and long-term disability
coverage's at the levels in effect on the Executive's date of termination for a
period of twelve months following such date of termination, and (iv) all options
held by the Executive shall automatically vest, and the restriction on any
options or stock held by the Executive shall terminate.
(d) Voluntary Termination. If the Executive shall voluntarily
resign for other than Good Reason, he shall be entitled only to Accrued
Obligations through the effective date of such
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resignation or voluntary termination, and that any such amounts shall be
promptly paid in a lump sum in cash.
(e) Termination due to Permanent Disability. If the Executive's
employment hereunder is terminated as a result of Permanent Disability, in lieu
of any other payments or benefits (other than any such disability benefits he
may receive), he shall be paid a single lump sum in cash within thirty (30) days
of the date of his termination, an amount equal to (i) all Accrued Obligations,
(ii) all unpaid salary, whether or not accrued, remaining through the Term, plus
(iii) an amount equal to any Commissions earned and unpaid through the date of
termination. In addition the unvested portion of any options held by the
Executive on such date shall vest, and any restriction on any options or stock
held by the Executive shall terminate.
(f) General Release. Prior to the Executive's receipt of any
severance payment under this Section 4.3, the Executive shall issue a general
release to the Company in such form as the Company may reasonably require, which
release shall extinguish all actual or potential claims or causes of action he
has, may have had, or hereafter may have against the Company. The Company shall
simultaneously provide a release to the Executive in the form mutatis mutandis
given to the Company by the Executive.
(g) Other Payments Upon Termination. If notice of termination of
the Executive is given by the Executive or the Company, the Executive shall
continue to receive his Base Salary (as increased from time to time by the
Board), bonus payments and benefits as provided in Article II until the date of
termination, and shall also be entitled to reimbursement for reimbursable
expenses as set forth in Section 2.2.
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(h) Company's Option to Terminate Executive after Notice of
Termination. The Company, or, if notice is given by the Company, the Executive,
may, at any time during the period after notice of termination by the Executive
or the Company and before the date of termination specified in the notice given
in accordance with Section 4.1 or Section 4.2, as the case may be (the "Notice
Period"), elect to terminate this Agreement and the Executive's employment
hereunder immediately. In such event the Company shall pay the Executive an
amount equal to all Accrued Obligations he would have received or been entitled
to for the duration of the Notice Period at the rate provided in Article II.
Such amounts shall be paid within thirty (30) days after the election pursuant
to this Section 4.3(h). Nothing contained in this Section 4.3(h) shall be deemed
to reduce in any way any amounts due the Executive pursuant to any other term or
provision of this Article IV.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Merger etc.; Change of Control
In the event of a future disposition of the properties and business
of the Company substantially as an entirety by merger, consolidation, sale of
assets, reorganization or otherwise, then the Company may elect:
(i) to assign this Agreement and all of its rights and obligations
hereunder to the acquiring, surviving or reorganized entity; provided that such
entity shall assume in writing all of the obligations of the Company hereunder;
and provided further, that the Company (in the event and
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so long as it remains in existence) shall remain liable for the performance of
its obligations hereunder in the event of a breach of this Agreement by the
acquiring, surviving or reorganized entity; or
(ii) in addition to its other rights of termination, to terminate
this Agreement upon at least 90 days' written notice and by paying the Executive
an amount equal to (a) all Accrued Obligations through the date of termination,
plus (b) an amount equal to his Base Salary for one year plus any Commissions
earned but unpaid through the date of termination, all such amounts pursuant to
subclauses (a) and (b) shall be payable in a single lump sum within 30 days
after the date of termination. In addition, upon the date of termination
hereunder, (A) all options which the Executive then holds which are not vested
shall immediately vest, (B) the restrictions on any stock held by the Executive
shall terminate, (C) the Executive, at the Company's expense, if allowable by
law, shall continue to be a participant in any group health (which may be
provided by payment of the COBRA continuation coverage premiums), life insurance
and long-term disability plans or programs maintained by the Company at the
level in effect on the Executive's date of termination for a period of twelve
months following his date of termination.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt required, postage prepaid, as follows:
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If to the Company:
Muse Technologies, Inc.
1601 Randolph, SE,
Albuquerque, NM 87106
Attn.: Chairman, Compensation Committee of the Board of
Directors
If to Executive:
Doug Harless
---------------------
---------------------
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time or any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver or similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 No Mitigation; No Offset. In the event of the Executive's
termination of employment, he shall be under no obligation to seek other
employment and there shall be no offset against any amounts due the Executive
hereunder on account of any remuneration the Executive may obtain from any
subsequent employment.
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6.4 Arbitration. Any and all disputes or controversies arising out of
or relating to this Agreement, other than injunctive relief pursuant to Section
3.4, shall be resolved by arbitration at the American Arbitration Association at
its New Mexico offices before a panel of three arbitrators under the then
existing rules and regulations of the American Arbitration Association. The
parties agree that in any such arbitration, the arbitrators shall not have the
power to reform or modify this Agreement in any way and to that extent their
powers are so limited. The determination of the arbitrators shall be final and
binding on the parties hereto and judgment on it may be entered in any court of
competent jurisdiction. Except as required by law, neither the Company nor the
Executive shall issue any press release or make any statement which is
reasonably foreseeable to become public with respect to any arbitration or
dispute between the parties without receiving the prior written consent of the
other party to the content of such press release or statement. In the event the
Executive prevails in such proceedings, as determined by the arbitrators, the
Company shall reimburse the Executive for all expenses (including, without
limitation, reasonable legal fees and expenses) incurred by the Executive in
connection with such proceeding or any other proceeding in which the Executive
prevails in contesting or defending any claim or controversy arising out of or
relating to this Agreement. All such amounts shall be paid promptly, but in any
event within ten (10) days after the Executive provides the Company with a
statement of such amounts to be recovered. In the event the Executive does not
prevail in such proceedings, as determined by the arbitrators, each party hereto
shall be responsible for their own expenses (including, without limitation,
legal fees and expenses) incurred in connection with such proceedings.
6.5 Indemnification. In addition to the indemnification provided under
the Company's Articles of Incorporation and By-Laws, the Company hereby agrees
to hold the Executive harmless
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and indemnify the Executive from and against, and to reimburse the Executive
for, any and all judgments, fines, liabilities, amounts paid in settlement and
expenses, including attorneys' fees, incurred directly or indirectly as a result
of or in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, whether or
not such action, suit or proceeding is by or in the right of the Company to
procure a judgment in its favor, including an action, suit or proceeding by or
in the right of any other corporation of any type or kind, domestic or foreign,
or any partnership, joint venture, trust, employee benefit plan or other
enterprise for which the Executive served in any capacity at the request of the
Company, to which the Executive is, was or at any time becomes a party, or is
threatened to be made a party, or a result of or in connection with any appeal
therein, by reason of the fact that the Executive is or was at any time a
director, officer, employee or agent of the Company; provided, however, that (i)
indemnification shall be paid pursuant to this paragraph if and only if the
Executive acted in good faith and in a manner reasonably believed by the
Executive to be in or not opposed to the best interests of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe the Executive's conduct was unlawful; and (ii) no indemnification shall
be payable pursuant to this paragraph if a court having jurisdiction in the
matter shall determine that such indemnification is not lawful.
6.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the New Mexico without regard to its
Conflicts of Laws provisions.
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6.7 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.9 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understanding, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect of such terms as are
included in this agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statements of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.10 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties and obligations hereunder may not be assigned
or delegated by any party without the prior written consent of the other party.
Any such assignment or delegation without the prior written consent of the other
party shall be void and be of no effect. Notwithstanding the foregoing
provisions of this Section 6.10, the Company may assign or delegate its rights,
duties and obligations hereunder to any person or entity which succeeds to all
or substantially all of the business of the Company through merger,
consolidation, reorganization, or other business combination or by
17
<PAGE>
acquisition of all or substantially all of the assets of the Company; provided
that such person assumes the Company's obligations under this Agreement in
accordance with Section 5.1.
6.11 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee, if there be no such designee, to the Executive's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MUSE TECHNOLOGIES, INC.
A Delaware corporation
By: /s/ Curtiz J. Gangi
-------------------------------
Name: Curtiz J. Gangi
Title: President
EXECUTIVE
/s/ Doug Harless
-------------------------
Doug Harless
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PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
MUSE TECHNOLOGIES, INC.
SUPER VALUE-ADDED RESELLER (S-VAR) AGREEMENT
THIS AGREEMENT dated June 19, 1998, by and between Continuum
Resources International, ASA having headquarters at 2424 Wilcrest, Suite 100
(hereafter, "S-VAR and S-VAR Subsidiary(ies)", and Muse Technologies, Inc.,
(hereafter "MTI") a Delaware Corporation having headquarters at 1601 Randolph
SE, Suite 210, Albuquerque, NM 87106.
WHEREAS, MTI has proprietary rights in certain software identified in
Attachment A hereto, and made a part hereof, (hereinafter referred to as "MTI
Licensed Product(s)"), and whereas MTI wishes to enhance the marketing, sales
and distribution of MTI Licensed Product(s). MTI has established its S-VAR
Program under which MTI sells to S-VAR(s) for integration of S-VAR product(s)
with the MTI Licensed Product(s).
WHEREAS, MTI is willing to grant such rights to market, sell and
distribute MTI Licensed Product(s) as described in MTI's Price List,
Attachment A. In addition, S-VAR is empowered to initiate and participate in
negotiations, upon MTI written approval and within the assigned Trading Area,
between MTI and 3rd parties (who are brought to MTI by S-VAR), for other MTI
VAR agreements. If "Up-front" money is paid to MTI for any of these
agreements, S-VAR is entitled to share in the "Up-front" revenue on a [ * ]
basis with MTI. ("Up-front" money is required from any reseller partner who
purchases a territory with exclusivity within the designated assigned Trading
Area for reselling MTI products.)
WHEREAS, S-VAR or S-VAR Subsidiary(ies) wishes to acquire the right
to integrate the MTI Licensed Product(s) and to resell with S-VAR Product(s)
in conjunction with their business and in accordance to the terms and
conditions of this Agreement, and whereas, S-VAR agrees to participate in
MTI's S-VAR Program and to market, sell and distribute the MTI Products to
End-Users of the S-VAR within the S-VAR's designated assigned Trading Area.
THEREFORE, S-VAR or S-VAR Subsidiary(ies) and MTI desire to enter
into this Agreement to set forth all of the obligations of the parties with
respect to the foregoing terms and conditions that are applicable herewith and
with those terms and conditions which may be agreed upon by both parties and
incorporated within this agreement from time to time as modifications.
ATTACHMENTS:
ATTACHMENT A, Muse Price List with Standard Terms &
Conditions,
ATTACHMENT B, End-User Software License Agreement,
ATTACHMENT C, Volume Commitment and Reseller Discount
Schedule,
<PAGE>
ATTACHMENT C, (Exhibit 1): S-VAR Sales Schedule Commitment,
ATTACHMENT D, S-VAR Application Software and Hardware
Product(s),
ATTACHMENT E, S-VAR Agreement, Modifications
are incorporated into and form a part of this agreement. The original forms of
all Attachments listed above are the versions of the Attachments which are in
effect as of the date of this agreement. Muse may, from time to time, in
mutual agreement with S-VAR, modify Attachments A, B, and C; and also may,
from time to time, change the terms of the MTI S-VAR Reseller Program, but
will offer to S-VAR the option to elect either continuance of this agreement,
or adoption of the new agreement. In the event of a change to Attachment A,
MTI will provide a written notice of amendment to the S-VAR, which will after
30 days become a part of this agreement and will supersede any prior
notifications sent to the S-VAR subject to the referenced modifications.
DEFINITIONS: (as used in this agreement)
(Diamond) "Application" means S-VAR's application software
and hardware products(s) and services as submitted
to MTI for approval by the S-VAR and identified on
Attachment D.
(Diamond) "Volume Commitment" means S-VAR's committed sales
volume within S-VAR's designated trading area as
listed on Exhibit 1.
(Diamond) "Confidential Information" means information and/or
materials containing information which concern,
without limitation, MTI's software secrets,
business plans, customers, technology or products,
and are proprietary and/or confidential in nature.
(Diamond) "Effective Date" means the date upon which the term
of this agreement will commence, and after MTI
signs this agreement on the signature page hereof.
In the case of a Master VAR, or S-VAR agreement,
the effective date of the contract will be no later
than ten days after all required signatures are on
the agreement, and on the day in which the
"up-front" funds have been transferred to the MTI
bank accounts.
(Diamond) "End User" means S-VAR's customers or S-VAR's
Subsidiary(ies), which shall only be the ultimate
End-Users of Product(s), (i.e. S-VAR may not market
or distribute MTI Licensed Product(s) through
intermediaries such as contractors, dealers or
other distributors.) End-Users shall not include
any agency, department, or entity of the U.S.
Government, unless previously agreed to by MTI in
writing as an integrated part of the S-VAR's
Trading Area.
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(Diamond) "Software License" means MTI's standard End-User
Software License agreement, as may be amended from
time to time by MTI, Attachment B.
(Diamond) "Product(s)" means any combination of equipment and
licensed software.
(Diamond) "S-VAR Subsidiary(ies)" means any entity of which
50% or more of the voting rights are owned or
controlled, directly or indirectly, by S-VAR;
provided, however, that such entity shall be deemed
to be a S-VAR Subsidiary only for so long as such
ownership or control exists by the S-VAR.
(Diamond) "S-VAR Transfer of Software License Agreement
Attachment" is an attachment of the standard MTI
Software License Agreement which S-VAR, in
accordance with MTI Software License Agreement,
will complete and forward to MTI whenever it
resells MTI Licensed Product(s).
(Diamond) "Trademarks" means any trademark, or marks or
tradename which MTI may designate or use, or adapt
from time to time.
(Diamond) "MTI License Product" shall mean all current
versions of MTI software programs identified in
MTI's Price List, Attachment A, and the
documentation used in conjunction therewith, in
final form only, in existence as of the Effective
Date of the contract.
(Diamond) "Know How" means the valuable, confidential,
proprietary information of MTI relating to the
contents, workings, installation and implementation
of the MTI Licensed Product(s).
(Diamond) "Market" means the right of S-VAR to promote and
offer MTI Licensed Product(s), together with the
right to directly transfer ownership of MTI
software license(s) to its End-Users to use the MTI
Licensed Product(s) with a designated CPU.
(Diamond) "Trading Area" means the designated territory in
which the S-VAR may sell MTI Licensed Product(s).
NOW THEREFORE, in consideration of the covenants and conditions set
forth herein, the parties hereto agree as follows:
3
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
1. SALE OF MTI LICENSED PRODUCT(S)
1.1 Sale of MTI Licensed Product(s). MTI agrees to sell to S-VAR, and
S-VAR agrees to purchase MTI Licensed Product(s) under the terms and
conditions of this Agreement for the S-VAR's Market. Payment terms
are net [ * ] days after the date of invoice by MTI to S-VAR, and
deliveries will be made F.O.B. Albuquerque, New Mexico.
1.2 Trading Area. MTI authorizes S-VAR to resell MTI Licensed
Product(s) and services on an industry exclusive basis within the
following Trading Area:
o The Petroleum Industry, U.S. Wide
o The International Petroleum Industry,
(Any International order of MTI Licensed Products by S-VAR must be
pre-approved in writing by MTI prior to the sale, due to the fact
that MTI must limit sales to countries which are restricted by U.S.
Federal Laws.)
1.3 Licensed Product. As used in this agreement, "Licensed
Product(s)" means the proprietary software and operating system
product modifications distributed by MTI as the MTI Licensed
Product(s).
1.4 Standard Terms and Conditions: MTI Standard Terms and Conditions
of Sale, Attachment A, are hereby incorporated into and made a part
this contract. In the case of conflicting terms between this S-VAR
agreement and MTI's Standard Terms and Conditions, the terms of this
S-VAR agreement will prevail.
1.5 Trading Area Restrictions: MTI Reserves the following Trading
Areas within the Petroleum Industry to be "non-protected for
exclusivity", and restricts the S-VAR from marketing, selling, or
distributing the MTI licensed product (s) in the following areas
except when specifically approved by MTI in writing:
o Relational Database for Non-Petroleum based
Applications
o Commercial Banking and Financial Applications
2. DISTRIBUTION OF MTI LICENSED PRODUCT(S)
2.1 Grant of MTI S-VAR License. Subject to the terms and conditions
of this Agreement, MTI grants to S-VAR, and S-VAR accepts from MTI,
an exclusive and
4
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
non-transferable license to market, sell and distribute copies of
the MTI Licensed Product(s) supplied to S-VAR by MTI, solely within
the assigned designated Trading Area and Markets as defined in
section 1.2 of the Agreement. (Shipments by the S-VAR outside the
United States must be specifically approved by MTI in writing prior
to offer being made). S-VAR acknowledges that nothing in this
Agreement precludes MTI from distributing the MTI License Product(s)
directly to MTI End-Users or through other contractors, dealers,
distributors, and value-added resellers in this market or any other
vertical markets, industries or brokerages. [ * ]
[ * ]
[ * ]
[ * ]
[ * ]
S-VAR may only sell MTI Licensed Product(s) in the assigned
Trading Area where it is able to provide adequate face-to-face
support for the product, and maintain a showroom and/or demonstration
facility to promote, demonstrate and sell the S-VAR product(s) in
which MTI Licensed Product(s) will be integrated. S-VAR shall not
sell or offer to sell product outside the assigned Trading Area or to
entities, departments or agencies of the U.S. Government outside the
Trading Area without MTI's prior written permission.
2.2 Title to MTI Licensed Product(s).
S-VAR shall be deemed to have purchased from MTI, for distribution
under this Agreement, only the magnetic and other physical media on
which copies of the MTI Licensed Product(s) are delivered by MTI.
Title to the Licensed Product(s) shall at all times remain with MTI
and nothing in this Agreement shall be construed to effect a transfer
of ownership of the MTI Licensed Product(s), which is licensed only
and not sold to S-VAR's customers.
2.3 Distribution Copies.
For each copy of the MTI Licensed Product(s) to be supplied to S-VAR
under this Agreement, MTI will deliver one copy of the computer
programs on magnetic media or via electronic transfer. Neither S-VAR
nor their customers shall have any rights to the source code for the
MTI Licensed Product(s) under this Agreement.
2.4 End-User Licenses.
All copies of the MTI Licensed Product(s) distributed under this
Agreement by the S-VAR shall be subject to the terms and conditions
of the MTI Software License Agreement and the MTI S-VAR Transfer of
Software License Agreement, a copy of both of which are attached as
Attachment B to this Agreement. Except as provided otherwise
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below, S-VAR may distribute a copy of the MTI Software Licensed
Product(s) only if the MTI Software License Agreement has been signed
by the S-VAR and the MTI S-VAR Transfer of Software License Agreement
for the S-VAR's End User has been completed and signed by both
parties and returned to MTI corporate office for registration by MTI.
S-VAR shall have no authority to modify any provision of the MTI
Software License Agreement and the MTI S-VAR Transfer of Software
License Agreement Attachment. However, when notified of an END-USER
requested change to either the MTI Software License Agreement or the
MTI S-VAR Transfer of Software License Agreement Attachment, MTI will
not unreasonably refuse changes therein. VAR S-VAR agrees to refer
all inquiries concerning customized MTI Software Licenses for use of
the (i.e., site licenses, floating licenses, etc.), MTI Licensed
Product(s) to MTI.
2.5 Certain Restrictions. S-VAR agrees that it will not: (a) copy or
otherwise duplicate the Licensed Product(s) or any part thereof, (b)
rent, lease, lend or otherwise transfer on a temporary basis any copy
of the Licensed Product(s) without completing MTI's S-VAR Transfer of
Software License Agreement Attachment and forwarding to MTI for
registration by MTI, C distribute any copy of the Licensed Product(s)
in violation of any provision of this Agreement, or (3) prepare any
derivative works not approved for distribution by MTI based on the
MTI Licensed Product(s) or otherwise modify or adapt the MTI License
Product(s) in any manner without written approval of MTI. MTI shall
be entitled to terminate this Agreement immediately upon written
notice to S-VAR in the event of any violation of this section.
2.6 Support Provider: In the event S-VAR desires to become an
authorized support provider for MTI products, each S-VAR entity,
(i.e., office, employee) that will provide support must be approved
by MTI and participate in MTI training for the MTI products to be
supported.
2.7 MTI Derivative Products: MTI will enter into discussions with
S-VAR relative to marketing or sales of derivative products which
will not require MTI development or run-time licenses but in which
will be embedded MTI licensed products.
3. MARKETING AND PROMOTION
3.1 Marketing Materials. MTI will make available to S-VAR at
reproduction charge only, such promotional materials for the MTI
Licensed Product(s) as MTI may from time to time make generally
available to other participants in the MTI S-VAR Programs. MTI may,
in its sole discretion, include S-VAR's name on such promotional
materials as MTI determines to be appropriate.
3.2 Trademarks and Trade Names
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3.2.1 S-VAR acknowledges and agrees that all rights in trade
names, and the "MTI" product name and all trademarks and
service marks associated therewith, and any and all
packaging, trade dress, advertising and marketing materials
MTI creates or develops for the MTI License Product(s), are
and shall at all times
remain MTI's exclusive property and S-VAR will acquire no interest
therein by virtue of this Agreement or S-VAR's performance
thereunder.
3.2.2 MTI hereby grants to S-VAR a nonexclusive license to
use MTI's product names and trademark(s) in S-VAR's
marketing, sales and distribution of the MTI Licensed
Product(s), subject to and in accordance with the terms and
conditions of this Agreement. MTI makes no warranty, express
or implied, as to the use of validity of its trade names and
marks.
3.2.3 Unless otherwise directed in writing by MTI, S-VAR
shall refer to MTI Licensed Product(s) in all advertising,
marketing and similar materials prepared by S-VAR as
(upsilon)uSE(TM) (Multidimensional, User-oriented, Synthetic
Environment) or to other MTI trademarks, logos or product
names and services as appropriate (together "MTI Marks").
S-VAR shall comply with all written guidelines furnished by
MTI. S-VAR shall include in all materials referring to the
MTI Licensed Product(s) the following legend, or such
similar legends as MTI may direct concerning the MTI Marks:
"(upsilon)uSE(TM) (Multidimensional, User-oriented, Synthetic
Environment)" and the MTI logo are trademarks of Muse
Technologies, Inc. S-VAR shall not distribute any
advertising, marketing and similar materials referring to
the MTI Licensed Product(s) or MTI unless MTI has approved
the form of such materials in advance in writing.
3.2.4 S-VAR shall in no way use the MTI Marks, or any
product name or trademark or service mark of MTI, or any
confusingly similar name or make, as part of S-VAR's
corporate name or trademark. Upon termination of this
Agreement, S-VAR shall cease to use any proprietary name or
mark of MTI or any confusingly similar name or mark.
4. TECHNICAL SUPPORT
4.1 Support to End-Users. At S-VAR's sole expense, S-VAR agrees to
maintain a qualified support staff capable of providing technical
support services as S-VAR's customers may require. S-VAR shall make
its support staff available to customers for telephone consultation
during S-VAR's normal business hours, with charges for this support
at the discretion of the S-VAR. The S-VAR may also refer its
customers to MTI for any additional support services required, but
S-VAR's customers will be charged at MTI's published rates for this
service, and the referral will be accepted by MTI at MTI's
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
option. Where MTI provides direct support at S-VAR's customer's
outside the U.S.A., MTI shall charge a surcharge of [ * ] above its
published support rates, and actual and reasonable expenses for
travel and subsistence will be added.
4.2 MTI support to S-VAR. MTI shall make its License Product(s)
support staff available during MTI's ordinary business hours for
reasonable telephone technical consultation services with personnel
from S-VAR's support staff responsible for the Licensed Product. MTI
shall furnish such technical consultation services to S-VAR's
End-User customers at MTI's normal hourly rate as published by
established catalogue price lists. The license fee does not include
installation or annual maintenance of the software. MTI will furnish
installation and maintenance services as mutually agreed upon by MTI
and S-VAR, if desired by licensee, for additional installation fee
listed in MTI standard price list, Attachment A.
5. UPDATES
5.1 MTI Updates. MTI may from time to time make available, either
with or without charge, updated, enhanced or corrected revisions of
the Licensed Product (referred to below as "Updated Versions") and
will promptly notify S-VAR of the availability and cost to S-VAR of
such Updated Versions. S-VAR shall promptly notify the end-users to
which it has distributed the MTI Licensed Product(s) of the
availability of such Update Versions and with information on how to
procure such version and its cost for Updated Versions which MTI
makes this information available to S-VAR without charge. S-VAR will
furnish such versions to end-users who request the same without
charge to the end-user other than reasonable charges for
shipping/handling and for any installation services provided by
S-VAR. MTI may, in its sole discretion, make Updated Versions
available to end-users directly from MTI or through contractors,
dealers or other third parties.
6. TERM AND TERMINATION
6.1 Term of Agreement. This Agreement shall become effective on the
date executed by the parties to sign and shall remain in effect for
an initial term ending three (3) years from such date (the "Initial
Term"). Thereafter, this Agreement shall be renewed for successive
three (3) year periods (the "Renewal Term") unless either party gives
written notice of termination not less than sixty (60) days prior to
the termination of the Initial Term or any Renewal Term. As long as
S-VAR continues to meet quotas listed on Exhibit 1 to Attachment C of
this agreement, MTI will not terminate this agreement without cause
nor refuse to renew agreement for successive terms. The provisions of
this
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Section 6.1 are subject to all termination provisions of this
Agreement, including Section 6.2 below.
6.2 Default and Termination. S-VAR may terminate this Agreement if
MTI materially defaults in the performance of its obligations
thereunder and fails to cure such default within ninety (90) days
after written notice thereof from S-VAR. Such termination shall be by
S-VAR's sole remedy in the event of default by MTI.
S-VAR shall be deemed in material default under this
Agreement if S-VAR fails to pay any amounts when due thereunder,
cancels or attempts to cancel this Agreement prior to delivery, or
refuses delivery, or otherwise fails to perform its obligations. In
the event of a material default by S-VAR, MTI may, upon written
notice to S-VAR: (1) suspend its performance and withhold shipments
in whole or in part, and/ or (2) terminate this Agreement, and/or (3)
declare all sums owing to MTI immediately due and payable and/or (4)
recall products in transit, retake the same and repossess any
products held by MTI for S-VAR's account, without the necessity of
any other proceedings, and S-VAR agrees that all products so recalled
taken or repossessed shall be the property of MTI, provided that
S-VAR is given credit therefore.
Exercise of any of the foregoing remedies by MTI shall not preclude
exercise of any of the others, and neither the existence nor exercise
of any such remedies shall be construed as limiting, in any manner, any
of the rights or remedies available to MTI under the Uniform Commercial
Code or other laws.
6.3 Non Performance to Contracted Sales Volumes. At the option of MTI
if S-VAR fails to achieve Committed Sales Volumes as defined in
Exhibit 1, S-VAR Sales Schedules Commitment, MTI reserves the right
to terminate this contract or reduce future discounts allowable.
6.4 Effect of Termination. Upon any termination of this Agreement,
S-VAR shall immediately discontinue any distribution of the Licensed
Product and shall immediately return to MTI at S-VAR's expense, MTI
Licensed Product(s) not yet purchased, MTI Confidential Materials,
and Marketing Materials in S-VAR's possession. S-VAR shall continue
to be obligated for any amounts due MTI as of the date of
termination. MTI shall retain rights to all customer identification
and ancillary information as part of its normal MTI End-User license
registration process. In the event MTI terminates this agreement with
S-VAR, MTI agrees to provide continued support and maintenance
directly to end users of S-VAR as long as end-user continues to pay
the required maintenance and renewal fees directly to MTI.
7. ORDERS AND PRICES
7.1 Orders. All orders from S-VAR for MTI Licensed Product(s) shall
be paid in US Dollars and subject to this Agreement, and the terms
and conditions of this
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
Agreement shall supersede any conflicting or additional terms and
conditions contained in S-VAR's purchase orders except that such
purchase orders shall be effective as to quantity of copies ordered
by S-VAR. All orders are subject to acceptance in writing by MTI at
its principal place of business, and shall not be binding until the
earlier of such acceptance or shipment, and in the case or shipment,
only as to the portion of the order actually shipped.
7.2 Price. MTI's current list prices, rates and license fees are
listed in Attachment A, and may he updated from time to time.
International pricing for MTI Licensed Product(s) will incur a [ * ]
surcharge on all shipments outside the US. All International
shipments are required to be pre-paid prior to shipment. MTI shall
provide written notice to S-VAR at least thirty (30) days prior to
the effective date of any increase or decrease to its current list
prices. S-VAR will pay MTI for each MTI Licensed Product(s) or
Services shipped by MTI pursuant to S-VAR's orders. Payment terms are
net [ * ]. The price shall be equal to MTI's current list price less
discount in effect on the date the order is received by MTI as
defined in Attachment C (Reseller Discount Schedule). MTI further
guarantees that all S-VAR's within the MTI S-VAR Program (except for
Master S-VARS) will receive an equally discounted rate for equal
sales volume commitment described by the annual volume commitment
table shown in Exhibit 1. MTI guarantees S-VAR that the listed
selling price to MTI's direct customers will not fall below S-VAR's
discounted prices and result in an non-competitive pricing scenario
for the S-VAR.
7.3 Taxes. The price of the MTI Licensed Product(s) established under
this Agreement does not include any federal, state or local sales,
use, value-added or other taxes and fees which MTI may be required to
pay or collect upon delivery to S-VAR. S-VAR agrees to pay MTI the
amount of any such taxes or fees upon receipt of MTI's invoice
thereof.
7.4 Payment Terms. For MTI contracted services or consultation, an
initial advanced deposit of [ * ]is required to begin work by MTI.
Payment for the MTI Licensed Product(s) and contract services ordered
by the S-VAR shall be due [ * ] days from the date of shipment or as
otherwise provided.
7.5 Shipment and Risk of Loss. S-VAR will be responsible for, and pay
all shipping charges incurred by MTI in shipping MTI Licensed
Product(s) to S-VAR. All risk of loss or damage to any shipment will
pass to S-VAR upon delivery by MTI to the shipper. MTI Licensed
Product(s) shall be shipped F.O.B. Albuquerque, New Mexico to any
location in the United States designated by S-VAR when delivered to
the shipper at the shipping point. MTI reserves the right to ship
products collect. In the event S-VAR rejects or revokes acceptance of
the products for any reason, all risk of loss and/or
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
damage to such products shall remain at S-VAR's expense unless and
until the same are returned at S-VAR's expense to such place as MTI
may designate in writing.
7.6 Deliveries. MTI may make partial shipments, to be separately
invoiced and paid when due in accordance with the payment terms set
forth above. MTI will use all reasonable efforts to meet S-VAR's
delivery schedule, but shall not be liable for any failure or delay
in shipment due to any cause beyond MTI's control. MTI reserves the
right to refuse, cancel or delay shipment when S-VAR is delinquent in
payments to MTI, or when S-VAR has failed to perform its obligations
under this Agreement. S-VAR agrees that such delay in delivering or
failure to deliver or perform any part of this Agreement shall not be
grounds for S-VAR to terminate or refuse to comply with any provision
of this Agreement and no penalty of any kind shall be effective
against MTI for delay or failure, provided, however, that if the
delay or failure extends beyond [ * ] from the originally scheduled
date either party may, with written notice to the other, terminate
this Agreement without further liability. Each shipment shall be
considered a separate and independent transaction and payment for
each shipment shall be due accordingly.
7.7 Acceptance. All products delivered thereunder shall be deemed
accepted by S-VAR as conforming to this Agreement, and S-VAR shall
have no right to revoke any acceptance, unless written notice of the
claimed nonconformity is received by MTI within [ * ] days of
delivery thereof. Notwithstanding the foregoing, any use of a product
by S-VAR, its agents, employees, contractors or licensees, for any
purpose after delivery thereof, shall constitute acceptance of that
product by S-VAR.
7.8 S-VAR Export Control. S-VAR shall abide by the export control
laws and regulations of the United States Department of Commerce and
other United States governmental regulations relating to the export
of MTI Licensed Product(s). Failure to obtain an export control
license or other authority from the United States Government may
result in criminal liability under US Laws. All export requirements
will be registered by S-VAR with the United States Export Agency and
copies of all filings will be provided to MTI.
8. INFRINGEMENT
8.1 Infringement. The sale of MTI Licensed Product(s) thereunder does
not convey any express or implied license under any patent,
copyright, trademark or other proprietary rights owned or controlled
by MTI, whether relating to the MTI Licensed Product(s) sold to any
manufacturing process of MTI or other matter. All rights under any
such patent copyright, trademark or other proprietary rights are
expressly reserved by MTI.
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
The foregoing state MTI's sole liability for any claim based
upon or related to any alleged infringement of any patent or other
intellectual property rights. MTI shall have no liability for any
claim of infringement which is based on a combination of products
furnished under this Agreement with products, equipment or materials
nor furnished here under, or based upon any items made with the
products furnished under this Agreement. S-VAR shall defend and hold
MTI harmless against any claimed infringement of patents, trademarks
or other intellectual property rights arising out of compliance by
MTI with S-VAR's designs, specifications or instructions.
9. WARRANTY: LIMITATIONS ON LIABILITY
9.1 Limited Warranty. For [ * ] days following the delivery of the
MTI Licensed Product(s) to S-VAR, the MTI Licensed Product(s) will
substantially conform to MTI's then current User Documentation for
the MTI Licensed Product(s) and shall be free of defects. S-VAR
agrees that MTI's sole liability and S-VAR's sole remedy for
non-conformities or defects in the MTI Licensed Product(s) shall be
that for such [ * ] after delivery for the same, MTI will: (a)
correct any reproducible failure of the Licensed Products to
substantially confirm to such specifications; (b) replace defective
media with conforming media.
9.2 Compatibility. MTI further warrants that the Licensed Products
are compatible with the systems and environments identified within
the Commercial MTI price list.
9.3 No Other Warranties. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH
ABOVE, AND IN MTI's SOFTWARE LICENSE AGREEMENT MTI MAKES NO EXPRESS
OR IMPLIED WARRANTY WITH RESPECT TO THE MTI LICENSED PRODUCT(S),
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE; AND THE EXPRESS WARRANTY STATED
ABOVE IS IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF MTI FOR DAMAGES
ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, USE, OR
PERFORMANCE OF THE LICENSED PRODUCTS.
THE AGGREGATE LIABILITY TO MTI, IN DAMAGES OR OTHERWISE,
SHALL IN NO EVENT EXCEED THE PAYMENT, IF ANY, RECEIVED BY MTI FOR THE
PRODUCTS FURNISHED OR TO BE FURNISHED, AS THE CASE MAY BE, WHICH IS
THE SUBJECT OF CLAIM OR DISPUTE. IN NO EVENT SHALL MTI BE LIABLE FOR
SIMILAR LOSS OR DAMAGES OF ANY KIND, HOWEVER CAUSED, OR ANY PUNITIVE
DAMAGES OR RESULTING FROM ANY BREACH
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OF WARRANT, WHETHER EXPRESS OR IMPLIED, OR OTHERWISE, RELATING TO THE
PRODUCTS EVEN IF S-VAR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES OR IF THE REMEDIES HEREIN ARE FOUND INADEQUATE. NO ACTION,
REGARDLESS OF FORM, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT OR PRODUCTS FURNISHED BY MTI MAY BE BROUGHT BY S-VAR MORE
THAN ONE (1) YEAR AFTER THE CAUSE OF ACTION ACCRUED.
THE PARTIES EXPRESSLY AGREE THAT LIMITATIONS ON MTI's
LIABILITY FOR S-VAR's DAMAGES AS PROVIDED IN SECTION 9 ABOVE SHALL BE
INDEPENDENT OF THE REMEDIES PROVISION OF SECTION 9 AND SHALL BE VALID
AND ENFORCEABLE WHETHER OR NOT THE REMEDIES SET FORTH IN SECTION 9
"FAIL OF THEIR ESSENTIAL PURPOSE" UNDER SECTION 2-719(2) OF THE
UNIFORM COMMERCIAL CODE.
10. RELATIONSHIP OF THE PARTIES
The relationship between MTI and S-VAR under this Agreement is
intended to be that of independent contractors. Nothing in this agreement
shall be construed to create any partnership, joint venture or agency
relationship of any kind. Neither party has any authority under this Agreement
to assume or create any obligations on behalf of or in the name of the other
party or to bind the other party, to any contract, Agreement or undertaking
with any third party.
11. NOTICES
All notices in connection with this Agreement shall be in writing and
shall be sent, in person or by first-class mail, postage prepaid, to the
address for the recipient set forth by its signature below or to such other
address as such party may hereafter specify by notice to the other. Such
notices shall be deemed given when delivered to the other party or, if sooner,
three (3) days after mailing if mailed by certified or registered mail,
postage prepaid.
12. GENERAL
12.1 Applicable Law. This Agreement and all disputes in any way
related to, arising under, in connection with, or incident to this
Agreement shall be governed by the laws of the United States of
America, and the State of New Mexico (excluding New Mexico's conflict
of laws rules which would refer to and apply the substantive laws of
another jurisdiction). The Parties expressly agree that this
Agreement shall not be subject to the United Nations Convention on
the International Sale of Goods. Any suit or proceedings thereunder
shall be brought only in Albuquerque, New Mexico, and each of the
Parties consent to the personal jurisdiction of the courts located
therein.
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12.2 Arbitration. Any claim or dispute between the parties arising
out of or in connection with this Agreement or the breach or
performance hereof shall be determined exclusively by arbitration in
the state of New Mexico, in accordance with the then applicable rules
of the American Arbitration Association except for matters involving
less than $50,000 (exclusive of interest and costs) and except for
claims of infringement of MTI's proprietary rights in the Licensed
Product(s) or any trade name, trademark or service mark of MTI or
violations of Section 2.5 of this agreement. The determination and
any award in such arbitration will be final and binding on the
parties, and judgment thereon may be entered in any court of
competent jurisdiction.
12.3 Costs of Enforcement. In the event any judicial or arbitration
proceedings between the parties are commenced with respect to any
claim or dispute arising out of or in connection with this Agreement,
or the breach or performance hereof, the party who prevails in such
action upon the final determination thereof shall be awarded, in
addition to such amounts as may be awarded in the action, its costs
and expenses incurred in prosecuting or defending the action
including reasonable fees and expenses of counsel.
12.4 Security Interest. Upon delivery to S-VAR, MTI reserves a
security interest in MTI Licensed Product(s) for which payment has
not been received. S-VAR shall execute any documents required to
perfect MTI's security interest. Upon default by S-VAR, MTI shall
have all of the rights of a secured party under the Uniform
Commercial Code.
12.5 Waiver. No failure by a party at any time to require performance
of any provision of this Agreement will affect the right of such
party to require performance at any later time. No waiver by a party
of a breach of any provision of this Agreement shall be construed as
a waiver of any succeeding breach of such provision or a waiver of
the provision itself. No waiver shall be effective unless in writing
and signed by the party sought to be charged therewith.
12.6 Assignment. Neither this Agreement nor any license or right here
under may be assigned or sub-licensed by S-VAR, in whole or in part,
without the express written consent of MTI, which consent may be
withhold in MTI's sole discretion. Any prohibited assignment or
sub-license shall be void. In the event of any change in the ownership
of a controlling equity interest in S-VAR, MTI may terminate this
Agreement upon written notice to S-VAR, but MTI shall remain obligated
thereunder notwithstanding any such assignment.
12.7 Binding Effect. This Agreement shall be binding upon and insure
to the benefit of the successors and permitted assigns of the
respective parties hereto.
12.8 Severability. If any provision of this Agreement is declared by
a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions of this Agreement will
nevertheless continue in full force and effect without being impaired
or invalidated in any way.
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12.9 Caption. The captions contained in this Agreement are for
reference only and shall not be used in the construction and
interpretation of this Agreement.
12.10 Entire Agreement. This Agreement constitutes the entire
understanding and Agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior Agreements or
understandings, written or oral, between parties with respect to such
subject matter.
12.11 Modification. This Agreement may not be amended except by a
written instrument signed by both parties.
12.12 Compliance with all laws. S-VAR agrees it will perform its
obligations under this Agreement in accordance with all applicable U.S.A.
laws, rules and regulations now or hereafter in effect, including but not
limited to those laws, rules and regulations regarding the testing, licensing,
registrations and administrative filings and disclosures, manufacture,
distribution and exporting of the MTI Licensed Product(s) within the United
States and within relevant foreign countries.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
by their authorized representative on the date indicated below:
Continuum Resources International ASA Muse Technologies, Inc.
By: /s/ J.M. Hume By: /s/ Curtiz J.Gangi
----------------------------- --------------------
Name: J.M. Hume Name: Curtiz J. Gangi
----------------------------- --------------------
Title: CEO Title: President
----------------------------- --------------------
Date: 6/19/98 Date: 6/19/98
----------------------------- --------------------
Address for Notices: Address for Notices:
2424 Wilcrest #100
- ----------------------------- ---------------------------
Houston
- ----------------------------- ---------------------------
TX 77042
- ----------------------------- ---------------------------
Phone: (703) 974 6907 Phone:
--------------------
FAX: (703) 974 1496 FAX :
--------------------
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* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
ATTACHMENT A
(Muse U.S. Price List and Standard Terms & Conditions)
U.S. COMMERCIAL PRICE LIST
1/1/98
PRODUCTS & PRODUCT SUPPORT SERVICES
<TABLE>
<CAPTION>
PRODUCT
SOFTWARE DEVELOPMENT LICENSE ANNUAL SUPPORT AND INSTALLATION &
LICENSE MAINTENANCE INTEGRATION
- ------------------------- --------------- -------------------- -----------------
<S> <C> <C> <C>
SINGLE USER
Foundation [ * ] [ * ] [ * ]
Renaissance [ * ] [ * ] [ * ]
SHARED ENVIRONMENT
Continuum Foundation
Renaissance with [ * ] [ * ] [ * ]
Continuum Module
APPLICATION RUN-TIME
LICENSE
Foundation [ * ] [ * ]
Renaissance [ * ] [ * ]
Continuum Foundation
Renaissance Continuum [ * ] [ * ]
APPLICATION PRODUCTS
Solar System Development [ * ] [ * ]
Run-Time Model [ * ] [ * ]
StarDust Model [ * ] [ * ]
Development [ * ] [ * ]
Run-Time Model
</TABLE>
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ATTACHMENT A, PAGE 2
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
<TABLE>
<S> <C> <C> <C>
FEA Analyzer [ * ] [ * ]
Development [ * ] [ * ]
Run-Time
ADD-ON MODULES
Audio Software [ * ] [ * ] configuration dependent
Voice Recognition [ * ] [ * ] configuration dependent
Speech Synthesis [ * ] [ * ] configuration dependent
Real Time Collision [ * ] [ * ] configuration dependent
Detect
TRAINING & CUSTOM
SUPPORT SERVICES
Training Class # PEOPLE ON-SITE OFF-SITE
Site Administration
(hardware) 5 2 days [ * ] [ * ]
Site Administration
(Software) 5 3 days [ * ] [ * ]
Application Development
Introductory 5 5 days [ * ] [ * ]
Application Development
Advanced 3 days [ * ] [ * ]
Custom Classes Available
</TABLE>
Note: All International Orders require a [ * ] addendum to above listed prices:
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ATTACHMENT A, PAGE 3
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
<TABLE>
<CAPTION>
TRAINING & CUSTOM SUPPORT SERVICES
Training Class # Persons Duration On-Site (?) Off-Site (?)
<S> <C> <C> <C> <C>
Site Administration 5 2 Days [ * ] [ * ]
(hardware)
Site Administration 5 3 Days [ * ] [ * ]
(Software)
Application Development 5 5 Days [ * ] [ * ]
Introductory
Application Development 5 3 Days [ * ] [ * ]
Advanced
Custom Classes Available
CONSULTING SERVICES
Technical Support 1 [ * ] [ * ]
1 1st Day [ * ] [ * ]
Design Support 1 .5 day [ * ] [ * ]
1 [ * ] [ * ]
1 [ * ] [ * ]
</TABLE>
Note: All International sales require [ * ] addendum to the above listed
prices, in addition to actual and reasonable expenses to be covered in the
case of required travel.
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ATTACHMENT A, PAGE 4
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
MTI STANDARD TERMS AND CONDITIONS
PAYMENT TERMS:
Payment for the MTI Licensed Product(s) and Services shall be due according to
the terms in the S-VAR purchase order or S-VAR agreement. If payment is not
received according to such terms, MTI shall have the right to discontinue the
Licensee's usage of Software and Licensee hereby waives any rights to
continued usage of the MTI Licensed Product(s) if the payments are not met
according to the Payment Terms. Payment Terms are net [ * ] days from MTI
invoice date. MTI shall be held harmless by S-VAR for any claim whatsoever
arising out of discontinuance of usage of the Software by the S-VAR's due to
nonpayment.
For MTI contracted services, contracted development or consultation to S-VAR's
customer where referrals are made, an initial advanced deposit of [ * ] is
required to begin work by MTI. Payment for balance of contract services
ordered by the S-VAR shall be due [ * ] days from the date of shipment or as
otherwise provided.
TAXES:
Prices are exclusive of all royalties, gross receipts, sales, use and like
taxes. Any tax that MTI may be required to collect or pay upon the delivery of
the MTI Licenysed Product(s) or the performance of services described in this
Agreement shall be paid by the S-VAR, and such sums shall be due and payable
upon delivery or performance [ * ]days from date of invoice. No discounts will
apply.
PRODUCT SPECIFICATION CHANGES:
MTI reserves the right, without limitations and without obtaining prior
approval from or notice to the S-VAR, to make changes in and to the Software
and MTI Licensed Product(s) and services; (a) when required for purposes of
safety; or (b) to meet MTI product development specifications.
DELIVERIES:
Deliveries of MTI Licensed Product(s)will be made F.O.B. Albuquerque, New
Mexico.
INTERNATIONAL SALES:
International orders accepted by MTI will be required to be paid in full at
time of the order. No dating will be allowed. Terms are payment upon receipt
of Order.
20
<PAGE>
ATTACHMENT B
(End User Software License Agreement)
SOFTWARE LICENSE AGREEMENT
THIS AGREEMENT by and between Muse Technologies, Inc., with offices
at 1601 Randolph SE, Suite 210, Albuquerque, NM 87106, and Continuum
Resources, ASA having headquarters at 2424 Wilcrest, Suite 100, Houston, TX
77042 (hereinafter referred to as "LICENSEE').
WHEREAS, Muse Technologies, Inc. has proprietary rights in certain
software identified in Appendix A attached hereto and made a part hereof
(hereinafter referred to as "Software") and
WHEREAS, LICENSEE wishes to acquire the right to use the Software in
conjunction with its business; and
WHEREAS; Muse Technologies, Inc. is willing to grant such rights as
defined in consideration of the payment by S-VAR of the required fees as set
forth in the Muse Technologies, Inc. Commercial Price List for Muse
Technologies, Inc. software licenses, and contingent upon agreement of
LICENSEE to be bound by the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the covenants and conditions set
forth herein, the parties hereto agree as follows:
1. LICENSEE SUBJECT TO LICENSEE's PERFORMANCE OF ITS OBLIGATIONS
UNDER THIS AGREEMENT:
(a) Muse Technologies, Inc. grants to LICENSEE a nonexclusive,
nontransferable license to use the Software in object code form in the
location and only for the number of seats set forth in Appendix A of this
Agreement under LICENSEE INFORMATION.
(b) LICENSEE may copy the Software in machine-readable form only for
backup or archival purposes for License's sole use.
(c) LICENSEE shall not reverse assemble or reverse compile the
Software in whole or in part. All copies of the Software made by LICENSEE
shall be and remain the property of Muse Technologies, Inc. LICENSEE shall not
use, reproduce, translate, modify, display, perform, sell, license,
sub-license, or otherwise distribute, transfer or dispose of the Software
except as expressly provided for in this Agreement.
(d) No other license rights and no title or ownership rights in the
Software are hereby granted or transferred to LICENSEE under this Agreement.
21
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ATTACHMENT B, PAGE 2
(e) LICENSEE shall use the Software for its own intern al use and for
that of its 50% or more owned subsidiaries and shall not provide use of the
Software to any third party or provide services or products to any third party
using the Software except as provided for herein.
2. FEES
LICENSEE shall pay to Muse Technologies, Inc. the fee set forth in
the Muse Technologies, Inc. Commercial Price List for use of the Software. The
fee for the License and maintenance shall be paid by LICENSEE upon execution
of this Agreement, and each subsequent maintenance renewal fee shall be paid
by LICENSEE prior to the end of each anniversary date (the date of this
Agreement).
3. RETENTION OF TITLE & OWNERSHIP OF INTELLECTUAL PROPERTY OWNERSHIP
(a) Title to all intellectual property rights, including without
limitation, patent, trademark, copyright and trade secret rights in and to the
Software, including derivative works of the Software; and, title to all
ownership rights in all copies of all media bearing the Software, are and
shall remain in Muse Technologies, Inc. LICENSEE shall, upon the reasonable
request of Muse Technologies, Inc., executive any documents necessary to
transfer any ownership in rights or title to such Software or other materials
to Muse Technologies, Inc.
(b) LICENSEE agrees that ownership of the copyright and all other
intellectual property rights and title to any software and other materials
used by Muse Technologies, Inc. to create the Software or to perform services
delivered by Muse Technologies, Inc. under this Agreement shall reside in Muse
Technologies, Inc. or those parties licensing the same to Muse Technologies,
Inc. and that LICENSEE possesses no ownership or claim to ownership of such
rights or title. Such Software and other materials proprietary to Muse
Technologies, Inc. or others shall be deemed to include, by way of example and
not in limitation, portions or software code, menu structures, database
schema, generic documentation text, interface components and design used by
Muse Technologies, Inc. to perform its services and to deliver Software as
required under Appendix A. LICENSEE shall, upon the reasonable request of Muse
Technologies, Inc., execute any documents necessary to transfer any ownership
in rights or title to such software or other materials to Muse Technologies,
Inc. Muse Technologies, Inc. hereby grants to LICENSEE the nonexclusive right
to use such software and materials proprietary to Muse Technologies, Inc. in
products limited to and incorporated within the Software specified in Appendix
A.
22
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ATTACHMENT B, PAGE 3
4. PROPRIETARY, COPYRIGHT AND TRADE SECRET NOTICES
LICENSEE shall reproduce and include Muse Technologies, Inc.'s
proprietary, copyright and trade secret notices on all copies, in whole or in
part, in any form and in any medium including partial copies or modifications
of the Software made thereunder. Such notices shall be in substantially the
same form and location as they appear on the original form from which the
copies or modifications are made. LICENSEE shall not remove any proprietary,
copyright or trade secret notices from the Software.
5. CONFIDENTIAL INFORMATION AND NONDISCLOSURE
(a) During the term of this Agreement and for a period of five (5)
years thereafter, LICENSEE agrees to hold in confidence and not disclose to
others any information with respect to the Software or any portions or
modifications thereof with the following exceptions:
(1) information the LICENSEE can show by written
documentation was in its possession prior to receipt
of the Software; and
(2) any portion of the Software which becomes available
to the public through no fault of LICENSEE; and
(3) information which is disclosed to LICENSEE by a
third party who is not under obligation of
confidentiality to Muse Technologies, Inc. with
respect thereto; and
(4) information which was developed by or for LICENSEE
independent of the Software.
(b) LICENSEE may divulge the Software and portions and modifications
thereof to consultants of Licensee which may operate and work with such
Software solely for the benefit of LICENSEE; provided such consultant(s) are
in substantial compliance with the terms and conditions of this Agreement and
are under an obligation to LICENSEE not to disclose the Software consistent
with the terms and conditions of this Section or terms and conditions
substantially in conformity with this Section or Section 3 of the Technical
Services and Option Agreement between the parties. Muse Technologies, Inc.
shall be under no duty to correct portions of the Software added or modified
by persons or entities other than Muse Technologies, Inc., its employees or
agents.
(c) LICENSEE acknowledges that any publication or disclosure to third
parties of confidential information may cause immediate and irreparable harm
to Muse Technologies, Inc. LICENSEE shall take all reasonable steps to ensure
that no unauthorized person or entity shall
23
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ATTACHMENT B, PAGE 4
have access to any portion of the Software and that no unauthorized copy in
whole or in part in any form shall be made, other than as provided herein.
6. TERM RENEWAL AND TERMINATION
(a) This license becomes effective upon execution by both parties and
upon receipt by Muse Technologies, Inc. of an executed copy of this Agreement
and shall remain in effect until
terminated by either party as provided for herein. Maintenance shall be for
one (1) year upon payment of the annual renewal fees.
(b) LICENSEE may terminate this Agreement by notifying Muse
Technologies, Inc. of its intent to terminate with at least thirty (30) days
prior written notice and LICENSEE agrees to return the Software and all copies
and modifications thereof to Muse Technologies, Inc. immediately after
termination.
(c) Muse Technologies, Inc. may terminate this Agreement if LICENSEE
fails to comply with any of the terms and conditions of the Agreement and such
failure is not cured within thirty (30) days of LICENSEE's receipt of written
notice from Muse Technologies, Inc. specifying the nature of such
failure.
(d) This Agreement shall automatically terminate upon any act of
bankruptcy by or against LICENSEE or upon any general assignment for the
benefit of creditors of LICENSEE or upon any attachment or execution of
judgment of process against LICENSEE or its assets or upon dissolution of the
LICENSEE, and in any such event Muse Technologies, Inc. shall have the right
to immediate possession of the Software and all copies and modifications
therefor
(e) Upon termination of this Agreement, LICENSEE shall cease all
further use of the Software, and, notwithstanding such termination, all
obligations under Sections titled "Retention of Title & Ownership of
Intellectual Property." "Indemnification," "Confidential Information and
Nondisclosure" and "Limitations and Remedies" shall survive and continue to
bind the parties after the date of termination.
(f) Upon termination of this Agreement, LICENSEE shall not be
entitled, nor shall Muse Technologies, Inc. be obligated to pay any refund to
LICENSEE sums paid by LICENSEE to Muse Technologies, Inc. prior to
termination, which sums have been earned by Muse Technologies, Inc. date of
termination. LICENSEE shall pay to Muse Technologies, Inc. all sums accrued
and owned by Muse Technologies, Inc. up to and including the date of
termination.
24
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ATTACHMENT B, PAGE 5
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
7. LIMITED WARRANTY
THE SOFTWARE IS WARRANTED FOR A PERIOD OF [ * ] DAYS FROM SUCCESSFUL
INSTALLATION TO PERFORM SUBSTANTIALLY IN ACCORDANCE WITH THE DOCUMENTATION
PROVIDED WITH THE SOFTWARE AT THE TIME OF INSTALLATION AND IN SUBSTANTIAL
ACCORDANCE WITH THE RELEASE AND VERSIONS OF THE SOFTWARE PROVIDED TO LICENSEE
DURING THE TERM OF THIS AGREEMENT ARE WARRANTED TO BE SUBSTANTIALLY COMPATIBLE
WITH CUSTOMIZED SOFTWARE APPLICATIONS DEVELOPED BY MUSE TECHNOLOGIES, INC. FOR
THE LICENSEE. HOWEVER THAT DURING SUCH TERM, LICENSEE SUBSCRIBES TO MUSE
TECHNOLOGIES, INC.'S THEN CURRENT SOFTWARE UPGRADE AND SUPPORT SERVICES. TO
THE EXTENT ANY RESULTING NONCONFORMITY RESULTS IN SUCH CUSTOMIZED SOFTWARE
APPLICATIONS TO BE INOPERATIVE OR ANY DIMINISHED FUNCTIONS ARE NOT INCIDENTAL,
MUSE TECHNOLOGIES, INC. SHALL EXPEDITIOUSLY INITIATE AND DILIGENTLY PURSUE
CORRECTION THEREOF.
EXCEPT AS PROVIDED FOR HEREIN, THE SOFTWARE IS PROVIDED "AS IS,"
WITHOUT ADDITIONAL WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND
PERFORMANCE OF THE SOFTWARE IS WITH THE LICENSEE.
SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES,
SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU. THIS WARRANTY GIVES
YOU SPECIFIC LEGAL RIGHTS, AND YOU MAY HAVE OTHER RIGHTS WHICH VARY FROM STATE
TO STATE.
MUSE TECHNOLOGIES, INC. DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED
IN THE SOFTWARE WILL MEET YOUR REQUIREMENTS OR THAT THE OPERATION OF THE
SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE.
(a) Muse Technologies, Inc. makes nor warranties, express or implied,
including warranties of merchantability and fitness for a particular purpose,
upon software, hardware of services manufactured or supplied by parties other
than Muse Technologies, Inc., the only warranties being those which are
otherwise provided by such other manufacturer or supplier of the software,
hardware or services, and LICENSEE will look only to the manufacturer or
supplier for the performance of any such warranties.
25
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ATTACHMENT B, PAGE 6
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
(b) Muse Technologies, Inc. warrants to LICENSEE that the machine
readable media on which the Software if furnished is free from defects and
materials and workmanship under normal use and service for a period of [ * ]
days from the date hereof. During such period, Muse Technologies, Inc. will
replace any defective media on which the Software has been furnished.
(c) Unless expressly set forth in Section 10 of this Agreement, Muse
Technologies, Inc. shall be UNDER no duty whatsoever to provide revisions,
updates or maintenance duties concerning the Software.
8. LIMITATIONS AND REMEDIES
(a) Except as set forth in Section 7(a) above, and Sections 8(a)(1),
8(a)(2), 8(a)(3), and 10 below, Muse Technologies, Inc. shall not be held to
any liability with respect to any claim by LICENSEE or any third party on
account of or arising from the use of the Software. In no event shall Muse
Technologies, Inc. be liable for indirect, incidental, special or
consequential damages arising out of this Agreement or its existence,
furnishing, functioning, or the LICENSEE's use of the Software (even if Muse
Technologies, Inc. has been advised of the possibility of such damages).
(1) Muse Technologies, Inc. warrants that it will undertake
to investigate and attempt to correct any significant malfunction in the
Software reported by LICENSEE in accordance with the provisions contained in
Section (a), above.
(2) During such period, Muse Technologies, Inc. will replace
any defective media on which the Software has been furnished.
(3) Muse Technologies, Inc. will, in its sole discretion and
at its own expense, either procure for LICENSEE the right to continue using
the Software, replace it with a non-infringing product providing substantially
the same capabilities or remove it and refund an equitable portion of the
payment therefore.
(b) No action, regardless of form, arising out of this Agreement may
be brought by either party more than two (2) years after the cause of action
has arisen or in the case of an action for nonpayment, more than two (2) years
from the date the last payment was due.
9. INDEMNIFICATION
Muse Technologies, Inc. will indemnify and hold LICENSEE harmless
against the liabilities and costs, including reasonable attorneys' fees, of
defending any suit arising from
26
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ATTACHMENT B, PAGE 7
alleged infringement by the Software of any United States patent, trade
secret, copyright or any other intellectual property right of a third party,
provided that Muse Technologies, Inc. is notified promptly in writing of such
claim of infringement and is given full authority, information and assistance
in settling or defending such claim. Muse Technologies, Inc. shall have no
liability whatsoever thereunder with respect to any claims settled by LICENSEE
without Muse Technologies, Inc.'s prior written consent.
The foregoing states the entire liability of Muse Technologies, Inc.
with respect to infringement of third party intellectual property right by the
Software or any part thereof or by its operation.
10. MAINTENANCE
(a) Muse Technologies, Inc. shall provide the maintenance requested
by LICENSEE for the fees specified and set forth in MTI Commercial Price List.
Annual maintenance charges shall be per the MTI commercial price listing per
year, at Licensee's option, for the duration of this license. In no case shall
such maintenance charges exceed the normal fees charged other licensees for
the number of copies licensed.
(b) Muse Technologies, Inc. shall provide reasonable telephone
support to LICENSEE between the hours of 9 AM to 6 PM, EST, except for
national holidays and such reasonable local holidays (up to 6 per year) as
LICENSEE may have been given prior written notice.
(c) In the event the Software evidences a malfunction critically
affecting the operation thereof, Muse Technologies, Inc. shall begin and
diligently pursue correction of such malfunction within one (1) working day of
notification by LICENSEE or discovery by Muse Technologies, Inc.. In the event
correction is not reasonably possible within six (6) working days, Muse
Technologies, Inc. shall provide a "work around" within such period and then
shall continue to diligently pursue proper correction thereof.
In the event such malfunction is not critical to the operation of the
Software, correction of such malfunction shall be provided with normal updates
to the Software which shall be provided LICENSEE not less than once each six
(6) months.
All corrections, modification and updates shall have proper
documentation provided with the new versions of the Software, as such, are
required for the proper operation of the Software. All other documentation
corrections shall be provided LICENSEE within thirty (30) days of forwarding
the Software.
27
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ATTACHMENT B, PAGE 8
11. TAXES
(a) The payment required under this License Agreement is exclusive of
taxes, and LICENSEE agrees to bear and be responsible for payment of all
sales, use, rental receipt, personal property, or any other taxes which may be
levied or assessed against LICENSEE, including any licensing, sales taxes or
equivalent taxes levied by state authorities upon sales of goods or services
at point of sale or delivery. LICENSEE shall not be responsible for any taxes
imposed on Muse Technologies, Inc.'s net worth, corporate gross receipts
(except for sales taxes or equivalent taxes as set forth above) or upon any
franchise operations.
(b) Notwithstanding the above, LICENSEE is not required to reimburse
Muse Technologies, Inc. for net income tax liability of Muse Technologies,
Inc. attributable to the License payment arising from this Agreement.
12. NON-COMPETITION
LICENSEE expressly acknowledges that Muse Technologies, Inc. may at
its sole option, provide other entities or persons services licenses similar,
greater or lesser than those services and licenses granted to LICENSEE by this
Agreement. LICENSEE further acknowledges that Muse Technologies, Inc. may,
during the term of this Agreement, perform work for itself or others and that
such work by Muse Technologies, Inc., in and of itself, shall not constitute a
breach of Muse Technologies, Inc.'s duties under this Agreement. LICENSEE
agrees that such work performed by Muse Technologies, Inc. for others may
include software and other materials proprietary to Muse Technologies, Inc.
and used by Muse Technologies, Inc. to create the services and Software
delivered by Muse Technologies, Inc. to LICENSEE under this Agreement. Such
Software and other materials proprietary to Muse Technologies, Inc. or others
shall be deemed to include, by way of example and not in limitation, portions
of software code, menu structures, database schema, generic documentation
text, interface components and design used by Muse Technologies, Inc.
Additional MISCELLANEOUS terms:
(a) Amendments. No amendment to this Agreement shall be effective and
binding until it is reduced to writing and signed by duly authorized
representatives of both parties. Unless expressly agreed to in writing by Muse
Technologies, Inc., and subsequent purchase order, letter of intent, invoice
or other Agreement or other communication--whether oral or written--issued by
one party to the other shall not be binding on the receiving party to the
extent that such terms and conditions are additional to or inconsistent with
those contained in this Agreement.
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ATTACHMENT B, PAGE 9
(b) Consent to Breach Not Waiver. No term or provision of this
Agreement shall be deemed waived and no breach excused, unless such waiver or
consent is in writing and signed by the party claimed to have waived or
consented. Any consent by any party to, or waiver of, a breach by the other,
whether express or implied, shall not constitute a consent to, waiver of, or
excuse for any other different or subsequent breach.
(c) Addresses for Notice and Payments. Any notice or payments from
one party to the other party required under this Agreement shall be deemed
made on the date of receipt as sent by certified mail, return receipt
requested (Notice), or as sent first-class, postage prepaid (Payments) and
addressed to the locations and person specified below:
(d) Execution by Counterparts. This Agreement shall become effective
and binding upon the parties when executed by both parties. This Agreement may
be executed in two counterparts, both of which for all purposes shall
constitute one Agreement, effective upon the latest date of signature of the
counterparts, and shall be binding on all parties notwithstanding that all
parties may not have signed the same counterpart.
13. ASSIGNMENT
This Agreement, the License or the Software to which they apply may
not be assigned, delegated, sub-licensed, pledged or otherwise transferred by
LICENSEE to any party without prior written consent from Muse Technologies,
Inc.
14. MISCELLANEOUS
(a) Should any portion of this Agreement be found invalid under any
applicable statute or rule of law, this Agreement shall be deemed to remain in
full force and effect with the omission of such portion.
(b) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New Mexico.
(c) This Agreement constitutes the entire agreement between the
parties hereto which supersedes all proposals, oral or written, and all other
communications between the parties which relates to the subject manner of this
Agreement.
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ATTACHMENT B, PAGE 10
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date of the last signature hereto.
Muse Technologies, Inc.
By /s/ Curtiz J. Gangi
Name Curtiz J. Gangi
Title President
Date 6/19/98
Continuum Resources International, ASA
By /s/ J.M. Hume
Name J.M. Hume
Title CEO
Date 6/19/98
2424 Wilcrest, Suite 100
Houston, TX 77042
Software Location Continuum Resources, ASA
2424 Wilcrest, Suite 100
Houston, TX 77042
No. of Seats: ____
Seat Location 1:
----------------------
----------------------
----------------------
----------------------
----------------------
Seat Location 2:
----------------------
----------------------
----------------------
----------------------
----------------------
Seat Location 3:
----------------------
----------------------
----------------------
----------------------
----------------------
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ATTACHMENT B, PAGE 11
Seat Location 4:
----------------------
----------------------
----------------------
----------------------
----------------------
Seat Location 5:
----------------------
----------------------
----------------------
----------------------
----------------------
31
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ATTACHMENT B, PAGE 12
MUSE TECHNOLOGIES, INC.
S-VAR TRANSFER OF SOFTWARE LICENSE AGREEMENT
TO
End-User
ACKNOWLEDGMENT: S-VAR certifies and End-User confirms compliance to terms and
conditions of the MTI End-User Software License Agreement by signature hereon.
Continuum Resources, ASA Company (End-User)
By: By:
------------------------------- ------------------------------
Name: Name:
------------------------------- ------------------------------
Title: Title:
------------------------------- ------------------------------
Date: Date:
------------------------------- ------------------------------
Address for Notices: Address for Notices:
------------------------------- ------------------------------
------------------------------- ------------------------------
------------------------------- ------------------------------
Phone: Phone:
------------------------------- ------------------------------
FAX: FAX:
------------------------------- ------------------------------
32
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
ATTACHMENT C
(Volume Commitment and Discount Schedules)
o Normal VAR Volume Sales Commitment: (due to MTI after discount to VAR)
Tier U.S. Dollar Commitment:
1 [ * ]
2 [ * ]
3 [ * ]
4 [ * ]
o Normal VAR Reseller Discount Schedule:
<TABLE>
<CAPTION>
Foundation Renaissance
Discount Foundation Renaissance Development Development
Tier RT License RT License Licence Licence Continuum
<S> <C> <C> <C> <C> <C>
1 [ * ] [ * ] [ * ] [ * ] [ * ]
2 [ * ] [ * ] [ * ] [ * ] [ * ]
3 [ * ] [ * ] [ * ] [ * ] [ * ]
4 [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
o Master-VAR Discount Schedule:
MTI allows [ * ] discount to Master VARs on all items purchased from
MTI with exception to maintenance, support services, consulting services, and
training.
o S-VAR Discount Schedule:
MTI allows [ * ] discount on all items purchased from MTI with
exception to maintenance, support services, consulting services, and training.
33
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
ATTACHMENT C, (Exhibit #1)
S-VAR COMMITMENT SALES SCHEDULE
o Continuum Resources ASA Commitment for S-VAR Status:
I. $5,000,000.00 "up-front" payment to MTI to purchase exclusive
representation of MTI products to the global petroleum Industry as
per terms of this agreement.
II Commitment to produce at least the following revenue stream for
sale of MTI products:
A. For Initial Term of agreement:
$12,000,000 commitment volume of revenue due Must Technologies, Inc.
over the three (3) year term of the contract.
as per following table:
<TABLE>
<CAPTION>
Year #1 Year #2 Year #3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
B. For Optional Renewal Terms of agreement:
[ * ] committed volume of revenue due Muse
Technologies, Inc. over the next three (3) year term of the contract.
as per following table:
<TABLE>
<CAPTION>
Year #1 Year #2 Year #3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
34
<PAGE>
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
III. S-VAR Responsibilities and entitlements:
1. Sales revenue as per terms of this agreement for all petroleum
industry end users sold by either MTI or S-VAR within the Global
Petroleum Industry.
2. Distribution rights and revenue stream for all additional Value Added
Resellers within the petroleum industry brought into Master VAR or
normal VAR status by either Continuum Resources, ASA or Muse.
3. Straight [ * ] discount on all products listed in Muse Commercial
Price List for items purchased from MTI for shipment to S-VAR
customers. (excluding installations, training, support services and
documentation.)
4. MTI will hire a support team consisting of (4) persons, to be
dedicated to the success of the S-VAR's sales efforts. (Refer to
Attachment E, paragraph 10.)
5. S-VAR is empowered to initiate and participate in negotiations, upon
MTI written approval and within the assigned Trading Area, between
MTI and 3rd parties (who are brought to MTI by S-VAR), for other MTI
VAR agreements. If "up-front" money is paid to MTI for any of these
agreements, S-VAR is entitled to share in the "up-front" revenue on a
[ * ]basis with MTI. ("Up-front" money is required from any reseller
partner who purchases a territory with exclusivity within the
designated assigned Trading Area for reselling MTI products.)
S-VAR Signature and Agreement to Commitment:
Name: /s/ J.M.Hume
----------------------------
Title: CEO
----------------------------
35
<PAGE>
ATTACHMENT D
(S-VAR Application Software and Hardware Product(s))
S-VAR Software Applications:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
S-VAR Hardware Systems:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
36
<PAGE>
ATTACHMENT E
Contract Modifications
1. MTI grants to S-VAR the right of integration of S-VAR's application with
MTI's licensed products.
2. MTI will allow S-VAR to initiate and participate in negotiations with other
potential VAR candidates outside the S-VAR's "trading area", if request is
made in writing and approved by MTI, however, MTI reserves final right of
approval.
3. MTI agrees to allow S-VAR to integrate S-VAR applications with MTI licensed
products and resell the derivative product or service within the "trading
area" at a price to be determined solely by S-VAR, assuming a royalty fee has
been mutually negotiated by MTI and S-VAR.
4. Confidential Information" means either parties information and/or materials
containing information which concern, without limitation, MTI or S-VAR's
software secrets, business plans, customers, technology or products and are
marked proprietary and/or confidential in nature.
5. "International Sales" means sales outside of the territory of the United
States.
6. For volume commitment purposes, sales will be deemed "booked" in the
quarter in which a firm order is placed by S-VAR and accepted by MTI.
7. Add to paragraph 1.2 Trading Area:
"All petroleum or oil and gas companies and their consultants, geophysical,
geological, reservoir, facilities, pipeline, construction and field and general
contractors and suppliers of oil and gas related technologies, both onshore and
offshore in all locations worldwide with the exception of those areas restricted
by US Government Export Regulations and those applications defined below."
8. Add to paragraph 1.5 Trading Area Restrictions:
"Nothing in this trading area restriction shall be construed as limiting
S-VAR's ability to sell any form of database product or other product relating
to financial, economic, or other cost effective considerations of oil and gas
operations as an extension of developments of other allowed oil and gas
applications."
9. If MTI sells directly to the petroleum market, bypassing S-VAR, MTI will
allow the value of such sale to apply toward the Volume Commitment" of S-VAR.
37
<PAGE>
ATTACHMENT E, PAGE 2
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
10. MTI will indemnify and hold S-VAR harmless against the liabilities and
costs, including reasonable attorney's fees, for defending any suit arising
out of alleged infringement by MTI's licensed product(s) of any patent, trade
secret, copyright or any other intellectual property right of a third party,
provided that MTI is notified promptly in writing of such claim of
infringement and is given full authority, information and assistance in
settling or defending such claim. MTI shall have no liability whatsoever
thereunder with respect to any claims settled by S-VAR without MTI's prior
written permission.
11. MTI will hire a support team consisting of (4) persons to be dedicated to
the success of the S-VAR's sales and development efforts. The support staff
will be available for direction by S-VAR. Where products/applications are
developed jointly and where the MTI staffs role is the development of
enhancements, additions to the MTI environment there will be no charge for
services however MTI will have the right to include such development within
the MTI product range where development is done in which S-VAR wishes to
retain 100% of the rights to the application than S-VAR will pay for the MTI
staff services required to integrate the application. Other product
development will be handled on a cased by case basis with agreed royalties
occurring to S-VAR and MTI as appropriate.
12. The revenue stream detailed in Attachment C, Exhibit #1, is based on
current MTI projections of both price and introduction of new products and
upgrades. [ * ]
[ * ]
[ * ]
13. [ * ]
[ * ]
[ * ]
14. MTI agrees to allow under separate agreement, and consistent with the
standard MTI Master-VAR program, a Master-VAR Agreement to exist with
Continuum Resources International, ASA, or its' designee, which will allow
marketing the MTI product family within the Scandinavian Countries as follows
with no restrictions placed upon the vertical markets within the referenced
Countries, subject to MTI approval of designee, and subject to the minimal
incremental commitment of [ * ]
- Sweden - Denmark - Norway - Finland
15. MTI agrees to allow under separate agreement, and consistent with the
standard MTI Master-VAR program, a Master-VAR agreement with Continuum
Resources International , ASA or its' designee, to market the MTI family of
products to the Medical Industry in the United
38
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ATTACHMENT E, PAGE 3
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
Kingdom, subject to MTI approval of designee, and subject to the minimal
incremental commitment of [ * ]
16. MTI will pay up to [ * ] of booth space rental at [ * ] Petroleum Industry
Conferences world-wide subject to actual costs of booth space rental not to
exceed [ * ]. At these conferences, MTI will provide [ * ]
17. MTI will honor all terms of this agreement subject to complete funding of
the S-VAR Agreement having been completed prior to September 30, 1998;. and
with payment being completed according to the following schedule:
[ * ]
[ * ]
39
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2,
Amendment No. 1 of our report dated November 7, 1997 (except notes 1, 3, 7, 9,
and 14, as to which the date is July 15, 1998) relating to the financial
statements of MUSE Technologies, Inc., as of September 30, 1997 and 1996 and for
the year ended September 30, 1997 and for the period from October 24, 1995
(inception) through September 30, 1996 and the reference to our firm under the
caption "Experts" in the accompanying Prospectus.
/s/ Feldman Sherb Ehrlich & Co., P.C.
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Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
(Formerly Feldman Radin & Co., P.C.)
New York, New York
October 23, 1998
