SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 1-10623
PametSystems, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2985838
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Main Street
Acton, Massachusetts 01720
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 263-2060
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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none none
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $2,736,986
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The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, based upon the average of the closing bid
and asked prices on April 2, 1998 was $3,818,250.
The number of shares outstanding of the Registrant's common stock, as of
April 2, 1999 was 2,545,500 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual Meeting
of Stockholders (if filed pursuant to Regulation 14A within 120 days of the
close of the Company's fiscal year ended December 31, 1998) shall be deemed
to be incorporated by reference in Part III.)
PART I
Item 1. Business
This Form 10-KSB contains statements which are not historical
facts. These statements may constitute "forward-looking statements" within
the meaning of the Securities Act of 1933 and the Securities and Exchange
Act of 1934 as amended. Certain, but not necessarily all, of such forward
looking statements can be identified by the use of such words as
"believes", "expects", "may", "will", "should", or "anticipates"or the
negative thereof or other variations thereon of similar terminology, and/or
which include, without limitation, statements regarding the following: the
timing of the development and release of the NT products, adequacy of the
funding for the completion of the NT development, and market expectation
for the NT operating environment; building a sales and marketing
initiative; law enforcement trends regarding E911 and mobile systems;
funding and adequacy of the corporate infrastructure to support operations
and anticipated growth; economic and competitive factors affecting market
growth; year 2000 compliance; and discussions of strategies involving risk
and uncertainties that reflect management's current views. These statements
are based on many assumptions and factors and may involve risks and
uncertainties. The actual results of the Company or industry results may
be materially different from any future results expressed or implied by
such forward looking statements because of factors such as problems in the
development of the NT products; insufficient capital resources to complete
development and operate the Company; inability to successfully market and
sell the NT product; changes in the marketplace including variations in the
demand for public safety software; and changes in the economic and
competitive environment. These factors and other information contained in
this Form 10-K could cause such views, assumptions and factors and the
Company's results of operations to be materially different.
Pamet Systems, Inc. (the "Company" or "Pamet Systems") develops,
markets and supports computer software and turnkey computer systems for
organizations in the public safety and criminal justice sectors. The
Company's products automate the acquisition, storage, processing, retrieval
and communication of information for these organizations. The Company
specializes in the integration of computer software and hardware with
communications and other technologies to provide total solutions. The
Company's customers include law enforcement agencies, fire fighting
agencies, and corrections facilities.
The Company's principal product for law enforcement is
PoliceServer(R), a fully integrated information management system providing
agencies with the full spectrum of information-related functionality needed
for agency operations and management. Designed primarily to serve agencies
with fewer than 500 officers (99.4% of US police agencies), current users
include both municipal agencies such as the Worcester Massachusetts Police
and other agency types such as the University of Massachusetts Police, the
Metropolitan Atlanta Rapid Transit Authority (MARTA) Police, and the Boston
Housing Authority Police. PoliceServer capabilities include computer-aided
dispatch, criminal records management, department management, and personal
productivity applications such as word processing. Designed to accommodate
a wide diversity of agency types, PoliceServer is both easy to learn and to
use. PoliceServer automates many of the complex and time consuming
department functions such as arrest booking, crime analysis and reporting,
and case management. A number of interfaces are provided to other data
sources such as the E911 network, various state Criminal Justice
Information Systems, and the National Crime Information Center (NCIC). The
Company also provides interfaces with systems for digital imaging, mobile
and remote access and for scanning and identification of fingerprints.
FireServer(R) provides comparable functionality for fire fighting
agencies. A Computer Aided Dispatch (CAD) component is designed with a
"look and feel" similar to that of the PoliceServer CAD in order to support
integrated E911 dispatch centers. The fire records capability provides fire
departments with data on structures, fire suppression plans, inspections
data, and hazardous materials.
The Company has experienced a market shift to systems requiring
Microsoft NT server and a Windows graphical user interface. Due to this
shift the Company began redeveloping its core products on the NT platform
late in 1997 and expects to complete this development project in 1999.
This shift has reduced the demand for the Company's core products as
agencies await the availability of an integrated solution in the market.
JailServerTM provides corrections facility staff with the ability to
capture, track and report a wide variety of data related to inmates. In
February 1998 the Company acquired the assets of Technology Assemblers,
Inc. (TAI), which had developed this product. The acquisition was made to
broaden the product offering of the Company. The addition of JailServer
allows the company to expand its available market to include the County
Sheriff agencies. These have both a law enforcement role that can be served
by PoliceServer and responsibility for the operation of the county jail
which can be served by JailServer. The product is in use by a number of
state and county level facilities. It can work in conjunction with other
PoliceServer modules.
The Company also offers several companion products. MobileServerTM
is a mobile terminal that allows fully integrated communications with a
department's internal system as well as other local, state and federal
databases. MobileServer improves officer efficiency allowing the
departments to realize cost savings, increase officer safety and enhance
community policing efforts. Sales of the MobileServer product accounted
for nearly 50% of total revenue in 1998 as agencies used "COPS More 96"
funding to procure these systems. ImageServerTM is an image capture,
storage and printing system. A GIS (Geographical Information
System)/Mapping module displays maps for dispatchers and creates pin maps
for crime analysis. The QueryStation(tm) module facilitates the creation
of both standard and ad-hoc reports from data in the PoliceServer database.
The Company believes that the level and quality of its support
service is vital to continuing customer satisfaction and the long-term
success of the Company. The Company has established a strong history of
responsiveness to customer requirements and a high level of support which
have resulted in a loyal customer base. The Company provides product
updates and enhancements and customer support services under an annual
maintenance program. Annual fees are based on a percentage of the price
paid for the licensed software products. Historical renewal rates for
annual maintenance for the Company's products have been in excess of 99%.
The Company's primary customer support center is located at the
Company's headquarters in Acton, Massachusetts. The Company also maintains
a support center in Maitland, Florida, currently serving principally
JailServer customers. The standard support service provides access during
business hours Monday through Friday, with 24 hour, 7-day service
optionally available.
As of December 31, 1998, the Company had installed PoliceServer in
106 police departments, FireServer in 32 fire departments, JailServer in 12
institutions, ImageServer in 41 departments, MobileServer in 31
departments, QueryStation in 24 departments, and the GIS/Mapping module in
3 departments. These installations are located in 13 states in the Eastern
US.
In the 12 month period ended December 31, 1998 (the 1998 period) a
significant portion of sales to police departments was funded by federal
grants associated with the "Violent Crime Control and Law Enforcement Act
of 1994" (the 1994 Crime Bill) designed to provide automation grants to law
enforcement agencies. This grant program is expected to continue at least
through 1999, and possibly through 2000. In general, however, the long
lead-time and uncertainties of selling to the governmental sector continue
and will continue to result in volatility in sales and cash flow. The
Company continues to evaluate mergers, acquisitions and other business
combinations, as well as capital raising alternatives to enhance its
working capital.
The Company was incorporated in Massachusetts on November 24, 1987
by Dr. Joel B. Searcy, Chairman of the Board.
PoliceServer, FireServer, JailServer, ImageServer, QueryStation and
MobileServer are trademarks of the Company.
Business of the Company
Public safety agencies are paper-intensive organizations, which
manage large amounts of information in their day-to-day activities. These
agencies must collect, process, file and retrieve such information quickly,
conveniently and cost effectively. Traditionally, police and fire
departments have performed these tasks manually, resulting in significant
resources and man-hours being spent processing and locating documents in
large, sometimes haphazardly maintained, filing systems. Critical
information can be inadvertently lost or misfiled, and information can only
be accessed by one person at a time. In an attempt to more efficiently
manage information and to improve personnel productivity and response time,
many public safety agencies have computerized certain aspects of their
business practices.
Corrections facilities face a similar requirement to maintain
information on the inmates under their custody. In addition to background
information and information on current status and assignments, there is a
need to maintain readily accessible data on inmate health and to account
for and control inmate funds. Corrections officials must have ready access
to data on all aspects of inmate life.
The Company continues to believe that the market for the computer
systems it provides continues to be positioned for growth due to a number
of major factors. The first factor is the passage of the 1994 Crime Bill
which will potentially allocate more than $33.0 billion of funding for
police and prison agencies over the first five years of the grant program,
of which over $1.0 billion will be for the automation of police agencies.
Approximately $500M has been allocated for automation thus far. Although
the majority of the funding from the 1994 Crime Bill is earmarked for
additional police presence on the street, automation and computerization of
police agencies is encouraged if it can be demonstrated that this
investment will allow additional police resources to be re-deployed or "put
back on the street". The Company has designed and implemented a series of
seminars to provide departments with the information necessary to
demonstrate the cost effectiveness of the Company's products to enable them
to obtain grant monies. The second factor is E911 systems currently being
established around the country that require 24 hour dispatch centers for
police, fire and EMS departments. Many smaller communities have not been
able to afford to staff a dispatch center 24 hours a day. This has led to
the establishment of regional dispatch centers serving a number of
communities. This regionalization requires computer systems to enable the
regional dispatchers to have timely access to the information needed to
respond to varied situations in a diverse geography. The Company's products
are designed and marketed with the option to be used in this type of
regional application. Currently six regional dispatch centers in
Massachusetts, Georgia and Tennessee use the Company's product for this
application. The third factor is the growing trend toward the use of mobile
technologies. Given its existing product base and the redevelopment of the
PoliceServer and FireServer on the NT platform, the Company believes that
it is capable of meeting these needs with its current suite of products.
Additional factors affecting the business include the following:
the improving economy, which may provide greater availability of funding
for public safety computerization; the requirement by potential customers
for public safety applications to run only on the NT operating system; the
emphasis municipalities are currently placing on crime prevention; the
trend among public safety officials towards increasing effectiveness of
operations through computers; the pressures to control personnel costs,
which account for a major portion of municipal budgets; the need to achieve
higher personnel productivity due to local budgetary constraints; and the
availability of computer hardware that does not require special
environmental systems and can, in fact, be used in a remote location such
as a police cruiser.
The corrections market also continues to grow in response to the
need for prison space as well as continued pressure for economies in prison
operations. There is also an active trend in the corrections sector to
move from older, main frame systems to more cost-effective computing
platforms.
Products
General. In an effort to meet the demands of its market, which
consists of approximately 15,000 police departments and 5,000 fire
departments nationwide, the Company has not only developed proprietary
software but also offers its customers complete turnkey computer systems.
The Company provides the customer with hardware, software, training,
support, installation and initial maintenance for its products for an
all-inclusive price. The Company also sells hardware upgrades and
supplies.
The Company has developed and actively markets a series of
integrated software products: PoliceServer, a management information system
for police departments; FireServer, a management information system for
fire departments; ImageServer, an image capture, storage and printing
system; MobileServer, a mobile terminal allowing fully integrated
communications with the department's internal system as well as other
local, state and federal databases; a GIS/Mapping system for dispatchers
and crime analysis; the QueryStation module for creating reports with data
in the PoliceServer and FireServer database, and JailServer, an information
management tool for corrections facilities with the capability to capture,
track and report data on inmates. The Company owns the full and exclusive
rights to the PoliceServer, FireServer, ImageServer and JailServer
products. The MobileServer product incorporates technology licensed from
Cerulean Technologies. The GIS/Mapping module incorporates technology from
Planet One GIS Software. The QueryStation module utilizes Crystal Reports
report writer from Seagate Software.
The Company's engineers have performed extensive testing to ensure
that all products are not only compliant but also failsafe with regard to
the year 2000. Pamet software was developed to store and calculate date
related information using 4-digit year designation, so records dated
December 31, 1999 will be followed by records dated January 1, 2000. This
allows for the calculation of dates beyond the date of January 1, 2000 to
be correctly computed. Pamet products were proven to successfully manage
the year 2000 rollover while maintaining data and systems integrity.
Before 1998 the Company's software was developed to run on the
Digital Equipment Corporations, Open VMS(r) operating system together with
character-based terminals or PCs emulating character-based terminals. Due
to customer demand for software utilizing Graphical User Interface (GUI)
displays and low cost servers the Company began in 1997 re-developing its
software for Windows (tm) NT (tm)-based servers and Windows(tm) 95, Windows
(tm) 98, and Windows (tm) client PCs. The first NT-based system was
shipped in 1998, and the Company believes that the bulk of its new customer
sales will be for the NT-based product line. The Company plans to complete
Windows NT versions of PoliceServer and FireServer in 1999. The
ImageServer, MobileServer, GIS/Mapping system, QueryStation module and
JailServer products are currently Windows PC-based products. The Company's
turnkey computer systems include networked personal computers, networking
equipment, printers and bundled nonproprietary software for word processing
and spreadsheets, all of which the Company purchases from other companies
and sells to the Company's users.
PoliceServer. PoliceServer is part of a comprehensive suite of law
enforcement applications software that performs the clerical and record
keeping functions necessary for police department operation. PoliceServer
includes a computer-aided dispatch and incident reporting function which
assists dispatchers in allocating and controlling resources and logging and
reporting incidents, and performs automatic checks for outstanding arrest
warrants and gun permits. The system's functions include an arrest booking
system which collects, stores and reports data on arrests from the time of
arrest through court appearances. The system also automatically produces
and prints all reports, forms and other documents needed in connection with
a booking. In addition, the system provides access to the Federal
Government's Computer Aided Management of Emergency Operations Hazardous
Materials (CAMEOR) database. Other functions create and maintain records
with respect to arrest warrants, alarm systems, citations, licenses,
permits, personnel, payroll, property, equipment and vehicle maintenance,
as well as provide word processing, electronic mail, spreadsheet and
personal calendar management capabilities.
PoliceServer automatically cross references and updates all
appropriate files in the data base. This feature eliminates the need for
repetitive input, saves people-hours, and ensures the timely and consistent
updating of police records. The Company estimates that after the first 6
to 20 months of operation, a PoliceServer system typically produces
manpower savings whose dollar value equals the total system price. The
system provides multiple levels of security controls, which the Company
believes limit the likelihood of tampering with police records.
An important feature of PoliceServer is ease of use. Current
customers find the system easy to learn and operate. PoliceServer is
designed to be used by any member of the department to expedite the
handling of departmental paperwork. PoliceServer eliminates much of the
manual process, replacing it with a series of simple interactive entry
screens. Computerizing these processes reduces paperwork, ensures more
accurate data entry, and makes information available more rapidly to other
members of the police department.
FireServer. FireServer relies on the design approach taken with
the PoliceServer and performs a number of similar functions. Like
PoliceServer, the FireServer system assists dispatchers in allocating and
controlling resources and logging and reporting incidents, as well as
providing access to the CAMEO Hazardous Materials database. In addition,
FireServer permits a dispatcher to immediately print a fire suppression
plan for use by firefighters at the scene, including incident location
information; orders for first arriving units; emergency contact
information; structure type, size and usage data; identification of any
permits, inspection violations or hazardous material at the site and
identification of individuals with special needs known to reside at the
incident address. FireServer's other functions create and maintain records
with respect to hydrant location and history; permits, inspections,
violations, street box and building alarm systems and personnel, payroll,
property and equipment and vehicle maintenance, as well as provide word
processing, electronic mail, spreadsheet and personal calendar management
capabilities.
JailServer. JailServer is an integrated technology solution
utilizing barcode and video imaging technologies to ensure effective
collection, processing, and output of information for correctional
institutions. JailServer modules include tracking of inmate booking,
arrest, housing, trusts accounting, medical, commissary, property, and
visitation.
ImageServer. ImageServer is an image capture, storage and printing
system that handles color or monochrome photo images (mug shots, crime
scene etc.) and document imaging. The ImageServer product operates on a
networked Pentium class computer system. The product can be fully
integrated with the PoliceServer, FireServer and MobileServer systems, and
supports unlimited numbers of images connected to Master Name File entries.
Images can be captured using digital cameras, video cameras and scanners in
either color or monochrome. Incident or accident related images can be
connected to incident reports and can include photo images or document
images. Images can also be associated with property and evidence and with
department personnel files. The system has been designed for compatibility
with new Federal standards (NCIC 2000), and will be evolved to maintain
such compatibility as NCIC 2000 specifications evolve. In addition
ImageServer can be integrated into other vendors' records and dispatch
systems potentially broadening the market for this product.
MobileServer. MobileServer mobile data terminals (MDT's) are fully
integrated companion products to the Company's other products. Based on the
private branding agreement with Cerulean Technologies, the Company is able
to offer a mobile date product that has many of the "Best in Class" mobile
data capabilities. The MDT is a laptop PC mounted in a patrol car or
carried in a briefcase, together with wireless communications equipment.
The product allows communications from car to dispatch, car to car, as well
as access into the files in the PoliceServer database and many government
information systems. In addition all messages are fully encrypted and many
officer safety and alarm features are standard in the product. These
systems increase officer efficiencies and minimize the need for the officer
to return to the station. This system has also served to increase the
police presence on the street, due to the fact that an officer, in the
cruiser, has a link to the state CJIS information system and full access to
all of the information in the entire PoliceServer system.
GIS/Mapping System. The Geographical Information System
(GIS)/Mapping module allows the dispatcher to view maps of street
addresses, incident locations and building floor plans. It also can be
used to create pin maps showing the location and concentration of crimes
and other events, such as traffic accidents. The GIS/Mapping system can
also assist in the early identification of crime patterns. The GIS/Mapping
system incorporates Planet One GIS Software through a license agreement
with Pamet Systems.
QueryStation. The QueryStation module allows analysts to run a
fully integrated report writer, Crystal Reports from Seagate Software,
against the PoliceServer or FireServer database. This can be used to
create standard reports or run ad hoc queries using the tremendous volume
of operational data captured during the day-to-day operations of a
department.
Product Pricing. Complete turnkey systems including software,
hardware, training, one year's hardware maintenance (provided by the
hardware vendor) and six months of software support and update service,
including a warranty against defects in the software, have sold for between
$28,000 and $300,000, with most sales falling within the $50,000 - $100,000
range. Pricing of the FireServer and PoliceServer software packages is
similar, with a discount offered on the base software license when the
packages are installed together on the same computer hardware. The majority
of FireServer systems in operation utilize the same computer as the
PoliceServer in that municipality.
In addition to revenues generated by sales of the PoliceServer,
FireServer, JailServer, ImageServer, GIS/Mapping, QueryStation,
MobileServer and software support fees, the Company generates operating
revenues from the sale of additions to its existing systems, miscellaneous
supplies, accessories and training.
Marketing
The Company's marketing strategy is designed to attract potential
customers from the existing base of law enforcement agencies, fire
agencies, and correctional facilities. The Company utilizes live
demonstrations of its products, conducted in a way that emphasizes the
operational features of the products rather than the underlying technology.
Seminars are held at various facilities selected to allow potential
customer representatives to see the products in a relaxed, neutral
environment. The 1994 Crime Bill also provided another marketing avenue as
the Company conducted seminars to assist public safety agencies obtain
grants as described below.
The Company generally concentrates its marketing efforts on the
police department using the integrated PoliceServer, ImageServer,
GIS/Mapping, QueryStation and MobileServer systems, with approach to the
fire department following success with the municipality's police
department. In locations where the police and fire departments are
incorporated in a single Department of Public Safety, the Company's
strategy is to sell the entire suite of products. The expanded use of E911
will add greater focus to the latter strategy. In county sheriff
departments, JailServer is offered to round out a comprehensive information
system.
The Company customizes its software by state, so that each state's
prescribed reporting forms can be printed in accordance with such state's
requirements. In addition, the Company's software allows users to
customize their reporting forms to their particular specifications.
With the encouragement of the Company, active, independent user
groups, consisting of the police departments using PoliceServer and fire
departments using FireServer, have developed. Any department participating
in the Company's annual support and update service may attend its group's
monthly meetings. Currently there are three police groups, one in each
region, and one fire group, which is in the Northeast. Since each
department uses identical software, the users are able to effectively
discuss the application and development of the system, to support each
other in identifying training techniques and new applications, and to
discuss concerns encountered in using the system. The groups have also
served as a source of referrals of potential customers and as a source of
satisfied customers willing to recommend the Company's products to
prospective customers. The Company relies on the groups to determine the
direction and development of updates or enhancements to be made to the
software.
In addition, the Company also attends public safety agency
conventions and trade shows as part of its marketing efforts. The Company
jointly sponsored "COPS More" seminars with Digital during the 1995 period
that generated over $800,000 of revenue in the 1996 and 1997 periods. In
late 1996 the Company sponsored seminars that focused on the "COPS More 96"
portion of the 1994 Crime Bill for over 100 public safety agencies. The
seminars were designed to inform these public safety agencies of what was
included in the 1994 Crime Bill and also how to apply for automation grants
under the "COPS More 96" section of the bill. Over $1,800,000 of revenue
during the 1997 and 1998 periods can be attributed to grants from "COPS
More 96". These seminars simplified the sometimes complex justifications
that were required as part of the proposals and allowed many small to
medium size agencies to submit proposals who otherwise might not have been
able to do so. "COPS More 98" was announced during the second quarter of
1998 and the Company conducted a series of 30 seminars to assist law
enforcement agencies in applying for the $200 million available from this
next round of technology grants associated with the 1994 Crime Bill. Pamet
provided aid in preparation of their grant applications to more than 130
agencies and began to see revenue from "COPS More 98" late in the fourth
quarter of 1998.
The Company's strategy is to continue to expand its current
distribution approach by focusing in those states where the Company has
established reference sites within the region. The strategy is structured
so as to permit the techniques and strategies developed in the New England
area to be extended to those states covered by dedicated sales teams.
The Company believes that the initial sale of its products in a
state is critical to its marketing efforts and that subsequent sales within
the same state will be easier due to the already-achieved acceptance of its
products and the ability to use the first installation as a reference and
for demonstrations. As of March 1998, the Company has customers in
Massachusetts, Connecticut, Rhode Island, Ohio, South Carolina, Florida,
Georgia, Indiana, New Hampshire, Tennessee, Missouri, Pennsylvania and
Kentucky.
The Company markets its products in the New England area as well as
in two additional regions of the country. The Company established an office
in Maitland, Florida to support sales activities in the Southeastern
states. Marketing for the Midwest part of the country is now being
coordinated through the Company's headquarters in Massachusetts.
Competition
The public safety software business is highly competitive. There
are a large number of small local and regional vendors across the country
who offer competing products on personal computers to agencies in the
Company's target market. There are also some medium sized companies that
have a national marketing presence. The Company's management believes,
that although it will not be the only supplier, it will be one of a small
group of vendors providing an internally developed integrated suite of
public safety products when the NT development is complete.
The Company expects to encounter future competition from
established companies that are developing new products and from new
companies that may develop comparable products.
The principal competitive factors that exist in the public safety
software business are price, ease of use and sophistication of the system.
Management believes the competitive advantages of the Company's products
include sophisticated capabilities and relative ease of use within a fully
integrated software suite. Based on a 1997 study performed by the
Massachusetts Executive Office of Public Safety, management believes that
it is currently the largest supplier of integrated police and fire systems
in Massachusetts. Nevertheless, the Company believes that to stay
competitive in its target market, it must continue to make its products
available on a greater number of computer platforms.
Principal Suppliers
Through an arrangement between the Company and Keylink Systems, a
Compaq Computer Corporation authorized Distributor, the Company purchases
Compaq servers at a discount for resale as part of the Company's turnkey
computer systems. The Company re-sells the hardware at Compaq's list
price. The Compaq systems and components that the Company purchases are
available from many suppliers and distributors.
The Company also purchases PC's, networking equipment and
peripherals from a number of manufacturers and suppliers. The Company
acquires it mobile data software from Cerulean Technologies. Cerulean
Technologies sells the products to the Company at a discount and the
Company resells them at the Cerulean list price. The Company purchases the
GIS software for its GIS/Mapping module from Planet One GIS Software. The
Company purchases the software at a discount and resells it at Planet One's
list price.
Customers
The Company's target market consists of police and fire departments
serving populations under 250,000, campus police departments and other
non-municipal public safety agencies such as transit authority police,
state police and county sheriff departments. The Company estimates that
this target market nationally is comprised of approximately 15,000 police
departments and 5,000 fire departments. Currently, however, the Company is
marketing its products to police and fire departments only in New England,
the Midwest and the Southeast, and the largest portion of its sales to date
have been in New England, particularly Massachusetts. The Company has
installed six systems in the lower Midwest Region, which is composed of the
states of Ohio, Indiana, Illinois, Kentucky and Missouri and has installed
eighteen systems in the Southeast Region, which is composed of Georgia,
South Carolina, Alabama, Tennessee, and Florida.
In any given fiscal period, sales to any one purchaser of the
Company's products may account for 10% or more of the Company's revenues
for that fiscal period. Because such sales usually involve a one-time
purchase for the customer, the existence of such purchase is not indicative
of future sales or the Company's dependence on any one customer. During
1998 no one customer accounted for more than 10% of sales.
Licensing and Support
The purchase price for the software system includes a perpetual
license to use the software. The Company typically enters into a software
license agreement with its customers.
Support and update service is priced at 14% of the cost of the
software package per year after the initial six-month warranty period. The
support and update service for the NT products will be priced at 19% of
list price at time of purchase after a six-month warranty period. Current
customers who convert to the NT product will receive the NT software at no
charge but will be charged 19% of the current list price for support
commencing on the date of conversion. Payment of the annual support and
update service fee automatically extends the Company's warranty against
software defects for an additional year and entitles the licensee to
receive all software upgrades and enhancements and to participate in the
appropriate user group. In addition to providing licensees with updates and
enhancements, the Company's annual fee also includes telephone support for
all applications. Currently all customers subscribe to this service,
primarily to receive software updates and enhancements which average a
minimum of one update per year. Maintenance charges on the hardware are not
included in the Company's annual fee and are currently billed and collected
directly by hardware maintenance suppliers.
The Company generally relies upon contract, trade secret and
copyright laws to protect its products. The license agreement under which
a customer uses the Company's products restricts the customer's use to its
own operations and prohibits disclosure to third persons. Notwithstanding
these restrictions, it may be possible for other persons to obtain copies
of the Company's products. The Company believes that such copying would
have limited utility without access to the product's source code, which the
Company keeps highly confidential. The Company's products are encoded to
run only on designated types and sizes of computers. The Company
incorporates certain technological defenses into its products. The Company
believes that because of the rapid pace of technological change in the
computer industry, copyright and patent protection is of less significance
than factors such as the knowledge and experience of the Company's
personnel and their ability to develop, enhance, market and acquire new
products.
The Company also requires all of its employees to execute
agreements requiring them to maintain the confidentiality of the Company's
proprietary information.
Research and Development
The Company made significant research and development expenditures
in 1998 in several areas totaling over $934,000 of which $195,665 was
capitalized. The majority of the 1998 expenditure, as well as a significant
portion of 1997 research and development spending of over $317,000, was on
the NT product development of PoliceServer NT. Other expenditures included
the interface between PoliceServer and the Cerulean mobile product, a
network search product, and enhancements to the ImageServer product. In
the majority of these cases, the Company used outside resources to design,
develop and test these projects minimizing the long-term financial
commitments of the company. NT product development will continue
throughout 1999 until all modules of the PoliceServer and FireServer have
been ported to the NT platform.
Employees
As of December 31, 1998, the Company had 16 full-time employees and
3 part-time employees, of whom 4 were engaged in computer programming, 8
were engaged in documentation, training and software support and 7 were
engaged in sales, marketing and administration. The Company has been using
consultants to complete a major portion of its NT development to minimize
the long-term impact on the Company's operations. The Company considers
its employee relations to be satisfactory.
Item 2. Properties
The Company's operations are located in Acton, Massachusetts, where
the Company owns a 12,000 square foot office building. This facility
contains office, training, conference, development and shipping space. The
acquisition and renovation of the building had been financed from the
Company's working capital. In April 1992 the Company mortgaged the facility
through a local lending institution with a $560,000 mortgage on the
improved facility, the balance of which was $479,743 at December 31, 1998.
The Company believes that the building is adequate to house the training,
development and other headquarters needs for the foreseeable future.
Subsequent to the end of 1998, the Company entered into an agreement to
sell its facility for approximately $1,200,000 and lease it back from the
new owners. The closing of the sale is expected to occur prior to the end
of May 1999.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters.
Shares of the Company's Common Stock are available for trading on
the Nasdaq Stock Market over-the-counter exchange. The Common Stock is
quoted under the symbol PAMT.
The following table sets forth the high and low bid prices of the Common
Stock as quoted on the OTC Bulletin Board.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31 COMMON STOCK
High Low
<S> <S> <S>
1997
First Quarter 3.38 1.88
Second Quarter 5.38 1.62
Third Quarter 4.87 2.87
Fourth Quarter 5.50 3.12
1998
First Quarter 4.75 3.62
Second Quarter 4.20 2.75
Third Quarter 3.62 2.25
Fourth Quarter 2.50 1.37
</TABLE>
The Company had 76 registered shareholders of Common Stock on
April 6, 1999. The Company has not paid any dividends to date. For the
foreseeable future, it is anticipated that earnings, if any, will be used
to finance the growth of the Company and that cash dividends will not be
paid to stockholders.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Pamet Systems, Inc. (the "Company" or "Pamet Systems"), founded in 1987,
designs and implements broad-based information technology solutions for
public safety agencies enabling them to realize cost efficiencies and
provide better service. The company's suite of products is composed of
three major components: PoliceServer, FireServer, and JailServer. The
Company also offers several companion products including ImageServer,
MobileServer, QueryStation, and a GIS/Mapping module. The Company's
revenues consist primarily of sales of these software applications, the
associated hardware and systems integration, and support and update service
fees.
The Company's revenues for the 12 month period ended December 31, 1998 (the
1998 period) increased 31.7% to $2,736,986 from $2,077,896 for the 12 month
period ending December 31,1997 (the 1997 period). During the 1998 period,
the revenues showed a significant shift to the MobileServer product, which
represented 28.4% of sales in the 1997 period and 44.9% of sales in the
1998 period. The MobileServer product enables officers to submit reports
and access critical law enforcement databases from their cruisers
increasing officer productivity. This market shift to mobile products
which became evident in the 1997 period caused the Company to join forces
with Cerulean Technology, Inc. in November 1997 to offer Cerulean's
PacketClusterPatrolTM wireless client/server software under a three-year
private branding agreement as its exclusive mobile information solution.
Several factors allowed the Company to substantially improve margins on the
mobile product during 1998. The MobileServer margins during the 1997
period were adversely affected by one time product development,
implementation engineering and staff training costs in connection with the
Cerulean agreement, as well as the costs of upgrading the installed
customer base to the Cerulean product. In addition, a significant portion
of the Company's 1997 MobileServer sales and backlog resulted from the
"COPS More 96" federal grant awards of the 1994 Crime Bill. The pricing on
these MobileServer sales reflected previous commitments made to customers
during the grant application process and prior to the Cerulean agreement.
During the 1998 period the Company was able to renegotiate the pricing on
the sales generated from the "COPS More 96" grant awards as part of the
competitive bidding process. With the startup costs behind the Company and
the renegotiation of the pricing commitments, the MobileServer margins
improved substantially during the 1998 period.
Revenues from the Company's PoliceServer and FireServer products continued
to decline in the 1998 period as a result of market expectations for a
complete Microsoft operating environment using Microsoft NT Server and a
Windows 95/98 or NT Desktop graphical user interface. These market
expectations caused the Company to begin rebuilding its products on the NT
platform late in 1997 at considerable expense. The Company spent over
$934,000 during the 1998 period on Research and Development of which
$745,287 was spent on the NT-based product, including $195,665 that was
capitalized. Significant progress was made on the NT development program
and the first NT server and PC-based systems were shipped during1998. The
Company plans to complete the NT versions of their PoliceServer and
FireServer products during 1999. As the modules of the Company's records
management system (RMS) and computer aided dispatch (CAD) operating in the
Microsoft NT environment are released, the Company expects that the product
mix may shift back to the higher margin PoliceServer and FireServer
products. The Company's other products are currently Windows PC-based
products. The Company also expended considerable funds during the 1998
period on product quality improvements resulting in final releases of its
VMS-based PoliceServer and FireServer products, a new release of its
ImageServer product, and QueryStation enhancements. The Company also
expanded its suite of products in 1998 to include a GIS/Mapping module.
The Company also completed its program to improve product documentation to
address competitive requirements and improve customer satisfaction.
During the second quarter of the 1998 period, another round of federal
grants associated with the 1994 Crime Bill, "COPS More 98", was announced.
The "COPS More 98" grant program was national in scope and very
competitive, with police departments of all sizes and types competing for a
total of $200 million in funds which must be matched by $66M in local
matching share. Prior to the submission of the grant applications in June
1998, the Company held another round of its informative grant preparation
seminars for current and potential customers to assist them in preparing
their grant proposals. The seminars reached over 900 attendees at 30
seminars in 27 cities in 15 states and all participants were offered
further support in completing the complex application via phone or fax.
The special grant advisory team at Pamet provided aid to more than 130
agencies. The agencies that have attended the Company's seminars have
generally received grant awards and the Company began to see revenues
related to "COPS More 98" in the last quarter of the 1998 period.
The Company continues to believe there are significant market opportunities
based on the 1994 Crime Bill funding expected in 1999 and beyond, the
establishment of E911 centers, heightened emphasis on crime in most
communities and the awareness by municipalities that computer systems can
improve the efficiency and effectiveness of their public safety resources.
The Company has also seen increased emphasis on the coordination of public
safety systems between neighboring towns, county, and state police
organizations. The Company's products are designed and marketed with the
option to be used in this type of regional application.
Results of Operations
Year Ended December 31, 1998 vs. Year Ended December 31, 1997.
During 1998, the Company's net sales increased 31.7% to $2,736,986 from
$2,077,896 in the 1997 period. Although revenues from the Company's core
products increased from $470,432 for the 1997 period to $512,306 for the
1998 period, their contribution to total sales decreased to 18.7% of
revenue in 1998 from to 22.6% of revenue in 1997. The number of new system
sales and hardware upgrades decreased from 11 in the 1997 period to 10 in
the 1998 period. This decrease, despite the increase in total revenues,
can be attributed to communities delaying purchases of systems while they
awaited more vendors offering products in a Microsoft operating environment
using Microsoft NT Server and a Windows 95/98 or NT Desktop graphical user
interface. In response to the market trend, during the 1998 period the
Company installed a Beta version of its NT-based PoliceServer NT records
management software (RMS) in the City of Cambridge, Massachusetts police
department as well as a one user NT PC-based RMS system in a small
community in central Massachusetts. The Company believes that business was
lost or deferred in 1998 as a result of the Company not offering a PC-based
police or fire system further highlighting the importance of the migration
to an NT-based product line.
Sales of the MobileServer product increased 107.8% to $1,228,168 in the
1998 period from $591,030 in the 1997 period. The mobile product revenue
represented 17 new installations and 10 departments increasing the number
of both cruiser and portable units. The majority of the revenue from
MobileServer resulted from federal grant funds awarded from "COPS More 96"
of the 1994 Crime Bill. Revenues from the ImageServer product were
relatively flat at $215,796 for the 1998 period as compared to $217,501 for
the 1997 period. The Company has continued to see increased revenues from
support and update service fees resulting from increases in the installed
base and renewal rates approaching 100%. Support revenues increased
$84,772 or 17.7% to $564,270 for the 1998 period from $479,498 for the 1997
period. These service revenues represented 20.6% of the Company's total
revenues in the 1998 period versus 23.1% in the 1997 period.
Cost of sales increased $113,330 or 10.9% to $1,156,623 for the 1998 period
from $1,043,293 for the 1997 period reflecting increased sales. The
Company experienced an improvement in gross margin from 49.8% in the 1997
period to 57.7% in the 1998 period. Substantial increases in margin were
attained in several product categories including new systems and
MobileServer. The gains in the new systems margin can be attributed to the
high margin JailServer product and software only sales. The MobileServer
margins increased as a result of implementing more favorable pricing
strategies, renegotiation of customer commitments made prior to the
Cerulean agreement and moving beyond the startup phase of shipping the
Cerulean product under the private branding agreement. The 1997 margins
had been negatively impacted by the initial costs associated with Cerulean
agreement including upgrading existing customers to the Cerulean system and
prior pricing commitments for mobile systems funded by federal grants. In
addition, the Company began shipping GIS/Mapping systems during 1998 that
delivered high margins generally due to the low hardware content of these
systems. Software support and update service revenues delivered
traditionally high margins although they decreased from 96.0% in the 1997
period to 93.3% in the 1998 period. This decrease can be attributed to the
increase in MobileServer installations where support is purchased from
Cerulean rather than being performed by Pamet employees.
The Company's operating expenses increased $1,241,751 or 62.7% to
$3,223,290 for the 1998 period from $1,981,539 for the 1997 period. The
Company's commitments in several areas including overall product quality,
customer satisfaction and new product development contributed significantly
to the increases in spending. Of the increases, $420,907or 33.9% was
attributed to research and development spending on NT product development,
the interface between PoliceServer and the Cerulean mobile product, a
network search product (LENS), and enhancements to the ImageServer product.
In addition, $195,665 of development cost on the NT-based PoliceServer
product was capitalized during the 1998 period as this part of the NT
project reached technical feasibility. The Company is continuing to use
outside resources in the design, development, and testing of these projects
creating minimal impact on the long-term financial commitments of the
Company. NT product development will continue throughout 1999 until all
modules of PoliceServer and FireServer including Computer-Aided Dispatch
(CAD) have been ported to the NT platform, consistent with market demands.
During 1998, virtually all requests for proposals (RFP's) received by Pamet
Systems required either a functioning NT system or a transition plan to the
NT platform.
Personnel costs increased 44.4% or $439,709 to $1,430,606 for the 1998
period from $990,897 for the 1997 period. The major reasons for the
increase in personnel expenditures were a full year of salary and
associated expenses for David McKay, President and Chief Executive Officer,
who was hired in 6/97, and the addition of several new employees including
a Vice President of Technology and Product Deployment, three employees in
conjunction with the acquisition of Technology Assemblers, Inc. in February
1998, a Manager of Customer Support, and a salesperson for the Northeast
region. The increased headcount supports ongoing programs including the
redevelopment of the product on the NT platform, expansion of the product
line to include a jail management package, improvement in customer
satisfaction, and improved sales coverage. These strategic additions in
head count will also expand the Company's infrastructure to handle the
anticipated increase in the level of business in the future. In addition,
employee salary increases and incentive plans designed to bring employee
compensation in line with market rates were implemented in the second half
of the 1997 period and impacted spending for the 1998 period. Employee
health insurance costs increased 64.9% as a result of escalating insurance
rates and an increase in the number of insured employees.
Rent, utilities and telephone increased 83.7% or $63,813 to $140,041 for
the 1998 period from $76,228 for the 1997 period. The most substantial
portion of the increase resulted from the rent and telephone costs
associated with opening a Southeast regional sales office in Maitland, FL.
In addition, telephone cost increases resulted from telephone support for
the Company's growing client base located outside of the Northeast.
Travel and entertainment expenses increased $52,097 or 49.3% to $157,803for
the 1998 period from $105,706 for the 1997 period due to the increased
travel associated with integrating the employees from the Southeast region
into the corporate organization and the significant increase in sales and
marketing initiatives outside the Northeast including attendance at
tradeshows and "COPS More 98" grant seminars.
Spending on professional fees increased $131,298 or 78.4% to $298,679 for
the 1998 period from $167,381 for the 1997 period. Consulting fees
contributed $93,136 or 70.9% of the increase growing from $42,834 in the
1997 period to $135,970 in the 1998 period. The most significant
consulting expenditures were the cost of an outside firm hired to update
existing product documentation, the cost of a consultant hired to advise
the Company on its capital raising initiatives, and the installation of an
upgraded financial package. The documentation effort supported ongoing
product quality and customer satisfaction projects. Legal fees increased
35.1% or $31,756 to $122,306 for the 1998 period from $90,550 for the 1997
period as a result of the services that were required to establish a line
of credit loan, to support the Company's capital raising activities, to
complete the acquisition of Technology Assemblers, Inc. and to research
additional business partnerships and acquisitions.
Depreciation expense increased 24.7% or $17,900 to $90,372 for the 1998
period from $72,472 for the 1997 period reflecting the first full year of
depreciation on the new computer equipment purchased as a result of the
theft of nearly all the corporate computer equipment in June 1997 and the
upgrading of the Company's internal systems.
Other operating expenses increased 46.2% or $116,027 to $367,270 for the
1998 period from $251,243 for the 1997 period. The most significant
components of the increase were the upgrade to high speed Internet access
and links to remote corporate locations; marketing programs, trade shows,
and grant seminars; and increases in office, computer, and training
supplies related to increases in headcount and revenues.
Net interest expense increased to $164,155 for the 1998 period compared to
the net interest expense of $69,027 for the 1997 period. This change
reflects increased usage of working capital loans obtained from Directors
and Officers, the interest and fees associated with the receivables
financing agreement with Silicon Valley Bank, and interest costs on the
convertible promissory notes issued to outside investors as part of the
Company's capital raising program.
The loss for the 1998 period was $(1,807,082) or $(.71) per share compared
to a loss of $(954,314) or $(.42) per share for the 1997 period.
Liquidity and Capital Resources
The Company's working capital was a deficit of $(1,360,973) at December 31,
1998 compared to a deficit of $(430,122) at December 31, 1997 due to the
current level of research and development spending and the additional
expenses associated with the increased corporate infrastructure. In
addition, the mortgage note on the Company's headquarters building was not
renewed as of December 31, 1998 and the entire loan amount outstanding of
$479,743 is included in current liabilities for the 1998 period. The
short-term status of the mortgage on the Company headquarters was offset in
part by short-term working capital loans from Directors that were converted
to long-term convertible promissory notes. Nevertheless, the Company
remains highly leveraged.
During the first quarter of 1998, the Company completed a private placement
of 125,000 shares of common stock at $4.25 and 31,250 warrants exercisable
at $4.25 per share with an investor affiliated with a Company Director
raising $531,250. During the 1998 period, the Company also secured
$450,000 of additional financing in the form of long-term convertible debt,
converted $600,000 in lines of credit from Directors to long-term
convertible debt, and negotiated a $250,000 vendor line of credit that has
supported the NT development program. In general, the convertible debt
funding secured in the 1998 period or converted from lines of credit
accrues interest at 11%, has a two-year term, carries the option of
conversion of the principal to common stock by the debt holder or repayment
of principal and accrued interest by the Company, and has 100% warrant
coverage attached that allows for purchase of additional shares of common
stock at the conversion price which ranges from $1.45 to $2.50. For
detailed information on these convertible promissory notes refer to Note H
of the financial statements. Cash increased to $54,817 at December 31,
1998 from $40,522 at December 31, 1997. Accounts receivable decreased to
$537,405 at December 31, 1998 from $661,260 at December 31, 1997 despite
the increase in 1998 sales as a result of utilizing the receivables
financing agreement with Silicon Valley Bank. Subsequent to year-end, the
Company received an additional $350,000 from long-term convertible
promissory notes and $300,000 in loan commitments from Directors, and two
related parties agreed to convert $600,000 worth of promissory notes to
equity. While resources necessary to fund the completion of the NT
development program and provide working capital for operations continue to
be a focus of concern for the Company, the Company believes that the
additional funding which has been secured or committed, the anticipated
funds from the sale of the headquarters building, anticipated awards from
the "COPS More 98" grant submissions combined with sales of the Company's
existing and anticipated suite of products should ensure continued
operations through the end of the year. If additional funds are required,
the Board of Directors is willing to increase its investment or seek
additional financing. Backlog at March 30, 1998 was $345,000. The Company
is continuing to consider projects to increase its cash position such as
activities to raise capital, mergers, acquisitions or other business
combinations.
As of December 31, 1998, the Company had accumulated approximately
$6,431,000 of federal net operating loss carryforwards that expire
beginning in the year 2004. In addition, the Company has state net
operating losses to carryforward of $3,316,000 which expire between the
years 1999 and 2003. Under the Internal Revenue Code of 1986, as amended,
the rate at which a corporation may utilize its net operating losses to
offsets income for federal tax purposes is subject to specified limitations
during periods after the corporation has undergone an "ownership change".
It has been determined that an ownership change did take place at the time
of the Registrant's initial public offering. However, the limitations on
the loss carryforward exceed the accumulated loss at the time of
the"ownership change". Thus there is no restriction on its use.
Seasonality
The majority of the Company's installed base has a fiscal year that
commences on July 1 and, therefore, the Company bills its customers for
their annual software support and update service on July 1 of each year.
Consequently, cash flow representing software support revenues has tended
to be higher in the second half of the Registrant's fiscal year, although
software support revenues are recognized ratably throughout the fiscal
year.
Revenue Recognition
Revenues from software license fees are recognized when a contract has been
executed, the product has been delivered, all significant contractual
obligations have been satisfied and collection of the related receivable is
probable. Maintenance revenues, including those bundled with the initial
license fee, are deferred and recognized ratably over the service period.
Consulting and training service revenues are recognized as the services are
performed.
Year 2000
Company engineers have performed extensive testing to insure that all of
the Company's supported software products are compliant with the year 2000
transition. The Company's software was developed to store and calculate
date related information using 4 digit values, so records dated December
31, 1999 will be followed by records dated January 1, 2000. Testing has
shown that the Company's software successfully manages the year 2000
rollover while maintaining data and system integrity. For the turnkey
systems that the Company sells, the Company continues to monitor the
progress of other third party suppliers on whom it depends, such as
Microsoft and Compaq. Although the Company cannot certify these third party
products, the Company will continue to monitor the published status of
their compliance and notify its supported customers of any findings. The
Company's customers have been informed that year 2000 compliance may not
apply to older computer equipment or non-current versions of system
software.
Internally the Company utilizes some third-party vendor computer hardware,
networking equipment; telecommunication products and software products that
may or may not be year 2000 compliant. However, the Company has been
assured, by third party vendors that the software products that the Company
relies on to manage their internal finance, materials and support
activities are all year 2000 compliant. Internal testing to verify these
assurances will not be completed until July 1999. The Company also relies,
directly or indirectly, on the external systems of suppliers, creditors,
financial organizations and governmental entities for accurate exchange of
data. The impact of year 2000 non-compliance by any of these entities is
being monitored at this time.
Inflation
Inflation has not had a significant impact on the Company's operations to
date.
Item 7. Financial Statements and Supplementary Data.
PAMET SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors.................................. F-2
Financial Statements:
Balance Sheet - December 31, 1998....................... F-3
Statements of Operations -
Years Ended December 31, 1998 and 1997.......... F-4
Statements of Stockholders' Equity (Deficit) -
Years Ended December 31, 1998 and 1997........... F-5
Statements of Cash Flows -
Years Ended December 31, 1998 and 1997.......... F-6
Notes to Financial Statements .........................................F-8
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pamet Systems, Inc.
We have audited the accompanying balance sheet of Pamet Systems, Inc. as of
December 31, 1998, and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended
December 31, 1998. 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 Pamet Systems, Inc. as
of December 31, 1998, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
CARLIN, CHARRON & ROSEN LLP
March 30, 1999
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
PAMET SYSTEMS, INC.
December 31,
ASSETS 1998
<S> <S>
CURRENT ASSETS
Cash $54,817
Accounts receivable, trade, net of allowance for
doubtful accounts of $60,000 and factored receivables
of $373,024 418,229
Accounts receivable, factored 119,176
Inventory, net of reserve of $15,000 50,254
Prepaid expenses and other current assets 81,421
-------
TOTAL CURRENT ASSETS 723,897
PROPERTY AND EQUIPMENT, NET 947,188
RESTRICTED CASH 28,534
DEPOSIT 4,190
CAPITALIZED SOFTWARE DEVELOPMENT COSTS 195,665
-------
TOTAL ASSETS $1,899,474
=========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <S>
CURRENT LIABILITIES
Line of credit (vendor) $169,934
Mortgage note payable 479,743
Due to factor 65,980
Accounts payable, trade 787,764
Account payable, related party 20,513
Accrued expenses 265,267
Deferred software maintenance revenue and unearned
support revenue 295,669
-------
TOTAL CURRENT LIABILITIES 2,084,870
LONG-TERM DEBT 1,050,000
UNEARNED SUPPORT REVENUE 3,802
</TABLE>
<TABLE>
<CAPTION>
COMMITMENTS AND CONTINGENCIES
<S> <S>
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued
Common stock, $.01 par value, 7,500,000 shares
authorized, 2,545,500 shares issued and outstanding 25,455
Additional paid-in capital 5,306,924
Accumulated deficit (6,571,577)
----------
TOTAL STOCKHOLDERS' DEFICIT (1,239,198)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,899,474
=========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
PAMET SYSTEMS, INC.
Year Ended December 31,
1998 1997
<S> <S> <S>
Net hardware and software sales $2,172,716 $1,598,398
Support revenues 564,270 479,498
--------- ---------
TOTAL REVENUES 2,736,986 2,077,896
Cost of sales 1,156,623 1,043,293
--------- ---------
GROSS PROFIT 1,580,363 1,034,603
--------- ---------
Operating expenses
Personnel costs 1,430,606 990,897
Rent, utilities and telephone 140,041 76,228
Travel and entertainment 157,803 105,706
Professional fees 298,679 167,381
Depreciation 90,372 72,472
Research and development 738,519 317,612
Other operating expenses 367,270 251,243
--------- ---------
TOTAL OPERATING EXPENSES 3,223,290 1,981,539
--------- ---------
Loss from operations (1,642,927) (946,936)
Interest income 674 1,265
Interest expense (164,829) (70,292)
Gain on insurance settlement -- 61,649
--------- ---------
NET LOSS $(1,807,082) $(954,314)
========= =========
Loss per common share $(.71) $(.42)
=== ===
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIT)
PAMET SYSTEMS, INC.
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity(Deficit)
<S> <S> <S> <S> <S> <S>
BALANCE AT
JANUARY 1,
1997 2,102,250 $21,023 $4,107,605 $(3,810,181) $318,447
NET LOSS (954,314) (954,314)
CONVERSION OF
STOCK OPTIONS 108,000 1,080 121,216 122,296
PRIVATE PLACE-
MENT OF STOCK 200,000 2,000 548,000 550,000
--------- ------ --------- --------- ---------
BALANCE AT
DECEMBER 31,
1997 2,410,250 24,103 4,776,821 (4,764,495) 36,429
NET LOSS (1,807,082) (1,807,082)
CONVERSION OF
STOCK OPTIONS 10,250 102 103 205
PRIVATE PLACE-
MENT OF STOCK 125,000 1,250 530,000 531,250
--------- ------ --------- --------- ---------
BALANCE AT
DECEMBER 31,
1998 2,545,500 $25,455 $5,306,924 $(6,571,577) $(1,239,198)
========= ====== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
PAMET SYSTEMS, INC.
Year Ended December 31,
1998 1997
OPERATING ACTIVITIES
<S> <S> <S>
Net loss $(1,807,082) $(954,314)
Adjustments to reconcile netloss to net
cash used for operating activities:
Depreciation and amortization 90,372 72,472
Interest payable 4,635 --
Gain on insurance settlement -- (61,649)
Capitalized software development costs (195,665) --
Changes in operating assets and liabilities:
Accounts receivable, trade 243,031 (58,588)
Accounts receivable, factored (119,176) --
Inventory 39,557 (21,121)
Prepaid expenses and other current assets (41,827) (19,341)
Restricted cash (674) (714)
Deposit (4,190) --
Due to factor 65,980 --
Accounts payable, trade 160,537 312,498
Accounts payable related party 20,513 --
Accrued expenses 121,089 37,044
Deferred software maintenance revenue and
unearned support revenue (9,314) 22,744
------- -------
Net cash used for operating activities (1,432,214) (670,969)
INVESTING ACTIVITIES
Expenditures for property
and equipment (91,590) (129,835)
Proceeds from insurance settlement -- 108,708
------- -------
Net cash used for investing activities (91,590) (21,127)
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS - CONTINUED
PAMET SYSTEMS, INC
Year Ended December 3l,
1998 1997
<S> <S> <S>
FINANCING ACTIVITIES
Net proceeds from line of credit (vendor) 169,934 --
Proceeds from long term debt-convertible
promissory notes 750,000 --
Proceeds from related party notes 407,561 375,000
Payment of related party notes -- (355,660)
Payments on mortgage note (16,216) (14,371)
Issuance of capital stock 226,820 672,296
--------- ---------
Net cash provided by
financing activities 1,538,099 677,265
--------- ---------
NET INCREASE (DECREASE) IN CASH 14,295 (14,831)
Cash at beginning of period 40,522 55,353
CASH AT END OF PERIOD $54,817 $40,522
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOWS INFORMATION
Cash paid for interest $127,000 $74,000
========= =========
SUMMARY OF NON-CASH FINANCING ACTIVITIES
Note payable-related party converted to long
term debt-convertible promissory note 300,000 --
========= =========
Note payable-related party and accrued interest
repaid by issuance of capital stock 304,635 --
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PAMET SYSTEMS, INC.
NOTE A--NATURE OF OPERATIONS
Pamet Systems, Inc. (the Company), a Massachusetts corporation, was formed
in November 1987 to engage in the business of designing, developing,
installing and servicing computer software systems for the municipal market
throughout the Eastern United States, principally in the area of public
safety. Credit is granted to certain customers, most of which are
municipalities. The Company generally does not require collateral.
The Company's committed backlog at March 30, 1999 was in excess of $
345,000 (unaudited). Management believes that this level of backlog and its
anticipated sales, as well as the funding described below, are adequate to
sustain operations through the end of fiscal year 1999.
However, the ultimate success of the Company is still dependent upon its
ability to secure financing adequate to meet its working capital and
product development needs and the successful development of a Microsoft
Windows NT computing platform for the Company's current applications that
can be effectively marketed to expand the Company's operations. Subsequent
to year end, two related parties have agreed to convert $600,000 worth of
promissory notes to an equity position. See Note H. In addition, the
Company has executed a signed purchase and sales agreement to sell its
facility for approximately $1,200,000, part of which will be used to repay
the mortgage note. See Note G. (In conjunction with this sale, the Company
has executed a seven year lease on the facility at approximately $175,000
per year, plus real estate taxes and expenses.) If additional funds are
required, the current Board members are willing to increase their
investment or seek additional equity financing, as needed. Certain members
of the Board have also agreed to offer the Company a revolving line of
credit up to $300,000 beginning April l, 1999 through June 1, 2000, at an
11% interest rate. One thousand (1,000) warrants will accompany each
$10,000 pledged under the line of credit, at the market price as of March
28, 1999. Management believes the Company's current sources of liquidity
and funding are adequate to sustain operations. Management is also trying
to enhance its financial position by obtaining permanent additional
financing. There can be no assurance, however, that the Company's
operations will be sustained or be profitable in the future, that adequate
sources of financing will be available at all, when needed or on
commercially acceptable terms, or that the Company's product development
efforts will be successful.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Restricted cash: In connection with its mortgage agreement, the Company is
required to maintain an interest reserve account with the mortgagee.
Withdrawals from the account are restricted to the payment of mortgage note
principal and interest.
Property and equipment: Property and equipment are stated at cost and are
depreciated on the straight line or accelerated methods over their
estimated useful lives.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory: Inventory consists primarily of computer-related supplies and
is stated at the lower of cost (first-in, first-out) or market value.
Accounts receivable, factored: The Company factors part of its accounts
receivable with recourse, which means that the Company bears the risk of
uncollectible accounts over 120 days old. Accounts receivable, factored in
the accompanying balance sheet represents the portion of each account held
back by the factor. The balance will be remitted to the Company when the
respective accounts have been collected.
Due to factor: The balance represents the Company's estimated liability
for its factored accounts that will become greater than 120 days old or
uncollectible, based on historical collections.
Deferred software maintenance revenue and unearned support revenue:
Deferred software maintenance revenue and unearned support revenue
represent revenue relating to software support, updates and warranties
which the Company has not yet earned. Software maintenance fees are
recognized ratably over the period of the service contract. The portion of
the maintenance fee associated with the sale of a first time system or
software that relates to the initial maintenance period is also recognized
ratably over the period of the extended service.
Revenue recognition: The Company generally recognizes product revenue upon
shipment. Revenues for products with extensive installation requirements
under contractual agreements are recognized upon customer acceptance.
Loss per common share: In 1998 and 1997, loss per common share is computed
using the weighted average number of shares of common stock outstanding
during the period. Diluted per share computations are not presented since
the effect would be antidilutive.
Stock-based compensation: The Company measures compensation expense
relative to employee stock-based compensation plans using the intrinsic
value-based method of accounting as prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". However,
the Company will disclose the pro forma amounts of net income and earnings
per share as though the fair value-based method of accounting prescribed by
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", had been applied. See the Stockholders' Equity
note for these disclosures.
Capitalized software development costs: Pursuant to Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed,"the Company capitalizes certain
software development costs once
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE B-SIGNIFICANT ACCOUNTING POLICIES (continued)
technological feasibility of the related products, as defined in the
statement, has been achieved. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by management with
respect to certain external factors, including but not limited to,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technology. Software development costs incurred prior
to achieving technological feasibility as well as certain licensing and
other research and development costs are charged to research and
development expense as incurred.
Capitalized software development costs are reported at the lower of
unamortized cost or net realizable value, which is periodically reviewed
based upon current and anticipated product revenue. Commencing with the
initial product release, these costs are amortized to cost of sales on the
straight-line method over the estimated life of the product, generally
three to five years. The Company has not amortized any capitalized software
costs pending initial product release, presently intended for the third
quarter of 1999.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities 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.
Income taxes: The Company accounts for income taxes according to the
liability method. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and income
tax bases of assets and liabilities and are measured using enacted tax
rates and tax laws that will be in effect when the differences are expected
to reverse. The primary component of the Company's deferred tax asset as
of December 31, 1998, which is fully reserved, is net operating loss
carryforwards.
NOTE C--RELATED-PARTY TRANSACTIONS
Director Compensation: The Company paid approximately $22,000 in 1998 and
$15,000 in 1997 to a stockholder and director for financial accounting
consulting services.
Accounts payable, related party represents non-interest bearing amounts
owed to employees and directors for services performed or expense
reimbursements.
(continued)
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE C-RELATED-PARTY TRANSACTIONS (continued)
In addition, during 1998 two stockholders and directors of the company
acquired convertible promissory notes with five year warrants attached. The
terms and maturity dates of the promissory notes and warrants are disclosed
in Note H-LONG TERM DEBT.
NOTE D--PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Property and equipment at December 31, 1998 is as follows:
Balance at
Beginning Balance at
of Additions End of
Period at Cost Retirements Period
Classification ---------- --------- ----------- ----------
<S> <S> <S> <S> <S>
Land $231,283 $231,283
Building 758,728 758,728
Furniture and Fixtures 122,850 $10,477 133,327
Computer Equipment 370,512 81,113 451,625
Automobiles 24,894 24,894
--------- --------- --------- ---------
TOTALS $1,508,267 $91,590 $1,599,857
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated depreciation at December 31, 1998 is as follows:
Balance at Additions Balance at
Beginning Charged End of
of Period to Expense Retirements Period
Classification ---------- ---------- ----------- ----------
<S> <S> <S> <S> <S>
Building $160,089 $24,105 $184,194
Furniture and Fixtures 116,669 6,493 123,162
Computer Equipment 273,262 55,231 328,493
Automobiles 12,277 4,543 16,820
--------- --------- --------- ---------
TOTALS $562,297 $90,372 $652,669
========= ========= ========= =========
</TABLE>
(continued)
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE E-LINE OF CREDIT (VENDOR)
A line of credit facility up to $250,000 is available to the Company from
one of its vendors. The facility is restricted in that it may only be used
to purchase certain research and development services from this vendor.
Interest is to be applied at 12% per annum and the agreement expires on
June 1, 1999. At the expiration date, there is an option available for the
lender to convert the unpaid line of credit and accrued interest to stock
at $2.50 per share and receive an equal number of five year warrants to
allow the purchase of additional shares of common stock at $2.50 per share.
NOTE F-MORTGAGE NOTE PAYABLE
Mortgage note payable represents a note secured by a mortgage on the
Company's facility. The note expired on October 21, 1998 and has not been
renewed by the Bank. $5,423, including interest at 10.00%, is payable
monthly and is current at March 30, 1999. In addition, the note is subject
to several conditions, including:
- Four officers, directors and/or stockholders of the Company
are limited guarantors of the note to the extent of $50,000 each. In
connection with these guarantees these four officers, directors and/or
stockholders received $1,500 in 1997.
- Payment of dividends is restricted, requiring approval of the
mortgagee.
- Salary increases for officers above base levels are
restricted, requiring approval of the mortgagee.
Subsequent to year end, the Company has executed a signed purchase and sale
agreement to sell its facility for approximately $1,200,000, part of which
will be used to repay the mortgage note.
NOTE G--ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses consist of the following at December 31, 1998:
<S> <S>
Accrued payroll and vacation $157,069
Accrued and withheld payroll taxes 41,927
Other 66,271
-------
$265,267
=======
</TABLE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE H-LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt represents convertible promissory notes
with five year warrants attached. The promissory notes may
be converted to common stock no more frequently than four
times per year at an amount of not less than $25,000. No
interest shall be deemed to have accrued or be payable on
any portion of a note converted prior to maturity. The
conversion price, maturity dates and the warrants available
on each note are as follows:
<S> <S>
Convertible promissory note to a related party with five
year warrants attached, which allows the noteholder to
purchase up to 120,000 shares of common stock at $2.50
per share. No warrants have been exercised at December 31,
1998. The principal amount of the note may be converted
to common stock at $1.45 per share, at the noteholder's
option as described above. No principal has been converted
to common stock at December 31, 1998. The interest rate
on the note is 11% per year and interest expense in fiscal
year 1998 was $5,063 and is included in accrued expenses
at December 31, 1998. Both the principal balance of the
note and unpaid accrued interest are due on June 1, 2001. $300,000
Convertible promissory note to a related party with five
year warrants attached which allows the noteholder to
purchase up to 30,000 shares of common stock at $2.75
per share. No warrants have been exercised at December 31,
1998. The principal amount of the note may be converted to
common stock at $2.75 per share, at the noteholder's option
as described above. No principal has been converted to
common stock at December 31, 1998. The interest rate on
the note is 11% per year and interest expense in fiscal
year 1998 was $5,063 and is included in accrued expenses
at December 31, 1998. Both the principal balance of the
note and unpaid accrued interest are due on February 28, 2001. 300,000
Convertible promissory note with five year warrants attached,
which allows the noteholder to purchase up to 20,000 shares of
common stock at $2.50 per share. No warrants have been
exercised at December 31, 1998. The principal amount of the
note may be converted to common stock at $2.50 per share, at
the noteholder's option as described above. No principal has
been converted to common stock at December 31, 1998. The
interest rate on the note is 11% per year and interest expense
in fiscal year 1998 was $271 and is included in accrued expenses
at December 31, 1998. Both the principal balance of the note and
unpaid accrued interest are due on December 13, 2000 50,000
</TABLE>
(continued)
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
<TABLE>
<CAPTION>
NOTE H-LONG TERM DEBT (continued)
<S> <S>
Convertible promissory note with five year warrants attached,
which allows the noteholder to purchase up to 172,413 shares
of common stock at $1.45 per share. No warrants have been
exercised at December 31, 1998. The principal amount of the
note may be converted to common stock at $1.45 per share, at
the noteholder's option as described above. No principal has
been converted to common stock at December 31, 1998. The
interest rate on the note is 11% per year and interest expense
in fiscal year 1998 was $3,692 and is included in accrued
expenses at December 31, 1998. Both the principal balance of
the note and unpaid accrued interest are due on
November 12, 2000. 250,000
Convertible promissory note with five year warrants attached,
which allows the noteholder to purchase up to 40,000 shares of
common stock at $2.50 per share No warrants have been exercised
at December 31, 1998. The principal amount of the note may be
converted to common stock at $2.50 per share, at the
noteholder's option as described above. No principal has been
converted to common stock at December 31, 1998. The interest
rate on the note is 11% per year and interest expense in fiscal
year 1998 was $663 and is included in accrued expenses at
December 31, 1998. Both the principal balance of the note and
unpaid accrued interest are due on December 9, 2000. 100,000
Convertible promissory note with five year warrants attached,
which allows the noteholder to purchase up to 20,000 shares of
common stock at $2.50 per share. No warrants have been exercised
at December 31, 1998. The principal amount of the note may be
converted to common stock at $2.50 per share, at the
noteholder's option as described above. No principal has been
converted to common stock at December 31, 1998. The interest rate
on the note is 11% per year and interest expense in fiscal year
1998 was $362 and is included in accrued expenses at December 31,
1998. Both the principal balance of the note and unpaid accrued
interest are due on December 7, 2000. 50,000
---------
$1,050,000
=========
</TABLE>
The notes are shown at face value because the value attributed to the
warrants was considered not material. Subsequent to year end noteholders
have committed to convert $100,000 of the above principal to the Company's
common stock.
<TABLE>
<CAPTION>
Annual principal maturities of long-term debt are as follows:
<S> <S>
Year ending December 31, 1999 $ --
December 31, 2000 450,000
December 31, 2001 600,000
---------
TOTAL $l,050,000
=========
</TABLE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE I--STOCKHOLDERS' EQUITY
Stock-based compensation expense under the fair value-based method of
accounting would have resulted in pro forma net loss and loss per common
share approximating the following amounts:
<TABLE>
<CAPTION>
1998 1997
As Reported Pro Forma As Reported Pro Forma
<S> <S> <S> <S> <S>
Net loss $(1,807,082) $(2,077,835) $(954,314) $(1,364,185)
========= ========= ======== =========
Loss per common share $(.71) $(.82) $(.42) $(.60)
=== === === ===
</TABLE>
The fair value for each option granted during 1998 and 1997, reflecting the
basis for the above pro forma disclosures, was determined on the date of
grant using the Black-Scholes option-pricing model. The following
assumptions were used in determining fair value through the model:
<TABLE>
<CAPTION>
1998 1997
<S> <S> <S>
Expected Life 5-8 years* 5-8 years*
Risk-free interest rate 4.10%-5.93%* 5.80%-6.68%*
Expected Volatility 119% 128%
</TABLE>
*Amounts vary due to graded vesting for options granted to employees and
differences between options granted to employees and options granted to
directors.
The Company recognizes forfeitures as they occur.
The application of fair value-based accounting in arriving at the pro forma
disclosures above is not an indication of future income statement effects.
The pro forma disclosures do not reflect the effect of fair-value
accounting on stock-based compensation awards granted prior to 1995, if
any.
(continued)
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE I--STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans: In 1990, the Company adopted a Stock Option Plan under
which the Board of Directors may grant incentive or non-qualified stock
options to employees, directors and consultants of the Company. The maximum
number of shares of stock subject to issuance under the 1990 Stock Option
Plan is 400,000 shares. These options, of which a total of 119,250 had been
exercised at December 31, 1998, are exercisable within a ten-year period
from the date of the grant, generally fully exercisable when issued to
directors and exercisable 20% per year and continuing over five years for
employees and consultants. The options are not transferrable except by will
or domestic relations order. The option price per share under the Plan is
not less than the fair market value of the shares on the date of grant.
Stock option activity for the 1990 Stock Option Plan for the two year
period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Weighted Average
--------------------
Number Exercise Price Exercise Remain-
Of Options Per Share Price ing Life
---------- -------------- -------- --------
<S> <S> <S> <S> <S>
Outstanding
January 1, 1997 349,000 $.02-$5.50 $1.07 5.08 years
Exercised (58,000) $.02-$3.50 $.38
------- ---------- ----- ----------
Outstanding
December 31, 1997 291,000 $.02-$5.50 $1.21 3.49 years
Cancelled (13,000) $1.44-$3.50
Exercised (10,250) $.02 $.02
------- ---------- ----- ----------
Outstanding
December 31, 1998 267,750 $.02-$5.50 $1.20 2.55 years
======= ========== ===== ==========
Exercisable at
December 31, 1998 203,950 $.02-$5.50 $.95
======= ========== =====
Exercisable at
December 31, 1997 191,000 $.02-$5.50 $.83
======= ========== =====
Available for
Grant At
December 31, 1998 13,000
=======
Available for
Grant At
December 31, 1997 --
=======
</TABLE>
<PAGE>
(continued)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE I-STOCKHOLDERS' EQUITY (continued)
Stock Option Plans: In 1998, the Company adopted a Stock Option Plan under
which the Board of Directors may grant incentive or non-qualified stock
options to employees, directors and consultants of the Company. The
maximum number of shares of stock subject to issuance under the 1998 Stock
Option Plan is 200,000 shares. These options, of which none had been
exercised at December 31, 1998, are exercisable within a ten-year period
from the date of the grant, and are generally fully exercisable when issued
to directors and exercisable 25% per year and continuing over four years
for employees and consultants. The options are not transferable except by
will or domestic relations order. The option price per share under the
Plan is not less than the fair market value of the shares on the date of
grant.
Stock option activity for the 1998 Stock Option Plan for the one year
period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Weighted Average
------------------------------
Number Exercise Price Exercise Fair Value Remain-
Of Options Per Share Price at grant ing Life
---------- -------------- -------- ---------- --------
<S> <S> <S> <S> <S> <S>
Outstanding
January 1, 1998 -- -- --
Granted to Directors 15,000* $1.37 $1.37 $1.14
Granted to Officer 50,000 $1.37 $1.37 $1.14
Granted to Employees 27,500 $1.87 $1.87 $1.56
------- ------ ----- ----- -------
Outstanding
December 31, 1998 92,500 $1.37-$1.87 $1.52 5.54 years
======= =========== ===== ==========
Exercisable at
December 31, 1998 --
=======
Available for Grant
At December 31, 1998 107,500
=======
</TABLE>
*Exercisable 33% per year.
Subsequent to December 31, 1998, options representing 36,000 shares were
granted to directors at an exercise price of $1.56.
(continued)
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE I-STOCKHOLDERS' EQUITY (Continued)
In addition, the Company also issued stock options and warrants outside of
any formalized plan. The stock options are exercisable within a ten-year
period from the date of grant and are generally fully exercisable when
issued to directors and exercisable 25% per year and continuing over four
years for employees and consultants. The warrants are exercisable within a
five year period from the date of grant and are generally fully exercisable
when issued. The options and warrants are not transferable except by will
or domestic relations order. The option or warrant price per share is not
less than the fair market value of the shares on the date of grant.
Stock option and warrant activity for stock options and warrants issued
outside a formalized plan for the two year period ended December 31, 1998
follows:
<TABLE>
<CAPTION>
Weighted Average
----------------------------
Number of Exercise Price Exercise Fair Value Remain-
Options/Warrants Per Share Price at grant ing
Life
<S> <S> <S> <S> <S> <S>
Outstanding January
1, 1997 65,000 $.68-$.80 $.77 8.20 yrs
Granted to Directors
and officers in
consideration of
providing short-term
financing 120,000 $2.00 $2.00 $1.51
Granted to Directors 8,000 $2.75 $2.75 $2.39
Granted to Employees 230,000 $2.75-$4.25 $3.07 $3.02
Exercised (50,000) $2.00 $2.00
------- ----------- ----- -----
Outstanding December
31, 1997 373,000 $.68-$4.25 $2.10 5.94 yrs
Options granted to
Directors 10,000 $4.00 $4.00 $3.36
Options granted to
Employees 40,000 $3.25-$4.75 $4.38 $2.73
Warrants granted to
Directors 181,250 $2.50-$4.25 $2.84 $2.09-$3.57
Warrants granted to
Convertible Debt
Holders 252,413 $1.45-$2.50 $1.78 $2.09-$1.21
Options cancelled (7,500) $2.75
------- ----------- ----- -----------
Outstanding December
31, 1998 849,163 $.68-$4.75 $2.45 4.80 yrs
======= ========== ===== =========== ========
Exercisable at
December 31, 1998 306,625 $.68-$4.75 $2.60
======= ========== =====
Exercisable at
December 31, 1997 193,000 $.68-$2.75 $1.81
======= ========== =====
</TABLE>
(continued)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE J-EARNINGS PER SHARE DISCLOSURE
<TABLE>
<CAPTION>
Earnings per share disclosures for the two year period ended December 31,
1998 are as follows:
For the Year Ended December 31, 1998
------------------------------------
Weighted-
Average Per Share
Income Shares Amount
------ ------- ---------
<S> <S> <S> <S>
Basic loss per common share
Income available to common
stockholders $(1,807,082) 2,529,408 $(.71)
========= ========= ====
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------
Weighted-
Average Per Share
Income Shares Amount
------ --------- ---------
<S> <S> <S> <S>
Basic loss per common share
Income available to common
stockholders $(954,314) 2,265,321 $(.42)
======= ========= ====
</TABLE>
NOTE K--INCOME TAXES
During 1998, the Company recorded deferred tax assets for the benefit of
net operating losses in the amount of $295,000. The cumulative amount of
these assets, which is $1,232,000 at December 31, 1998 is fully reserved.
Due to the Company's history of operating losses, management has concluded
that realization of the benefit is not likely.
At December 31, 1998, the Company has federal net operating loss
carryforwards of $6,431,000 that expire beginning in the year 2004.
Additionally, the Company has Massachusetts state net operating losses to
carryforward which expire as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <S>
1999 $83,000
2000 514,000
2001 --
2002 980,000
2003 1,739,000
---------
$3,316,000
=========
</TABLE>
(continued)
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE L--SIGNIFICANT CUSTOMERS
There were no sales to individual customers that were greater than 10% of
total revenues for the years ended December 31, 1998 and 1997.
NOTE M--ECONOMIC DEPENDENCY
The Company obtained approximately 26% of its merchandise from one source
in 1998. Management believes that if this supplier ceased providing
software, the Company could find alternative suppliers, although there
would be a short interruption of business as the new software was
integrated with the company's products. An additional 19% of its
merchandise was obtained from a second supplier. Management believes that
if this supplier ceased providing merchandise, the Company could find
alternative suppliers without serious interruption of business.
NOTE N--PROFIT SHARING PLAN
The Company has a qualified contributory profit sharing plan [401(k) Plan].
The Plan covers all eligible employees meeting certain age and service
requirements. Employee contributions are voluntary, based on specific
percentages of compensation. The Plan also provides for contributions by
the Company in any amount approved by the Board of Directors. During 1998
and 1997, the Board elected to make contributions equal to 15% of employee
contributions. The employees' and employer's contributions may not exceed
maximum amounts established by the Internal Revenue Code. Total Company
contributions to the plan were $8,635 during 1998 and $4,914 during 1997.
NOTE O-RESEARCH AND DEVELOPMENT
Research and development costs in the current year represent costs
associated with developing a Microsoft Windows NT computing platform for
the Company's current computer applications as well as developing a mobile
product interface to the state information system.
NOTE P-SUBSEQUENT EVENTS
On January 21, 1999, the Company issued a convertible promissory note for
$100,000 with five year warrants attached which allows the noteholder to
purchase up to 40,000 shares of common stock at $2.50 per share. The
principal amount of the note may be converted to common stock at $2.50 per
share, at the noteholder's option. The interest rate on the note is 11% per
year. Both the principal balance of the note and unpaid accrued interest
are due on January 21, 2001.
(continued)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE P-SUBSEQUENT EVENTS-CONTINUED
In addition, on February 8, 1999, the Company issued another convertible
promissory note for $250,000 with five year warrants attached which allows
the noteholder to purchase up to 100,000 shares of common stock at $2.50
per share. The principal amount of the note may be converted to common
stock at $2.50 per share, at the noteholder's option. The interest rate on
the note is 11% per year. Both the principal balance of the note and the
unpaid accrued interest are due on February 7, 2001.
NOTE Q--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Summarized quarterly financial data for 1998 and 1997 is as follows:
Quarter Ended
-------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
<S> <S> <S> <S> <S>
Revenues $604,163 $897,304 $597,429 $638,090
Gross Profit 310,032 474,035 376,954 419,342
Operating Loss (417,412) (424,087) (234,688) (566,740)
Net Loss (441,061) (460,300) (283,146) (622,575)
Loss per share $(.17) $(.18) $(.11) $(.24)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <S> <S> <S> <S>
Revenues $607,506 $432,105 $506,455 $531,830
Gross Profit 349,290 182,168 281,822 221,323
Operating Income (loss) 30,270 (213,630) (158,448) (605,128)
Net Income (loss) 12,228 (191,174) (156,556) (618,812)
Income (loss) per share $.01 $(.08) $(.07) $(.28)
</TABLE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
During the Registrant's fiscal years ended December 31, 1998 and
1997 there were no disagreements with it's auditing firm, Carlin, Charron &
Rosen, LLP on any matters.
PART III
Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Item 12. Certain Relationships and Related Transactions.
If the Registrant's definitive proxy statement is filed within 120
days of the close of the Registrant's fiscal year ended December 31, 1998,
the information called for by Items 9, 10, 11, and 12 shall be deemed
incorporated herein by reference to the Registrant's definitive proxy
statement relating to the Annual Meeting of Stockholders.
<PAGE>
Item 13. Exhibits. Financial Statement Schedules, and Reports on
Form 8-K
(a) Exhibits
3.1 Restated and Amended Articles of Organization (filed by
reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990)
3.2 By-Laws, as amended (filed by reference to Exhibit 3.2
to Registration Statement No. 33-36989)
4.2 Specimen Common Stock Certificate (filed by reference to
Exhibit 4.2 to Registration Statement No. 33-36989)
4.3 Warrant issued to Rogow Opportunity Capital dated March 2,
1998 (filed by reference to Exhibit 4.3 to the Company's
Quarterly Report of Form 10-QSB for the Quarter Ended March
31, 1998)
4.4 Convertible Note issued to Rogow Opportunity Capital LLC
dated November 6, 1998
4.5 Warrant issued to Rogow Opportunity Capital LLC dated
November 6, 1998.
4.6 Convertible Note issued to Robboy Associates LLC dated
November 6, 1998.
4.7 Warrant issued to Robboy Associates LLC dated November 6,
1998.
4.8 Convertible Note issued to William James Bell 1993 Trust
dated November 13, 1998.
4.9 Warrant issued to William James Bell 1993 Trust dated
November 13, 1998.
4.10 Convertible Note issued to Gene Raphalean dated December 8,
1998.
4.11 Warrant issued to Gene Raphalean dated December 8, 1998.
4.12 Convertible Note issued to Donald M. Liddell, Jr. dated
December 10, 1998.
4.13 Warrant issued to Donald M. Liddell, Jr. dated December 10,
1998.
4.14 Convertible Note issued to Joseph Terrence Waters dated
December 14, 1998.
4.15 Warrant issued to Joseph Terrence Waters dated December 14,
1998.
10.3 Stock Option Plan (filed by reference to Exhibit 10.3
to Registration Statement No. 33-36989)
10.5 Form of License Agreement (filed by reference to
Exhibit 10.5 to Registration Statement No. 33-42819)
10.8 Commercial real estate promissory note to Lexington
Savings Bank dated April 21, 1992 (filed by reference to
Exhibit 28.1 to the Company's Quarterly Report of Form 10-Q
for the Quarter Ended June 30, 1992)
10.9 Mortgage security agreement, and assignment granted to
Lexington Savings Bank, dated April 21, 1992 (filed by
reference to Exhibit 28.2 to the Company's Quarterly Report
of Form 10-Q for the Quarter Ended June 30, 1992)
10.10 Mortgage guaranty by six Pamet Systems, Inc. Directors
and Officers, dated April 21, 1992 (filed by reference to
Exhibit 28.3 to the Company's Quarterly Report of Form 10-Q
for the Quarter Ended June 30, 1992)
10.11 Mortgage security extension (one year) Agreement
granted to Lexington Savings Bank, dated 21 June 1996 (Filed
by reference to Exhibit 10.12 to the Company's Quarterly
Report of Form 10-Q for the Quarter Ended June 30, 1996.)
10.12 Mortgage guaranty for five Pamet Systems, Inc.
Directors and Officers, Dated June 21, 1996 (Filed by
reference to Exhibit 10.12 to the Company's Quarterly Report
of Form 10-Q for the Quarter Ended June 30, 1996.)
10.13 Form of Employment agreement between the Registrant and Dr.
Joel B. Searcy (Filed by reference to Exhibit 10.13 to the
Company's Annual Report of Form 10-KSB for the Fiscal Year
Ended December 31, 1997.)
10.14 Form of Employment agreement between the Registrant and David
T. McKay (Filed by reference to Exhibit 10.14 to the
Company's Annual Reportof Form 10-KSB for the Fiscal Year
Ended December 31, 1997.)
10.15 Form of Employment agreement between the Registrant and
Richard C. Becker (Filed by reference to Exhibit 10.15 to the
Company's Annual Report of Form 10-KSB for the Fiscal Year
Ended December 31, 1997.)
10.16 1998 Stock Option Plan (Filed by reference in the 1998 Proxy
Statement dated May 14, 1998)
10.17 Silicon Valley Financial Services Accounts Receivable
Purchase Agreement dated April 14, 1998 (Filed by reference
to Exhibit 10 to the Company's Quarterly Report of Form
10-QSB for the Quarter Ended June 30, 1998.)
10.18 Promissory Note ($200,000) with Rogow Opportunity Capital
dated June 11, 1998 (Filed by reference to Exhibit 4 to the
Company's Quarterly Report of Form 10-QSB for the Quarter
Ended June 30, 1998.)
10.19 Promissory Note ($100,000) with Rogow Opportunity Capital
dated July 31, 1998 (Filed by reference to Exhibit 4 of the
Company's Quarterly Report of Form 10-QSB for the Quarter
Ended September 30, 1998.)
18 None
23 Consent of Carlin, Charron & Rosen LLP
24 None
27 Financial Data Schedule
______________________
(b) Reports on Form 8-K - none
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PAMET SYSTEMS, INC.
(Registrant)
By JOEL B. SEARCY
Dr. Joel B. Searcy
Chairman
Date April 15, 1999
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
<S> <S> <S>
JOEL B. SEARCY _____________________________
Dr. Joel B. Searcy Chairman of the Board April 15, 1999
DAVID T. MCKAY _____________________________
David T. McKay President and Chief Executive April 15, 1999
Officer
RICHARD C. BECKER _____________________________
Richard C. Becker Vice President, Finance April 15, 1999
And Administration,
Treasurer, Director
(Principal Financial and
Accounting Officer)
ARTHUR V. JOSEPHSON, JR. ________________________
Arthur V. Josephson, Jr. Director April 15, 1999
BRUCE J. ROGOW ________________________
Bruce J. Rogow Director April 15, 1999
STANLEY J. ROBBOY, M.D. ________________________
Stanley J. Robboy, M.D. Director April 15, 1999
DAVINDER SETHI ________________________
Davinder Sethi Director April 15, 1999
</TABLE>
<PAGE>
EXHIBIT 4.4
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of November 6, 1998 by and between PAMET SYSTEMS, INC., a
Massachusetts corporation whose principal place of business is 1000 Main
Street, Acton, Massachusetts 01720 (the "Company"), and Rogow Opportunity
Capital LLC (the "Purchaser"), a Massachusetts limited liability company with
its principal office at 220 Ocean Avenue, Marblehead, Massachusetts 01945.
WHEREAS, the Company is desirous of selling, and the Purchaser is
desirous of acquiring, (i) a convertible promissory note in substantially the
form attached hereto as Exhibit A in the aggregate principal amount of Three
Hundred Thousand Dollars ($300,000) (the "Note") and (ii) a five-year warrant
(the "Warrant") in substantially the form attached hereto as Exhibit B to
purchase up to an aggregate of one hundred twenty thousand (120,000) shares
("Warrant Shares") of the common stock, par value $.01 per share (the "Common
Stock"), of the Company (the Note and the Warrant together sometimes
hereinafter are referred to as the "Securities"), on the terms and subject to
the conditions hereinafter set forth.
WHEREAS, the Purchaser is the holder of two promissory notes
issued by the Company in the aggregate principal amount of Three Hundred
Thousand Dollars ($300,000) (the "Prior Notes") which the Purchaser desires
to have canceled in payment for the Securities pursuant to Section 2 of the
Prior Notes.
NOW, THEREFORE, in consideration of the promises and of the
mutual obligations hereinafter set forth, and for such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchaser hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE NOTE AND WARRANT; CLOSING
Section 1.01 Purchase and Sale of the Note and Warrant.
Subject to the terms and conditions set forth in this Agreement,
the Company agrees to issue and sell to the Purchaser at the Closing, and the
Purchaser agrees to purchase from the Company at the Closing, the Note and
the Warrant in exchange for cancellation of the Prior Notes (the "Purchase
Price").
Section 1.02 Closing. The sale of the Securities by the Company
to the Purchaser shall take place on the date hereof at the offices of the
Company or at such other place and time as may be agreed upon by the
Purchaser and the Company (the "Closing"). At the Closing, the Company shall
deliver to the Purchaser certificates evidencing the Securities against
payment of the Purchase Price by cancellation of the Prior Notes by the
Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with,
the Purchaser, as of the date hereof and as of the date of the Closing, as
follows:
Section 2.01 Incorporation and Corporate Existence. The Company
is a corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has all necessary
corporate power and authority to own, operate or lease the properties and
assets now owned, operated or leased by the Company and to carry on the
business of the Company, as it is now being conducted.
Section 2.02 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The Company has taken all necessary
corporate action to authorize the execution, delivery and performance by it
of this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, and
assuming due execution and delivery of the Agreement by the Purchaser, this
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency (including,
without limitation, all laws relating to fraudulent transfers), moratorium or
similar laws affecting creditors' rights and remedies generally, subject, as
to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law) and subject to the effect of applicable securities laws as to rights to
indemnification. The Company is not now, and has not been since inception (x)
in bankruptcy or reorganization, (y) subject to moratorium or similar laws
affecting creditors' rights and remedies generally or (z) to the best
knowledge of the Company, a party to any fraudulent transfer.
Section 2.03 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not (i) require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Company from performing any of its
material obligations under this Agreement and would not have a material
adverse effect on the Company; (ii) conflict with or violate the charter or
by-laws of the Company; or (iii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to the Company, except as would not prevent the Company from
performing any of its material obligations under this Agreement and would not
have a material adverse effect on the Company.
Section 2.04 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Company,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Company's ability to consummate the
transactions contemplated hereby.
Section 2.05 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
Section 2.06 Senior Debt. The Company does not currently expect
during the next 24 months to issue promissory notes or incur debt obligations
senior in right of payment to the Note in an aggregate principal amount in
excess of Two Million Dollars ($2,000,000).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to, and agrees with,
the Company, as of the date hereof and as of the Closing, as follows:
Section 3.01 Authority. The Purchaser has all necessary power and
authority to execute and deliver this Agreement, to purchase the Securities
from the Company and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and, and
assuming due authorization, execution and delivery of the Agreement by the
Company, this Agreement constitutes a legal, valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), moratorium or similar laws affecting creditors' rights and
remedies generally, subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) and subject to the effect of applicable
securities laws as to rights to indemnification.
Section 3.02 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Purchaser do not, and the performance
of this Agreement by the Purchaser will not (i) require any consent,
approval, authorization or other action by, or filing with or notification
to, any governmental or regulatory authority, except where the failure to
obtain such consent, approval, authorization or action, or to make such
filing or notification, would not prevent the Purchaser from performing any
of its material obligations under this Agreement; or (ii) except as would not
prevent the Purchaser from performing any of its material obligations under
this Agreement, conflict with or violate any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to the
Purchaser.
Section 3.03 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Purchaser,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
Section 3.04 Investment Purpose; Legend; Private Placement.
(a) The Purchaser is acquiring the Securities solely for the
purpose of investment and not with a view to, or for offer or sale in
connection with, any distribution thereof.
(b) The Purchaser acknowledges that neither the Securities
nor the Warrant Shares are registered under the Securities Act and that none
of the Securities or the Warrant Shares may be transferred or sold except
pursuant to the registration provisions of the Securities Act or pursuant to
an applicable exemption therefrom and subject to state securities laws and
regulations, as applicable. The Purchaser acknowledges that the certificates
evidencing the Securities and the Warrant Shares shall contain a legend
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND SUCH SECURITIES MAY NOT BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE
UNREASONABLY WITHHELD) THAT SUCH REGISTRATION
IS NOT REQUIRED.
(c) The Purchaser acknowledges that the Securities involve a
great deal of risk and that there is a limited or no market for the
Securities and the Warrant Shares. The Purchaser is able to (i) bear the
economic risk of the investment in the Company, (ii) afford a complete loss
of such investment, and (iii) hold indefinitely the Securities. In reaching
an informed decision to invest in the Company, the Purchaser, one of whose
principals is a director of the Company, has sufficient information to
evaluate the merits and risks of an investment in the Securities of the
Company. In that connection, (x) the Purchaser has received (A) the Company's
proxy statement, dated May 14, 1998, for the Company's 1998 annual meeting of
stockholders, (B) the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997, as amended to date, and (C) the Company's Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30,
1998 and (y) representatives of the Company have (A) fully and satisfactorily
answered any questions which duly authorized representatives of the Purchaser
desired to ask concerning the Company, and (B) furnished the Purchaser with
any additional information or documents requested to verify the accuracy of
or supplement any information previously delivered to or discussed with duly
authorized representatives of the Purchaser.
(d) The principal office of the Purchaser set forth on page 1
of this Agreement is the true and correct principal office of the Purchaser
and the Purchaser has no present intention of becoming a resident or
domiciliary of any other state or jurisdiction.
Section 3.05 Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under
the Securities Act because (please check as appropriate):
[ ] (a) the Purchaser is an individual whose net worth, either
individually or with his spouse, exceeds $1,000,000 on the date hereof;
[ ] (b) the Purchaser is an individual whose individual income
exceeded $200,000 in each of the two previous years or whose joint income
with his spouse exceeded $300,000 in each of the three previous years, and
has a reasonable expectation of reaching the same income level in the current
year;
[ ] (c) the Purchaser is a corporation, partnership or
Massachusetts or similar business trust, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000; or
[ ] (d) the investor hereby certifies that it is an accredited
investor because it is an entity in which each of the equity owners qualifies
as an accredited investor under items (a), (b) or (c) above.
Section 3.06 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
Section 3.07 No General Solicitation. The Securities were not
offered or sold by any form of general solicitation or general advertising.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Expenses. The Purchaser hereby agrees that all fees
and expenses incurred by the Purchaser in connection with this Agreement
shall be borne by the Purchaser, and the Company hereby agrees that all fees
and expenses incurred by the Company shall be borne by the Company, in each
case including without limitation all fees and expenses of such party's
counsel and accountants.
Section 4.02 Public Announcements. Except as required by law,
neither the Company nor the Purchaser shall make any public announcements in
respect of this Agreement or the transactions contemplated herein or
otherwise communicate with any news media without prior notification to the
other party.
Section 4.03 Survival of Representations and Warranties. All
representations and warranties contained herein shall survive the execution
and delivery of this Agreement, the Closing and any investigation at any time
made by or on behalf of either party hereto.
Section 4.04 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any prior oral or written agreement between the
parties.
Section 4.05 No Third-Party Beneficiaries; Assignment. This
Agreement is for the sole benefit of and binding upon the parties hereto and
their permitted successors and assigns and nothing herein, express or
implied, is intended to or shall confer upon any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns, and shall inure to the
benefit of and be enforceable by the parties hereof and their respective
successors and assigns.
Section 4.06 Amendment. This Agreement may be amended or modified
only by an instrument in writing signed by the Company and the Purchaser.
Section 4.07 Counterparts. This Agreement may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
Section 4.08 Gender and Number; Headings. Whenever used in this
Agreement, the singular number shall include the plural, the plural the
singular, and the use of any gender shall be applicable to all genders. The
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement
Section 4.09 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth
of Massachusetts without giving effect to the principles of conflicts of laws
thereof. The Company and the Purchaser hereby consent to the jurisdiction of
the state and federal courts of the Commonwealth of Massachusetts for all
disputes arising under this Agreement.
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be executed as of the date first written above.
PAMET SYSTEMS, INC.
Attest:__________________________ By:_____________________________
Name: Name: David T. McKay
Title: Title: President & CEO
Corporate Seal
ROGOW OPPORTUNITY CAPITAL LLC
By:_____________________________
Name:
Title:
<PAGE>
No. L-002
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL
AMOUNT OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD
TO MATURITY ON THE ISSUE DATE IS RICHARD C. BECKER, (978)-263-2060.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
$300,000 Acton, Massachusetts
November 6, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts corporation (the
"Company"), hereby promises to pay to Rogow Opportunity Capital LLC
("Payee"), 220 Ocean Avenue, Marblehead, Massachusetts 01945, the principal
sum of Three Hundred Thousand Dollars ($300,000), on the dates and in the
amounts hereinafter set forth. This Promissory Note is issued by the Company
pursuant to the Securities Purchase Agreement, dated as of the date hereof,
among the Company and Payee (the "Securities Purchase Agreement").
Capitalized terms used but not defined shall have the respective meanings
ascribed to them in the Securities Purchase Agreement. This Promissory Note
is hereinafter referred to as this "Note."
1. Principal and Maturity Date. The principal amount of this Note
outstanding together with all accrued interest hereon shall be due and
payable on June 1, 2001 (the "Maturity Date").
2. Interest. The outstanding principal amount of this Note shall
accrue interest at the per annum rate of eleven percent (11.0%) through the
earlier of the date of repayment or conversion (in each case computed on the
basis of a 365 day year and actual days elapsed). Interest shall be payable
in full on the Maturity Date with respect to the principal amount of the Note
then outstanding. No interest shall be deemed to have accrued or be payable
on any portion of this Note which is Converted on or prior to the Maturity
Date.
3. Prepayment. This Note may be prepaid, in whole or in part,
without penalty or premium upon not less than thirty (30) days prior written
notice from the Company to the Payee, at any time or from time to time. All
prepayments made on this Note shall be applied first to the payment of all
unpaid interest accrued on this Note, and then to the outstanding and unpaid
principal amount of this Note as of the date of the payment. Prepayment, in
whole or in part, shall be noted in the accounting records of the Company.
4. General Payment Provisions. All payments or prepayments of
principal and interest and other sums due pursuant to this Note shall be made
by check payable to the Payee at the address set forth above or at such other
address as Payee shall have previously designated to the Company in writing
not later than two Business Days (as defined below) prior to the date on
which such payment becomes due.
If the due date of any payment under this Note would otherwise
fall on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day and interest shall be payable at the rate
set forth herein for the period of the extension. The term "Business Day"
shall mean any day on which commercial banks in the State of New York are not
authorized or required to close.
5. Conversion; Repayment.
(a) Conversion/Repayment and Conversion Price. The Payee may,
subject to the terms and conditions of this Section 5, at any time, or from
time to time, exercise its right to convert this Note to Common Stock by
delivering a duly executed notice, in the form substantially similar to
Exhibit A hereto, of such intention to the Company (the "Conversion Notice");
provided, however, that if, and to the extent, this Note or any portion
thereof is called for prepayment, the holder may exercise its right to
convert to Common Stock such portion of this Note as was called for
prepayment.
The Payee shall have the right, subject to the terms and
conditions of this Section 5, to, no more frequently than four times per
annum in the aggregate, convert all or any part of the principal amount then
outstanding under this Note (the "Note Amount"), in an amount not less than
$25,000 (or such lesser amount as may then be outstanding), into that number
of fully-paid and nonassessable shares of Common Stock (the "Conversion
Shares"), obtained by dividing the Note Amount or such portion thereof
presented for conversion by the Conversion Price. The "Conversion Price"
shall initially be $1.45 per share of Common Stock and shall be subject to
adjustment as provided in Section 6 below.
Upon a partial conversion or repayment of this Note, the Company
shall execute and deliver to or on the order of the holder hereof, a new Note
or Notes of authorized denominations in principal amount equal to the
unconverted or unredeemed, as the case may be, portion of this Note.
(b) Issuance of Common Stock on Conversion. In order to effect
the conversion of this Note, the Payee shall deliver to the Company at its
principal office, this Note and a duly executed Conversion Notice; provided,
however, that if the Payee desires to convert the Note on the Maturity Date,
Payee shall notify the Company in writing of its intention to convert the
Note at least five (5) days prior to the Maturity Date. The date upon which
the Company receives the Conversion Notice, the Note and any other
documentation required under this Section 5 of this Note or the Conversion
Notice shall be referred to herein as the "Effective Date." Upon the
Effective Date, this Note (or portion thereof) shall be deemed converted into
shares of Common Stock in accordance with this Section 5, at which time the
rights of the Payee with respect to this Note and the amount so converted
shall cease and, subject to the following provisions of this paragraph, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note (or portion thereof) shall be treated for all
purposes as having become the record holder or holders of such Common Stock.
As promptly as practicable after the Effective Date, the Company shall
deliver or cause to be delivered to the Payee, at the address set forth above
or at such other address as the Payee shall designate in writing,
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which this Note (or portion thereof), shall be converted
in accordance with the provisions of this Section 5. If this Note is called
for prepayment it may be converted as provided herein up to and including the
close of business on the business day preceding the date of prepayment.
No fractional shares of Common Stock shall be issued upon
conversion of this Note (or portion thereof). In lieu of any fractional share
of Common Stock which would otherwise be issuable upon conversion of this
Note (or portion thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to such fraction multiplied by the
Conversion Price.
(c) Reserves. The Company covenants that it will at all times
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and nonassessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of this Note at the time outstanding.
(d) Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of
this Note, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid;
and provided, further, that in no event shall the Company be required to pay
or reimburse the holder for any income tax payable by such holder as a result
of such issuance.
(e) Legends. All certificates representing Conversion Shares
shall bear a conspicuous legend stating in substance:
"THE SHARES EVIDENCED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR QUALIFIED UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED OR QUALIFIED THEREUNDER OR
AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION IS AVAILABLE."
The Company shall, upon the request of any holder of a stock
certificate representing Conversion Shares and the surrender of such
certificate, issue a new stock certificate without such legend if (i) the
stock evidenced by such certificate has been effectively registered under the
Securities Act and qualified under any applicable state securities law and
sold by the holder thereof in accordance with such registration and
qualification or (ii) such holder shall have delivered to the Company a legal
opinion reasonably satisfactory to the Company to the effect that the
restrictions set forth herein are no longer required or necessary under the
Securities Act or any applicable state law.
6. Conversion Price Adjustment. In the event of a stock split,
reverse stock split or stock dividend, the Board of Directors of the Company
shall adjust the Conversion Price to appropriately reflect such event.
7. Subordination.
(a) The Company irrevocably covenants and agrees, and the Holder
of this Note, by its acceptance thereof, irrevocably covenants and agrees,
that the payment of the principal of and interest on this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set
forth, to the prior payment and/or cancellation (as shall be appropriate) in
full of all Senior Indebtedness (as defined herein). The provisions of this
Section 7 are made for the benefit of the holders of Senior Indebtedness, and
such holders shall, at any time, be entitled to enforce such provisions
against the Company or Noteholder. No holder of any Senior Indebtedness shall
be deemed to owe any fiduciary duty or any other obligation to any Holder of
this Note now or at any time hereafter. Notwithstanding anything herein
contained to the contrary, all the provisions of this Note shall, except as
otherwise provided herein, be subject to the provisions of this Section 7, so
far as the same may be applicable thereto.
(b) For purposes of this Section 7, "Senior Indebtedness" shall
mean any indebtedness, liability or obligation, contingent or otherwise other
than that arising pursuant to this Note, of the Company (any such
indebtedness, liability or obligation being hereinafter in this definition
referred to as an "Obligation") (i) which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness
for the purposes hereof in the instrument creating or evidencing the
Company's liability with respect to such Obligations or (ii) any increases,
guarantees, refundings, renewals, rearrangements or extensions of and
amendments, modifications and supplements to any indebtedness, liability or
obligation described in clause (i) above.
9. No Assignment. This Note may not be assigned by the Payee
without the prior written consent of the Company.
10. Governing Law. This Note shall be construed in accordance
with, and governed by, the laws of the Commonwealth of Massachusetts as
applied to contracts made and to be performed entirely in the Commonwealth of
Massachusetts without regard to principles of conflicts of law. Each of the
parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the Commonwealth of Massachusetts or
any federal court sitting in the Commonwealth of Massachusetts for purposes
of any suit, action or other proceeding arising out of this Note (and agrees
not to commence any action, suit or proceedings relating hereto except in
such courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Note, which is
brought by or against it, in the courts of the Commonwealth of Massachusetts
or any federal court sitting in the Commonwealth of Massachusetts and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
11. Adjustment of Interest Rate. No provision of this Note shall
require the payment of interest to the extent that receipt of any such
payment by the Company would be contrary to the provisions of law applicable
to the Company limiting the maximum amount of interest that may be charged to
or collected from the Company, and if any sum in excess of such maximum rate
of interest is paid or charged, the excess will be deemed to have been a
prepayment of principal of this Note when paid, without premium or penalty,
and all payments made thereafter will be appropriately applied to interest
and principal to give effect to such maximum rate, and after such application
any excess shall be immediately refunded to the Company.
PAMET SYSTEMS, INC.
By: _________________________
Name: David McKay
Title: President & CEO
Attested:
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
[Form of Conversion Notice]
To Pamet Systems, Inc.:
The undersigned registered holder (the "Payee") of the Note in
the principal amount indicated below and bearing the certificate number
indicated below (the "Note"), hereby irrevocably exercises its right to
convert the principal amount of the Note indicated herein into shares of
common stock, par value $.01 per share, of Pamet Systems, Inc. (the
"Company"), in accordance with the terms of the Note, and directs that the
shares issuable and deliverable upon such conversion together with a check in
payment for fractional shares, be issued and delivered to the Payee unless a
different name has been indicated below. If shares are to be issued in the
name of a person other than the Payee (such person being referred to as the
"Transferee"), the Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company and duly executed
by the undersigned, and the undersigned will pay all transfer taxes payable
with respect thereto. In addition, the Transferee must sign this notice. All
capitalized terms used in this notice and not otherwise defined shall have
the respective meanings ascribed to them in the Note.
The Payee, or in the event a Transferee shall receive the
Conversion Shares issued upon conversion of this Note, the Transferee, hereby
represents and warrants to the Company that (i) he has sufficient knowledge
and experience in financial and business matters to be capable of evaluating
the merits and risks of an investment in the Company, (ii) he is acquiring
the Conversion Shares for its own account for investment and not with a view
to, or for distribution or sale in connection with any public offering in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
(iii) he understands that (x) the Conversion Shares will not have been
registered for sale under the Securities Act or qualified under applicable
state securities laws and may not be resold without registration under the
Securities Act and qualification under any applicable state securities law,
(y) such Conversion Shares will be issued to him pursuant to one or more
exemptions from the registration or qualification requirements of the
Securities Act and that the representations and warranties contained herein
are given with the intention that the Company may rely thereon for purposes
of claiming such exemptions and (z) the Conversion Shares shall contain a
legend substantially as set forth in Section 5(e) of the Note, (iv) he is an
"accredited investor" as defined in Section 501 of Regulation D promulgated
under the Securities Act, (v) he understands he must bear the economic risk
of Conversion Shares issued upon conversion of the Note for an indefinite
period of time as the Conversion Shares cannot be sold unless registered
under the Securities Act and any other applicable state securities laws or
sold in a transaction exempt from such registration thereunder and (vi)
representatives of the Company have (x) fully and satisfactorily answered any
questions which he deemed to ask concerning the Company and (y) furnished him
with such additional information and documents regarding the Company as he
has reasonably requested.
Principal amount of Note to be converted: $________________
Certificate Number of Note: __
Print name, address (including zip code) and social security or other
taxpayer identification number of the person in whose name the Common Stock
will be issued:
_________________________________
_________________________________
_________________________________
(Zip Code)
_________________________________
Social Security or other
Taxpayer Identification
Number
Dated:___________________________ _____________________________
Signature of Noteholder
Dated:___________________________ _____________________________
Signature of Transferee
<PAGE>
EXHIBIT 4.5
No. LW-002
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY
WITHHELD) THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on November 5, 2003.
WARRANT TO PURCHASE COMMON STOCK
OF
PAMET SYSTEMS, INC.
FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a
Massachusetts corporation, hereby certifies that Rogow Opportunity Capital
LLC, a Massachusetts limited liability company with its principal office at
220 Ocean Avenue, Marblehead, Massachusetts 01945, or its permitted assigns,
is entitled to purchase from the Company, at any time or from time to time
commencing November 6, 1998, and prior to 5:00 P.M., Eastern Standard Time,
on November 5, 2003, a total of one hundred twenty thousand (120,000) fully
paid and nonassessable shares of Common Stock, par value $.01 per share, of
the Company for an aggregate purchase price of Three Hundred Thousand Dollars
($300,000) (computed on the basis of $2.50 per share). (Hereinafter, (i) said
Common Stock, together with any other equity securities which may be issued
by the Company with respect thereto or in substitution therefor, is referred
to as the "Common Stock," (ii) the shares of the Common Stock purchasable
hereunder are referred to as the "Warrant Shares," (iii) the aggregate
purchase price payable hereunder for the Warrant Shares is referred to as the
"Aggregate Warrant Price," (iv) the price payable hereunder for each of the
Warrant Shares is referred to as the "Per Share Warrant Price," (v) this
Warrant, and all warrants hereafter issued in exchange or substitution for
this Warrant are referred to as the "Warrant" and (vi) the holder of this
Warrant is referred to as the "Holder.") The number of Warrant Shares for
which this Warrant is exercisable is subject to adjustment as hereinafter
provided.
This Warrant is issued by the Company pursuant to the Securities
Purchase Agreement, dated as of the date hereof, among the Company and Rogow
Opportunity Capital LLC (the "Securities Purchase Agreement"). Capitalized
terms used but not defined shall have the respective meanings ascribed to
them in the Securities Purchase Agreement.
1. Exercise of Warrant.
(a) This Warrant may be exercised, in whole at any time or in
part from time to time, commencing November 6, 1998, and prior to 5:00 P.M.,
Eastern Standard Time, on November 5, 2003, by the Holder of this Warrant by
the surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 9(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part.
(b) The Aggregate Warrant Price or Per Share Warrant Price shall
be paid in cash by certified or official bank check payable to the order of
the Company.
(c) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which the
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above (an "Exercise Date"). At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise as provided in subsection 1(d) below shall be deemed to have become
the holder or holders of record of the Warrant Shares represented by such
certificates.
(d) If this Warrant is exercised in part, the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the shares of the
Common Stock to which the Holder shall be entitled, and (b) deliver the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of the Warrant.
(e) No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. 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
fair value of a share.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock as
from time to time shall be receivable upon the exercise of this Warrant.
3. Adjustments.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the number of Warrant Shares for
which this Warrant may be exercised shall be adjusted so that if the Holder
surrendered this Warrant for exercise after such action the Holder would be
entitled to receive the number of shares of Common Stock or other capital
stock of the Company which he would have been entitled to receive had such
Warrant been exercised immediately prior to such action. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection (a), the Holder of this Warrant shall become
entitled to receive shares of two or more classes of capital stock or shares
of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in
a written notice to the Holder of this Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock.
(b) In case of any consolidation or merger to which the Company
is a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
entity of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), the holder shall have the right
thereafter to exercise this Warrant for the kind and amount of securities,
cash or other property which he would have owned or have been entitled to
receive immediately after such consolidation, merger, statutory exchange,
sale or conveyance had such Warrant been exercised immediately prior to the
effective date of such consolidation, merger, statutory exchange, sale or
conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section 3 with
respect to the rights and interests thereafter of the Holder to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares
of stock or other securities or property thereafter deliverable on the
conversion of this Warrant. The above provisions of this subsection (b) shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances. Notice of any such consolidation, merger, statutory
exchange, sale or conveyance and of said provisions so proposed to be made,
shall be mailed to the Holder not less than 30 days prior to such event. A
sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(c) In the event of any adjustment to the number of Warrant
Shares issuable upon exercise of this Warrant, the Per Share Warrant Price
shall be adjusted by multiplying the Per Share Warrant Price in effect
immediately prior to such adjustment by a fraction the numerator of which is
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment and the denominator of which
is the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately after such adjustment.
(d) Whenever the Per Share Warrant Price is adjusted as provided
in this Warrant and upon any modification of the rights of the Holder of this
Warrant in accordance with this Section 3, the Company shall promptly prepare
a certificate of an officer of the Company, setting forth the Per Share
Warrant Price and the number of Warrant Shares after such adjustment or
modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause a copy of such
certificate to be mailed to the Holder.
4. Per Share Warrant Price Protection.
(a) Subject to adjustment in accordance with Section 3, if at any
time, beginning April 1, 1999, the average of the Closing Prices (as defined
herein) of the Common Stock for any 60 consecutive Trading Days (as defined
herein) after April 1, 1999 (the "Average Closing Price") is less than $2.50
per share, then, so long as the Average Closing Price remains below $2.50 per
share (a "Price Protection Period"), upon the exercise of all or any part of
this Warrant, the Per Share Warrant Price shall be reduced to the Average
Closing Price of the Common Stock for the 60 consecutive Trading Days
immediately preceding the date of exercise. Notwithstanding any reduction of
the Per Share Warrant Price pursuant to this Section 4(a), a Price Protection
Period shall end if the Average Closing Price is equal to or greater than
$2.50 (subject to adjustment in accordance with Section 3) and the Per Share
Warrant Price shall return to $2.50. Notwithstanding the foregoing, the Per
Share Warrant Price shall not be reduced below $1.50 (subject to adjustment
in accordance with Section 3).
(b) In the event of any adjustment to the Per Share Warrant
Price, the number of Warrant Shares issuable upon exercise of this Warrant
during the relevant Price Protection Period shall be adjusted by multiplying
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment by a fraction the numerator of
which is the Per Share Warrant Price immediately prior to such adjustment and
the denominator of which is the Per Share Warrant Price immediately after
such adjustment.
(c) As used in this Section 4, Trading Day means, in the event
that the Common Stock is listed or admitted to trading on the New York Stock
Exchange (or any successor to such exchange), a day on which the New York
Stock Exchange (or such successor) is open for the transaction of business,
or, if the Common Stock is not listed or admitted to trading on such
exchange, a day on which the principal national securities exchange on which
the Common Stock is listed is open for the transaction of business, or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange, a day on which any New York Stock Exchange member firm
is open for the transaction of business.
(d) As used in this Section 4, the Closing Price of the Company's
Common Stock shall be the last reported sale price as shown on the Composite
Tape of the New York Stock Exchange, or, in case no such reported sale price
is quoted on such day, the average of the reported closing bid and asked
prices on the New York Stock Exchange, or, if the Common Stock is not listed
or admitted to trading on such exchange, the last reported sales price, or in
case no such reported sales price is quoted on such day, the average of the
reported closing bid and asked prices, on the principal national securities
exchange (including, for purposes hereof, the National Association of
Securities Dealers, Inc. National Market System) on which the Common Stock is
listed or admitted to trading, or, if it is not listed or admitted to trading
on any national securities exchange, the average of the high closing bid
price and the low closing asked price as reported on an inter-dealer
quotation system. In the absence of any available public quotations for the
Common Stock, the Board of Directors of the Company shall determine in good
faith the fair value of the Common Stock, which determination shall be set
forth in a certificate by the Secretary of the Company.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the proper exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. Subject to Section 6(e) hereof, the Company
further covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issuance of any Warrant Shares or certificates
therefor. The Holder covenants and agrees that it shall pay, when due and
payable, any and all federal, state and local income or similar taxes that
may be payable in respect of the issuance of any Warrant Shares or
certificates therefor.
6. Transfer
(a) Securities Laws. Neither this Warrant nor the Warrant Shares
issuable upon the exercise hereof have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), or under any state securities
laws and unless so registered may not be transferred, sold, pledged,
hypothecated or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer this
Warrant or any of the Warrant Shares issued, the Holder must give the Company
prior written notice of such proposed transfer including the name and address
of the proposed transferee. Such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel acceptable to the Company to the effect that the proposed
transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules and regulations promulgated under either such act, or to the effect
that the Warrant or Warrant Shares to be sold or transferred have been
registered under the Securities Act of 1933, as amended, and that there is in
effect a current prospectus meeting the requirements of Subsection 11(a) of
the Securities Act, which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Warrant or Warrant Shares to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed transfer
(including, without limitation, a transfer by will or pursuant to the laws of
descent and distribution), and as a condition thereto, if such transfer is
not made pursuant to an effective registration statement under the Securities
Act, the Holder will, if requested by the Company, deliver to the Company (i)
an investment covenant, in form and substance equivalent to that signed by
the original Holder of this Warrant, signed by the proposed transferee, (ii)
an agreement by such transferee to the restrictive investment legend set
forth herein on the certificate or certificates representing the securities
acquired by such transferee, (iii) an agreement by such transferee that the
Company may place a "stop transfer order" with its transfer agent or
registrar, and (iv) an agreement by the transferee to indemnify the Company
to the same extent as set forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the
Holder hereby agrees to indemnify and hold harmless the Company, its
representatives and each officer and director thereof from and against any
and all loss, damage or liability (including all attorneys' fees and costs
incurred in enforcing this indemnity provision) due to or arising out of (a)
the inaccuracy of any representation or the breach of any warranty of the
Holder contained in, or any other breach by the Holder of, this Warrant, (b)
any transfer of the Warrant or (c) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to counsel to
the Company upon which its opinion as to a proposed transfer shall have been
based.
(d) Transfer. Upon surrender of this Warrant to the Company or at
the office of its stock transfer agent, if any, with assignment documentation
duly executed and funds sufficient to pay any transfer tax, and upon
compliance with the foregoing provisions, the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment, and this Warrant shall promptly be canceled. Any
assignment, transfer, pledge, hypothecation or other disposition of this
Warrant attempted contrary to the provisions of this Warrant, or any levy of
execution, attachment or other process attempted upon the Warrant, shall be
null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any part of
the Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to
such shares, and all certificates representing Warrant Shares shall bear on
the face thereof substantially the following legend, insofar as is consistent
with Massachusetts law:
"The shares of common stock represented
by this certificate have not been
registered under the Securities Act of
1933, as amended, and may not be sold,
offered for sale, assigned, transferred
or otherwise disposed of unless registered
pursuant to the provisions of that Act or
an opinion of counsel to the Company is
obtained stating that such disposition is
in compliance with an available exemption
from such registration."
7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
9. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 1000 Main Street, Acton, Massachusetts 01720,
or such other address as the Company has designated in writing to the Holder,
or
(b) the Holder at 220 Ocean Avenue, Marblehead, Massachusetts
01945, or such other address as the Holder has designated in writing to the
Company.
10. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, PAMET SYSTEMS, INC., has caused this Warrant
to be signed by a duly authorized officer as of this 6th day of November,
1998.
ATTEST: PAMET SYSTEMS, INC.
_______________________ By:__________________________________
Name: David T. McKay
Title: President
<PAGE>
SUBSCRIPTION
The undersigned, __________________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of _________________________ shares of the Common Stock of PAMET
SYSTEMS, INC. covered by said Warrant, and makes payment therefor in full at
the price per share provided by said Warrant.
Dated __________________ Signature__________________________
Address____________________________
____________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer said Warrant on the books of
PAMET SYSTEMS, INC.
Dated __________________ Signature_________________________
Address___________________________
___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and transfers
unto _________________________ the right to purchase
_________________________ shares of the Common Stock of PAMET SYSTEMS, INC.
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer that part of said Warrant on
the books of PAMET SYSTEMS, INC.
Dated ___________________ Signature__________________________
Address____________________________
____________________________
<PAGE>
EXHIBIT 4.6
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of November 6, 1998 by and between PAMET SYSTEMS, INC., a
Massachusetts corporation whose principal place of business is 1000 Main
Street, Acton, Massachusetts 01720 (the "Company"), and Robboy Associates,
L.L.C. (the "Purchaser"), an entity with its principal office at 104 Donegal
Drive, Chapel Hill, NC 27415.
WHEREAS, the Company is desirous of selling, and the Purchaser is
desirous of acquiring, (i) a convertible promissory note in substantially the
form attached hereto as Exhibit A in the aggregate principal amount of Three
Hundred Thousand Dollars ($300,000) (the "Note") and (ii) a five-year warrant
(the "Warrant") in substantially the form attached hereto as Exhibit B to
purchase up to an aggregate of thirty thousand (30,000) shares ("Warrant
Shares") of the common stock, par value $.01 per share (the "Common Stock"),
of the Company (the Note and the Warrant together sometimes hereinafter are
referred to as the "Securities"), on the terms and subject to the conditions
hereinafter set forth.
WHEREAS, the Company owes the Purchaser the aggregate principal
amount of Three Hundred Thousand Dollars ($300,000) (the "Prior
Indebtedness") which the Purchaser desires to have cancelled in payment for
the Securities.
NOW, THEREFORE, in consideration of the promises and of the
mutual obligations hereinafter set forth, and for such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchaser hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE NOTE AND WARRANT; CLOSING
Section 1.01 Purchase and Sale of the Note and Warrant. Subject
to the terms and conditions set forth in this Agreement, the Company agrees
to issue and sell to the Purchaser at the Closing, and the Purchaser agrees
to purchase from the Company at the Closing, the Note and the Warrant in
exchange for cancellation of the Prior Indebtedness (the "Purchase Price").
Section 1.02 Closing. The sale of the Securities by the Company
to the Purchaser shall take place on the date hereof at the offices of the
Company or at such other place and time as may be agreed upon by the
Purchaser and the Company (the "Closing"). At the Closing, the Company shall
deliver to the Purchaser certificates evidencing the Securities against
payment of the Purchase Price by cancellation of the Prior Indebtedness by
the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with,
the Purchaser, as of the date hereof and as of the date of the Closing, as
follows:
Section 2.01 Incorporation and Corporate Existence. The Company
is a corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has all necessary
corporate power and authority to own, operate or lease the properties and
assets now owned, operated or leased by the Company and to carry on the
business of the Company, as it is now being conducted.
Section 2.02 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The Company has taken all necessary
corporate action to authorize the execution, delivery and performance by it
of this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, and
assuming due execution and delivery of the Agreement by the Purchaser, this
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency (including,
without limitation, all laws relating to fraudulent transfers), moratorium or
similar laws affecting creditors' rights and remedies generally, subject, as
to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law) and subject to the effect of applicable securities laws as to rights to
indemnification. The Company is not now, and has not been since inception (x)
in bankruptcy or reorganization, (y) subject to moratorium or similar laws
affecting creditors' rights and remedies generally or (z) to the best
knowledge of the Company, a party to any fraudulent transfer.
Section 2.03 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not (i) require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Company from performing any of its
material obligations under this Agreement and would not have a material
adverse effect on the Company; (ii) conflict with or violate the charter or
by-laws of the Company; or (iii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to the Company, except as would not prevent the Company from
performing any of its material obligations under this Agreement and would not
have a material adverse effect on the Company.
Section 2.04 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Company,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Company's ability to consummate the
transactions contemplated hereby.
Section 2.05 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
Section 2.06 Senior Debt. The Company does not currently expect
during the next 24 months to issue promissory notes or incur debt obligations
senior in right of payment to the Note in an aggregate principal amount in
excess of Two Million Dollars ($2,000,000).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to, and agrees with,
the Company, as of the date hereof and as of the Closing, as follows:
Section 3.01 Authority. The Purchaser has all necessary power and
authority to execute and deliver this Agreement, to purchase the Securities
from the Company and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and, and
assuming due authorization, execution and delivery of the Agreement by the
Company, this Agreement constitutes a legal, valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), moratorium or similar laws affecting creditors' rights and
remedies generally, subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) and subject to the effect of applicable
securities laws as to rights to indemnification.
Section 3.02 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Purchaser do not, and the performance
of this Agreement by the Purchaser will not (i) require any consent,
approval, authorization or other action by, or filing with or notification
to, any governmental or regulatory authority, except where the failure to
obtain such consent, approval, authorization or action, or to make such
filing or notification, would not prevent the Purchaser from performing any
of its material obligations under this Agreement; or (ii) except as would not
prevent the Purchaser from performing any of its material obligations under
this Agreement, conflict with or violate any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to the
Purchaser.
Section 3.03 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Purchaser,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
Section 3.04 Investment Purpose; Legend; Private Placement.
(a) The Purchaser is acquiring the Securities solely for the
purpose of investment and not with a view to, or for offer or sale in
connection with, any distribution thereof.
(b) The Purchaser acknowledges that neither the Securities
nor the Warrant Shares are registered under the Securities Act and that none
of the Securities or the Warrant Shares may be transferred or sold except
pursuant to the registration provisions of the Securities Act or pursuant to
an applicable exemption therefrom and subject to state securities laws and
regulations, as applicable. The Purchaser acknowledges that the certificates
evidencing the Securities and the Warrant Shares shall contain a legend
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND SUCH SECURITIES MAY NOT BE
SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM
SUCH REGISTRATION REQUIREMENT, AND, IF AN
EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL
HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE
UNREASONABLY WITHHELD) THAT SUCH REGISTRATION
IS NOT REQUIRED.
(c) The Purchaser acknowledges that the Securities involve a
great deal of risk and that there is a limited or no market for the
Securities and the Warrant Shares. The Purchaser is able to (i) bear the
economic risk of the investment in the Company, (ii) afford a complete loss
of such investment, and (iii) hold indefinitely the Securities. In reaching
an informed decision to invest in the Company, the Purchaser, one of whose
principals is a director of the Company, has sufficient information to
evaluate the merits and risks of an investment in the Securities of the
Company. In that connection, (x) the Purchaser has received (A) the Company's
proxy statement, dated May 14, 1998, for the Company's 1998 annual meeting of
stockholders, (B) the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997, as amended to date, and (C) the Company's Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30,
1998 and (y) representatives of the Company have (A) fully and satisfactorily
answered any questions which duly authorized representatives of the Purchaser
desired to ask concerning the Company, and (B) furnished the Purchaser with
any additional information or documents requested to verify the accuracy of
or supplement any information previously delivered to or discussed with duly
authorized representatives of the Purchaser.
(d) The principal office of the Purchaser set forth on page 1
of this Agreement is the true and correct principal office of the Purchaser
and the Purchaser has no present intention of becoming a resident or
domiciliary of any other state or jurisdiction.
Section 3.05 Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under
the Securities Act because (please check as appropriate):
[ ] (a) the Purchaser is an individual whose net worth, either
individually or with his spouse, exceeds $1,000,000 on the date hereof;
[ ] (b) the Purchaser is an individual whose individual income
exceeded $200,000 in each of the two previous years or whose joint income
with his spouse exceeded $300,000 in each of the three previous years, and
has a reasonable expectation of reaching the same income level in the current
year;
[ ] (c) the Purchaser is a corporation, partnership or
Massachusetts or similar business trust, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000; or
[ ] (d) the investor hereby certifies that it is an accredited
investor because it is an entity in which each of the equity owners qualifies
as an accredited investor under items (a), (b) or (c) above.
Section 3.06 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
Section 3.07 No General Solicitation. The Securities were not
offered or sold by any form of general solicitation or general advertising.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Expenses. The Purchaser hereby agrees that all fees
and expenses incurred by the Purchaser in connection with this Agreement
shall be borne by the Purchaser, and the Company hereby agrees that all fees
and expenses incurred by the Company shall be borne by the Company, in each
case including without limitation all fees and expenses of such party's
counsel and accountants.
Section 4.02 Public Announcements. Except as required by law,
neither the Company nor the Purchaser shall make any public announcements in
respect of this Agreement or the transactions contemplated herein or
otherwise communicate with any news media without prior notification to the
other party.
Section 4.03 Survival of Representations and Warranties. All
representations and warranties contained herein shall survive the execution
and delivery of this Agreement, the Closing and any investigation at any time
made by or on behalf of either party hereto.
Section 4.04 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any prior oral or written agreement between the
parties.
Section 4.05 No Third-Party Beneficiaries; Assignment. This
Agreement is for the sole benefit of and binding upon the parties hereto and
their permitted successors and assigns and nothing herein, express or
implied, is intended to or shall confer upon any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns, and shall inure to the
benefit of and be enforceable by the parties hereof and their respective
successors and assigns.
Section 4.06 Amendment. This Agreement may be amended or modified
only by an instrument in writing signed by the Company and the Purchaser.
Section 4.07 Counterparts. This Agreement may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
Section 4.08 Gender and Number; Headings. Whenever used in this
Agreement, the singular number shall include the plural, the plural the
singular, and the use of any gender shall be applicable to all genders. The
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement
Section 4.09 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth
of Massachusetts without giving effect to the principles of conflicts of laws
thereof. The Company and the Purchaser hereby consent to the jurisdiction of
the state and federal courts of the Commonwealth of Massachusetts for all
disputes arising under this Agreement.
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be executed as of the date first written above.
PAMET SYSTEMS, INC.
Attest:__________________________ By:_____________________________
Name: Name: David T. McKay
Title: Title: President & CEO
Corporate Seal
ROBBOY ASSOCIATES, L.L.C.
By:_____________________________
Name:
Title:
<PAGE>
No. L-001
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL
AMOUNT OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD
TO MATURITY ON THE ISSUE DATE IS RICHARD C. BECKER, (978)-263-2060.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
$300,000 Acton, Massachusetts
November 6, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts corporation (the
"Company"), hereby promises to pay to Robboy Associates, L.L.C. ("Payee"),
104 Donegal Drive, Chapel Hill, NC 27415, the principal sum of Three Hundred
Thousand Dollars ($300,000), on the dates and in the amounts hereinafter set
forth. This Promissory Note is issued by the Company pursuant to the
Securities Purchase Agreement, dated as of the date hereof, among the Company
and Payee (the "Securities Purchase Agreement"). Capitalized terms used but
not defined shall have the respective meanings ascribed to them in the
Securities Purchase Agreement. This Promissory Note is hereinafter referred
to as this "Note."
1. Principal and Maturity Date. The principal amount of this Note
outstanding together with all accrued interest hereon shall be due and
payable on February 28, 2001 (the "Maturity Date").
2. Interest. The outstanding principal amount of this Note shall
accrue interest at the per annum rate of eleven percent (11.0%) through the
earlier of the date of repayment or conversion (in each case computed on the
basis of a 365 day year and actual days elapsed). Interest shall be payable
in full on the Maturity Date with respect to the principal amount of the Note
then outstanding. No interest shall be deemed to have accrued or be payable
on any portion of this Note which is Converted on or prior to the Maturity
Date.
3. Prepayment. This Note may be prepaid, in whole or in part,
without penalty or premium upon not less than thirty (30) days prior written
notice from the Company to the Payee, at any time or from time to time. All
prepayments made on this Note shall be applied first to the payment of all
unpaid interest accrued on this Note, and then to the outstanding and unpaid
principal amount of this Note as of the date of the payment. Prepayment, in
whole or in part, shall be noted in the accounting records of the Company.
4. General Payment Provisions. All payments or prepayments of
principal and interest and other sums due pursuant to this Note shall be made
by check payable to the Payee at the address set forth above or at such other
address as Payee shall have previously designated to the Company in writing
not later than two Business Days (as defined below) prior to the date on
which such payment becomes due.
If the due date of any payment under this Note would otherwise
fall on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day and interest shall be payable at the rate
set forth herein for the period of the extension. The term "Business Day"
shall mean any day on which commercial banks in the State of New York are not
authorized or required to close.
5. Conversion; Repayment.
(a) Conversion/Repayment and Conversion Price. The Payee may,
subject to the terms and conditions of this Section 5, at any time, or from
time to time, exercise its right to convert this Note to Common Stock by
delivering a duly executed notice, in the form substantially similar to
Exhibit A hereto, of such intention to the Company (the "Conversion Notice");
provided, however, that if, and to the extent, this Note or any portion
thereof is called for prepayment, the holder may exercise its right to
convert to Common Stock such portion of this Note as was called for
prepayment.
The Payee shall have the right, subject to the terms and
conditions of this Section 5, to, no more frequently than four times per
annum in the aggregate, convert all or any part of the principal amount then
outstanding under this Note (the "Note Amount"), in an amount not less than
$25,000 (or such lesser amount as may then be outstanding), into that number
of fully-paid and nonassessable shares of Common Stock (the "Conversion
Shares"), obtained by dividing the Note Amount or such portion thereof
presented for conversion by the Conversion Price. The "Conversion Price"
shall initially be $2.75 per share of Common Stock and shall be subject to
adjustment as provided in Section 6 below.
Upon a partial conversion or repayment of this Note, the Company
shall execute and deliver to or on the order of the holder hereof, a new Note
or Notes of authorized denominations in principal amount equal to the
unconverted or unredeemed, as the case may be, portion of this Note.
(b) Issuance of Common Stock on Conversion. In order to effect
the conversion of this Note, the Payee shall deliver to the Company at its
principal office, this Note and a duly executed Conversion Notice; provided,
however, that if the Payee desires to convert the Note on the Maturity Date,
Payee shall notify the Company in writing of its intention to convert the
Note at least five (5) days prior to the Maturity Date. The date upon which
the Company receives the Conversion Notice, the Note and any other
documentation required under this Section 5 of this Note or the Conversion
Notice shall be referred to herein as the "Effective Date." Upon the
Effective Date, this Note (or portion thereof) shall be deemed converted into
shares of Common Stock in accordance with this Section 5, at which time the
rights of the Payee with respect to this Note and the amount so converted
shall cease and, subject to the following provisions of this paragraph, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note (or portion thereof) shall be treated for all
purposes as having become the record holder or holders of such Common Stock.
As promptly as practicable after the Effective Date, the Company shall
deliver or cause to be delivered to the Payee, at the address set forth above
or at such other address as the Payee shall designate in writing,
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which this Note (or portion thereof), shall be converted
in accordance with the provisions of this Section 5. If this Note is called
for prepayment it may be converted as provided herein up to and including the
close of business on the business day preceding the date of prepayment.
No fractional shares of Common Stock shall be issued upon
conversion of this Note (or portion thereof). In lieu of any fractional share
of Common Stock which would otherwise be issuable upon conversion of this
Note (or portion thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to such fraction multiplied by the
Conversion Price.
(c) Reserves. The Company covenants that it will at all times
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and nonassessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of this Note at the time outstanding.
(d) Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of
this Note, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid;
and provided, further, that in no event shall the Company be required to pay
or reimburse the holder for any income tax payable by such holder as a result
of such issuance.
(e) Legends. All certificates representing Conversion Shares
shall bear a conspicuous legend stating in substance:
"THE SHARES EVIDENCED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR QUALIFIED UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED OR QUALIFIED THEREUNDER OR
AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION IS AVAILABLE."
The Company shall, upon the request of any holder of a stock certificate
representing Conversion Shares and the surrender of such certificate, issue a
new stock certificate without such legend if (i) the stock evidenced by such
certificate has been effectively registered under the Securities Act and
qualified under any applicable state securities law and sold by the holder
thereof in accordance with such registration and qualification or (ii) such
holder shall have delivered to the Company a legal opinion reasonably
satisfactory to the Company to the effect that the restrictions set forth
herein are no longer required or necessary under the Securities Act or any
applicable state law.
6. Conversion Price Adjustment. In the event of a stock split,
reverse stock split or stock dividend, the Board of Directors of the Company
shall adjust the Conversion Price to appropriately reflect such event.
7. Subordination.
(a) The Company irrevocably covenants and agrees, and the Holder
of this Note, by its acceptance thereof, irrevocably covenants and agrees,
that the payment of the principal of and interest on this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set
forth, to the prior payment and/or cancellation (as shall be appropriate) in
full of all Senior Indebtedness (as defined herein). The provisions of this
Section 7 are made for the benefit of the holders of Senior Indebtedness, and
such holders shall, at any time, be entitled to enforce such provisions
against the Company or Noteholder. No holder of any Senior Indebtedness shall
be deemed to owe any fiduciary duty or any other obligation to any Holder of
this Note now or at any time hereafter. Notwithstanding anything herein
contained to the contrary, all the provisions of this Note shall, except as
otherwise provided herein, be subject to the provisions of this Section 7, so
far as the same may be applicable thereto.
(b) For purposes of this Section 7, "Senior Indebtedness" shall
mean any indebtedness, liability or obligation, contingent or otherwise other
than that arising pursuant to this Note, of the Company (any such
indebtedness, liability or obligation being hereinafter in this definition
referred to as an "Obligation") (i) which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness
for the purposes hereof in the instrument creating or evidencing the
Company's liability with respect to such Obligations or (ii) any increases,
guarantees, refundings, renewals, rearrangements or extensions of and
amendments, modifications and supplements to any indebtedness, liability or
obligation described in clause (i) above.
9. No Assignment. This Note may not be assigned by the Payee
without the prior written consent of the Company.
10. Governing Law. This Note shall be construed in accordance
with, and governed by, the laws of the Commonwealth of Massachusetts as
applied to contracts made and to be performed entirely in the Commonwealth of
Massachusetts without regard to principles of conflicts of law. Each of the
parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the Commonwealth of Massachusetts or
any federal court sitting in the Commonwealth of Massachusetts for purposes
of any suit, action or other proceeding arising out of this Note (and agrees
not to commence any action, suit or proceedings relating hereto except in
such courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Note, which is
brought by or against it, in the courts of the Commonwealth of Massachusetts
or any federal court sitting in the Commonwealth of Massachusetts and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
11. Adjustment of Interest Rate. No provision of this Note shall
require the payment of interest to the extent that receipt of any such
payment by the Company would be contrary to the provisions of law applicable
to the Company limiting the maximum amount of interest that may be charged to
or collected from the Company, and if any sum in excess of such maximum rate
of interest is paid or charged, the excess will be deemed to have been a
prepayment of principal of this Note when paid, without premium or penalty,
and all payments made thereafter will be appropriately applied to interest
and principal to give effect to such maximum rate, and after such application
any excess shall be immediately refunded to the Company.
PAMET SYSTEMS, INC.
By: _________________________________
Name: David McKay
Title: President & CEO
Attested:
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
[Form of Conversion Notice]
To Pamet Systems, Inc.:
The undersigned registered holder (the "Payee") of the Note in
the principal amount indicated below and bearing the certificate number
indicated below (the "Note"), hereby irrevocably exercises its right to
convert the principal amount of the Note indicated herein into shares of
common stock, par value $.01 per share, of Pamet Systems, Inc. (the
"Company"), in accordance with the terms of the Note, and directs that the
shares issuable and deliverable upon such conversion together with a check in
payment for fractional shares, be issued and delivered to the Payee unless a
different name has been indicated below. If shares are to be issued in the
name of a person other than the Payee (such person being referred to as the
"Transferee"), the Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company and duly executed
by the undersigned, and the undersigned will pay all transfer taxes payable
with respect thereto. In addition, the Transferee must sign this notice. All
capitalized terms used in this notice and not otherwise defined shall have
the respective meanings ascribed to them in the Note.
The Payee, or in the event a Transferee shall receive the
Conversion Shares issued upon conversion of this Note, the Transferee, hereby
represents and warrants to the Company that (i) he has sufficient knowledge
and experience in financial and business matters to be capable of evaluating
the merits and risks of an investment in the Company, (ii) he is acquiring
the Conversion Shares for its own account for investment and not with a view
to, or for distribution or sale in connection with any public offering in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
(iii) he understands that (x) the Conversion Shares will not have been
registered for sale under the Securities Act or qualified under applicable
state securities laws and may not be resold without registration under the
Securities Act and qualification under any applicable state securities law,
(y) such Conversion Shares will be issued to him pursuant to one or more
exemptions from the registration or qualification requirements of the
Securities Act and that the representations and warranties contained herein
are given with the intention that the Company may rely thereon for purposes
of claiming such exemptions and (z) the Conversion Shares shall contain a
legend substantially as set forth in Section 5(e) of the Note, (iv) he is an
"accredited investor" as defined in Section 501 of Regulation D promulgated
under the Securities Act, (v) he understands he must bear the economic risk
of Conversion Shares issued upon conversion of the Note for an indefinite
period of time as the Conversion Shares cannot be sold unless registered
under the Securities Act and any other applicable state securities laws or
sold in a transaction exempt from such registration thereunder and (vi)
representatives of the Company have (x) fully and satisfactorily answered any
questions which he deemed to ask concerning the Company and (y) furnished him
with such additional information and documents regarding the Company as he
has reasonably requested.
Principal amount of Note to be converted: $________________
Certificate Number of Note: __
Print name, address (including zip code) and social security or other
taxpayer identification number of the person in whose name the Common Stock
will be issued:
_________________________________
_________________________________
_________________________________
(Zip Code)
_________________________________
Social Security or other
Taxpayer Identification
Number
Dated:___________________________ _____________________________
Signature of Noteholder
Dated:___________________________ _____________________________
Signature of Transferee
<PAGE>
EXHIBIT 4.7
No. LW-001
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY
WITHHELD) THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on November 6, 2003.
WARRANT TO PURCHASE COMMON STOCK
OF
PAMET SYSTEMS, INC.
FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a
Massachusetts corporation, hereby certifies that Robboy Associates, L.L.C.,
an entity with its principal place of business at 104 Donegal Drive, Chapel
Hill, NC 27415, or its permitted assigns, is entitled to purchase from the
Company, at any time or from time to time commencing November 6, 1998, and
prior to 5:00 P.M., Eastern Standard Time, on November 5, 2003, a total of
thirty thousand (30,000) fully paid and nonassessable shares of Common Stock,
par value $.01 per share, of the Company for an aggregate purchase price of
Eighty Two Thousand Five Hundred Dollars ($82,500) (computed on the basis of
$2.75 per share). (Hereinafter, (i) said Common Stock, together with any
other equity securities which may be issued by the Company with respect
thereto or in substitution therefor, is referred to as the "Common Stock,"
(ii) the shares of the Common Stock purchasable hereunder are referred to as
the "Warrant Shares," (iii) the aggregate purchase price payable hereunder
for the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv)
the price payable hereunder for each of the Warrant Shares is referred to as
the "Per Share Warrant Price," (v) this Warrant, and all warrants hereafter
issued in exchange or substitution for this Warrant are referred to as the
"Warrant" and (vi) the holder of this Warrant is referred to as the
"Holder.") The number of Warrant Shares for which this Warrant is exercisable
is subject to adjustment as hereinafter provided.
This Warrant is issued by the Company pursuant to the Securities
Purchase Agreement, dated as of the date hereof, among the Company and Robboy
Associates, L.L.P. (the "Securities Purchase Agreement"). Capitalized terms
used but not defined shall have the respective meanings ascribed to them in
the Securities Purchase Agreement.
1. Exercise of Warrant.
(a) This Warrant may be exercised, in whole at any time or in
part from time to time, commencing November 6, 1998, and prior to 5:00 P.M.,
Eastern Standard Time, on November 5, 2003, by the Holder of this Warrant by
the surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 8(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part.
(b) The Aggregate Warrant Price or Per Share Warrant Price shall
be paid in cash by certified or official bank check payable to the order of
the Company.
(c) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which the
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above (an "Exercise Date"). At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise as provided in subsection 1(d) below shall be deemed to have become
the holder or holders of record of the Warrant Shares represented by such
certificates.
(d) If this Warrant is exercised in part, the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the shares of the
Common Stock to which the Holder shall be entitled, and (b) deliver the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of the Warrant.
(e) No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. 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
fair value of a share.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock as
from time to time shall be receivable upon the exercise of this Warrant.
3. Adjustments.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the number of Warrant Shares for
which this Warrant may be exercised shall be adjusted so that if the Holder
surrendered this Warrant for exercise after such action the Holder would be
entitled to receive the number of shares of Common Stock or other capital
stock of the Company which he would have been entitled to receive had such
Warrant been exercised immediately prior to such action. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection (a), the Holder of this Warrant shall become
entitled to receive shares of two or more classes of capital stock or shares
of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in
a written notice to the Holder of this Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock.
(b) In case of any consolidation or merger to which the Company
is a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
entity of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), the holder shall have the right
thereafter to exercise this Warrant for the kind and amount of securities,
cash or other property which he would have owned or have been entitled to
receive immediately after such consolidation, merger, statutory exchange,
sale or conveyance had such Warrant been exercised immediately prior to the
effective date of such consolidation, merger, statutory exchange, sale or
conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section 3 with
respect to the rights and interests thereafter of the Holder to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares
of stock or other securities or property thereafter deliverable on the
conversion of this Warrant. The above provisions of this subsection (b) shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances. Notice of any such consolidation, merger, statutory
exchange, sale or conveyance and of said provisions so proposed to be made,
shall be mailed to the Holder not less than 30 days prior to such event. A
sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(c) In the event of any adjustment to the number of Warrant
Shares issuable upon exercise of this Warrant, the Per Share Warrant Price
shall be adjusted by multiplying the Per Share Warrant Price in effect
immediately prior to such adjustment by a fraction the numerator of which is
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment and the denominator of which
is the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately after such adjustment.
(d) Whenever the Per Share Warrant Price is adjusted as provided
in this Warrant and upon any modification of the rights of the Holder of this
Warrant in accordance with this Section 3, the Company shall promptly prepare
a certificate of an officer of the Company, setting forth the Per Share
Warrant Price and the number of Warrant Shares after such adjustment or
modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause a copy of such
certificate to be mailed to the Holder.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the proper exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. Subject to Section 5(e) hereof, the Company
further covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issuance of any Warrant Shares or certificates
therefor. The Holder covenants and agrees that it shall pay, when due and
payable, any and all federal, state and local income or similar taxes that
may be payable in respect of the issuance of any Warrant Shares or
certificates therefor.
5. Transfer
(a) Securities Laws. Neither this Warrant nor the Warrant Shares
issuable upon the exercise hereof have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), or under any state securities
laws and unless so registered may not be transferred, sold, pledged,
hypothecated or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer this
Warrant or any of the Warrant Shares issued, the Holder must give the Company
prior written notice of such proposed transfer including the name and address
of the proposed transferee. Such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel acceptable to the Company to the effect that the proposed
transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules and regulations promulgated under either such act, or to the effect
that the Warrant or Warrant Shares to be sold or transferred have been
registered under the Securities Act of 1933, as amended, and that there is in
effect a current prospectus meeting the requirements of Subsection 11(a) of
the Securities Act, which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Warrant or Warrant Shares to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed transfer
(including, without limitation, a transfer by will or pursuant to the laws of
descent and distribution), and as a condition thereto, if such transfer is
not made pursuant to an effective registration statement under the Securities
Act, the Holder will, if requested by the Company, deliver to the Company (i)
an investment covenant, in form and substance equivalent to that signed by
the original Holder of this Warrant, signed by the proposed transferee, (ii)
an agreement by such transferee to the restrictive investment legend set
forth herein on the certificate or certificates representing the securities
acquired by such transferee, (iii) an agreement by such transferee that the
Company may place a "stop transfer order" with its transfer agent or
registrar, and (iv) an agreement by the transferee to indemnify the Company
to the same extent as set forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 5, and the
Holder hereby agrees to indemnify and hold harmless the Company, its
representatives and each officer and director thereof from and against any
and all loss, damage or liability (including all attorneys' fees and costs
incurred in enforcing this indemnity provision) due to or arising out of (a)
the inaccuracy of any representation or the breach of any warranty of the
Holder contained in, or any other breach by the Holder of, this Warrant, (b)
any transfer of the Warrant or (c) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to counsel to
the Company upon which its opinion as to a proposed transfer shall have been
based.
(d) Transfer. Upon surrender of this Warrant to the Company or at
the office of its stock transfer agent, if any, with assignment documentation
duly executed and funds sufficient to pay any transfer tax, and upon
compliance with the foregoing provisions, the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment, and this Warrant shall promptly be canceled. Any
assignment, transfer, pledge, hypothecation or other disposition of this
Warrant attempted contrary to the provisions of this Warrant, or any levy of
execution, attachment or other process attempted upon the Warrant, shall be
null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any part of
the Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to
such shares, and all certificates representing Warrant Shares shall bear on
the face thereof substantially the following legend, insofar as is consistent
with Massachusetts law:
"The shares of common stock represented by
this certificate have not been registered
under the Securities Act of 1933, as amended,
and may not be sold, offered for sale,
assigned, transferred or otherwise disposed
of unless registered pursuant to the
provisions of that Act or an opinion of
counsel to the Company is obtained stating
that such disposition is in compliance with
an available exemption from such registration."
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
7. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
8. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 1000 Main Street, Acton, Massachusetts 01720,
or such other address as the Company has designated in writing to the Holder,
or
(b) the Holder at 104 Donegal Drive, Chapel Hill, NC 27415, or
such other address as the Holder has designated in writing to the Company.
9. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, PAMET SYSTEMS, INC., has caused this Warrant
to be signed by a duly authorized officer as of this 6th day of November,
1998.
ATTEST: PAMET SYSTEMS, INC.
_______________________ By:___________________________________
Name: David T. McKay
Title: President
SUBSCRIPTION
The undersigned, __________________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of _________________________ shares of the Common Stock of PAMET
SYSTEMS, INC. covered by said Warrant, and makes payment therefor in full at
the price per share provided by said Warrant.
Dated __________________ Signature__________________________
Address____________________________
____________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer said Warrant on the books of
PAMET SYSTEMS, INC.
Dated __________________ Signature_________________________
Address___________________________
___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and transfers
unto _________________________ the right to purchase
_________________________ shares of the Common Stock of PAMET SYSTEMS, INC.
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer that part of said Warrant on
the books of PAMET SYSTEMS, INC.
Dated ___________________ Signature__________________________
Address____________________________
____________________________
<PAGE>
EXHIBIT 4.8
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of November 13, 1998 by and between PAMET SYSTEMS, INC., a
Massachusetts corporation whose principal place of business is 1000 Main
Street, Acton, Massachusetts 01720 (the "Company"), and William James Bell
1993 Trust (the "Purchaser"), a trust with its address at 10539 Bellagio
Road, Los Angeles, CA 90077.
WHEREAS, the Company is desirous of selling, and the Purchaser is
desirous of acquiring, (i) convertible promissory notes in substantially the
form attached hereto as Exhibit A in the aggregate principal amount of Two
Hundred Fifty Thousand Dollars ($250,000) (the "Initial Notes") and (ii)
five-year warrants (the "Initial Warrants") in substantially the form
attached hereto as Exhibit B to purchase up to an aggregate of one hundred
seventy two thousand four hundred thirteen (172,413) shares ("Warrant
Shares") of the common stock, par value $.01 per share (the "Common Stock"),
of the Company (the Initial Notes and the Initial Warrants together sometimes
hereinafter are referred to as the "Initial Closing Securities"), on the
terms and subject to the conditions hereinafter set forth.
WHEREAS, the Company is desirous of selling, and the Purchaser is
desirous of acquiring, (i) an additional convertible promissory note in
substantially the form attached hereto as Exhibit A in the principal amount
of Two Hundred Fifty Thousand Dollars ($250,000) (the "Second Note" and,
together with the Initial Notes, the "Notes") and (ii) a five-year warrant
(the "Second Warrant" and, together with the Initial Warrants, the
"Warrants") in substantially the form attached hereto as Exhibit B to
purchase not less than one hundred thousand (100,000) shares ("Warrant
Shares") of the common stock, par value $.01 per share (the "Common Stock"),
of the Company (the Second Note and the Second Warrant together sometimes
hereinafter are referred to as the "Second Closing Securities" and, together
with the Initial Closing Securities, the "Securities"), on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and of the
mutual obligations hereinafter set forth, and for such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchaser hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE NOTES AND WARRANTS; CLOSINGS
Section 1.01 Purchase and Sale of the Notes and Warrants.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company agrees to issue and sell to the Purchaser at the
Initial Closings, and the Purchaser agrees to purchase from the Company at
the Initial Closings, the Initial Notes and the Initial Warrants for an
aggregate purchase price of Two Hundred Fifty Thousand Dollars ($250,000)
(the "Initial Closing Purchase Price").
(b) Provided that the Company has satisfied the Additional
Financing Condition (as defined herein), and subject to the other terms and
conditions set forth in this Agreement, the Company agrees to issue and sell
to the Purchaser at the Second Closing, and the Purchaser agrees to purchase
from the Company at the Second Closing, the Second Note and the Second
Warrant for an aggregate purchase price of Two Hundred Fifty Thousand Dollars
($250,000) (the "Second Closing Purchase Price"). For purposes of this
Agreement, the "Additional Financing Condition" shall be deemed satisfied if,
on or before January 15, 1999, the Company has completed, or received binding
commitments for, a financing raising not less than Three Hundred Thousand
Dollars ($300,000).
(c) The exercise price per share of the Warrants and the
conversion price per share of the Note to be issued at the Initial Closings
shall initially be set at One Dollar and Forty Five Cents ($1.45). The
exercise price per share of the Warrants and the conversion price per share
of the Note to be issued at the Second Closing shall initially be set at the
lower of (i) Two Dollars and Fifty Cents ($2.50) or (ii) such lower exercise
or conversion price per share, respectively, as the Company has granted to
any third party purchasing Warrants or Notes during the period between the
Initial Closings and the Second Closing.
(d) Notwithstanding anything else contained herein, the
substantive provisions of this Agreement, the Notes and the Warrants
(including, but not limited to, the interest rate and conversion price of the
Notes and the exercise price of the Warrants), are and will be no less
favorable to the Purchaser than any similar provisions contained in any
agreement simultaneously or hereafter entered into between the Company and
any other third party (other than pursuant to the Notes attached as Exhibit C
hereto) prior to the maturity of the Notes (or earlier conversion in whole of
all Notes outstanding), and the Company will promptly provide a written
amendment or waiver, as appropriate, hereof and of the Notes and Warrants in
the event it enters into any agreement or issues any promissory note or
warrant containing any such more favorable terms.
Section 1.02 Closings.
(a) The sale of the Initial Closing Securities by the Company
to the Purchaser shall take place on the date hereof and November 15, 1998 at
the offices of the Company or at such other place and time as may be agreed
upon by the Purchaser and the Company (the "Initial Closings"), as follows.
The Purchaser shall pay the Initial Purchase Price to the Company by
certified or official bank check or wire transfer of immediately available
funds to an account designated by the Company, in two parts: One Hundred
Thousand Dollars ($100,000) to be delivered on the date hereof and the
remaining One Hundred Fifty Thousand Dollars ($150,000) to be delivered on or
before November 15, 1998 against issuance of the Initial Closing Securities.
Certificates evidencing the Initial Closing Securities shall be delivered to
the Purchaser as promptly as practicable following receipt of the Initial
Closing Purchase Price.
(b) The sale of the Second Closing Securities by the Company
to the Purchaser shall take place within 10 business days following the
delivery of written notice to the Purchaser of the satisfaction of the
Additional Financing Condition (but, at the election of the Purchaser, not in
any event prior to January 15, 1999) at the offices of the Company or at such
other place and time as may be agreed upon by the Purchaser and the Company
(the "Second Closing" and, together with the Initial Closing, the
"Closings"); provided, however, that, in the event the Additional Financing
Condition has been satisfied by the Company's receipt of binding commitments,
the Second Closing shall take place within 10 business days following the
delivery of written notice to the Purchaser of the Company's receipt of not
less than Three Hundred Thousand Dollars ($300,000) represented by such
binding commitments (but, at the election of the Purchaser, not in any event
prior to January 15, 1999). Notwithstanding anything to the contrary, if the
Additional Closing Condition has been satisfied by the Company's receipt of
binding commitments, the Company must, in any event, receive at least Three
Hundred Thousand Dollars ($300,000) represented by such binding commitments
and complete the Second closing on or before February 15, 1999 or else the
Purchaser shall be relieved of its obligation to complete the Second Closing.
At the Second Closing, the Company shall deliver to the Purchaser
certificates evidencing the Second Closing Securities against payment of the
Second Closing Purchase Price, by certified or official bank check or wire
transfer of immediately available funds to an account designated by the
Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with, the
Purchaser, as of the date hereof and as of the date of each Closing, as
follows:
Section 2.01 Incorporation and Corporate Existence. The Company
is a corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has all necessary
corporate power and authority to own, operate or lease the properties and
assets now owned, operated or leased by the Company and to carry on the
business of the Company, as it is now being conducted.
Section 2.02 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The Company has taken all necessary
corporate action to authorize the execution, delivery and performance by it
of this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, and
assuming due execution and delivery of the Agreement by the Purchaser, this
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency (including,
without limitation, all laws relating to fraudulent transfers), moratorium or
similar laws affecting creditors' rights and remedies generally, subject, as
to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law) and subject to the effect of applicable securities laws as to rights to
indemnification. The Company is not now, and has not been since inception (x)
in bankruptcy or reorganization, (y) subject to moratorium or similar laws
affecting creditors' rights and remedies generally or (z) to the best
knowledge of the Company, a party to any fraudulent transfer.
Section 2.03 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not (i) require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Company from performing any of its
material obligations under this Agreement and would not have a material
adverse effect on the Company; (ii) conflict with or violate the charter or
by-laws of the Company; or (iii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to the Company, except as would not prevent the Company from
performing any of its material obligations under this Agreement and would not
have a material adverse effect on the Company.
Section 2.04 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Company,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Company's ability to consummate the
transactions contemplated hereby.
Section 2.05 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
Section 2.06 Attached Notes. Attached hereto as Exhibit C are
true and correct copies of the promissory notes issued by the Company to
Robboy Associates, L.L.C. and Rogow Opportunity Capital LLC.
Section 2.07 Senior Debt. While at least $250,000 in aggregate
principal amount of Notes is outstanding, the Company will not issue
promissory notes or incur debt obligations senior in right of payment to the
Notes in an aggregate principal amount in excess of Two Million Dollars
($2,000,000) without the prior written consent of the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to, and agrees with,
the Company, as of the date hereof and as of each Closing, as follows:
Section 3.01 Authority. The Purchaser has all necessary power and
authority to execute and deliver this Agreement, to purchase the Securities
from the Company and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and, and
assuming due authorization, execution and delivery of the Agreement by the
Company, this Agreement constitutes a legal, valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), moratorium or similar laws affecting creditors' rights and
remedies generally, subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) and subject to the effect of applicable
securities laws as to rights to indemnification.
Section 3.02 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Purchaser do not, and the performance
of this Agreement by the Purchaser will not (i) require any consent,
approval, authorization or other action by, or filing with or notification
to, any governmental or regulatory authority, except where the failure to
obtain such consent, approval, authorization or action, or to make such
filing or notification, would not prevent the Purchaser from performing any
of its material obligations under this Agreement; or (ii) except as would not
prevent the Purchaser from performing any of its material obligations under
this Agreement, conflict with or violate any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to the
Purchaser.
Section 3.03 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Purchaser,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
Section 3.04 Investment Purpose; Legend; Private Placement.
(a) The Purchaser is acquiring the Securities solely for the
purpose of investment and not with a view to, or for offer or sale in
connection with, any distribution thereof.
(b) The Purchaser acknowledges that neither the Securities
nor the Warrant Shares are registered under the Securities Act and that none
of the Securities or the Warrant Shares may be transferred or sold except
pursuant to the registration provisions of the Securities Act or pursuant to
an applicable exemption therefrom and subject to state securities laws and
regulations, as applicable. The Purchaser acknowledges that the certificates
evidencing the Securities and the Warrant Shares shall contain a legend
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND SUCH SECURITIES MAY NOT BE
SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE
UNREASONABLY WITHHELD) THAT SUCH REGISTRATION
IS NOT REQUIRED.
(c) The Purchaser acknowledges that the Securities involve a
great deal of risk and that there is a limited or no market for the
Securities and the Warrant Shares. The Purchaser is able to (i) bear the
economic risk of the investment in the Company, (ii) afford a complete loss
of such investment, and (iii) hold indefinitely the Securities. In reaching
an informed decision to invest in the Company, the Purchaser has sufficient
information to evaluate the merits and risks of an investment in the
Securities of the Company. In that connection, (x) the Purchaser has received
(A) the Company's proxy statement, dated May 14, 1998, for the Company's 1998
annual meeting of stockholders, (B) the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, as amended to date, and (C) the
Company's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1998 and June 30, 1998 and (y) representatives of the Company have (A) fully
and satisfactorily answered any questions which duly authorized
representatives of the Purchaser desired to ask concerning the Company, and
(B) furnished the Purchaser with any additional information or documents
requested to verify the accuracy of or supplement any information previously
delivered to or discussed with duly authorized representatives of the
Purchaser.
(d) The address of the Purchaser set forth on page 1 of this
Agreement is the true and correct address of the Purchaser and the Purchaser
has no present intention of becoming a resident or domiciliary of any other
state or jurisdiction.
Section 3.05 Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under
the Securities Act because (please check as appropriate):
[ ] (a) the Purchaser is an individual whose net worth, either
individually or with his spouse, exceeds $1,000,000 on the date hereof;
[ ] (b) the Purchaser is an individual whose individual income
exceeded $200,000 in each of the two previous years or whose joint income
with his spouse exceeded $300,000 in each of the three previous years, and
has a reasonable expectation of reaching the same income level in the current
year;
[ ] (c) the Purchaser is a corporation, partnership or
Massachusetts or similar business trust, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000; or
[ ] (d) the investor hereby certifies that it is an accredited
investor because it is an entity in which each of the equity owners qualifies
as an accredited investor under items (a), (b) or (c) above.
Section 3.06 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
Section 3.07 No General Solicitation. The Securities were not
offered or sold by any form of general solicitation or general advertising.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Expenses. The Purchaser hereby agrees that all fees
and expenses incurred by the Purchaser in connection with this Agreement
shall be borne by the Purchaser, and the Company hereby agrees that all fees
and expenses incurred by the Company shall be borne by the Company, in each
case including without limitation all fees and expenses of such party's
counsel and accountants.
Section 4.02 Public Announcements. Except as required by law,
neither the Company nor the Purchaser shall make any public announcements in
respect of this Agreement or the transactions contemplated herein or
otherwise communicate with any news media without prior notification to the
other party.
Section 4.03 Survival of Representations and Warranties. All
representations and warranties contained herein shall survive the execution
and delivery of this Agreement, the Closings and any investigation at any
time made by or on behalf of either party hereto.
Section 4.04 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any prior oral or written agreement between the
parties.
Section 4.05 No Third-Party Beneficiaries; Assignment. This
Agreement is for the sole benefit of and binding upon the parties hereto and
their permitted successors and assigns and nothing herein, express or
implied, is intended to or shall confer upon any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns, and shall inure to the
benefit of and be enforceable by the parties hereof and their respective
successors and assigns.
Section 4.06 Amendment. This Agreement may be amended or modified
only by an instrument in writing signed by the Company and the Purchaser.
Section 4.07 Counterparts. This Agreement may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
Section 4.08 Gender and Number; Headings. Whenever used in this
Agreement, the singular number shall include the plural, the plural the
singular, and the use of any gender shall be applicable to all genders. The
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement
Section 4.09 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth
of Massachusetts without giving effect to the principles of conflicts of laws
thereof. The Company and the Purchaser hereby consent to the jurisdiction of
the state and federal courts of the Commonwealth of Massachusetts for all
disputes arising under this Agreement.
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be executed as of the date first written above.
PAMET SYSTEMS, INC.
Attest:__________________________ By:_____________________________
Name: Name: David T. McKay
Title: Title: President & CEO
Corporate Seal
WILLIAM JAMES BELL 1993 TRUST
By:_____________________________
Name:
Title:
<PAGE>
No. L-003
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL
AMOUNT OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD
TO MATURITY ON THE ISSUE DATE IS RICHARD C. BECKER, (978)-263-2060.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
$250,000 Acton, Massachusetts
November 13, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts
corporation (the "Company"), hereby promises to pay to William James Bell
1993 Trust ("Payee"), 10539 Bellagio Road, Los Angeles, CA 90077, the
principal sum of Two Hundred Fifty Thousand Dollars ($250,000), on the dates
and in the amounts hereinafter set forth. This Promissory Note is issued by
the Company pursuant to the Securities Purchase Agreement, dated as of the
date hereof, among the Company and Payee (the "Securities Purchase
Agreement"). Capitalized terms used but not defined shall have the respective
meanings ascribed to them in the Securities Purchase Agreement. This
Promissory Note is hereinafter referred to as this "Note."
1. Principal and Maturity Date. The principal amount of this Note
outstanding together with all accrued interest hereon shall be due and
payable on November 12, 2000 (the "Maturity Date").
2. Interest. The outstanding principal amount of this Note shall
accrue interest at the per annum rate of eleven percent (11.0%) through the
earlier of the date of repayment or conversion (in each case computed on the
basis of a 365 day year and actual days elapsed). Interest shall be payable
in full on the Maturity Date with respect to the principal amount of the Note
then outstanding. No interest shall be deemed to have accrued or be payable
on any portion of this Note which is Converted on or prior to the Maturity
Date.
3. Prepayment. This Note may be prepaid, in whole or in part,
without penalty or premium upon not less than thirty (30) days prior written
notice from the Company to the Payee, at any time or from time to time. All
prepayments made on this Note shall be applied first to the payment of all
unpaid interest accrued on this Note, and then to the outstanding and unpaid
principal amount of this Note as of the date of the payment. Prepayment, in
whole or in part, shall be noted in the accounting records of the Company.
4. General Payment Provisions. All payments or prepayments of
principal and interest and other sums due pursuant to this Note shall be made
by check payable to the Payee at the address set forth above or at such other
address as Payee shall have previously designated to the Company in writing
not later than two Business Days (as defined below) prior to the date on
which such payment becomes due.
If the due date of any payment under this Note would otherwise
fall on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day and interest shall be payable at the rate
set forth herein for the period of the extension. The term "Business Day"
shall mean any day on which commercial banks in the State of New York are not
authorized or required to close.
5. Conversion; Repayment.
(a) Conversion/Repayment and Conversion Price. The Payee may,
subject to the terms and conditions of this Section 5, at any time, or from
time to time, exercise its right to convert this Note to Common Stock by
delivering a duly executed notice, in the form substantially similar to
Exhibit A hereto, of such intention to the Company (the "Conversion Notice");
provided, however, that if, and to the extent, this Note or any portion
thereof is called for prepayment, the holder may exercise its right to
convert to Common Stock such portion of this Note as was called for
prepayment.
The Payee shall have the right, subject to the terms and
conditions of this Section 5, to, no more frequently than four times per
annum in the aggregate, convert all or any part of the principal amount then
outstanding under this Note (the "Note Amount"), in an amount not less than
$25,000 (or such lesser amount as may then be outstanding), into that number
of fully-paid and nonassessable shares of Common Stock (the "Conversion
Shares"), obtained by dividing the Note Amount or such portion thereof
presented for conversion by the Conversion Price. The "Conversion Price"
shall initially be $1.45 in the case of Notes issued at the Initial Closings
and as determined in accordance with Section 1.01(c) of the Securities
Purchase Agreement in the case of Notes issued at the Second Closing per
share of Common Stock and shall be subject to adjustment as provided in
Section 6 below.
Upon a partial conversion or repayment of this Note, the
Company shall execute and deliver to or on the order of the holder hereof, a
new Note or Notes of authorized denominations in principal amount equal to
the unconverted or unredeemed, as the case may be, portion of this Note.
(b) Issuance of Common Stock on Conversion. In order to
effect the conversion of this Note, the Payee shall deliver to the Company at
its principal office, this Note and a duly executed Conversion Notice;
provided, however, that if the Payee desires to convert the Note on the
Maturity Date, Payee shall notify the Company in writing of its intention to
convert the Note at least five (5) days prior to the Maturity Date. The date
upon which the Company receives the Conversion Notice, the Note and any other
documentation required under this Section 5 of this Note or the Conversion
Notice shall be referred to herein as the "Effective Date." Upon the
Effective Date, this Note (or portion thereof) shall be deemed converted into
shares of Common Stock in accordance with this Section 5, at which time the
rights of the Payee with respect to this Note and the amount so converted
shall cease and, subject to the following provisions of this paragraph, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note (or portion thereof) shall be treated for all
purposes as having become the record holder or holders of such Common Stock.
As promptly as practicable after the Effective Date, the Company shall
deliver or cause to be delivered to the Payee, at the address set forth above
or at such other address as the Payee shall designate in writing,
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which this Note (or portion thereof), shall be converted
in accordance with the provisions of this Section 5. If this Note is called
for prepayment it may be converted as provided herein up to and including the
close of business on the business day preceding the date of prepayment.
No fractional shares of Common Stock shall be issued upon
conversion of this Note (or portion thereof). In lieu of any fractional share
of Common Stock which would otherwise be issuable upon conversion of this
Note (or portion thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to such fraction multiplied by the
Conversion Price.
(c) Reserves. The Company covenants that it will at all times
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and nonassessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of this Note at the time outstanding.
(d) Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of
this Note, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid;
and provided, further, that in no event shall the Company be required to pay
or reimburse the holder for any income tax payable by such holder as a result
of such issuance.
(e) Legends. All certificates representing Conversion Shares
shall bear a conspicuous legend stating in substance:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED
UNDER ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED OR QUALIFIED THEREUNDER OR AN
EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE."
The Company shall, upon the request of any holder of a stock
certificate representing Conversion Shares and the surrender of such
certificate, issue a new stock certificate without such legend if (i) the
stock evidenced by such certificate has been effectively registered under the
Securities Act and qualified under any applicable state securities law and
sold by the holder thereof in accordance with such registration and
qualification or (ii) such holder shall have delivered to the Company a legal
opinion reasonably satisfactory to the Company to the effect that the
restrictions set forth herein are no longer required or necessary under the
Securities Act or any applicable state law.
6. Conversion Price Protection.
(a) In the event of a stock split, reverse stock split or stock
dividend, the Board of Directors of the Company shall adjust the Conversion
Price to appropriately reflect such event.
NOTE: THE FOLLOWING PARAGRAPHS 6(b)-(d) SHALL NOT BE APPLICABLE TO THE
INITIAL NOTES AND SHALL APPLY TO THE SECOND NOTE ONLY IF THE INITIAL
CONVERSION PRICE OF THE NOTE EXCEEDS $1.50.
(b) Subject to adjustment in accordance with Section 6(a), if at
any time, beginning April 1, 1999, the average of the Closing Prices (as
defined herein) of the Common Stock for any 50 consecutive Trading Days (as
defined herein) after April 1, 1999 (the "Average Closing Price") is less
than $2.50 per share, then, so long as the Average Closing Price remains
below $2.50 per share (a "Price Protection Period"), upon the conversion of
all or any part of the principal amount outstanding under this Note, the
Conversion Price of the Note shall be reduced to the Average Closing Price of
the Common Stock for the 50 consecutive Trading Days immediately preceding
the date of conversion. Notwithstanding any reduction of the Conversion Price
pursuant to this Section 6(b), a Price Protection Period shall end if the
Average Closing Price is equal to or greater than $2.50 (subject to
adjustment in accordance with Section 6(a)) and the Conversion Price shall
return to $2.50. Notwithstanding the foregoing, the Conversion Price shall
not be reduced below $1.50 (subject to adjustment in accordance with Section
6(a)).
(c) As used in this Section 6, Trading Day means, in the event
that the Common Stock is listed or admitted to trading on the New York Stock
Exchange (or any successor to such exchange), a day on which the New York
Stock Exchange (or such successor) is open for the transaction of business,
or, if the Common Stock is not listed or admitted to trading on such
exchange, a day on which the principal national securities exchange on which
the Common Stock is listed is open for the transaction of business, or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange, a day on which any New York Stock Exchange member firm
is open for the transaction of business.
(d) As used in this Section 6, the Closing Price of the Company's
Common Stock shall be the last reported sale price as shown on the Composite
Tape of the New York Stock Exchange, or, in case no such reported sale price
is quoted on such day, the average of the reported closing bid and asked
prices on the New York Stock Exchange, or, if the Common Stock is not listed
or admitted to trading on such exchange, the last reported sales price, or in
case no such reported sales price is quoted on such day, the average of the
reported closing bid and asked prices, on the principal national securities
exchange (including, for purposes hereof, the National Association of
Securities Dealers, Inc. National Market System) on which the Common Stock is
listed or admitted to trading, or, if it is not listed or admitted to trading
on any national securities exchange, the average of the high closing bid
price and the low closing asked price as reported on an inter-dealer
quotation system. In the absence of any available public quotations for the
Common Stock, the Board of Directors of the Company shall determine in good
faith the fair value of the Common Stock, which determination shall be set
forth in a certificate by the Secretary of the Company.
7. Subordination.
(a) The Company irrevocably covenants and agrees, and the
Holder of this Note, by its acceptance thereof, irrevocably covenants and
agrees, that the payment of the principal of and interest on this Note is
hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, to the prior payment and/or cancellation (as shall be appropriate)
in full of all Senior Indebtedness (as defined herein). The provisions of
this Section 7 are made for the benefit of the holders of Senior
Indebtedness, and such holders shall, at any time, be entitled to enforce
such provisions against the Company or Noteholder. No holder of any Senior
Indebtedness shall be deemed to owe any fiduciary duty or any other
obligation to any Holder of this Note now or at any time hereafter.
Notwithstanding anything herein contained to the contrary, all the provisions
of this Note shall, except as otherwise provided herein, be subject to the
provisions of this Section 7, so far as the same may be applicable thereto.
(b) For purposes of this Section 7 (and subject to Section
2.07 of the Securities Purchase Agreement), "Senior Indebtedness" shall mean
any indebtedness, liability or obligation, contingent or otherwise, other
than that arising pursuant to this Note, of the Company (any such
indebtedness, liability or obligation being hereinafter in this definition
referred to as an "Obligation") (i) which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness
for the purposes hereof in the instrument creating or evidencing the
Company's liability with respect to such Obligations or (ii) any increases,
guarantees, refundings, renewals, rearrangements or extensions of and
amendments, modifications and supplements to any indebtedness, liability or
obligation described in clause (i) above.
9. No Assignment. This Note may not be assigned by the Payee
without the prior written consent of the Company.
10. Governing Law. This Note shall be construed in accordance
with, and governed by, the laws of the Commonwealth of Massachusetts as
applied to contracts made and to be performed entirely in the Commonwealth of
Massachusetts without regard to principles of conflicts of law. Each of the
parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the Commonwealth of Massachusetts or
any federal court sitting in the Commonwealth of Massachusetts for purposes
of any suit, action or other proceeding arising out of this Note (and agrees
not to commence any action, suit or proceedings relating hereto except in
such courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Note, which is
brought by or against it, in the courts of the Commonwealth of Massachusetts
or any federal court sitting in the Commonwealth of Massachusetts and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
11. Adjustment of Interest Rate. No provision of this Note shall
require the payment of interest to the extent that receipt of any such
payment by the Company would be contrary to the provisions of law applicable
to the Company limiting the maximum amount of interest that may be charged to
or collected from the Company, and if any sum in excess of such maximum rate
of interest is paid or charged, the excess will be deemed to have been a
prepayment of principal of this Note when paid, without premium or penalty,
and all payments made thereafter will be appropriately applied to interest
and principal to give effect to such maximum rate, and after such application
any excess shall be immediately refunded to the Company.
PAMET SYSTEMS, INC.
By: _______________________________
Name: David McKay
Title: President & CEO
Attested:
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
[Form of Conversion Notice]
To Pamet Systems, Inc.:
The undersigned registered holder (the "Payee") of the Note in
the principal amount indicated below and bearing the certificate number
indicated below (the "Note"), hereby irrevocably exercises its right to
convert the principal amount of the Note indicated herein into shares of
common stock, par value $.01 per share, of Pamet Systems, Inc. (the
"Company"), in accordance with the terms of the Note, and directs that the
shares issuable and deliverable upon such conversion together with a check in
payment for fractional shares, be issued and delivered to the Payee unless a
different name has been indicated below. If shares are to be issued in the
name of a person other than the Payee (such person being referred to as the
"Transferee"), the Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company and duly executed
by the undersigned, and the undersigned will pay all transfer taxes payable
with respect thereto. In addition, the Transferee must sign this notice. All
capitalized terms used in this notice and not otherwise defined shall have
the respective meanings ascribed to them in the Note.
The Payee, or in the event a Transferee shall receive the
Conversion Shares issued upon conversion of this Note, the Transferee, hereby
represents and warrants to the Company that (i) he has sufficient knowledge
and experience in financial and business matters to be capable of evaluating
the merits and risks of an investment in the Company, (ii) he is acquiring
the Conversion Shares for its own account for investment and not with a view
to, or for distribution or sale in connection with any public offering in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
(iii) he understands that (x) the Conversion Shares will not have been
registered for sale under the Securities Act or qualified under applicable
state securities laws and may not be resold without registration under the
Securities Act and qualification under any applicable state securities law,
(y) such Conversion Shares will be issued to him pursuant to one or more
exemptions from the registration or qualification requirements of the
Securities Act and that the representations and warranties contained herein
are given with the intention that the Company may rely thereon for purposes
of claiming such exemptions and (z) the Conversion Shares shall contain a
legend substantially as set forth in Section 5(e) of the Note, (iv) he is an
"accredited investor" as defined in Section 501 of Regulation D promulgated
under the Securities Act, (v) he understands he must bear the economic risk
of Conversion Shares issued upon conversion of the Note for an indefinite
period of time as the Conversion Shares cannot be sold unless registered
under the Securities Act and any other applicable state securities laws or
sold in a transaction exempt from such registration thereunder and (vi)
representatives of the Company have (x) fully and satisfactorily answered any
questions which he deemed to ask concerning the Company and (y) furnished him
with such additional information and documents regarding the Company as he
has reasonably requested.
Principal amount of Note to be converted: $________________
Certificate Number of Note: __
Print name, address (including zip code) and social security or other
taxpayer identification number of the person in whose name the Common Stock
will be issued:
_________________________________
_________________________________
_________________________________
(Zip Code)
_________________________________
Social Security or other
Taxpayer Identification
Number
Dated:___________________________ _________________________
Signature of Noteholder
Dated:___________________________ _________________________
Signature of Transferee
<PAGE>
EXHIBIT 4.9
No. LW-003
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY
WITHHELD) THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on November 12, 2003.
WARRANT TO PURCHASE COMMON STOCK
OF
PAMET SYSTEMS, INC.
FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a
Massachusetts corporation, hereby certifies that William James Bell 1993
Trust, a trust with its address at 10539 Bellagio Road, Los Angeles, CA
90077, or its permitted assigns, is entitled to purchase from the Company, at
any time or from time to time commencing November 13, 1998, and prior to 5:00
P.M., Eastern Standard Time, on November 12, 2003, a total of one hundred
seventy two thousand four hundred thirteen (172,413) in the case of the
Initial Warrants and as determined in accordance with Section 1.01(c) of the
Securities Purchase Agreement in the case of the Second Warrants fully paid
and nonassessable shares of Common Stock, par value $.01 per share, of the
Company for an aggregate purchase price of Two Hundred Fifty Thousand Dollars
($250,000) (computed on the basis of $1.45 per share in the case of the
Initial Warrants and as determined in accordance with Section 1.01(c) of the
Securities Purchase Agreement in the case of the Second Warrants).
(Hereinafter, (i) said Common Stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares
of the Common Stock purchasable hereunder are referred to as the "Warrant
Shares," (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price," (iv) the price
payable hereunder for each of the Warrant Shares is referred to as the "Per
Share Warrant Price," (v) this Warrant, and all warrants hereafter issued in
exchange or substitution for this Warrant are referred to as the "Warrant"
and (vi) the holder of this Warrant is referred to as the "Holder.") The
number of Warrant Shares for which this Warrant is exercisable is subject to
adjustment as hereinafter provided.
This Warrant is issued by the Company pursuant to the Securities
Purchase Agreement, dated as of the date hereof, among the Company and
William James Bell 1993 Trust (the "Securities Purchase Agreement").
Capitalized terms used but not defined shall have the respective meanings
ascribed to them in the Securities Purchase Agreement.
1. Exercise of Warrant.
(a) This Warrant may be exercised, in whole at any time or in
part from time to time, commencing November 13, 1998, and prior to 5:00 P.M.,
Eastern Standard Time, on November 12, 2003, by the Holder of this Warrant by
the surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 9(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part.
(b) The Aggregate Warrant Price or Per Share Warrant Price
shall be paid in cash by certified or official bank check payable to the
order of the Company.
(c) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which
the Warrant shall have been surrendered to the Company as provided in
subsection 1(a) above (an "Exercise Date"). At such time, the person or
persons in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in subsection 1(d) below shall be
deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.
(d) If this Warrant is exercised in part, the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the shares of the
Common Stock to which the Holder shall be entitled, and (b) deliver the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of the Warrant.
(e) No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. 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
fair value of a share.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock as
from time to time shall be receivable upon the exercise of this Warrant.
3. Adjustments.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the number of Warrant Shares for
which this Warrant may be exercised shall be adjusted so that if the Holder
surrendered this Warrant for exercise after such action the Holder would be
entitled to receive the number of shares of Common Stock or other capital
stock of the Company which he would have been entitled to receive had such
Warrant been exercised immediately prior to such action. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection (a), the Holder of this Warrant shall become
entitled to receive shares of two or more classes of capital stock or shares
of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in
a written notice to the Holder of this Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock.
(b) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company
is the continuing corporation, or in case of any sale or conveyance to
another entity of the property of the Company as an entirety or substantially
as an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a
merger of a third corporation into the Company), the holder shall have the
right thereafter to exercise this Warrant for the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such Warrant been exercised immediately
prior to the effective date of such consolidation, merger, statutory
exchange, sale or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in
this Section 3 with respect to the rights and interests thereafter of the
Holder to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of this Warrant. The above
provisions of this subsection (b) shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances. Notice of
any such consolidation, merger, statutory exchange, sale or conveyance and of
said provisions so proposed to be made, shall be mailed to the Holder not
less than 30 days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing
purposes.
(c) In the event of any adjustment to the number of Warrant
Shares issuable upon exercise of this Warrant, the Per Share Warrant Price
shall be adjusted by multiplying the Per Share Warrant Price in effect
immediately prior to such adjustment by a fraction the numerator of which is
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment and the denominator of which
is the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately after such adjustment.
(d) Whenever the Per Share Warrant Price is adjusted as
provided in this Warrant and upon any modification of the rights of the
Holder of this Warrant in accordance with this Section 3, the Company shall
promptly prepare a certificate of an officer of the Company, setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause a
copy of such certificate to be mailed to the Holder.
4. Per Share Warrant Price Protection.
NOTE: THIS SECTION 4 SHALL NOT BE APPLICABLE TO THE INITIAL WARRANTS AND
SHALL APPLY TO THE SECOND WARRANT ONLY IF THE INITIAL PER SHARE WARRANT PRICE
EXCEEDS $1.50.
(a) Subject to adjustment in accordance with Section 3, if at any
time, beginning April 1, 1999, the average of the Closing Prices (as defined
herein) of the Common Stock for any 50 consecutive Trading Days (as defined
herein) after April 1, 1999 (the "Average Closing Price") is less than $2.50
per share, then, so long as the Average Closing Price remains below $2.50 per
share (a "Price Protection Period"), upon the exercise of all or any part of
this Warrant, the Per Share Warrant Price shall be reduced to the Average
Closing Price of the Common Stock for the 50 consecutive Trading Days
immediately preceding the date of exercise. Notwithstanding any reduction of
the Per Share Warrant Price pursuant to this Section 4(a), a Price Protection
Period shall end if the Average Closing Price is equal to or greater than
$2.50 (subject to adjustment in accordance with Section 3) and the Per Share
Warrant Price shall return to $2.50. Notwithstanding the foregoing, the Per
Share Warrant Price shall not be reduced below $1.50 (subject to adjustment
in accordance with Section 3).
(b) In the event of any adjustment to the Per Share Warrant
Price, the number of Warrant Shares issuable upon exercise of this Warrant
during the relevant Price Protection Period shall be adjusted by multiplying
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment by a fraction the numerator of
which is the Per Share Warrant Price immediately prior to such adjustment and
the denominator of which is the Per Share Warrant Price immediately after
such adjustment.
(c) As used in this Section 4, Trading Day means, in the
event that the Common Stock is listed or admitted to trading on the New York
Stock Exchange (or any successor to such exchange), a day on which the New
York Stock Exchange (or such successor) is open for the transaction of
business, or, if the Common Stock is not listed or admitted to trading on
such exchange, a day on which the principal national securities exchange on
which the Common Stock is listed is open for the transaction of business, or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange, a day on which any New York Stock Exchange member firm
is open for the transaction of business.
(d) As used in this Section 4, the Closing Price of the
Company's Common Stock shall be the last reported sale price as shown on the
Composite Tape of the New York Stock Exchange, or, in case no such reported
sale price is quoted on such day, the average of the reported closing bid and
asked prices on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such exchange, the last reported sales
price, or in case no such reported sales price is quoted on such day, the
average of the reported closing bid and asked prices, on the principal
national securities exchange (including, for purposes hereof, the National
Association of Securities Dealers, Inc. National Market System) on which the
Common Stock is listed or admitted to trading, or, if it is not listed or
admitted to trading on any national securities exchange, the average of the
high closing bid price and the low closing asked price as reported on an
inter-dealer quotation system. In the absence of any available public
quotations for the Common Stock, the Board of Directors of the Company shall
determine in good faith the fair value of the Common Stock, which
determination shall be set forth in a certificate by the Secretary of the
Company.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the proper exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. Subject to Section 6(e) hereof, the Company
further covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issuance of any Warrant Shares or certificates
therefor. The Holder covenants and agrees that it shall pay, when due and
payable, any and all federal, state and local income or similar taxes that
may be payable in respect of the issuance of any Warrant Shares or
certificates therefor.
6. Transfer
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be transferred, sold,
pledged, hypothecated or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer this
Warrant or any of the Warrant Shares issued, the Holder must give the Company
prior written notice of such proposed transfer including the name and address
of the proposed transferee. Such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel acceptable to the Company to the effect that the proposed
transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules and regulations promulgated under either such act, or to the effect
that the Warrant or Warrant Shares to be sold or transferred have been
registered under the Securities Act of 1933, as amended, and that there is in
effect a current prospectus meeting the requirements of Subsection 11(a) of
the Securities Act, which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Warrant or Warrant Shares to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer (including, without limitation, a transfer by will or pursuant to
the laws of descent and distribution), and as a condition thereto, if such
transfer is not made pursuant to an effective registration statement under
the Securities Act, the Holder will, if requested by the Company, deliver to
the Company (i) an investment covenant, in form and substance equivalent to
that signed by the original Holder of this Warrant, signed by the proposed
transferee, (ii) an agreement by such transferee to the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement
by such transferee that the Company may place a "stop transfer order" with
its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the
Holder hereby agrees to indemnify and hold harmless the Company, its
representatives and each officer and director thereof from and against any
and all loss, damage or liability (including all attorneys' fees and costs
incurred in enforcing this indemnity provision) due to or arising out of (a)
the inaccuracy of any representation or the breach of any warranty of the
Holder contained in, or any other breach by the Holder of, this Warrant, (b)
any transfer of the Warrant or (c) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to counsel to
the Company upon which its opinion as to a proposed transfer shall have been
based.
(d) Transfer. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any, with assignment
documentation duly executed and funds sufficient to pay any transfer tax, and
upon compliance with the foregoing provisions, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named
in such instrument of assignment, and this Warrant shall promptly be
canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act, upon exercise of any
part of the Warrant and the issuance of any of the Warrant Shares, the
Company shall instruct its transfer agent to enter stop transfer orders with
respect to such shares, and all certificates representing Warrant Shares
shall bear on the face thereof substantially the following legend, insofar as
is consistent with Massachusetts law:
"The shares of common stock represented
by this certificate have not been registered
under the Securities Act of 1933, as amended,
and may not be sold, offered for sale,
assigned, transferred or otherwise disposed
of unless registered pursuant to the
provisions of that Act or an opinion of counsel
to the Company is obtained stating that such
disposition is in compliance with an available
exemption from such registration."
7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
9. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 1000 Main Street, Acton, Massachusetts
01720, or such other address as the Company has designated in writing to the
Holder, or
(b) the Holder at 10539 Bellagio Road, Los Angeles, CA 90077,
or such other address as the Holder has designated in writing to the Company.
10. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, PAMET SYSTEMS, INC., has caused this Warrant to be signed
by a duly authorized officer as of this 13th day of November, 1998.
ATTEST: PAMET SYSTEMS, INC.
_______________________ By:___________________________________
Name: David T. McKay
Title: President
<PAGE>
SUBSCRIPTION
The undersigned, __________________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of _________________________ shares of the Common Stock of PAMET
SYSTEMS, INC. covered by said Warrant, and makes payment therefor in full at
the price per share provided by said Warrant.
Dated __________________ Signature__________________________
Address____________________________
____________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer said Warrant on the books of
PAMET SYSTEMS, INC.
Dated __________________ Signature_________________________
Address___________________________
___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and transfers
unto _________________________ the right to purchase
_________________________ shares of the Common Stock of PAMET SYSTEMS, INC.
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer that part of said Warrant on
the books of PAMET SYSTEMS, INC.
Dated ___________________ Signature__________________________
Address____________________________
____________________________
<PAGE>
EXHIBIT 4.10
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of December 7, 1998 by and between PAMET SYSTEMS, INC., a
Massachusetts corporation whose principal place of business is 1000 Main
Street, Acton, Massachusetts 01720 (the "Company"), and Mr. Gene Raphalean
(the "Purchaser"), an individual with his address at 19891 Robin Way,
Saratoga, CA 95070.
WHEREAS, the Company is desirous of selling, and the Purchaser is
desirous of acquiring, (i) a convertible promissory note in substantially the
form attached hereto as Exhibit A in the principal amount of Fifty Thousand
Dollars ($50,000) (the "Note") and (ii) a five-year warrant (the "Warrant")
in substantially the form attached hereto as Exhibit B to purchase up to
Twenty Thousand (20,000) shares ("Warrant Shares") of the common stock, par
value $.01 per share (the "Common Stock"), of the Company (the Note and the
Warrant together sometimes hereinafter are referred to as the "Securities"),
on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and of the
mutual obligations hereinafter set forth, and for such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchaser hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE NOTES AND WARRANTS; CLOSINGS
Section 1.01 Purchase and Sale of the Notes and Warrants.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company agrees to issue and sell to the Purchaser at the
Closing, and the Purchaser agrees to purchase from the Company at the
Closing, the Note and the Warrant for an aggregate purchase price of Fifty
Thousand Dollars ($50,000) (the "Purchase Price").
(b) The exercise price per share of the Warrant and the
conversion price per share of the Note to be issued at the Closing shall
initially be set at Two Dollars and Fifty Cents ($2.50).
Section 1.02 Closing. The sale of the Securities by the Company
to the Purchaser shall take place on December 7, 1998 at the offices of the
Company or at such other place and time as may be agreed upon by the
Purchaser and the Company (the "Closing"). At the Closing, the Company shall
deliver to the Purchaser certificates evidencing the Securities against
payment of the Purchase Price for the Securities, by certified or official
bank check or wire transfer of immediately available funds to an account
designated by the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with,
the Purchaser, as of the date hereof and as of the date of each Closing, as
follows:
Section 2.01 Incorporation and Corporate Existence. The Company
is a corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has all necessary
corporate power and authority to own, operate or lease the properties and
assets now owned, operated or leased by the Company and to carry on the
business of the Company, as it is now being conducted.
Section 2.02 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The Company has taken all necessary
corporate action to authorize the execution, delivery and performance by it
of this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, and
assuming due execution and delivery of the Agreement by the Purchaser, this
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency (including,
without limitation, all laws relating to fraudulent transfers), moratorium or
similar laws affecting creditors' rights and remedies generally, subject, as
to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law) and subject to the effect of applicable securities laws as to rights to
indemnification.
Section 2.03 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not (i) require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Company from performing any of its
material obligations under this Agreement and would not have a material
adverse effect on the Company; (ii) conflict with or violate the charter or
by-laws of the Company; or (iii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to the Company, except as would not prevent the Company from
performing any of its material obligations under this Agreement and would not
have a material adverse effect on the Company.
Section 2.04 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Company,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Company's ability to consummate the
transactions contemplated hereby.
Section 2.05 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to, and agrees with,
the Company, as of the date hereof and as of each Closing, as follows:
Section 3.01 Authority. The Purchaser has all necessary power and
authority to execute and deliver this Agreement, to purchase the Securities
from the Company and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and, and
assuming due authorization, execution and delivery of the Agreement by the
Company, this Agreement constitutes a legal, valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), moratorium or similar laws affecting creditors' rights and
remedies generally, subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) and subject to the effect of applicable
securities laws as to rights to indemnification.
Section 3.02 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Purchaser do not, and the performance
of this Agreement by the Purchaser will not (i) require any consent,
approval, authorization or other action by, or filing with or notification
to, any governmental or regulatory authority, except where the failure to
obtain such consent, approval, authorization or action, or to make such
filing or notification, would not prevent the Purchaser from performing any
of its material obligations under this Agreement; or (ii) except as would not
prevent the Purchaser from performing any of its material obligations under
this Agreement, conflict with or violate any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to the
Purchaser.
Section 3.03 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Purchaser,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
Section 3.04 Investment Purpose; Legend; Private Placement.
(a) The Purchaser is acquiring the Securities solely for the
purpose of investment and not with a view to, or for offer or sale in
connection with, any distribution thereof.
(b) The Purchaser acknowledges that neither the Securities nor
the Warrant Shares are registered under the Securities Act and that none of
the Securities or the Warrant Shares may be transferred or sold except
pursuant to the registration provisions of the Securities Act or pursuant to
an applicable exemption therefrom and subject to state securities laws and
regulations, as applicable. The Purchaser acknowledges that the certificates
evidencing the Securities and the Warrant Shares shall contain a legend
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND SUCH SECURITIES MAY NOT BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE
UNREASONABLY WITHHELD) THAT SUCH REGISTRATION IS
NOT REQUIRED.
(c) The Purchaser acknowledges that the Securities involve a
great deal of risk and that there is a limited or no market for the
Securities and the Warrant Shares. The Purchaser is able to (i) bear the
economic risk of the investment in the Company, (ii) afford a complete loss
of such investment, and (iii) hold indefinitely the Securities. In reaching
an informed decision to invest in the Company, the Purchaser has sufficient
information to evaluate the merits and risks of an investment in the
Securities of the Company. In that connection, (x) the Purchaser has received
(A) the Company's proxy statement, dated May 14, 1998, for the Company's 1998
annual meeting of stockholders, (B) the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, as amended to date, and (C) the
Company's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998 and (y) representatives of the
Company have (A) fully and satisfactorily answered any questions which duly
authorized representatives of the Purchaser desired to ask concerning the
Company, and (B) furnished the Purchaser with any additional information or
documents requested to verify the accuracy of or supplement any information
previously delivered to or discussed with duly authorized representatives of
the Purchaser.
(d) The address of the Purchaser set forth on page 1 of this
Agreement is the true and correct address of the Purchaser and the Purchaser
has no present intention of becoming a resident or domiciliary of any other
state or jurisdiction.
Section 3.05 Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under
the Securities Act because (please check as appropriate):
[ ] (a) the Purchaser is an individual whose net worth, either
individually or with his spouse, exceeds $1,000,000 on the date hereof;
[ ] (b) the Purchaser is an individual whose individual income
exceeded $200,000 in each of the two previous years or whose joint income
with his spouse exceeded $300,000 in each of the three previous years, and
has a reasonable expectation of reaching the same income level in the current
year;
[ ] (c) the Purchaser is a corporation, partnership or
Massachusetts or similar business trust, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000; or
[ ] (d) the investor hereby certifies that it is an accredited
investor because it is an entity in which each of the equity owners qualifies
as an accredited investor under items (a), (b) or (c) above.
Section 3.06 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
Section 3.07 No General Solicitation. The Securities were not
offered or sold by any form of general solicitation or general advertising.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Expenses. The Purchaser hereby agrees that all fees
and expenses incurred by the Purchaser in connection with this Agreement
shall be borne by the Purchaser, and the Company hereby agrees that all fees
and expenses incurred by the Company shall be borne by the Company, in each
case including without limitation all fees and expenses of such party's
counsel and accountants.
Section 4.02 Public Announcements. Except as required by law,
neither the Company nor the Purchaser shall make any public announcements in
respect of this Agreement or the transactions contemplated herein or
otherwise communicate with any news media without prior notification to the
other party.
Section 4.03 Survival of Representations and Warranties. All
representations and warranties contained herein shall survive the execution
and delivery of this Agreement, the Closings and any investigation at any
time made by or on behalf of either party hereto.
Section 4.04 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any prior oral or written agreement between the
parties.
Section 4.05 No Third-Party Beneficiaries; Assignment. This
Agreement is for the sole benefit of and binding upon the parties hereto and
their permitted successors and assigns and nothing herein, express or
implied, is intended to or shall confer upon any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns, and shall inure to the
benefit of and be enforceable by the parties hereof and their respective
successors and assigns.
Section 4.06 Amendment. This Agreement may be amended or modified
only by an instrument in writing signed by the Company and the Purchaser.
Section 4.07 Counterparts. This Agreement may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
Section 4.08 Gender and Number; Headings. Whenever used in this
Agreement, the singular number shall include the plural, the plural the
singular, and the use of any gender shall be applicable to all genders. The
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement
Section 4.09 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth
of Massachusetts without giving effect to the principles of conflicts of laws
thereof. The Company and the Purchaser hereby consent to the jurisdiction of
the state and federal courts of the Commonwealth of Massachusetts for all
disputes arising under this Agreement.
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be executed as of the date first written above.
PAMET SYSTEMS, INC.
Attest:__________________________ By:_____________________________
Name: Name: David T. McKay
Title: Title: President & CEO
Corporate Seal
____________________________________
By:_____________________________
Name: Mr. Gene Raphalean
Title:
<PAGE>
No. L-005
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL
AMOUNT OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD
TO MATURITY ON THE ISSUE DATE IS RICHARD C. BECKER, (978)-263-2060.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
$50,000 Acton, Massachusetts
December 8, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts
corporation (the "Company"), hereby promises to pay to Mr. Gene Raphalean
("Payee"), 19891 Robin Way, Saratoga, CA 95070, the principal sum of Fifty
Thousand Dollars ($50,000), on the dates and in the amounts hereinafter set
forth. This Promissory Note is issued by the Company pursuant to the
Securities Purchase Agreement, dated as of the date hereof, among the Company
and Payee (the "Securities Purchase Agreement"). Capitalized terms used but
not defined shall have the respective meanings ascribed to them in the
Securities Purchase Agreement. This Promissory Note is hereinafter referred
to as this "Note."
1. Principal and Maturity Date. The principal amount of this Note
outstanding together with all accrued interest hereon shall be due and
payable on December 7, 2000 (the "Maturity Date").
2. Interest. The outstanding principal amount of this Note shall
accrue interest at the per annum rate of eleven percent (11.0%) through the
earlier of the date of repayment or conversion (in each case computed on the
basis of a 365 day year and actual days elapsed). Interest shall be payable
in full on the Maturity Date with respect to the principal amount of the Note
then outstanding. No interest shall be deemed to have accrued or be payable
on any portion of this Note which is Converted on or prior to the Maturity
Date.
3. Prepayment. This Note may be prepaid, in whole or in part,
without penalty or premium upon not less than thirty (30) days prior written
notice from the Company to the Payee, at any time or from time to time. All
prepayments made on this Note shall be applied first to the payment of all
unpaid interest accrued on this Note, and then to the outstanding and unpaid
principal amount of this Note as of the date of the payment. Prepayment, in
whole or in part, shall be noted in the accounting records of the Company.
4. General Payment Provisions. All payments or prepayments of
principal and interest and other sums due pursuant to this Note shall be made
by check payable to the Payee at the address set forth above or at such other
address as Payee shall have previously designated to the Company in writing
not later than two Business Days (as defined below) prior to the date on
which such payment becomes due.
If the due date of any payment under this Note would otherwise
fall on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day and interest shall be payable at the rate
set forth herein for the period of the extension. The term "Business Day"
shall mean any day on which commercial banks in the State of New York are not
authorized or required to close.
5. Conversion; Prepayment.
(a) Conversion/Prepayment and Conversion Price. The Payee may,
subject to the terms and conditions of this Section 5, at any time, or from
time to time, exercise its right to convert this Note to Common Stock by
delivering a duly executed notice, in the form substantially similar to
Exhibit A hereto, of such intention to the Company (the "Conversion Notice");
provided, however, that if, and to the extent, this Note or any portion
thereof is called for prepayment, the holder may exercise its right to
convert to Common Stock such portion of this Note as was called for
prepayment.
The Payee shall have the right, subject to the terms and
conditions of this Section 5, to, no more frequently than four times per
annum in the aggregate, convert all or any part of the principal amount then
outstanding under this Note (the "Note Amount"), in an amount not less than
$25,000 (or such lesser amount as may then be outstanding), into that number
of fully-paid and nonassessable shares of Common Stock (the "Conversion
Shares"), obtained by dividing the Note Amount or such portion thereof
presented for conversion by the Conversion Price. The "Conversion Price"
shall initially be $2.50 per share of Common Stock.
Upon a partial conversion or prepayment of this Note, the Company
shall execute and deliver to or on the order of the holder hereof, a new Note
or Notes of authorized denominations in principal amount equal to the
unconverted or unredeemed, as the case may be, portion of this Note.
(b) Issuance of Common Stock on Conversion. In order to effect
the conversion of this Note, the Payee shall deliver to the Company at its
principal office, this Note and a duly executed Conversion Notice; provided,
however, that if the Payee desires to convert the Note on the Maturity Date,
Payee shall notify the Company in writing of its intention to convert the
Note at least five (5) days prior to the Maturity Date. The date upon which
the Company receives the Conversion Notice, the Note and any other
documentation required under this Section 5 of this Note or the Conversion
Notice shall be referred to herein as the "Effective Date." Upon the
Effective Date, this Note (or portion thereof) shall be deemed converted into
shares of Common Stock in accordance with this Section 5, at which time the
rights of the Payee with respect to this Note and the amount so converted
shall cease and, subject to the following provisions of this paragraph, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note (or portion thereof) shall be treated for all
purposes as having become the record holder or holders of such Common Stock.
As promptly as practicable after the Effective Date, the Company shall
deliver or cause to be delivered to the Payee, at the address set forth above
or at such other address as the Payee shall designate in writing,
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which this Note (or portion thereof), shall be converted
in accordance with the provisions of this Section 5. If this Note is called
for prepayment it may be converted as provided herein up to and including the
close of business on the business day preceding the date of prepayment.
No fractional shares of Common Stock shall be issued upon
conversion of this Note (or portion thereof). In lieu of any fractional share
of Common Stock which would otherwise be issuable upon conversion of this
Note (or portion thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to such fraction multiplied by the
Conversion Price.
(c) Reserves. The Company covenants that it will at all times
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and nonassessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of this Note at the time outstanding.
(d) Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of
this Note, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid;
and provided, further, that in no event shall the Company be required to pay
or reimburse the holder for any income tax payable by such holder as a result
of such issuance.
(e) Legends. All certificates representing Conversion Shares
shall bear a conspicuous legend stating in substance:
"THE SHARES EVIDENCED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR QUALIFIED UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED OR QUALIFIED THEREUNDER OR
AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION IS AVAILABLE."
The Company shall, upon the request of any holder of a stock
certificate representing Conversion Shares and the surrender of such
certificate, issue a new stock certificate without such legend if (i) the
stock evidenced by such certificate has been effectively registered under the
Securities Act and qualified under any applicable state securities law and
sold by the holder thereof in accordance with such registration and
qualification or (ii) such holder shall have delivered to the Company a legal
opinion reasonably satisfactory to the Company to the effect that the
restrictions set forth herein are no longer required or necessary under the
Securities Act or any applicable state law.
6. Subordination.
(a) The Company irrevocably covenants and agrees, and the
Holder of this Note, by its acceptance thereof, irrevocably covenants and
agrees, that the payment of the principal of and interest on this Note is
hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, to the prior payment and/or cancellation (as shall be appropriate)
in full of all Senior Indebtedness (as defined herein). The provisions of
this Section 6 are made for the benefit of the holders of Senior
Indebtedness, and such holders shall, at any time, be entitled to enforce
such provisions against the Company or Noteholder. No holder of any Senior
Indebtedness shall be deemed to owe any fiduciary duty or any other
obligation to any Holder of this Note now or at any time hereafter.
Notwithstanding anything herein contained to the contrary, all the provisions
of this Note shall, except as otherwise provided herein, be subject to the
provisions of this Section 6, so far as the same may be applicable thereto.
(b) For purposes of this Section 6 (and subject to Section
2.06 of the Securities Purchase Agreement), "Senior Indebtedness" shall mean
any indebtedness, liability or obligation, contingent or otherwise, other
than that arising pursuant to this Note, of the Company (any such
indebtedness, liability or obligation being hereinafter in this definition
referred to as an "Obligation") (i) which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness
for the purposes hereof in the instrument creating or evidencing the
Company's liability with respect to such Obligations or (ii) any increases,
guarantees, refundings, renewals, rearrangements or extensions of and
amendments, modifications and supplements to any indebtedness, liability or
obligation described in clause (i) above.
8. No Assignment. This Note may not be assigned by the Payee
without the prior written consent of the Company.
9. Governing Law. This Note shall be construed in accordance
with, and governed by, the laws of the Commonwealth of Massachusetts as
applied to contracts made and to be performed entirely in the Commonwealth of
Massachusetts without regard to principles of conflicts of law. Each of the
parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the Commonwealth of Massachusetts or
any federal court sitting in the Commonwealth of Massachusetts for purposes
of any suit, action or other proceeding arising out of this Note (and agrees
not to commence any action, suit or proceedings relating hereto except in
such courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Note, which is
brought by or against it, in the courts of the Commonwealth of Massachusetts
or any federal court sitting in the Commonwealth of Massachusetts and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
10. Adjustment of Interest Rate. No provision of this Note shall
require the payment of interest to the extent that receipt of any such
payment by the Company would be contrary to the provisions of law applicable
to the Company limiting the maximum amount of interest that may be charged to
or collected from the Company, and if any sum in excess of such maximum rate
of interest is paid or charged, the excess will be deemed to have been a
prepayment of principal of this Note when paid, without premium or penalty,
and all payments made thereafter will be appropriately applied to interest
and principal to give effect to such maximum rate, and after such application
any excess shall be immediately refunded to the Company.
PAMET SYSTEMS, INC.
By: _________________________________
Name: David T. McKay
Title: President & CEO
Attested:
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
[Form of Conversion Notice]
To Pamet Systems, Inc.:
The undersigned registered holder (the "Payee") of the Note in
the principal amount indicated below and bearing the certificate number
indicated below (the "Note"), hereby irrevocably exercises its right to
convert the principal amount of the Note indicated herein into shares of
common stock, par value $.01 per share, of Pamet Systems, Inc. (the
"Company"), in accordance with the terms of the Note, and directs that the
shares issuable and deliverable upon such conversion together with a check in
payment for fractional shares, be issued and delivered to the Payee unless a
different name has been indicated below. If shares are to be issued in the
name of a person other than the Payee (such person being referred to as the
"Transferee"), the Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company and duly executed
by the undersigned, and the undersigned will pay all transfer taxes payable
with respect thereto. In addition, the Transferee must sign this notice. All
capitalized terms used in this notice and not otherwise defined shall have
the respective meanings ascribed to them in the Note.
The Payee, or in the event a Transferee shall receive the
Conversion Shares issued upon conversion of this Note, the Transferee, hereby
represents and warrants to the Company that (i) he has sufficient knowledge
and experience in financial and business matters to be capable of evaluating
the merits and risks of an investment in the Company, (ii) he is acquiring
the Conversion Shares for its own account for investment and not with a view
to, or for distribution or sale in connection with any public offering in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
(iii) he understands that (x) the Conversion Shares will not have been
registered for sale under the Securities Act or qualified under applicable
state securities laws and may not be resold without registration under the
Securities Act and qualification under any applicable state securities law,
(y) such Conversion Shares will be issued to him pursuant to one or more
exemptions from the registration or qualification requirements of the
Securities Act and that the representations and warranties contained herein
are given with the intention that the Company may rely thereon for purposes
of claiming such exemptions and (z) the Conversion Shares shall contain a
legend substantially as set forth in Section 5(e) of the Note, (iv) he is an
"accredited investor" as defined in Section 501 of Regulation D promulgated
under the Securities Act, (v) he understands he must bear the economic risk
of Conversion Shares issued upon conversion of the Note for an indefinite
period of time as the Conversion Shares cannot be sold unless registered
under the Securities Act and any other applicable state securities laws or
sold in a transaction exempt from such registration thereunder and (vi)
representatives of the Company have (x) fully and satisfactorily answered any
questions which he deemed to ask concerning the Company and (y) furnished him
with such additional information and documents regarding the Company as he
has reasonably requested.
Principal amount of Note to be converted: $________________
Certificate Number of Note: __
Print name, address (including zip code) and social security or other
taxpayer identification number of the person in whose name the Common Stock
will be issued:
_________________________________
_________________________________
_________________________________
(Zip Code)
_________________________________
Social Security or other
Taxpayer Identification
Number
Dated:___________________________ _________________________
Signature of Noteholder
Dated:___________________________ _________________________
Signature of Transferee
<PAGE>
EXHIBIT 4.11
LW - 005
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY
WITHHELD) THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on December 7, 2003.
WARRANT TO PURCHASE COMMON STOCK
OF
PAMET SYSTEMS, INC.
FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a
Massachusetts corporation, hereby certifies that Mr. Gene Raphalean, an
individual with his address at 19891 Robin Way, Saratoga, CA 95070, or his
permitted assigns, is entitled to purchase from the Company, at any time or
from time to time commencing December 8, 1998, and prior to 5:00 P.M.,
Eastern Standard Time, on December 7, 2003, a total of Twenty Thousand
(20,000) fully paid and nonassessable shares of Common Stock, par value $.01
per share, of the Company for an aggregate purchase price of Fifty Thousand
Dollars ($50,000) (computed on the basis of $2.50 per share). (Hereinafter,
(i) said Common Stock, together with any other equity securities which may be
issued by the Company with respect thereto or in substitution therefor, is
referred to as the "Common Stock," (ii) the shares of the Common Stock
purchasable hereunder are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred
to as the "Aggregate Warrant Price," (iv) the price payable hereunder for
each of the Warrant Shares is referred to as the "Per Share Warrant Price,"
(v) this Warrant, and all warrants hereafter issued in exchange or
substitution for this Warrant are referred to as the "Warrant" and (vi) the
holder of this Warrant is referred to as the "Holder.") The number of Warrant
Shares for which this Warrant is exercisable is subject to adjustment as
hereinafter provided.
This Warrant is issued by the Company pursuant to the Securities
Purchase Agreement, dated as of the date hereof, among the Company and Mr.
Gene Raphalean (the "Securities Purchase Agreement"). Capitalized terms used
but not defined shall have the respective meanings ascribed to them in the
Securities Purchase Agreement.
1. Exercise of Warrant.
(a) This Warrant may be exercised, in whole at any time or in
part from time to time, commencing December 8, 1998, and prior to 5:00 P.M.,
Eastern Standard Time, on December 7, 2003, by the Holder of this Warrant by
the surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 9(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part.
(b) The Aggregate Warrant Price or Per Share Warrant Price
shall be paid in cash by certified or official bank check payable to the
order of the Company.
(c) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which
the Warrant shall have been surrendered to the Company as provided in
subsection 1(a) above (an "Exercise Date"). At such time, the person or
persons in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in subsection 1(d) below shall be
deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.
(d) If this Warrant is exercised in part, the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the shares of the
Common Stock to which the Holder shall be entitled, and (b) deliver the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of the Warrant.
(e) No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. 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
fair value of a share.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock as
from time to time shall be receivable upon the exercise of this Warrant.
3. Adjustments.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the number of Warrant Shares for
which this Warrant may be exercised shall be adjusted so that if the Holder
surrendered this Warrant for exercise after such action the Holder would be
entitled to receive the number of shares of Common Stock or other capital
stock of the Company which he would have been entitled to receive had such
Warrant been exercised immediately prior to such action. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection (a), the Holder of this Warrant shall become
entitled to receive shares of two or more classes of capital stock or shares
of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in
a written notice to the Holder of this Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock.
(b) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company
is the continuing corporation, or in case of any sale or conveyance to
another entity of the property of the Company as an entirety or substantially
as an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a
merger of a third corporation into the Company), the holder shall have the
right thereafter to exercise this Warrant for the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such Warrant been exercised immediately
prior to the effective date of such consolidation, merger, statutory
exchange, sale or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in
this Section 3 with respect to the rights and interests thereafter of the
Holder to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of this Warrant. The above
provisions of this subsection (b) shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances. Notice of
any such consolidation, merger, statutory exchange, sale or conveyance and of
said provisions so proposed to be made, shall be mailed to the Holder not
less than 30 days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing
purposes.
(c) In the event of any adjustment to the number of Warrant
Shares issuable upon exercise of this Warrant, the Per Share Warrant Price
shall be adjusted by multiplying the Per Share Warrant Price in effect
immediately prior to such adjustment by a fraction the numerator of which is
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment and the denominator of which
is the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately after such adjustment.
(d) Whenever the Per Share Warrant Price is adjusted as
provided in this Warrant and upon any modification of the rights of the
Holder of this Warrant in accordance with this Section 3, the Company shall
promptly prepare a certificate of an officer of the Company, setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause a
copy of such certificate to be mailed to the Holder.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the proper exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. Subject to Section 5(e) hereof, the Company
further covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issuance of any Warrant Shares or certificates
therefor. The Holder covenants and agrees that it shall pay, when due and
payable, any and all federal, state and local income or similar taxes that
may be payable in respect of the issuance of any Warrant Shares or
certificates therefor.
5. Transfer
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be transferred, sold,
pledged, hypothecated or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer this
Warrant or any of the Warrant Shares issued, the Holder must give the Company
prior written notice of such proposed transfer including the name and address
of the proposed transferee. Such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel acceptable to the Company to the effect that the proposed
transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules and regulations promulgated under either such act, or to the effect
that the Warrant or Warrant Shares to be sold or transferred have been
registered under the Securities Act of 1933, as amended, and that there is in
effect a current prospectus meeting the requirements of Subsection 11(a) of
the Securities Act, which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Warrant or Warrant Shares to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer (including, without limitation, a transfer by will or pursuant to
the laws of descent and distribution), and as a condition thereto, if such
transfer is not made pursuant to an effective registration statement under
the Securities Act, the Holder will, if requested by the Company, deliver to
the Company (i) an investment covenant, in form and substance equivalent to
that signed by the original Holder of this Warrant, signed by the proposed
transferee, (ii) an agreement by such transferee to the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement
by such transferee that the Company may place a "stop transfer order" with
its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 5, and the
Holder hereby agrees to indemnify and hold harmless the Company, its
representatives and each officer and director thereof from and against any
and all loss, damage or liability (including all attorneys' fees and costs
incurred in enforcing this indemnity provision) due to or arising out of (a)
the inaccuracy of any representation or the breach of any warranty of the
Holder contained in, or any other breach by the Holder of, this Warrant, (b)
any transfer of the Warrant or (c) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to counsel to
the Company upon which its opinion as to a proposed transfer shall have been
based.
(d) Transfer. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any, with assignment
documentation duly executed and funds sufficient to pay any transfer tax, and
upon compliance with the foregoing provisions, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named
in such instrument of assignment, and this Warrant shall promptly be
canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act, upon exercise of any
part of the Warrant and the issuance of any of the Warrant Shares, the
Company shall instruct its transfer agent to enter stop transfer orders with
respect to such shares, and all certificates representing Warrant Shares
shall bear on the face thereof substantially the following legend, insofar as
is consistent with Massachusetts law:
"The shares of common stock represented
by this certificate have not been registered
under the Securities Act of 1933, as amended,
and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless
registered pursuant to the provisions of that
Act or an opinion of counsel to the Company is
obtained stating that such disposition is in
compliance with an available exemption from such
registration."
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
7. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
8. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 1000 Main Street, Acton, Massachusetts 01720,
or such other address as the Company has designated in writing to the Holder,
or
(b) the Holder at the address contained in the first paragraph of
this Warrant, or such other address as the Holder has designated in writing
to the Company.
9. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, PAMET SYSTEMS, INC., has caused this Warrant
to be signed by a duly authorized officer as of this 8th day of December,
1998.
ATTEST: PAMET SYSTEMS, INC.
_______________________ By:___________________________________
Name: David T. McKay
Title: President
<PAGE>
SUBSCRIPTION
The undersigned, __________________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of _________________________ shares of the Common Stock of PAMET
SYSTEMS, INC. covered by said Warrant, and makes payment therefor in full at
the price per share provided by said Warrant.
Dated __________________ Signature__________________________
Address____________________________
____________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer said Warrant on the books of
PAMET SYSTEMS, INC.
Dated __________________ Signature_________________________
Address___________________________
___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and transfers
unto _________________________ the right to purchase
_________________________ shares of the Common Stock of PAMET SYSTEMS, INC.
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer that part of said Warrant on
the books of PAMET SYSTEMS, INC.
Dated ___________________ Signature__________________________
Address____________________________
____________________________
<PAGE>
EXHIBIT 4.12
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of December 9, 1998 by and between PAMET SYSTEMS, INC., a
Massachusetts corporation whose principal place of business is 1000 Main
Street, Acton, Massachusetts 01720 (the "Company"), and Mr. Donald M.
Liddell, Jr. (the "Purchaser"), (at the direction of D. Roger B. Liddell
having power of attorney, a copy of which is attached to this document), an
individual with his address at Ingalls & Snyder, LLC, 61 Broadway, New York,
NY 10006.
WHEREAS, the Company is desirous of selling, and the Purchaser is
desirous of acquiring, (i) a convertible promissory note in substantially the
form attached hereto as Exhibit A in the principal amount of One Hundred
Thousand Dollars ($100,000) (the "Note") and (ii) a five-year warrant (the
"Warrant") in substantially the form attached hereto as Exhibit B to purchase
up to Forty Thousand (40,000) shares ("Warrant Shares") of the common stock,
par value $.01 per share (the "Common Stock"), of the Company (the Note and
the Warrant together sometimes hereinafter are referred to as the
"Securities"), on the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the promises and of the
mutual obligations hereinafter set forth, and for such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchaser hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE NOTES AND WARRANTS; CLOSINGS
Section 1.01 Purchase and Sale of the Notes and Warrants.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company agrees to issue and sell to the Purchaser at the
Closing, and the Purchaser agrees to purchase from the Company at the
Closing, the Note and the Warrant for an aggregate purchase price of One
Hundred Thousand Dollars ($100,000) (the "Purchase Price").
(b) The exercise price per share of the Warrant and the
conversion price per share of the Note to be issued at the Closing shall
initially be set at Two Dollars and Fifty Cents ($2.50).
Section 1.02 Closing. The sale of the Securities by the Company
to the Purchaser shall take place on December 9, 1998 at the offices of the
Company or at such other place and time as may be agreed upon by the
Purchaser and the Company (the "Closing"). At the Closing, the Company shall
deliver to the Purchaser certificates evidencing the Securities against
payment of the Purchase Price for the Securities, by certified or official
bank check or wire transfer of immediately available funds to an account
designated by the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with,
the Purchaser, as of the date hereof and as of the date of each Closing, as
follows:
Section 2.01 Incorporation and Corporate Existence. The Company
is a corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has all necessary
corporate power and authority to own, operate or lease the properties and
assets now owned, operated or leased by the Company and to carry on the
business of the Company, as it is now being conducted.
Section 2.02 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The Company has taken all necessary
corporate action to authorize the execution, delivery and performance by it
of this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, and
assuming due execution and delivery of the Agreement by the Purchaser, this
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency (including,
without limitation, all laws relating to fraudulent transfers), moratorium or
similar laws affecting creditors' rights and remedies generally, subject, as
to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law) and subject to the effect of applicable securities laws as to rights to
indemnification.
Section 2.03 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not (i) require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Company from performing any of its
material obligations under this Agreement and would not have a material
adverse effect on the Company; (ii) conflict with or violate the charter or
by-laws of the Company; or (iii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to the Company, except as would not prevent the Company from
performing any of its material obligations under this Agreement and would not
have a material adverse effect on the Company.
Section 2.04 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Company,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Company's ability to consummate the
transactions contemplated hereby.
Section 2.05 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to, and agrees with,
the Company, as of the date hereof and as of each Closing, as follows:
Section 3.01 Authority. The Purchaser has all necessary power and
authority to execute and deliver this Agreement, to purchase the Securities
from the Company and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and, and
assuming due authorization, execution and delivery of the Agreement by the
Company, this Agreement constitutes a legal, valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), moratorium or similar laws affecting creditors' rights and
remedies generally, subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) and subject to the effect of applicable
securities laws as to rights to indemnification.
Section 3.02 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Purchaser do not, and the performance
of this Agreement by the Purchaser will not (i) require any consent,
approval, authorization or other action by, or filing with or notification
to, any governmental or regulatory authority, except where the failure to
obtain such consent, approval, authorization or action, or to make such
filing or notification, would not prevent the Purchaser from performing any
of its material obligations under this Agreement; or (ii) except as would not
prevent the Purchaser from performing any of its material obligations under
this Agreement, conflict with or violate any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to the
Purchaser.
Section 3.03 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Purchaser,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
Section 3.04 Investment Purpose; Legend; Private Placement.
(a) The Purchaser is acquiring the Securities solely for the
purpose of investment and not with a view to, or for offer or sale in
connection with, any distribution thereof.
(b) The Purchaser acknowledges that neither the Securities
nor the Warrant Shares are registered under the Securities Act and that none
of the Securities or the Warrant Shares may be transferred or sold except
pursuant to the registration provisions of the Securities Act or pursuant to
an applicable exemption therefrom and subject to state securities laws and
regulations, as applicable. The Purchaser acknowledges that the certificates
evidencing the Securities and the Warrant Shares shall contain a legend
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND SUCH SECURITIES MAY NOT BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY (WHICH
ACCEPTANCE SHALL NOT BE UNREASONABLY WITHHELD) THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Purchaser acknowledges that the Securities involve a
great deal of risk and that there is a limited or no market for the
Securities and the Warrant Shares. The Purchaser is able to (i) bear the
economic risk of the investment in the Company, (ii) afford a complete loss
of such investment, and (iii) hold indefinitely the Securities. In reaching
an informed decision to invest in the Company, the Purchaser has sufficient
information to evaluate the merits and risks of an investment in the
Securities of the Company. In that connection, (x) the Purchaser has received
(A) the Company's proxy statement, dated May 14, 1998, for the Company's 1998
annual meeting of stockholders, (B) the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, as amended to date, and (C) the
Company's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998 and (y) representatives of the
Company have (A) fully and satisfactorily answered any questions which duly
authorized representatives of the Purchaser desired to ask concerning the
Company, and (B) furnished the Purchaser with any additional information or
documents requested to verify the accuracy of or supplement any information
previously delivered to or discussed with duly authorized representatives of
the Purchaser.
(d) The address of the Purchaser set forth on page 1 of this
Agreement is the true and correct address of the Purchaser and the Purchaser
has no present intention of becoming a resident or domiciliary of any other
state or jurisdiction.
Section 3.05 Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under
the Securities Act because (please check as appropriate):
[ ] (a) the Purchaser is an individual whose net worth, either
individually or with his spouse, exceeds $1,000,000 on the date hereof;
[ ] (b) the Purchaser is an individual whose individual income
exceeded $200,000 in each of the two previous years or whose joint income
with his spouse exceeded $300,000 in each of the three previous years, and
has a reasonable expectation of reaching the same income level in the current
year;
[ ] (c) the Purchaser is a corporation, partnership or
Massachusetts or similar business trust, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000; or
[ ] (d) the investor hereby certifies that it is an accredited
investor because it is an entity in which each of the equity owners qualifies
as an accredited investor under items (a), (b) or (c) above.
Section 3.06 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
Section 3.07 No General Solicitation. The Securities were not
offered or sold by any form of general solicitation or general advertising.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Expenses. The Purchaser hereby agrees that all fees
and expenses incurred by the Purchaser in connection with this Agreement
shall be borne by the Purchaser, and the Company hereby agrees that all fees
and expenses incurred by the Company shall be borne by the Company, in each
case including without limitation all fees and expenses of such party's
counsel and accountants.
Section 4.02 Public Announcements. Except as required by law,
neither the Company nor the Purchaser shall make any public announcements in
respect of this Agreement or the transactions contemplated herein or
otherwise communicate with any news media without prior notification to the
other party.
Section 4.03 Survival of Representations and Warranties. All
representations and warranties contained herein shall survive the execution
and delivery of this Agreement, the Closings and any investigation at any
time made by or on behalf of either party hereto.
Section 4.04 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any prior oral or written agreement between the
parties.
Section 4.05 No Third-Party Beneficiaries; Assignment. This
Agreement is for the sole benefit of and binding upon the parties hereto and
their permitted successors and assigns and nothing herein, express or
implied, is intended to or shall confer upon any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns, and shall inure to the
benefit of and be enforceable by the parties hereof and their respective
successors and assigns.
Section 4.06 Amendment. This Agreement may be amended or modified
only by an instrument in writing signed by the Company and the Purchaser.
Section 4.07 Counterparts. This Agreement may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
Section 4.08 Gender and Number; Headings. Whenever used in this
Agreement, the singular number shall include the plural, the plural the
singular, and the use of any gender shall be applicable to all genders. The
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement
Section 4.09 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth
of Massachusetts without giving effect to the principles of conflicts of laws
thereof. The Company and the Purchaser hereby consent to the jurisdiction of
the state and federal courts of the Commonwealth of Massachusetts for all
disputes arising under this Agreement.
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be executed as of the date first written above.
PAMET SYSTEMS, INC.
Attest:__________________________ By:_____________________________
Name: Name: David T. McKay
Title: Title: President & CEO
Corporate Seal
____________________________________
By:_____________________________
Name: Mr. D. Roger B. Liddell
Title: Power of Attorney
<PAGE>
No. L-006
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL
AMOUNT OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD
TO MATURITY ON THE ISSUE DATE IS RICHARD C. BECKER, (978)-263-2060.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
$100,000 Acton, Massachusetts
December 10, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts
corporation (the "Company"), hereby promises to pay to Mr. Donald M. Liddell,
Jr. ("Payee"), (at the direction of Mr. D. Roger B. Liddell having power of
attorney), an individual with his address at Ingalls & Snyder, LLC, 61
Broadway, New York, NY 10006, the principal sum of One Hundred Thousand
Dollars ($100,000), on the dates and in the amounts hereinafter set forth.
This Promissory Note is issued by the Company pursuant to the Securities
Purchase Agreement, dated as of the date hereof, among the Company and Payee
(the "Securities Purchase Agreement"). Capitalized terms used but not defined
shall have the respective meanings ascribed to them in the Securities
Purchase Agreement. This Promissory Note is hereinafter referred to as this
"Note."
1. Principal and Maturity Date. The principal amount of this Note
outstanding together with all accrued interest hereon shall be due and
payable on December 9, 2000 (the "Maturity Date").
2. Interest. The outstanding principal amount of this Note shall
accrue interest at the per annum rate of eleven percent (11.0%) through the
earlier of the date of repayment or conversion (in each case computed on the
basis of a 365 day year and actual days elapsed). Interest shall be payable
in full on the Maturity Date with respect to the principal amount of the Note
then outstanding. No interest shall be deemed to have accrued or be payable
on any portion of this Note which is Converted on or prior to the Maturity
Date.
3. Prepayment. This Note may be prepaid, in whole or in part,
without penalty or premium upon not less than thirty (30) days prior written
notice from the Company to the Payee, at any time or from time to time. All
prepayments made on this Note shall be applied first to the payment of all
unpaid interest accrued on this Note, and then to the outstanding and unpaid
principal amount of this Note as of the date of the payment. Prepayment, in
whole or in part, shall be noted in the accounting records of the Company.
4. General Payment Provisions. All payments or prepayments of
principal and interest and other sums due pursuant to this Note shall be made
by check payable to the Payee at the address set forth above or at such other
address as Payee shall have previously designated to the Company in writing
not later than two Business Days (as defined below) prior to the date on
which such payment becomes due.
If the due date of any payment under this Note would otherwise
fall on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day and interest shall be payable at the rate
set forth herein for the period of the extension. The term "Business Day"
shall mean any day on which commercial banks in the State of New York are not
authorized or required to close.
5. Conversion; Prepayment.
(a) Conversion/Prepayment and Conversion Price. The Payee may,
subject to the terms and conditions of this Section 5, at any time, or from
time to time, exercise its right to convert this Note to Common Stock by
delivering a duly executed notice, in the form substantially similar to
Exhibit A hereto, of such intention to the Company (the "Conversion Notice");
provided, however, that if, and to the extent, this Note or any portion
thereof is called for prepayment, the holder may exercise its right to
convert to Common Stock such portion of this Note as was called for
prepayment.
The Payee shall have the right, subject to the terms and
conditions of this Section 5, to, no more frequently than four times per
annum in the aggregate, convert all or any part of the principal amount then
outstanding under this Note (the "Note Amount"), in an amount not less than
$25,000 (or such lesser amount as may then be outstanding), into that number
of fully-paid and nonassessable shares of Common Stock (the "Conversion
Shares"), obtained by dividing the Note Amount or such portion thereof
presented for conversion by the Conversion Price. The "Conversion Price"
shall initially be $2.50 per share of Common Stock.
Upon a partial conversion or prepayment of this Note, the Company
shall execute and deliver to or on the order of the holder hereof, a new Note
or Notes of authorized denominations in principal amount equal to the
unconverted or unredeemed, as the case may be, portion of this Note.
(b) Issuance of Common Stock on Conversion. In order to effect
the conversion of this Note, the Payee shall deliver to the Company at its
principal office, this Note and a duly executed Conversion Notice; provided,
however, that if the Payee desires to convert the Note on the Maturity Date,
Payee shall notify the Company in writing of its intention to convert the
Note at least five (5) days prior to the Maturity Date. The date upon which
the Company receives the Conversion Notice, the Note and any other
documentation required under this Section 5 of this Note or the Conversion
Notice shall be referred to herein as the "Effective Date." Upon the
Effective Date, this Note (or portion thereof) shall be deemed converted into
shares of Common Stock in accordance with this Section 5, at which time the
rights of the Payee with respect to this Note and the amount so converted
shall cease and, subject to the following provisions of this paragraph, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note (or portion thereof) shall be treated for all
purposes as having become the record holder or holders of such Common Stock.
As promptly as practicable after the Effective Date, the Company shall
deliver or cause to be delivered to the Payee, at the address set forth above
or at such other address as the Payee shall designate in writing,
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which this Note (or portion thereof), shall be converted
in accordance with the provisions of this Section 5. If this Note is called
for prepayment it may be converted as provided herein up to and including the
close of business on the business day preceding the date of prepayment.
No fractional shares of Common Stock shall be issued upon
conversion of this Note (or portion thereof). In lieu of any fractional share
of Common Stock which would otherwise be issuable upon conversion of this
Note (or portion thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to such fraction multiplied by the
Conversion Price.
(c) Reserves. The Company covenants that it will at all times
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and nonassessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of this Note at the time outstanding.
(d) Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of
this Note, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid;
and provided, further, that in no event shall the Company be required to pay
or reimburse the holder for any income tax payable by such holder as a result
of such issuance.
(e) Legends. All certificates representing Conversion Shares
shall bear a conspicuous legend stating in substance:
"THE SHARES EVIDENCED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR QUALIFIED UNDER ANY STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE."
The Company shall, upon the request of any holder of a stock
certificate representing Conversion Shares and the surrender of such
certificate, issue a new stock certificate without such legend if (i) the
stock evidenced by such certificate has been effectively registered under the
Securities Act and qualified under any applicable state securities law and
sold by the holder thereof in accordance with such registration and
qualification or (ii) such holder shall have delivered to the Company a legal
opinion reasonably satisfactory to the Company to the effect that the
restrictions set forth herein are no longer required or necessary under the
Securities Act or any applicable state law.
6. Subordination.
(a) The Company irrevocably covenants and agrees, and the
Holder of this Note, by its acceptance thereof, irrevocably covenants and
agrees, that the payment of the principal of and interest on this Note is
hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, to the prior payment and/or cancellation (as shall be appropriate)
in full of all Senior Indebtedness (as defined herein). The provisions of
this Section 6 are made for the benefit of the holders of Senior
Indebtedness, and such holders shall, at any time, be entitled to enforce
such provisions against the Company or Noteholder. No holder of any Senior
Indebtedness shall be deemed to owe any fiduciary duty or any other
obligation to any Holder of this Note now or at any time hereafter.
Notwithstanding anything herein contained to the contrary, all the provisions
of this Note shall, except as otherwise provided herein, be subject to the
provisions of this Section 6, so far as the same may be applicable thereto.
(b) For purposes of this Section 6 (and subject to Section
2.06 of the Securities Purchase Agreement), "Senior Indebtedness" shall mean
any indebtedness, liability or obligation, contingent or otherwise, other
than that arising pursuant to this Note, of the Company (any such
indebtedness, liability or obligation being hereinafter in this definition
referred to as an "Obligation") (i) which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness
for the purposes hereof in the instrument creating or evidencing the
Company's liability with respect to such Obligations or (ii) any increases,
guarantees, refundings, renewals, rearrangements or extensions of and
amendments, modifications and supplements to any indebtedness, liability or
obligation described in clause (i) above.
8. No Assignment. This Note may not be assigned by the Payee
without the prior written consent of the Company.
9. Governing Law. This Note shall be construed in accordance
with, and governed by, the laws of the Commonwealth of Massachusetts as
applied to contracts made and to be performed entirely in the Commonwealth of
Massachusetts without regard to principles of conflicts of law. Each of the
parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the Commonwealth of Massachusetts or
any federal court sitting in the Commonwealth of Massachusetts for purposes
of any suit, action or other proceeding arising out of this Note (and agrees
not to commence any action, suit or proceedings relating hereto except in
such courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Note, which is
brought by or against it, in the courts of the Commonwealth of Massachusetts
or any federal court sitting in the Commonwealth of Massachusetts and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
10. Adjustment of Interest Rate. No provision of this Note shall
require the payment of interest to the extent that receipt of any such
payment by the Company would be contrary to the provisions of law applicable
to the Company limiting the maximum amount of interest that may be charged to
or collected from the Company, and if any sum in excess of such maximum rate
of interest is paid or charged, the excess will be deemed to have been a
prepayment of principal of this Note when paid, without premium or penalty,
and all payments made thereafter will be appropriately applied to interest
and principal to give effect to such maximum rate, and after such application
any excess shall be immediately refunded to the Company.
PAMET SYSTEMS, INC.
By: ____________________________
Name: David T. McKay
Title: President & CEO
Attested:
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
[Form of Conversion Notice]
To Pamet Systems, Inc.:
The undersigned registered holder (the "Payee") of the Note in
the principal amount indicated below and bearing the certificate number
indicated below (the "Note"), hereby irrevocably exercises its right to
convert the principal amount of the Note indicated herein into shares of
common stock, par value $.01 per share, of Pamet Systems, Inc. (the
"Company"), in accordance with the terms of the Note, and directs that the
shares issuable and deliverable upon such conversion together with a check in
payment for fractional shares, be issued and delivered to the Payee unless a
different name has been indicated below. If shares are to be issued in the
name of a person other than the Payee (such person being referred to as the
"Transferee"), the Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company and duly executed
by the undersigned, and the undersigned will pay all transfer taxes payable
with respect thereto. In addition, the Transferee must sign this notice. All
capitalized terms used in this notice and not otherwise defined shall have
the respective meanings ascribed to them in the Note.
The Payee, or in the event a Transferee shall receive the
Conversion Shares issued upon conversion of this Note, the Transferee, hereby
represents and warrants to the Company that (i) he has sufficient knowledge
and experience in financial and business matters to be capable of evaluating
the merits and risks of an investment in the Company, (ii) he is acquiring
the Conversion Shares for its own account for investment and not with a view
to, or for distribution or sale in connection with any public offering in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
(iii) he understands that (x) the Conversion Shares will not have been
registered for sale under the Securities Act or qualified under applicable
state securities laws and may not be resold without registration under the
Securities Act and qualification under any applicable state securities law,
(y) such Conversion Shares will be issued to him pursuant to one or more
exemptions from the registration or qualification requirements of the
Securities Act and that the representations and warranties contained herein
are given with the intention that the Company may rely thereon for purposes
of claiming such exemptions and (z) the Conversion Shares shall contain a
legend substantially as set forth in Section 5(e) of the Note, (iv) he is an
"accredited investor" as defined in Section 501 of Regulation D promulgated
under the Securities Act, (v) he understands he must bear the economic risk
of Conversion Shares issued upon conversion of the Note for an indefinite
period of time as the Conversion Shares cannot be sold unless registered
under the Securities Act and any other applicable state securities laws or
sold in a transaction exempt from such registration thereunder and (vi)
representatives of the Company have (x) fully and satisfactorily answered any
questions which he deemed to ask concerning the Company and (y) furnished him
with such additional information and documents regarding the Company as he
has reasonably requested.
Principal amount of Note to be converted: $________________
Certificate Number of Note: __
Print name, address (including zip code) and social security or other
taxpayer identification number of the person in whose name the Common Stock
will be issued:
_________________________________
_________________________________
_________________________________
(Zip Code)
_________________________________
Social Security or other
Taxpayer Identification
Number
Dated:___________________________ ____________________________
Signature of Noteholder
Dated:___________________________ ____________________________
Signature of Transferee
<PAGE>
EXHIBIT 4.13
LW - 006
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY
WITHHELD) THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on December 9, 2003.
WARRANT TO PURCHASE COMMON STOCK
OF
PAMET SYSTEMS, INC.
FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a
Massachusetts corporation, hereby certifies that Mr. Donald M. Liddell, Jr.,
(at the direction of D. Roger B. Liddell having power of attorney), an
individual with his address at Ingalls & Snyder, LLC, 61 Broadway, New York,
NY 10006, or his permitted assigns, is entitled to purchase from the Company,
at any time or from time to time commencing December 10, 1998, and prior to
5:00 P.M., Eastern Standard Time, on December 9, 2003, a total of Forty
Thousand (40,000) fully paid and nonassessable shares of Common Stock, par
value $.01 per share, of the Company for an aggregate purchase price of One
Hundred Thousand Dollars ($100,000) (computed on the basis of $2.50 per
share). (Hereinafter, (i) said Common Stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares
of the Common Stock purchasable hereunder are referred to as the "Warrant
Shares," (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price," (iv) the price
payable hereunder for each of the Warrant Shares is referred to as the "Per
Share Warrant Price," (v) this Warrant, and all warrants hereafter issued in
exchange or substitution for this Warrant are referred to as the "Warrant"
and (vi) the holder of this Warrant is referred to as the "Holder.") The
number of Warrant Shares for which this Warrant is exercisable is subject to
adjustment as hereinafter provided.
This Warrant is issued by the Company pursuant to the Securities
Purchase Agreement, dated as of the date hereof, among the Company and Mr.
Donald M. Liddell, Jr. (the "Securities Purchase Agreement"). Capitalized
terms used but not defined shall have the respective meanings ascribed to
them in the Securities Purchase Agreement.
1. Exercise of Warrant.
(a) This Warrant may be exercised, in whole at any time or in
part from time to time, commencing December 10, 1998, and prior to 5:00 P.M.,
Eastern Standard Time, on December 9, 2003, by the Holder of this Warrant by
the surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 9(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part.
(b) The Aggregate Warrant Price or Per Share Warrant Price
shall be paid in cash by certified or official bank check payable to the
order of the Company.
(c) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which
the Warrant shall have been surrendered to the Company as provided in
subsection 1(a) above (an "Exercise Date"). At such time, the person or
persons in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in subsection 1(d) below shall be
deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.
(d) If this Warrant is exercised in part, the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the shares of the
Common Stock to which the Holder shall be entitled, and (b) deliver the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of the Warrant.
(e) No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. 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
fair value of a share.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock as
from time to time shall be receivable upon the exercise of this Warrant.
3. Adjustments.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the number of Warrant Shares for
which this Warrant may be exercised shall be adjusted so that if the Holder
surrendered this Warrant for exercise after such action the Holder would be
entitled to receive the number of shares of Common Stock or other capital
stock of the Company which he would have been entitled to receive had such
Warrant been exercised immediately prior to such action. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection (a), the Holder of this Warrant shall become
entitled to receive shares of two or more classes of capital stock or shares
of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in
a written notice to the Holder of this Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock.
(b) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company
is the continuing corporation, or in case of any sale or conveyance to
another entity of the property of the Company as an entirety or substantially
as an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a
merger of a third corporation into the Company), the holder shall have the
right thereafter to exercise this Warrant for the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such Warrant been exercised immediately
prior to the effective date of such consolidation, merger, statutory
exchange, sale or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in
this Section 3 with respect to the rights and interests thereafter of the
Holder to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of this Warrant. The above
provisions of this subsection (b) shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances. Notice of
any such consolidation, merger, statutory exchange, sale or conveyance and of
said provisions so proposed to be made, shall be mailed to the Holder not
less than 30 days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing
purposes.
(c) In the event of any adjustment to the number of Warrant
Shares issuable upon exercise of this Warrant, the Per Share Warrant Price
shall be adjusted by multiplying the Per Share Warrant Price in effect
immediately prior to such adjustment by a fraction the numerator of which is
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment and the denominator of which
is the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately after such adjustment.
(d) Whenever the Per Share Warrant Price is adjusted as
provided in this Warrant and upon any modification of the rights of the
Holder of this Warrant in accordance with this Section 3, the Company shall
promptly prepare a certificate of an officer of the Company, setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause a
copy of such certificate to be mailed to the Holder.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the proper exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. Subject to Section 5(e) hereof, the Company
further covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issuance of any Warrant Shares or certificates
therefor. The Holder covenants and agrees that it shall pay, when due and
payable, any and all federal, state and local income or similar taxes that
may be payable in respect of the issuance of any Warrant Shares or
certificates therefor.
5. Transfer
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be transferred, sold,
pledged, hypothecated or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer this
Warrant or any of the Warrant Shares issued, the Holder must give the Company
prior written notice of such proposed transfer including the name and address
of the proposed transferee. Such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel acceptable to the Company to the effect that the proposed
transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules and regulations promulgated under either such act, or to the effect
that the Warrant or Warrant Shares to be sold or transferred have been
registered under the Securities Act of 1933, as amended, and that there is in
effect a current prospectus meeting the requirements of Subsection 11(a) of
the Securities Act, which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Warrant or Warrant Shares to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer (including, without limitation, a transfer by will or pursuant to
the laws of descent and distribution), and as a condition thereto, if such
transfer is not made pursuant to an effective registration statement under
the Securities Act, the Holder will, if requested by the Company, deliver to
the Company (i) an investment covenant, in form and substance equivalent to
that signed by the original Holder of this Warrant, signed by the proposed
transferee, (ii) an agreement by such transferee to the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement
by such transferee that the Company may place a "stop transfer order" with
its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 5, and the
Holder hereby agrees to indemnify and hold harmless the Company, its
representatives and each officer and director thereof from and against any
and all loss, damage or liability (including all attorneys' fees and costs
incurred in enforcing this indemnity provision) due to or arising out of (a)
the inaccuracy of any representation or the breach of any warranty of the
Holder contained in, or any other breach by the Holder of, this Warrant, (b)
any transfer of the Warrant or (c) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to counsel to
the Company upon which its opinion as to a proposed transfer shall have been
based.
(d) Transfer. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any, with assignment
documentation duly executed and funds sufficient to pay any transfer tax, and
upon compliance with the foregoing provisions, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named
in such instrument of assignment, and this Warrant shall promptly be
canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act, upon exercise of any
part of the Warrant and the issuance of any of the Warrant Shares, the
Company shall instruct its transfer agent to enter stop transfer orders with
respect to such shares, and all certificates representing Warrant Shares
shall bear on the face thereof substantially the following legend, insofar as
is consistent with Massachusetts law:
"The shares of common stock represented by this
certificate have not been registered under the
Securities Act of 1933, as amended, and may not
be sold, offered for sale, assigned, transferred
or otherwise disposed of unless registered pursuant
to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that
such disposition is in compliance with an available
exemption from such registration."
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
7. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
8. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 1000 Main Street, Acton, Massachusetts
01720, or such other address as the Company has designated in writing to the
Holder, or
(b) the Holder at the address contained in the first
paragraph of this Warrant, or such other address as the Holder has designated
in writing to the Company.
9. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, PAMET SYSTEMS, INC., has caused this Warrant
to be signed by a duly authorized officer as of this 28th day of Decmber,
1998.
ATTEST: PAMET SYSTEMS, INC.
_______________________ By:___________________________________
Name: David T. McKay
Title: President & CEO
<PAGE>
SUBSCRIPTION
The undersigned, __________________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of _________________________ shares of the Common Stock of PAMET
SYSTEMS, INC. covered by said Warrant, and makes payment therefor in full at
the price per share provided by said Warrant.
Dated __________________ Signature__________________________
Address____________________________
____________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer said Warrant on the books of
PAMET SYSTEMS, INC.
Dated __________________ Signature_________________________
Address___________________________
___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and transfers
unto _________________________ the right to purchase
_________________________ shares of the Common Stock of PAMET SYSTEMS, INC.
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer that part of said Warrant on
the books of PAMET SYSTEMS, INC.
Dated ___________________ Signature__________________________
Address____________________________
____________________________
<PAGE>
EXHIBIT 4.14
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of December 11, 1998 by and between PAMET SYSTEMS, INC., a
Massachusetts corporation whose principal place of business is 1000 Main
Street, Acton, Massachusetts 01720 (the "Company"), and Mr. Joseph Terrence
Waters (the "Purchaser"), an individual with his address at 60 Bennington
Place, New Canaan CT 06840.
WHEREAS, the Company is desirous of selling, and the Purchaser is
desirous of acquiring, (i) a convertible promissory note in substantially the
form attached hereto as Exhibit A in the principal amount of Fifty Thousand
Dollars ($50,000) (the "Note") and (ii) a five-year warrant (the "Warrant")
in substantially the form attached hereto as Exhibit B to purchase up to
Twenty Thousand (20,000) shares ("Warrant Shares") of the common stock, par
value $.01 per share (the "Common Stock"), of the Company (the Note and the
Warrant together sometimes hereinafter are referred to as the "Securities"),
on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and of the
mutual obligations hereinafter set forth, and for such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchaser hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE NOTES AND WARRANTS; CLOSINGS
Section 1.01 Purchase and Sale of the Notes and Warrants.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company agrees to issue and sell to the Purchaser at the
Closing, and the Purchaser agrees to purchase from the Company at the
Closing, the Note and the Warrant for an aggregate purchase price of Fifty
Thousand Dollars ($50,000) (the "Purchase Price").
(b) The exercise price per share of the Warrant and the
conversion price per share of the Note to be issued at the Closing shall
initially be set at Two Dollars and Fifty Cents ($2.50).
Section 1.02 Closing. The sale of the Securities by the Company
to the Purchaser shall take place on December 11, 1998 at the offices of the
Company or at such other place and time as may be agreed upon by the
Purchaser and the Company (the "Closing"). At the Closing, the Company shall
deliver to the Purchaser certificates evidencing the Securities against
payment of the Purchase Price for the Securities, by certified or official
bank check or wire transfer of immediately available funds to an account
designated by the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with,
the Purchaser, as of the date hereof and as of the date of each Closing, as
follows:
Section 2.01 Incorporation and Corporate Existence. The Company
is a corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has all necessary
corporate power and authority to own, operate or lease the properties and
assets now owned, operated or leased by the Company and to carry on the
business of the Company, as it is now being conducted.
Section 2.02 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The Company has taken all necessary
corporate action to authorize the execution, delivery and performance by it
of this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, and
assuming due execution and delivery of the Agreement by the Purchaser, this
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency (including,
without limitation, all laws relating to fraudulent transfers), moratorium or
similar laws affecting creditors' rights and remedies generally, subject, as
to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law) and subject to the effect of applicable securities laws as to rights to
indemnification.
Section 2.03 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not (i) require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Company from performing any of its
material obligations under this Agreement and would not have a material
adverse effect on the Company; (ii) conflict with or violate the charter or
by-laws of the Company; or (iii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to the Company, except as would not prevent the Company from
performing any of its material obligations under this Agreement and would not
have a material adverse effect on the Company.
Section 2.04 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Company,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Company's ability to consummate the
transactions contemplated hereby.
Section 2.05 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to, and agrees with,
the Company, as of the date hereof and as of each Closing, as follows:
Section 3.01 Authority. The Purchaser has all necessary power and
authority to execute and deliver this Agreement, to purchase the Securities
from the Company and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and, and
assuming due authorization, execution and delivery of the Agreement by the
Company, this Agreement constitutes a legal, valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), moratorium or similar laws affecting creditors' rights and
remedies generally, subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) and subject to the effect of applicable
securities laws as to rights to indemnification.
Section 3.02 Consents and Approvals; No Conflict. The execution
and delivery of this Agreement by the Purchaser do not, and the performance
of this Agreement by the Purchaser will not (i) require any consent,
approval, authorization or other action by, or filing with or notification
to, any governmental or regulatory authority, except where the failure to
obtain such consent, approval, authorization or action, or to make such
filing or notification, would not prevent the Purchaser from performing any
of its material obligations under this Agreement; or (ii) except as would not
prevent the Purchaser from performing any of its material obligations under
this Agreement, conflict with or violate any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to the
Purchaser.
Section 3.03 Absence of Litigation. No claim, action, proceeding
or investigation is pending, or to the best knowledge of the Purchaser,
threatened, which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
Section 3.04 Investment Purpose; Legend; Private Placement.
(a) The Purchaser is acquiring the Securities solely for the
purpose of investment and not with a view to, or for offer or sale in
connection with, any distribution thereof.
(b) The Purchaser acknowledges that neither the Securities
nor the Warrant Shares are registered under the Securities Act and that none
of the Securities or the Warrant Shares may be transferred or sold except
pursuant to the registration provisions of the Securities Act or pursuant to
an applicable exemption therefrom and subject to state securities laws and
regulations, as applicable. The Purchaser acknowledges that the certificates
evidencing the Securities and the Warrant Shares shall contain a legend
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND SUCH SECURITIES MAY NOT BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY (WHICH
ACCEPTANCE SHALL NOT BE UNREASONABLY WITHHELD) THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Purchaser acknowledges that the Securities involve a
great deal of risk and that there is a limited or no market for the
Securities and the Warrant Shares. The Purchaser is able to (i) bear the
economic risk of the investment in the Company, (ii) afford a complete loss
of such investment, and (iii) hold indefinitely the Securities. In reaching
an informed decision to invest in the Company, the Purchaser has sufficient
information to evaluate the merits and risks of an investment in the
Securities of the Company. In that connection, (x) the Purchaser has received
(A) the Company's proxy statement, dated May 14, 1998, for the Company's 1998
annual meeting of stockholders, (B) the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, as amended to date, and (C) the
Company's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998 and (y) representatives of the
Company have (A) fully and satisfactorily answered any questions which duly
authorized representatives of the Purchaser desired to ask concerning the
Company, and (B) furnished the Purchaser with any additional information or
documents requested to verify the accuracy of or supplement any information
previously delivered to or discussed with duly authorized representatives of
the Purchaser.
(d) The address of the Purchaser set forth on page 1 of this
Agreement is the true and correct address of the Purchaser and the Purchaser
has no present intention of becoming a resident or domiciliary of any other
state or jurisdiction.
Section 3.05 Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under
the Securities Act because (please check as appropriate):
[x ] (a) the Purchaser is an individual whose net worth, either
individually or with his spouse, exceeds $1,000,000 on the date hereof;
[ ] (b) the Purchaser is an individual whose individual income
exceeded $200,000 in each of the two previous years or whose joint income
with his spouse exceeded $300,000 in each of the three previous years, and
has a reasonable expectation of reaching the same income level in the current
year;
[ ] (c) the Purchaser is a corporation, partnership or
Massachusetts or similar business trust, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000; or
[ ] (d) the investor hereby certifies that it is an accredited
investor because it is an entity in which each of the equity owners qualifies
as an accredited investor under items (a), (b) or (c) above.
Section 3.06 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
Section 3.07 No General Solicitation. The Securities were not
offered or sold by any form of general solicitation or general advertising.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Expenses. The Purchaser hereby agrees that all fees
and expenses incurred by the Purchaser in connection with this Agreement
shall be borne by the Purchaser, and the Company hereby agrees that all fees
and expenses incurred by the Company shall be borne by the Company, in each
case including without limitation all fees and expenses of such party's
counsel and accountants.
Section 4.02 Public Announcements. Except as required by law,
neither the Company nor the Purchaser shall make any public announcements in
respect of this Agreement or the transactions contemplated herein or
otherwise communicate with any news media without prior notification to the
other party.
Section 4.03 Survival of Representations and Warranties. All
representations and warranties contained herein shall survive the execution
and delivery of this Agreement, the Closings and any investigation at any
time made by or on behalf of either party hereto.
Section 4.04 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any prior oral or written agreement between the
parties.
Section 4.05 No Third-Party Beneficiaries; Assignment. This
Agreement is for the sole benefit of and binding upon the parties hereto and
their permitted successors and assigns and nothing herein, express or
implied, is intended to or shall confer upon any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns, and shall inure to the
benefit of and be enforceable by the parties hereof and their respective
successors and assigns.
Section 4.06 Amendment. This Agreement may be amended or modified
only by an instrument in writing signed by the Company and the Purchaser.
Section 4.07 Counterparts. This Agreement may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
Section 4.08 Gender and Number; Headings. Whenever used in this
Agreement, the singular number shall include the plural, the plural the
singular, and the use of any gender shall be applicable to all genders. The
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement
Section 4.09 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth
of Massachusetts without giving effect to the principles of conflicts of laws
thereof. The Company and the Purchaser hereby consent to the jurisdiction of
the state and federal courts of the Commonwealth of Massachusetts for all
disputes arising under this Agreement.
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be executed as of the date first written above.
PAMET SYSTEMS, INC.
Attest:__________________________ By:_____________________________
Name: Name: David T. McKay
Title: Title: President & CEO
Corporate Seal
____________________________________
By:_____________________________
Name: Mr. Joseph Terrence Waters
Title:
<PAGE>
No. L-004
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL
AMOUNT OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD
TO MATURITY ON THE ISSUE DATE IS RICHARD C. BECKER, (978)-263-2060.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
$50,000 Acton, Massachusetts
December 14, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts
corporation (the "Company"), hereby promises to pay to Mr. Joseph Terrence
Waters ("Payee"), 60 Bennington Place, New Canaan, CT 06840, the principal
sum of Fifty Thousand Dollars ($50,000), on the dates and in the amounts
hereinafter set forth. This Promissory Note is issued by the Company pursuant
to the Securities Purchase Agreement, dated as of the date hereof, among the
Company and Payee (the "Securities Purchase Agreement"). Capitalized terms
used but not defined shall have the respective meanings ascribed to them in
the Securities Purchase Agreement. This Promissory Note is hereinafter
referred to as this "Note."
1. Principal and Maturity Date. The principal amount of this Note
outstanding together with all accrued interest hereon shall be due and
payable on December 13, 2000 (the "Maturity Date").
2. Interest. The outstanding principal amount of this Note shall
accrue interest at the per annum rate of eleven percent (11.0%) through the
earlier of the date of repayment or conversion (in each case computed on the
basis of a 365 day year and actual days elapsed). Interest shall be payable
in full on the Maturity Date with respect to the principal amount of the Note
then outstanding. No interest shall be deemed to have accrued or be payable
on any portion of this Note which is Converted on or prior to the Maturity
Date.
3. Prepayment. This Note may be prepaid, in whole or in part,
without penalty or premium upon not less than thirty (30) days prior written
notice from the Company to the Payee, at any time or from time to time. All
prepayments made on this Note shall be applied first to the payment of all
unpaid interest accrued on this Note, and then to the outstanding and unpaid
principal amount of this Note as of the date of the payment. Prepayment, in
whole or in part, shall be noted in the accounting records of the Company.
4. General Payment Provisions. All payments or prepayments of
principal and interest and other sums due pursuant to this Note shall be made
by check payable to the Payee at the address set forth above or at such other
address as Payee shall have previously designated to the Company in writing
not later than two Business Days (as defined below) prior to the date on
which such payment becomes due.
If the due date of any payment under this Note would otherwise
fall on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day and interest shall be payable at the rate
set forth herein for the period of the extension. The term "Business Day"
shall mean any day on which commercial banks in the State of New York are not
authorized or required to close.
5. Conversion; Prepayment.
(a) Conversion/Prepayment and Conversion Price. The Payee
may, subject to the terms and conditions of this Section 5, at any time, or
from time to time, exercise its right to convert this Note to Common Stock by
delivering a duly executed notice, in the form substantially similar to
Exhibit A hereto, of such intention to the Company (the "Conversion Notice");
provided, however, that if, and to the extent, this Note or any portion
thereof is called for prepayment, the holder may exercise its right to
convert to Common Stock such portion of this Note as was called for
prepayment.
The Payee shall have the right, subject to the terms and
conditions of this Section 5, to, no more frequently than four times per
annum in the aggregate, convert all or any part of the principal amount then
outstanding under this Note (the "Note Amount"), in an amount not less than
$25,000 (or such lesser amount as may then be outstanding), into that number
of fully-paid and nonassessable shares of Common Stock (the "Conversion
Shares"), obtained by dividing the Note Amount or such portion thereof
presented for conversion by the Conversion Price. The "Conversion Price"
shall initially be $2.50 per share of Common Stock.
Upon a partial conversion or prepayment of this Note, the
Company shall execute and deliver to or on the order of the holder hereof, a
new Note or Notes of authorized denominations in principal amount equal to
the unconverted or unredeemed, as the case may be, portion of this Note.
(b) Issuance of Common Stock on Conversion. In order to
effect the conversion of this Note, the Payee shall deliver to the Company at
its principal office, this Note and a duly executed Conversion Notice;
provided, however, that if the Payee desires to convert the Note on the
Maturity Date, Payee shall notify the Company in writing of its intention to
convert the Note at least five (5) days prior to the Maturity Date. The date
upon which the Company receives the Conversion Notice, the Note and any other
documentation required under this Section 5 of this Note or the Conversion
Notice shall be referred to herein as the "Effective Date." Upon the
Effective Date, this Note (or portion thereof) shall be deemed converted into
shares of Common Stock in accordance with this Section 5, at which time the
rights of the Payee with respect to this Note and the amount so converted
shall cease and, subject to the following provisions of this paragraph, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note (or portion thereof) shall be treated for all
purposes as having become the record holder or holders of such Common Stock.
As promptly as practicable after the Effective Date, the Company shall
deliver or cause to be delivered to the Payee, at the address set forth above
or at such other address as the Payee shall designate in writing,
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which this Note (or portion thereof), shall be converted
in accordance with the provisions of this Section 5. If this Note is called
for prepayment it may be converted as provided herein up to and including the
close of business on the business day preceding the date of prepayment.
No fractional shares of Common Stock shall be issued upon
conversion of this Note (or portion thereof). In lieu of any fractional share
of Common Stock which would otherwise be issuable upon conversion of this
Note (or portion thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to such fraction multiplied by the
Conversion Price.
(c) Reserves. The Company covenants that it will at all times
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and nonassessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of this Note at the time outstanding.
(d) Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of
this Note, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid;
and provided, further, that in no event shall the Company be required to pay
or reimburse the holder for any income tax payable by such holder as a result
of such issuance.
(e) Legends. All certificates representing Conversion Shares
shall bear a conspicuous legend stating in substance:
"THE SHARES EVIDENCED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR QUALIFIED UNDER ANY STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED OR
QUALIFIED THEREUNDER OR AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE."
The Company shall, upon the request of any holder of a stock
certificate representing Conversion Shares and the surrender of such
certificate, issue a new stock certificate without such legend if (i) the
stock evidenced by such certificate has been effectively registered under the
Securities Act and qualified under any applicable state securities law and
sold by the holder thereof in accordance with such registration and
qualification or (ii) such holder shall have delivered to the Company a legal
opinion reasonably satisfactory to the Company to the effect that the
restrictions set forth herein are no longer required or necessary under the
Securities Act or any applicable state law.
6. Subordination.
(a) The Company irrevocably covenants and agrees, and the
Holder of this Note, by its acceptance thereof, irrevocably covenants and
agrees, that the payment of the principal of and interest on this Note is
hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, to the prior payment and/or cancellation (as shall be appropriate)
in full of all Senior Indebtedness (as defined herein). The provisions of
this Section 6 are made for the benefit of the holders of Senior
Indebtedness, and such holders shall, at any time, be entitled to enforce
such provisions against the Company or Noteholder. No holder of any Senior
Indebtedness shall be deemed to owe any fiduciary duty or any other
obligation to any Holder of this Note now or at any time hereafter.
Notwithstanding anything herein contained to the contrary, all the provisions
of this Note shall, except as otherwise provided herein, be subject to the
provisions of this Section 6, so far as the same may be applicable thereto.
(b) For purposes of this Section 6 (and subject to Section
2.06 of the Securities Purchase Agreement), "Senior Indebtedness" shall mean
any indebtedness, liability or obligation, contingent or otherwise, other
than that arising pursuant to this Note, of the Company (any such
indebtedness, liability or obligation being hereinafter in this definition
referred to as an "Obligation") (i) which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness
for the purposes hereof in the instrument creating or evidencing the
Company's liability with respect to such Obligations or (ii) any increases,
guarantees, refundings, renewals, rearrangements or extensions of and
amendments, modifications and supplements to any indebtedness, liability or
obligation described in clause (i) above.
8. No Assignment. This Note may not be assigned by the Payee
without the prior written consent of the Company.
9. Governing Law. This Note shall be construed in accordance
with, and governed by, the laws of the Commonwealth of Connecticut as applied
to contracts made and to be performed entirely in the Commonwealth of
Connecticut without regard to principles of conflicts of law. Each of the
parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the Commonwealth of Connecticut or any
federal court sitting in the Commonwealth of Connecticut for purposes of any
suit, action or other proceeding arising out of this Note (and agrees not to
commence any action, suit or proceedings relating hereto except in such
courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Note, which is
brought by or against it, in the courts of the Commonwealth of Connecticut or
any federal court sitting in the Commonwealth of Connecticut and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
10. Adjustment of Interest Rate. No provision of this Note shall
require the payment of interest to the extent that receipt of any such
payment by the Company would be contrary to the provisions of law applicable
to the Company limiting the maximum amount of interest that may be charged to
or collected from the Company, and if any sum in excess of such maximum rate
of interest is paid or charged, the excess will be deemed to have been a
prepayment of principal of this Note when paid, without premium or penalty,
and all payments made thereafter will be appropriately applied to interest
and principal to give effect to such maximum rate, and after such application
any excess shall be immediately refunded to the Company.
PAMET SYSTEMS, INC.
By: ______________________________
Name: David T. McKay
Title: President & CEO
Attested:
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
[Form of Conversion Notice]
To Pamet Systems, Inc.:
The undersigned registered holder (the "Payee") of the Note in
the principal amount indicated below and bearing the certificate number
indicated below (the "Note"), hereby irrevocably exercises its right to
convert the principal amount of the Note indicated herein into shares of
common stock, par value $.01 per share, of Pamet Systems, Inc. (the
"Company"), in accordance with the terms of the Note, and directs that the
shares issuable and deliverable upon such conversion together with a check in
payment for fractional shares, be issued and delivered to the Payee unless a
different name has been indicated below. If shares are to be issued in the
name of a person other than the Payee (such person being referred to as the
"Transferee"), the Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company and duly executed
by the undersigned, and the undersigned will pay all transfer taxes payable
with respect thereto. In addition, the Transferee must sign this notice. All
capitalized terms used in this notice and not otherwise defined shall have
the respective meanings ascribed to them in the Note.
The Payee, or in the event a Transferee shall receive the
Conversion Shares issued upon conversion of this Note, the Transferee, hereby
represents and warrants to the Company that (i) he has sufficient knowledge
and experience in financial and business matters to be capable of evaluating
the merits and risks of an investment in the Company, (ii) he is acquiring
the Conversion Shares for its own account for investment and not with a view
to, or for distribution or sale in connection with any public offering in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
(iii) he understands that (x) the Conversion Shares will not have been
registered for sale under the Securities Act or qualified under applicable
state securities laws and may not be resold without registration under the
Securities Act and qualification under any applicable state securities law,
(y) such Conversion Shares will be issued to him pursuant to one or more
exemptions from the registration or qualification requirements of the
Securities Act and that the representations and warranties contained herein
are given with the intention that the Company may rely thereon for purposes
of claiming such exemptions and (z) the Conversion Shares shall contain a
legend substantially as set forth in Section 5(e) of the Note, (iv) he is an
"accredited investor" as defined in Section 501 of Regulation D promulgated
under the Securities Act, (v) he understands he must bear the economic risk
of Conversion Shares issued upon conversion of the Note for an indefinite
period of time as the Conversion Shares cannot be sold unless registered
under the Securities Act and any other applicable state securities laws or
sold in a transaction exempt from such registration thereunder and (vi)
representatives of the Company have (x) fully and satisfactorily answered any
questions which he deemed to ask concerning the Company and (y) furnished him
with such additional information and documents regarding the Company as he
has reasonably requested.
Principal amount of Note to be converted: $________________
Certificate Number of Note: __
Print name, address (including zip code) and social security or other
taxpayer identification number of the person in whose name the Common Stock
will be issued:
_________________________________
_________________________________
_________________________________
(Zip Code)
_________________________________
Social Security or other
Taxpayer Identification
Number
Dated:___________________________ ____________________________
Signature of Noteholder
Dated:___________________________ ____________________________
Signature of Transferee
<PAGE>
EXHIBIT 4.15
LW - 004
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY
WITHHELD) THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on December 13, 2003.
WARRANT TO PURCHASE COMMON STOCK
OF
PAMET SYSTEMS, INC.
FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a
Massachusetts corporation, hereby certifies that Mr. Joseph Terrence Waters,
an individual with his address at 60 Bennington Place, New Canaan, CT 06840,
or his permitted assigns, is entitled to purchase from the Company, at any
time or from time to time commencing December 14, 1998, and prior to 5:00
P.M., Eastern Standard Time, on December 13, 2003, a total of Twenty Thousand
(20,000) fully paid and nonassessable shares of Common Stock, par value $.01
per share, of the Company for an aggregate purchase price of Fifty Thousand
Dollars ($50,000) (computed on the basis of $2.50 per share). (Hereinafter,
(i) said Common Stock, together with any other equity securities which may be
issued by the Company with respect thereto or in substitution therefor, is
referred to as the "Common Stock," (ii) the shares of the Common Stock
purchasable hereunder are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred
to as the "Aggregate Warrant Price," (iv) the price payable hereunder for
each of the Warrant Shares is referred to as the "Per Share Warrant Price,"
(v) this Warrant, and all warrants hereafter issued in exchange or
substitution for this Warrant are referred to as the "Warrant" and (vi) the
holder of this Warrant is referred to as the "Holder.") The number of Warrant
Shares for which this Warrant is exercisable is subject to adjustment as
hereinafter provided.
This Warrant is issued by the Company pursuant to the Securities
Purchase Agreement, dated as of the date hereof, among the Company and Mr.
Joseph Terrence Waters (the "Securities Purchase Agreement"). Capitalized
terms used but not defined shall have the respective meanings ascribed to
them in the Securities Purchase Agreement.
1. Exercise of Warrant.
(a) This Warrant may be exercised, in whole at any time or in
part from time to time, commencing December 14, 1998, and prior to 5:00 P.M.,
Eastern Standard Time, on December 13, 2003, by the Holder of this Warrant by
the surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 9(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part.
(b) The Aggregate Warrant Price or Per Share Warrant Price
shall be paid in cash by certified or official bank check payable to the
order of the Company.
(c) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which
the Warrant shall have been surrendered to the Company as provided in
subsection 1(a) above (an "Exercise Date"). At such time, the person or
persons in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in subsection 1(d) below shall be
deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.
(d) If this Warrant is exercised in part, the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the shares of the
Common Stock to which the Holder shall be entitled, and (b) deliver the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of the Warrant.
(e) No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. 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
fair value of a share.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock as
from time to time shall be receivable upon the exercise of this Warrant.
3. Adjustments.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the number of Warrant Shares for
which this Warrant may be exercised shall be adjusted so that if the Holder
surrendered this Warrant for exercise after such action the Holder would be
entitled to receive the number of shares of Common Stock or other capital
stock of the Company which he would have been entitled to receive had such
Warrant been exercised immediately prior to such action. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection (a), the Holder of this Warrant shall become
entitled to receive shares of two or more classes of capital stock or shares
of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in
a written notice to the Holder of this Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock.
(b) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company
is the continuing corporation, or in case of any sale or conveyance to
another entity of the property of the Company as an entirety or substantially
as an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a
merger of a third corporation into the Company), the holder shall have the
right thereafter to exercise this Warrant for the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such Warrant been exercised immediately
prior to the effective date of such consolidation, merger, statutory
exchange, sale or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in
this Section 3 with respect to the rights and interests thereafter of the
Holder to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of this Warrant. The above
provisions of this subsection (b) shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances. Notice of
any such consolidation, merger, statutory exchange, sale or conveyance and of
said provisions so proposed to be made, shall be mailed to the Holder not
less than 30 days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing
purposes.
(c) In the event of any adjustment to the number of Warrant
Shares issuable upon exercise of this Warrant, the Per Share Warrant Price
shall be adjusted by multiplying the Per Share Warrant Price in effect
immediately prior to such adjustment by a fraction the numerator of which is
the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately prior to such adjustment and the denominator of which
is the aggregate number of Warrant Shares for which this Warrant may be
exercised immediately after such adjustment.
(d) Whenever the Per Share Warrant Price is adjusted as
provided in this Warrant and upon any modification of the rights of the
Holder of this Warrant in accordance with this Section 3, the Company shall
promptly prepare a certificate of an officer of the Company, setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause a
copy of such certificate to be mailed to the Holder.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the proper exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. Subject to Section 5(e) hereof, the Company
further covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issuance of any Warrant Shares or certificates
therefor. The Holder covenants and agrees that it shall pay, when due and
payable, any and all federal, state and local income or similar taxes that
may be payable in respect of the issuance of any Warrant Shares or
certificates therefor.
5. Transfer
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be transferred, sold,
pledged, hypothecated or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer this
Warrant or any of the Warrant Shares issued, the Holder must give the Company
prior written notice of such proposed transfer including the name and address
of the proposed transferee. Such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel acceptable to the Company to the effect that the proposed
transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules and regulations promulgated under either such act, or to the effect
that the Warrant or Warrant Shares to be sold or transferred have been
registered under the Securities Act of 1933, as amended, and that there is in
effect a current prospectus meeting the requirements of Subsection 11(a) of
the Securities Act, which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Warrant or Warrant Shares to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer (including, without limitation, a transfer by will or pursuant to
the laws of descent and distribution), and as a condition thereto, if such
transfer is not made pursuant to an effective registration statement under
the Securities Act, the Holder will, if requested by the Company, deliver to
the Company (i) an investment covenant, in form and substance equivalent to
that signed by the original Holder of this Warrant, signed by the proposed
transferee, (ii) an agreement by such transferee to the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement
by such transferee that the Company may place a "stop transfer order" with
its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 5, and the
Holder hereby agrees to indemnify and hold harmless the Company, its
representatives and each officer and director thereof from and against any
and all loss, damage or liability (including all attorneys' fees and costs
incurred in enforcing this indemnity provision) due to or arising out of (a)
the inaccuracy of any representation or the breach of any warranty of the
Holder contained in, or any other breach by the Holder of, this Warrant, (b)
any transfer of the Warrant or (c) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to counsel to
the Company upon which its opinion as to a proposed transfer shall have been
based.
(d) Transfer. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any, with assignment
documentation duly executed and funds sufficient to pay any transfer tax, and
upon compliance with the foregoing provisions, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named
in such instrument of assignment, and this Warrant shall promptly be
canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act, upon exercise of any
part of the Warrant and the issuance of any of the Warrant Shares, the
Company shall instruct its transfer agent to enter stop transfer orders with
respect to such shares, and all certificates representing Warrant Shares
shall bear on the face thereof substantially the following legend, insofar as
is consistent with Massachusetts law:
"The shares of common stock represented by
this certificate have not been registered
under the Securities Act of 1933, as amended,
and may not be sold, offered for sale,
assigned, transferred or otherwise disposed
of unless registered pursuant to the provisions
of that Act or an opinion of counsel to the
Company is obtained stating that such
disposition is in compliance with an available
exemption from such registration."
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
7. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
8. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 1000 Main Street, Acton, Massachusetts
01720, or such other address as the Company has designated in writing to the
Holder, or
(b) the Holder at the address contained in the first
paragraph of this Warrant, or such other address as the Holder has designated
in writing to the Company.
9. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the Commonwealth of Connecticut
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, PAMET SYSTEMS, INC., has caused this Warrant
to be signed by a duly authorized officer as of this 23rd day of December,
1998.
ATTEST: PAMET SYSTEMS, INC.
_______________________ By:___________________________________
Name: David T. McKay
Title: President & CEO
<PAGE>
SUBSCRIPTION
The undersigned, __________________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of _________________________ shares of the Common Stock of PAMET
SYSTEMS, INC. covered by said Warrant, and makes payment therefor in full at
the price per share provided by said Warrant.
Dated __________________ Signature__________________________
Address____________________________
____________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer said Warrant on the books of
PAMET SYSTEMS, INC.
Dated __________________ Signature_________________________
Address___________________________
___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and transfers
unto _________________________ the right to purchase
_________________________ shares of the Common Stock of PAMET SYSTEMS, INC.
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer that part of said Warrant on
the books of PAMET SYSTEMS, INC.
Dated ___________________ Signature__________________________
Address____________________________
____________________________
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-41029) pertaining to the Pamet Systems, Inc. 1990 Stock
Option Plan of our report dated March 30, 1999, with respect to the
financial statements of Pamet Systems, Inc. included in its Annual Report
(Form 10-KSB) for the year ended December 31, 1998, filed with Securities
and Exchange Commission.
Carlin, Charron & Rosen LLP
Worcester, Massachusetts
March 30, 1999
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 54,817
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<RECEIVABLES> 537,405
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<CURRENT-ASSETS> 723,897
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0
0
<OTHER-SE> (1,239,198)
<TOTAL-LIABILITY-AND-EQUITY> 1,899,474
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<INCOME-TAX> 0
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