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NETRIX CORPORATION
------------------
FORM 10-Q
---------
MARCH 31, 1998
--------------
INDEX
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Page No.
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Unaudited Condensed Consolidated Financial Statements 5
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE 12
1
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
NETRIX CORPORATION
------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended
March 31,
---------------------
1998 1997
---- ----
Revenues:
Product................................................ $ 4,995 $ 5,937
Service................................................ 2,246 2,485
------- -------
Total revenues..................................... 7,241 8,422
------- -------
Cost of revenues:
Product................................................ 2,109 2,700
Service................................................ 1,414 1,995
------- -------
Total cost of revenues............................. 3,523 4,695
------- -------
Gross profit............................................. 3,718 3,727
Operating Expenses:
Sales and marketing.................................... 2,049 3,216
Research and development............................... 1,568 2,772
General and administrative............................. 1,094 1,097
Restructuring reserve.................................. -- 1,350
------- -------
Loss from operations..................................... (993) (4,708)
Interest and other income, net........................... (12) 109
Foreign currency exchange gain (loss).................... 53 44
------- -------
Loss before income taxes................................. (952) (4,555)
Provision for income taxes............................... -- 20
------- -------
Net loss................................................. (952) (4,575)
Other comprehensive income (losses), net of income tax:.. (71) (16)
------- -------
Comprehensive loss....................................... $(1,023) $(4,591)
======= =======
Basic and diluted net loss per share..................... $(0.10) $(0.48)
Weighted average number of shares outstanding............ 9,643 9,516
See notes to unaudited condensed consolidated financial statements.
2
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NETRIX CORPORATION
------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
March 31, December 31,
ASSETS 1998 1997
------ ----------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents..................... $ 1,768 $ 2,758
Accounts receivable, net of allowance for
doubtful accounts of $1,161 and $1,505,
respectively................................. 7,119 6,212
Inventories................................... 8,263 8,035
Other current assets.......................... 351 713
-------- --------
Total current assets................ 17,501 17,718
Property and equipment, net of accumulated
depreciation of $18,550 and $18,016,
respectively.................................. 4,769 4,969
Deposits and other assets.......................... 339 543
Goodwill, net of accumulated amortization of $1,514
and $1,447, respectively...................... 727 794
-------- --------
$ 23,336 $ 24,024
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit................................ $ 1,733 $ 1,147
Accounts payable.............................. 3,275 3,002
Accrued liabilities........................... 2,771 3,298
-------- --------
Total current liabilities........... 7,779 7,447
Other liabilities.................................. 24 97
-------- --------
7,803 7,544
-------- --------
Stockholders' equity:
Preferred stock, $0.05 par value; 1,000,000
shares authorized; none issued and
outstanding.................................. -- --
Common stock, $0.05 par value; 15,000,000
shares authorized; 9,643,240 and 9,593,253
shares issued and outstanding, respectively 482 480
Additional paid-in capital.................... 55,816 55,774
Accumulated other comprehensive income........ (56) (17)
Accumulated deficit........................... (40,709) (39,757)
-------- --------
Total stockholders' equity.................... 15,533 16,480
-------- --------
$ 23,336 $ 24,024
======== ========
See notes to unaudited condensed consolidated financial statements.
3
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NETRIX CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1998 1997
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................................... $ (952) $(4,575)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization..................... 601 852
Changes in assets and liabilities -
Accounts receivable............................. (907) 1,900
Inventories..................................... (228) (696)
Other current assets............................ 362 (939)
Deposits and other assets....................... 204 6
Other liabilities............................... (73) 1,066
Accounts payable................................ 273 1,422
Accrued liabilities............................. (527) 774
------- -------
Net cash used in operating activities........... (1,247) (190)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (334) (326)
Purchases of short-term investments............... -- (1,498)
Sales of short-term investments................... -- 1,902
------- -------
Net cash (used in) provided by investing
activities.................................... (334) 78
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit. 586 --
Proceeds from exercise of stock options........... -- 30
Proceeds from employee stock purchase plan........ 45 30
Payments on long-term debt........................ -- (60)
------- -------
Net cash provided by (used in) financing
activities.................................... 631 (30)
------- -------
Effect of foreign currency exchange rate changes on
cash and cash equivalents......................... (40) (6)
Net decrease in cash and cash equivalents............ (990) (148)
Cash and cash equivalents, beginning of period....... 2,758 687
------- -------
Cash and cash equivalents, end of period............. $ 1,768 $ 539
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.......... $ 45 $ 16
Cash paid during the period for income taxes...... -- 11
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
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NETRIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
----------------------
Netrix Corporation ("Netrix" or the "Company") is a worldwide provider of
voice and data networking products. Netrix develops, manufactures, markets, and
supports networking equipment for voice, data, and image networks. Netrix
products are designed to transport voice over data networks to enable its
customers to realize significant cost savings. Netrix was incorporated in 1985.
The Company maintains operations in the United Kingdom through its wholly-owned
subsidiary, Netrix International Corporation (a Delaware corporation), and in
Germany and Italy through its wholly-owned subsidiaries Netrix GmbH and Netrix
S.r.l., respectively. These condensed consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
transactions have been eliminated.
The unaudited condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes, however, that its disclosures are adequate to make the information
presented not misleading. The results for such interim periods are not
necessarily indicative of results to be expected for the full year.
Certain reclassifications have been made to the prior year financial
statements to conform with current year presentation.
Risks and Other Important Factors
For the quarter ended March 31, 1998, the Company experienced declining
revenues and a net loss of $1.0 million due to declining sales of the Company's
mature products. The success of the Company is dependent on its ability to
generate adequate cash for operations and capital needs. Its ability to
generate adequate cash for such needs is in part dependent on its success in
increasing sales of its products. The Company has developed a plan to increase
revenues through sales of its Network Exchange product line; however, due to
market conditions and other factors beyond its control, there can be no
assurance the Company will be able to adequately increase product sales.
Therefore, the Company may have to generate additional cash through the sales of
assets including technologies or the sale of debt or equity securities.
Although the Company believes it has the ability to generate additional cash
through such sales, such sales may be dilutive and there can be no assurances
that adequate funds will be available or available on terms that are reasonable
or acceptable to the Company. If the Company is unable to generate adequate
cash, there could be a material and adverse effect on the business and financial
condition of the Company. Therefore, the Company has also developed a plan to
implement certain cost control measures to mitigate its liquidity risk.
Future operating results may be affected by a number of other factors
including the timing of new products in the market place, competitive pricing
pressures and economic conditions. As the market for the Company's products is
characterized by rapidly changing technology, the development and introduction
of competitive products may require a significant investment of financial
resources. Additionally, the Company relies on reseller channels which are not
under its control for a significant portion of its revenues, particularly in its
international regions. Also, while the Company has generally been able to
obtain adequate supplies of components to date, the interruption or termination
of the Company's current manufacturing relationships could have an adverse
effect on the Company's operating results.
5
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2. New Accounting Pronouncements:
------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in-
capital in the equity section of a statement of financial position. The Company
implemented SFAS No. 130 in the first quarter of 1998, and it did not have a
material impact on the financial statements. SFAS No. 131 requires the Company
to report financial and descriptive information about its reportable operating
segments. The Company will adopt SFAS No. 131 at its year-end December 31, 1998.
The Company is currently evaluating the impact of SFAS No. 131 on its financial
statements.
3. Cash Equivalents:
-----------------
Cash equivalents are primarily bank deposits, commercial paper, and
government agency securities with original maturities of three months or less.
These investments are carried at cost which approximates market value.
4. Inventories:
------------
Inventories consisted of the following (in thousands):
March 31, 1998 December 31, 1997
-------------- -----------------
Raw materials...... $ 450 $ 462
Work in process.... 812 772
Finished goods..... 7,001 6,801
------ ------
Total inventories.. $8,263 $8,035
====== ======
5. Commitments and Contingencies:
------------------------------
Line of Credit
In November 1997, the Company negotiated a $3 million line of credit
agreement with a lending institution to be used for working capital. This
agreement provides for interest at a per annum rate equal to the lender's prime
rate plus 2%. The line of credit agreement includes a covenant that requires
the Company to maintain tangible net worth of at least $13.5 million. At March
31, 1998, tangible net worth was approximately $14.8 million. The facility,
which matures on November 30, 1999, is collateralized by the Company's assets.
Borrowings under the line are based on qualified accounts receivable. At March
31, 1998, the Company had approximately $2.0 million available under the line of
credit. At March 31, 1998 and December 31, 1997, the Company had $1.7 million
and $1.1 million, respectively, outstanding under the line of credit.
6
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6. Product Revenues:
-----------------
The Company's product revenues were generated in the following geographic
regions:
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
Domestic........................ $1,765 $2,419
Europe, Middle East and Africa.. 2,510 2,057
Pacific Rim, Latin America and
South America................. 720 1,461
------ ------
Total........................... $4,995 $5,937
====== ======
Sales are primarily denominated in US dollars.
7. Restructuring Charge:
---------------------
In March 1997, the Company recorded a restructuring charge of approximately
$1,350,000 before income taxes, which was reduced in May 1997 to a net
restructuring charge of 875,000. The net charge included anticipated costs
associated with an overall reduction in work force and the discontinuance of the
Company's micro.pop product.
8. Foreign Currency Exchange Gain:
-------------------------------
Generally, assets and liabilities denominated in foreign currencies are
translated into US dollars at current exchange rates. Operating results are
translated into US dollars using the average rates of exchange prevailing during
the period. Gains or losses resulting from translation of assets and
liabilities are included in the cumulative translation adjustment account in
stockholders' equity, except for the translation effect of intercompany balances
that are anticipated to be settled in the foreseeable future. Included in the
condensed consolidated statements of operations for the quarter ended March 31,
1998 and 1997 is approximately $53,000 and $44,000 in translation gains,
respectively.
9. Basic and Diluted Earnings (Loss) Per Share:
--------------------------------------------
Basic earnings (loss) per share amounts are computed using the weighted
average number of common shares. Diluted earnings (loss) per share amounts are
computed using the weighted average number of common shares and common
equivalent shares having a dilutive effect during the periods; however, for the
three months ended March 31, 1998 and 1997, the effect of common stock
equivalents has not been considered as they would have been antidilutive.
10. Subsequent Event:
-----------------
In April 1998, the Company completed a private placement by issuing and
selling 1,750,000 shares of common stock at a price of $1.25 per share and by
issuing warrants to purchase an additional 140,000 shares of common stock at an
exercise price of $1.75 per share. In connection with the private placement,
the Company received net proceeds of approximately $2.1 million.
7
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NETRIX CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
Recent Developments. In January 1998, the Company announced its Vodex
Voice Gateway software for its Network Exchange 2210, a voice/data/fax-over-IP
gateway switch. Vodex is one of the industry's first voice gateways to
simultaneously deliver high quality voice over IP and voice over Frame Relay
with the ability to gateway between the two.
Background. The results for first quarter of 1998 reflect an overall
decrease in the revenues and expenses of the Company from the comparable period
in 1997. During the first quarter of 1998, Netrix continued to experience a
decline in revenues in the product line it acquired from Republic Telcom and an
increase in its new products, the 2210, which combines the Republic technology
with Netrix switching capability, and the 2550, Netrix' enhanced switching
platform. In April 1997, the Company implemented a restructuring of operations
to reduce and economize its work force. The restructuring resulted in the
overall reduction of compensation and travel expenses and other operating costs
of the Company, which it has been able to maintain through the first quarter of
1998.
Revenues. Total revenues decreased by $1.2 million, or 14%, from the three
months ended March 31, 1997 to the three months ended March 31, 1998. The
decrease in revenues was due primarily to a decrease in product volume, as the
mix of products sold continued to transition from the older Republic products to
the 2210 and 2550. Product revenues decreased by $0.9 million, or 16%, from the
first quarter of 1997 to the first quarter of 1998. Service revenues decreased
by approximately $0.2 million, or 10%, over the same period. Service revenue is
primarily the result of the renewal of existing maintenance contracts as well as
the negotiation of new equipment contracts. As such, it has remained fairly
consistent due to the elimination of older product servicing offset by new
product and customer arrangements.
Gross Profit. Gross profit remained flat from the first quarter of 1997 to
the comparable period of 1998, and increased as a percentage of total revenues
from 44% to 51%. Product gross profit increased from 55% in the first quarter
of 1997 to 58% in the first quarter of 1998. This increase primarily resulted
from the combination of a higher proportion of products sold through channels
with lower discounts along with a higher margin product mix of shipments. The
gross profit in any particular quarter is dependent upon the mix of products
sold and the channels of distribution. As a result, the gross profit on a
quarter to quarter basis can vary within a wide range. The gross profit for
service revenues increased from 20% in the first quarter of 1997 to 37% in the
first quarter of 1998. The higher service margin is a result of generally
consistent levels of service revenue combined with lower service costs due to
the restructuring discussed above.
Sales and Marketing. Sales and marketing expenses decreased by $1.2
million, or 36%, from the first quarter of 1997 to the first quarter of 1998.
The decreases are mainly attributed to the restructuring of operations as
discussed above.
Research and Development. Research and development expenses decreased by
$1.2 million, or 43%, from the first quarter of 1997 to the comparable period of
1998. As a percentage of revenues, R&D expenses decreased from 33% of revenues
in the first quarter of 1997 to 22% of revenues in the first quarter of 1998.
The decrease in R&D expenses is due mainly to the restructuring plan discussed
above. Currently, all of the Company's research and development costs are
charged to operations as incurred.
General and Administrative. General and administrative expenses were
unchanged from the first quarter of 1997 to the first quarter of 1998.
8
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Restructuring Charge. In March 1997, the Company recorded a restructuring
charge of approximately $1,350,000 before income taxes. The charge included
anticipated costs associated with an overall reduction in work force, the
discontinuance of its micro.pop product, and the discontinuance of its direct
operation in Germany.
Interest and Other Income, Net. The Company generated net interest and
other income of approximately ($12,000) in the first quarter of 1998 compared to
approximately $109,000 in the same period in 1997. The decrease in net interest
income is due primarily to debt levels maintained under the line of credit.
Foreign Exchange Gain. Included in foreign exchange income for the first
quarter of 1998 is approximately $53,000 of translation gains as compared to
$44,000 of translation gains in the first quarter of 1997.
Net Loss. For the first quarter of 1998 the Company had a net loss of
approximately $1.0 million, an improvement from a net loss of approximately $4.6
million in the same period of 1997, due primarily to the restructuring plan and
the other factors discussed above.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1998, the Company had approximately $1.8 million of cash and
cash equivalents on hand and net working capital of $9.7 million.
For the three months ended March 31, 1998 and 1997, the Company used
approximately $1.2 million and $0.2 million of cash from operating activities,
respectively. In the first quarter of 1998, the cash used by operations was
primarily due to the negative cash flow from operations and the increase in
accounts receivable and the decrease in accrued liabilities over the December
31, 1997 balances. In the first quarter of 1997, the cash used by operations
was primarily due to the negative cash flow from operations and the increase in
inventory levels over the December 31, 1996 balances.
Capital acquisitions during the first quarter of 1998 were $334,000
compared to $326,000 in the first quarter of 1997. These acquisitions were
primarily equipment used for research and development purposes along with some
computer and test equipment.
In November 1997, the Company negotiated a $3 million line of credit
agreement with a lending institution to be used for working capital. This
agreement provides for interest at a per annum rate equal to the lender's prime
rate plus 2%. The line of credit agreement includes a covenant that requires
the Company to maintain tangible net worth of at least $13.5 million. At March
31, 1998, tangible net worth was approximately $14.8 million. The facility,
which matures on November 30, 1999, is collateralized by the Company's assets.
Borrowings under the line are based on qualified accounts receivable. At March
31, 1998, the Company had $2.0 million available under the line of credit, of
which $1.7 million was outstanding, and was in compliance with the tangible net
worth covenant.
In April 1998, the Company completed a private placement by issuing and
selling 1,750,000 shares of common stock at a price of $1.25 per share and by
issuing warrants to purchase an additional 140,000 shares of common stock at an
exercise price of $1.75 per share. In connection with the private placement,
the Company received net proceeds of approximately $2.1 million that will be
used for working capital and other general corporate purposes and agreed to file
a Registration Statement on Form S-3 with the Securities Exchange Commission
within 45 days to cover the resale of such securities.
9
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The success of the Company is dependent on its ability to generate adequate
cash for operations and capital needs. Its ability to generate adequate cash
for such needs is in part dependent on its success in increasing sales of its
products. The Company has developed a plan to increase revenues through sales
of its Network Exchange product line; however, due to market conditions and
other factors beyond its control, there can be no assurance the Company will be
able to adequately increase product sales. Therefore, the Company may have to
generate additional cash through the sales of assets including technologies or
the sale of debt or equity securities. Although the Company believes it has the
ability to generate additional cash through such sales, such sales may be
dilutive and there can be no assurances that adequate funds will be available or
available on terms that are reasonable or acceptable to the Company. If the
Company is unable to generate adequate cash, there could be a material and
adverse effect on the business and financial condition of the Company.
Therefore, the Company has also developed a plan to implement certain cost
control measures to mitigate its liquidity risk.
10
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PART II -- OTHER INFORMATION
----------------------------
Items 1 through 5 are not applicable.
Item 6. Exhibits and Reports of Form 8-K
--------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
10.18 Common Stock Purchase Agreement dated April 21, 1998
10.19 Common Stock Purchase Agreement dated April 24, 1998
10.20 Common Stock Warrant dated April 24, 1998
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31, 1998.
11
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SIGNATURE
---------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETRIX CORPORATION
Date: May 14, 1998 By: /s/ Lynn C. Chapman
---------------------------------------
Lynn C. Chapman
President and Chief Executive Officer
12
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EXHIBIT INDEX
-------------
Exhibit
No. Description
- -------- -----------
10.18 Common Stock Purchase Agreement dated April 21, 1998
10.19 Common Stock Purchase Agreement dated April 24, 1998
10.20 Common Stock Warrant dated April 24, 1998
13
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Exhibit 10.18
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Agreement dated as of April 21, 1998, is entered into by and among
Netrix Corporation, a Delaware corporation (the "Company"), and the individuals
-------
and entities listed on Exhibit A hereto (the "Purchasers").
--------- ----------
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
--------------------------------
1.1 Authorization. The Company has, or before the Closing (as
-------------
defined in Section 2) will have, duly authorized the sale and issuance, pursuant
to the terms of this Agreement, of 1,520,000 shares of its Common Stock, $0.05
par value per share (the "Common Stock").
------------
1.2 Sale of Shares. Subject to the terms and conditions of this
--------------
Agreement, at the Closing the Company will sell and issue to each of the
Purchasers, and each of the Purchasers will purchase from the Company, the
number of shares of Common Stock set forth opposite such Purchaser's name on
Exhibit A for the purchase price of $1.25 per share. The shares of Common Stock
- ---------
being sold under this Agreement are referred to as the "Shares." The Purchasers
------
are severally liable under this Agreement. This Agreement shall be deemed to be
separate agreements between the Company and each of the Purchasers, involving
separate sales of Shares from the Company to each of the Purchasers.
1.3 Use of Proceeds. The Company will use the proceeds from the sale
---------------
of the Shares for working capital purposes.
2. The Closing. The closing ("Closing") of the sale and purchase of the
----------- -------
Shares under this Agreement shall take place at the offices of Hale and Dorr
LLP, 1455 Pennsylvania Avenue, N.W., Suite 1000, Washington, D.C. 20004 at 10:00
a.m. on April 21, 1998, or at such other time, date and place as are mutually
agreeable to the Company and the Purchasers. At the Closing, the Company shall
deliver to each of the Purchasers a certificate for the number of Shares being
purchased by such Purchaser, registered in the name of such Purchaser, against
payment to the Company of the purchase price therefor, by wire transfer, check,
or other method acceptable to the Company. The date of the Closing is
hereinafter referred to as the "Closing Date." If at
------------
<PAGE>
the Closing any of the conditions specified in Section 5 shall not have been
fulfilled, each of the Purchasers shall, at his or its election, be relieved of
all of his or its respective obligations under this Agreement without thereby
waiving any other rights he or it may have by reason of such failure or such
non-fulfillment.
3. Representations of the Company. Subject to and except as disclosed by
------------------------------
the Company in Exhibit B hereto, the Company hereby represents and warrants to
---------
each of the Purchasers as follows:
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it, to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement, and to own, lease and operate its properties and assets and to carry
on its business as now being conducted. The Company has furnished to the
Purchaser true and complete copies of its Certificate of Incorporation and By-
---------------------------- ---
Laws, each as amended and restated to date and presently in effect. The Company
- ----
and the subsidiaries of the Company (the "Subsidiaries"), as set forth in the
------------
Company Reports (as defined in Section 3.5), are duly qualified and licensed to
do business and are in good standing in each jurisdiction in which the conduct
of their business requires such qualification, except for jurisdictions in which
the failure to be so qualified, licensed or in good standing, individually or in
the aggregate, are not reasonably likely to have a material adverse effect on
the Company and the Subsidiaries taken as a whole or adversely affect the
Company's ability to perform its obligations hereunder or under any other
instrument or documents contemplated hereby.
3.2 Capitalization. The authorized capital stock of the Company
--------------
(immediately prior to the Closing) consists of 15,000,000 shares of Common
Stock, of which 9,643,240 shares were issued and outstanding as of April 13,
1998, and 1,000,000 shares of Preferred Stock, $0.05 par value per share, none
of which shares are issued and outstanding. All of the issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable.
3.3 Issuance of Shares. The issuance, sale and delivery of the
------------------
Shares in accordance with this Agreement have been, or will be on or prior to
the Closing, duly authorized by all necessary corporate action on the part of
the Company, and all such shares have been duly reserved for issuance. The
Shares when so issued, sold and delivered against payment therefor in accordance
with the provisions of this Agreement will be duly and validly issued, fully
paid and non-assessable.
-2-
<PAGE>
3.4 Authority for Agreement. The execution, delivery and performance
-----------------------
by the Company of this Agreement, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms. The execution of and performance of
the transactions contemplated by this Agreement and compliance with its
provisions by the Company will not violate any order, writ, injunction, decree,
law, statute, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended and restated
to date) or any indenture, note, bond, mortgage, lease, agreement or other
instrument to which the Company or a Subsidiary is a party or by which it or any
of their respective properties are bound.
3.5 Reports, Financial Statements and Private Placement Memorandum.
--------------------------------------------------------------
The Company has previously furnished or made available to the Purchasers
complete and accurate copies, as amended or supplemented, of its (a) Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, as filed with
the SEC, (b) all other reports filed by the Company under Section 13 of the
Exchange Act with the SEC since January 1, 1998 (such reports are collectively
referred to herein as the "Company Reports") and (c) the Company's Confidential
---------------
Private Placement Memorandum, dated April 14, 1998, containing interim financial
information and disclosures for the period since December 31, 1997 (the
"Memorandum"). The Company Reports constitute all of the documents required to
- -----------
be filed by the Company under Section 13 of the Exchange Act with the SEC since
January 1, 1998. As of their respective dates, each of the Company Reports and
the Memorandum did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements and unaudited interim financial
statements of the Company included in the Company Reports and the Memorandum (i)
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, (ii) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by form 10-Q under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii)
------------
fairly present the consolidated financial condition, results of operations and
cash flows of the Company as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of the
Company. Except as and to the extent set forth in the
-3-
<PAGE>
Company Reports or the Memorandum, the Company and its Subsidiaries have no
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) other than liabilities and obligations that, individually and in the
aggregate, are not reasonably likely to have a material adverse effect on the
Company and its Subsidiaries taken as a whole or adversely affect the Company's
ability to perform its obligations hereunder, or any other instrument or
document contemplated hereby. The Company is eligible to use Form S-3 to effect
the registration under the Securities Act (as defined below) of outstanding
shares of its Common Stock for resale.
3.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the offer,
issuance, sale and delivery of the Shares as contemplated by this Agreement,
except such filings as shall have been made prior to and shall be effective on
and as of the Closing. Based on the representations made by the Purchasers in
Section 4 of this Agreement, the offer and sale of the Shares to the Purchasers
will be in compliance with applicable Federal and state securities laws.
3.7 Absence of Certain Changes or Events. Since the date of the
-------------------------------------
Memorandum, there has not been, occurred or arisen any change in, or any event
(including any damage, destruction or loss whether or not covered by insurance),
condition or state of facts of any character that, individually or in the
aggregate, have or are reasonably likely to have a material adverse effect on
the Company or the Company's ability to perform its obligations hereunder, or
under any other instrument or document contemplated hereby.
3.8 Intellectual Property Matters. The Company and its Subsidiaries
------------------------------
own or possess adequate licenses or other valid rights to use all material
patents, trademarks, service marks trade names, copyrights, trade secrets,
applications for trademarks and service marks, know-how and information and
other proprietary and intellectual property rights used or held for use in
connection with the business of the Company and its Subsidiaries as presently
conducted (including in connection with services provided by the Company and its
Subsidiaries to third parties). To the Company's knowledge, there is no
proceeding challenging the validity of any of the foregoing rights that,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Company and its Subsidiaries taken as a whole. To the
best of the Company's knowledge, there are no infringements of any proprietary
or intellectual property rights owned by or licensed by or to the Company or any
Subsidiary of the Company that, individually or in the aggregate, are reasonably
likely to have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
-4-
<PAGE>
4. Representations of the Purchasers. Each of the Purchasers severally
---------------------------------
represents and warrants to the Company as follows:
4.1 Investment. Such Purchaser is acquiring the Shares for his or
----------
its own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
Exhibits hereto, Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4.2 Authority. Such Purchaser has full power and authority to enter
---------
into and to perform this Agreement in accordance with its terms. Any Purchaser
that is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.3 Experience. Such Purchaser has carefully reviewed the
----------
representations and other information concerning the Company contained in this
Agreement, the Company Reports (including, without limitation, the risk factors
contained therein) and the Memorandum and has made such detailed inquiry
concerning the Company, its business and its personnel as he or it saw fit; the
officers of the Company have made available to such Purchaser any and all
written information which he or it has requested and have answered to such
Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of his
or its investment in the Company and is able financially to bear the risks
thereof.
4.4 Accredited Investor. Such Purchaser is an Accredited Investor
-------------------
within the definition set forth in Rule 501(a) of the Securities Act of 1933, as
amended (the "Securities Act").
--------------
5. Conditions to the Obligations of the Purchasers. The obligation of
-----------------------------------------------
each of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing:
5.1 Accuracy of Representations and Warranties. Each representation
------------------------------------------
and warranty contained in Section 3 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made on
and as of that date.
-5-
<PAGE>
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5.3 Certificates and Documents. The Company shall have delivered to
--------------------------
the Purchasers:
(a) The Certificate of Incorporation of the Company, as amended and in
effect as of the Closing Date (including the Certificate of Designation),
certified by the Secretary of State of the State of Delaware;
(b) Certificates, as of the most recent practicable dates, as to the
corporate good standing of the Company issued by the Secretary of State of the
State of Delaware;
(c) By-laws of the Company, as amended and in effect as of the Closing
Date, certified by its Secretary or Assistant Secretary as of the Closing Date;
and
(d) Resolutions of the Board of Directors of the Company, authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of the
Company as of the Closing Date.
5.4 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers a certificate, executed by the President and Chief Executive Officer
of the Company, dated the Closing Date, certifying to the fulfillment of the
conditions specified in Sections 5.1, 5.2 and 5.3 of this Agreement.
5.5 Opinion of Counsel. The Company shall have furnished to the
-------------------
Purchasers the opinion, dated as of the Closing Date, of its counsel addressed
to the Purchasers, that:
(a) The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware with full corporate power and authority
to own and operate its properties and to conduct its business as set forth in
the Memorandum. To the knowledge of such counsel, the Company's authorized
capital stock is as set forth in the Memorandum and the issued and outstanding
capital stock as of the date of the Memorandum is as set forth in the
Memorandum.
(b) The Shares have been duly and validly authorized and issued and are
fully paid and nonassessable, and no holders of any outstanding shares of
capital stock have any preemptive rights.
-6-
<PAGE>
(c) The Warrant Shares (as defined below), when sold and issued pursuant to
the terms and conditions set forth in the Warrant (as defined below) will have
been duly and validly authorized and issued and will be fully paid and
nonassessable and no holder of any outstanding shares of capital stock will have
any preemption rights.
5.6 Minimum Investment. Purchasers shall have tendered at the
------------------
Closing aggregate consideration not less than $1,000,000.00 for the purchase of
Shares.
6. Condition to the Obligations of the Company. The obligations of the
-------------------------------------------
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following conditions on or before the Closing:
6.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Purchasers contained in Section 4 shall be true on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
6.2 Minimum Investment. Purchasers shall have tendered at the
------------------
Closing aggregate consideration of not less than $1,00,000.00 for the purchase
of Shares.
6.3 Questionnaire. Each of the Purchasers shall have completed,
--------------
executed and delivered to the Company or Qualified Purchaser Questionnaire in
the form attached hereto as Exhibit C.
---------
7. Registration Rights.
-------------------
The Purchasers and Flomenhaft (as defined below) shall have the
following registration rights with respect to the Shares issued to them
hereunder:
7.1 Registration Rights. The Company shall utilize reasonable
-------------------
efforts to cause, within forty five (45) days following the Closing Date, a
registration statement on Form S-3 to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Securities
---------- ----------
Act") or an existing registration statement on Form S-3 (the "Registration
- --- ------------
Statement") to be amended for the purpose of registering the Shares, any shares
- ---------
of Common Stock ("Warrant Shares") issued upon exercise of the Common Stock
--------------
Purchase Warrant (the "Warrant") to be distributed to L. Flomenhaft & Co.,
-------
Incorporated ("Flomenhaft") upon the Closing and the shares of Common Stock, if
----------
any, issued pursuant to the last two sentences of this Section 7.1 (the
"Additional Shares"). Flomenhaft shall be a direct and intended beneficiary of
- ------------------
the covenants and provisions of this Article 7 with respect to the Warrant
Shares, for resale on a continuous basis from time to time by a Holder thereof.
For purposes of this Article 7, a person is deemed to be a "Holder" of Shares or
Warrant
-7-
<PAGE>
Shares whenever such person or entity is the record owner of Shares or
Warrant Shares and the term "Shares" shall include any Additional Shares.
Thereafter, the Company will use commercially reasonable best efforts to have
the Registration Statement become effective and cause the Shares and Warrant
Shares to be registered under the Securities Act, and registered, qualified or
exempted under the state securities laws of such jurisdictions as any Holder
reasonably requests, as soon as is reasonably practicable. If the Company fails
to file such Registration Statement within sixty (60) days following the Closing
Date, subject to compliance by the Company with any applicable stockholder
approval requirements imposed by law or any securities exchange or listing
organization then the Company shall issue and deliver (i) to each of the
Purchasers a number of shares of Common Stock equal to ten percent (10%) of the
number of Shares originally issued to such Purchaser pursuant to this Agreement
and (ii) to Flomenhaft a number of warrants equal to ten percent (10%) of the
number of warrants originally issued to Flomenhaft pursuant to this Agreement
and the Placement Agent Agreement (the "Placement Agent Agreement"), dated as of
-------------------------
April 21, 1998, by and between the Company and Flomenhaft. If the Company fails
to file the Registration Statement within 120 days of the Closing Date, and
within each subsequent sixty (60) day period thereafter, subject to compliance
by the Company with any applicable stockholder approval requirements imposed by
law or any securities exchange or listing organization then the Company shall
issue and deliver upon the expiration of each such period (y) to each of the
Purchasers a number of shares of Common Stock equal to ten percent (10%) of the
number of Shares originally purchased by such Purchaser pursuant to this
Agreement and (z) to Flomenhaft a number of warrants equal to ten percent (10%)
of the number of warrants originally issued to Flomenhaft pursuant to this
Agreement and the Placement Agent Agreement.
7.2 Expenses of Registration. All expenses incident to the Company's
------------------------
performance of or compliance with this Section 7, including, without limitation,
all registration and filing fees (including all expenses incident to filing with
Nasdaq or any other exchange), fees and expenses of complying with securities
and blue sky laws, printing and copying expenses, fees and expenses of the
Company's counsel and accountants, and the fees and disbursements of all
independent public accountants, and the fees and disbursements of all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) shall be paid by the Company.
7.3 Furnishing of Documents. The Company shall furnish to the
-----------------------
Holders such reasonable number of copies of the Registration Statement, such
prospectuses as are contained in the Registration Statement and such other
documents as the Holders may reasonable request in order to facilitate the
offering of the Shares.
7.4 Amendments and Supplements. The Company shall prepare and
--------------------------
promptly file with the Commission, and promptly notify the Holders of the filing
of
-8-
<PAGE>
such amendments or supplements to the Registration Statement or prospectuses
contained therein, as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to the Shares or Warrants are
required to be delivered under the Securities Act, any event shall have occurred
as a result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company shall
also advise the Holders promptly after it shall receive notice of the issuance
of any stop order by the Commission suspending the effectiveness of the
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued.
If, after a Registration Statement becomes effective, the Holders desire that
the Registration Statement be amended or the Company advises the Holders that
the Company considers it appropriate that the Registration Statement (and all
other registration statements of the Company then effective and outstanding) be
amended, the Holders shall suspend any further sales of the Shares until the
Company advises the Holders that the Registration Statement has been amended.
7.5 Duration. The Company shall maintain the effectiveness of the
--------
Registration Statement until such time as the Company reasonably determines that
the Holders will be eligible to sell all of the Shares then owned by the Holders
without the need for continued registration of the shares, in three month
periods immediately preceding the termination of the effectiveness of the
Registration Statement. The Company's obligations contained in Sections 7.2,
7.3 and 7.4 shall terminate on the second anniversary of the Closing Date.
Notwithstanding the foregoing, (a) the Company may delay filing a Registration
Statement, and may withhold efforts to cause the Registration Statement to
become effective, if the Board of Directors of the Company in its good faith
judgment, determines that any registration of Shares should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other material transaction or
activity involving the Company or any of its subsidiaries (a "Valid Business
--------------
Reason"), (b) the Company may postpone filing a Registration Statement until
- ------
such Valid Business Reason no longer exists, but in no event for more than sixty
(60) days and (c) in case a Registration Statement has been filed, the Company
may cause such Registration Statement to be withdrawn and its effectiveness
terminated or may postpone amending or supplementing such Registration Statement
until such Valid Business Reason no longer exists, but in no event for more than
sixty (60) days (such period of postponement or withdrawal under sub clause (b)
or (c) above, the "Postponement Period"); and the Company shall give written
-------------------
notice of its determination to postpone or withdraw a Registration Statement and
of the fact that the Valid Business Reason for such postponement or withdrawal
no longer exists, in each case promptly after the
-9-
<PAGE>
occurrence thereof; provided, however, the Company shall not be permitted to
postpone or withdraw a Registration Statement within seventy five (75) days
after the expiration of any Postponement Period. The Holder agree that, upon
receipt of any notice from the Company that the Company has determined to
postpone or withdraw any Registration Statement, the Holder will discontinue any
disposition of Shares pursuant to such Registration Statement and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such Holder's possession
of the prospectus covering such Shares that was in effect at the time of receipt
of such notice. If the Company shall give any notice of withdrawal or
postponement of a registration statement, the Company shall, at such time as the
Valid Business Reason that caused such withdrawal or postponement no longer
exists (but in no event later than three months after the date of the
postponement or withdrawal), use its reasonable efforts to effect the
registration under the Securities Act of Shares covered by the withdrawn or
postponed registration statement in accordance with Section 7.1.
7.6 Further Information. If the Shares owned by a Holder are
-------------------
included in any registration, such Holder shall furnish the Company such
information regarding itself as the Company may reasonably request and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement.
7.7 Indemnification.
---------------
(i) The Company will indemnify and hold harmless the
Holders and each person, if any, who controls a Holder within the meaning of the
Securities Act, from and against any and all losses, damages, liabilities, costs
and expenses to which the Holders or any such controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities, costs or expenses are caused by any untrue statement of
any material fact contained in the Registration Statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or
based upon the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that, the Company will not be liable in any such case to the extent that any
such loss, claim, damage, liability, cost or expense arises out of or is based
upon an untrue statement or omission so made in conformity with information
furnished by or on behalf of any Holder or such controlling person in writing
specifically for use in the preparation thereof.
(ii) Each of the Holders will indemnify and hold harmless
the Company and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any and all losses, damages,
liabilities, costs and
-10-
<PAGE>
expenses to which the Buyer or any such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement of any
material fact contained in the Registration Statement, any prospectus contained
therein or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, to the extent and only to the extent that
such untrue statement or omission was so made in reliance upon and in strict
conformity with written information furnished by or on behalf of such Holder
specifically for use in the preparation thereof.
8. Transfer of Shares.
------------------
8.1 Restricted Shares. "Restricted Shares" means (i) the Shares and
----------------- -----------------
(ii) any other shares of capital stock of the Company issued in respect of such
shares (as a result of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
-------- -------
Stock which are Restricted Shares shall cease to be Restricted Shares (i) upon
any sale pursuant to the Registration Rights Agreement, Section 4(1) of the
Securities Act or Rule 144 under the Securities Act or (ii) at such time as they
become eligible for sale under Rule 144(k) under the Securities Act.
8.2 Requirements for Transfer.
-------------------------
(a) Restricted Shares shall not be sold, pledged, hypothecated or
otherwise disposed of or transferred unless either (i) they first shall have
been registered under the Securities Act, or (ii) the Company first shall have
been furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Purchaser which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 8 to the same extent as if he were an original
Purchaser hereunder, or (ii) a transfer made in accordance with Rule 144 under
the Securities Act.
-11-
<PAGE>
8.3 Legend. Each certificate representing Restricted Shares shall
------
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be offered, sold or
otherwise transferred, pledged or hypothecated unless and until such shares
are registered under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
9. Miscellaneous.
-------------
9.1 Successors and Assigns; Assignment. The provisions of this
----------------------------------
Agreement shall be binding upon, and inure to the benefit of, the respective
successors, assigns, and heirs, executed and minus of the parties hereto. This
Agreement, and the rights and obligations of a Purchaser hereunder, may not be
assigned by such Purchaser to any person or entity without the prior written
permission of the Company.
9.2 Confidentiality. Each of the Purchasers agrees that he or it
---------------
will keep confidential and will not use, disclose or divulge any confidential,
proprietary or secret information which such Purchaser may obtain from the
Company pursuant to financial statements, reports and other materials submitted
by the Company to the Purchaser pursuant to this Agreement, unless such
information is known, or until such information becomes known, to the public;
provided, however, that such Purchaser may disclose such information to his or
its attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their services in connection with the Purchaser's investment
in the Company provided that such persons agree to maintain the confidentiality
of such information.
9.3 Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at 13595 Dulles Technology Drive, Herndon, Virginia
22071, Attention: President, or at such other address or addresses as may have
been furnished in writing by the Company to the Purchasers, with a copy to David
Sylvester, Esq., Hale
-12-
<PAGE>
and Dorr LLP, The Willard Office Building, 1455 Pennsylvania Avenue, N.W., Suite
1000, Washington, D.C. 20004;
If to a Purchaser, at his or its address set forth on Exhibit A, or at such
---------
other address or addresses as may have been furnished to the Company in writing
by such Purchaser; or
If to Flomenhaft, at 225 West 34th Street, Suite 2008, New York, New York
10122, Attention: Ted Flomenhaft or at such other address or addresses as may
have been furnished in writing by Flomenhaft to the Company or the Purchasers,
with a copy to Eric Simonson, Esq., Kronish, Lieb, Weiner & Hellman LLP, 1114
Avenue of the America, New York, New York 10036.
Notices provided in accordance with this Section 9.3 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
9.4 Brokers. Each of the Company and the Purchaser (i) represents
-------
and warrants to the other parties hereto that other than Flomenhaft he or it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) will indemnify and save the other
parties harmless from and against any and all claims, liabilities or obligations
with respect to brokerage or finders' fees or commissions, or consulting fees
incurred by such party in connection with the transactions contemplated by this
Agreement except for such fees payable to Flomenhaft asserted by any person on
the basis of any statement or representation alleged to have been made by such
indemnifying party.
9.5 Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter.
9.6 Amendments and Waivers. Except as otherwise expressly set forth
----------------------
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the Purchaser. Any amendment or waiver effected in accordance
with this Section 9.6 shall be binding upon each holder of any Shares (including
shares of Common Stock into which such Shares have been converted) and each
future holder of all such securities and the Company. No failure or delay of
any party to this Agreement in exercising any power or right under this
Agreement will operate as a waiver thereof, and no waivers of or exceptions to
any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
-13-
<PAGE>
9.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall be one and the same document.
9.8 Section Headings. The section headings are for the convenience
----------------
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
9.9 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
9.10 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
-14-
<PAGE>
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
THE COMPANY:
NETRIX CORPORATION
By:
--------------------------------
--------------------------------------
THE PURCHASERS:
UT TECHNOLOGY PARTNERS LDC
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
SPECIAL SITUATION FUND PRIVATE
EQUITY FUND, L.P.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
SPECIAL SITUATION FUND TECHNOLOGY
FUND, L.P.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
SPEER, LEEDS & KELLOGG
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
RL CAPITAL PARTNERS
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
---------------------------------------
Jack Polak
DOMACO VENTURE CAPITAL FUND
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
-15-
<PAGE>
EXHIBIT A
---------
Name and Address No. of Shares of Aggregate
of the Purchasers Common Stock Purchase Price
- ----------------- ------------ --------------
UT Technology Partners LDC 320,000 $400,000
600 Third Avenue, 17th Floor
New York, NY 10158
Attn: Jim Weil
Special Situation Fund Private
Equity Fund, L.P. 240,000 $300,000
Special Situation Fund Technology
Fund, L.P. 240,000 $300,000
153 E. 53rd Street, 51st Floor
New York, NY 10022
Attn: Austin Marks
Spear, Leeds & Kellogg 600,000 $750,000
120 Broadway
New York, NY 10271
Attn: Kevin Eilian
RL Capital Partners 49,600 $ 62,000
575 Fifth Avenue, 36th Floor
New York, NY 10017
Attn: Ron Lazar
Jack Polak 40,000 $ 50,000
90 Park Avenue, 16th Floor
New York, NY 10022
Attn: Jack Polak
Domaco Venture Capital Fund 30,400 $ 38,000
90 Park Avenue, 16th Floor
New York, NY 10022
Attn; Jack Polak
-16-
<PAGE>
Exhibit 10.19
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Agreement dated as of April 24, 1998, is entered into by and among
Netrix Corporation, a Delaware corporation (the "Company"), and the individuals
-------
and entities listed on Exhibit A hereto (the "Purchasers").
--------- ----------
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
--------------------------------
1.1 Authorization. The Company has, or before the Closing (as
-------------
defined in Section 2) will have, duly authorized the sale and issuance, pursuant
to the terms of this Agreement, of 230,000 shares of its Common Stock, $0.05 par
value per share (the "Common Stock").
------------
1.2 Sale of Shares. Subject to the terms and conditions of this
--------------
Agreement, at the Closing the Company will sell and issue to each of the
Purchasers, and each of the Purchasers will purchase from the Company, the
number of shares of Common Stock set forth opposite such Purchaser's name on
Exhibit A for the purchase price of $1.25 per share. The shares of Common Stock
- ---------
being sold under this Agreement are referred to as the "Shares." The Purchasers
------
are severally liable under this Agreement. This Agreement shall be deemed to be
separate agreements between the Company and each of the Purchasers, involving
separate sales of Shares from the Company to each of the Purchasers.
1.3 Use of Proceeds. The Company will use the proceeds from the sale
---------------
of the Shares for working capital purposes.
2. The Closing. The closing ("Closing") of the sale and purchase of the
----------- -------
Shares under this Agreement shall take place at the offices of Hale and Dorr
LLP, 1455 Pennsylvania Avenue, N.W., Suite 1000, Washington, D.C. 20004 at 10:00
a.m. on April 24, 1998, or at such other time, date and place as are mutually
agreeable to the Company and the Purchasers. At the Closing, the Company shall
deliver to each of the Purchasers a certificate for the number of Shares being
purchased by such Purchaser, registered in the name of such Purchaser, against
payment to the Company of the purchase price therefor, by wire transfer, check,
or other method acceptable to the Company. The date of the Closing is
hereinafter referred to as the "Closing Date." If at
------------
<PAGE>
the Closing any of the conditions specified in Section 5 shall not have been
fulfilled, each of the Purchasers shall, at his or its election, be relieved of
all of his or its respective obligations under this Agreement without thereby
waiving any other rights he or it may have by reason of such failure or such
non-fulfillment.
3. Representations of the Company. Subject to and except as disclosed by
------------------------------
the Company in Exhibit B hereto, the Company hereby represents and warrants to
---------
each of the Purchasers as follows:
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it, to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement, and to own, lease and operate its properties and assets and to carry
on its business as now being conducted. The Company has furnished to the
Purchaser true and complete copies of its Certificate of Incorporation and By-
---------------------------- --
Laws, each as amended and restated to date and presently in effect. The Company
- ----
and the subsidiaries of the Company (the "Subsidiaries"), as set forth in the
------------
Company Reports (as defined in Section 3.5), are duly qualified and licensed to
do business and are in good standing in each jurisdiction in which the conduct
of their business requires such qualification, except for jurisdictions in which
the failure to be so qualified, licensed or in good standing, individually or in
the aggregate, are not reasonably likely to have a material adverse effect on
the Company and the Subsidiaries taken as a whole or adversely affect the
Company's ability to perform its obligations hereunder or under any other
instrument or documents contemplated hereby.
3.2 Capitalization. The authorized capital stock of the Company
--------------
(immediately prior to the Closing) consists of 15,000,000 shares of Common
Stock, of which 9,643,240 shares were issued and outstanding as of April 13,
1998, and 1,000,000 shares of Preferred Stock, $0.05 par value per share, none
of which shares are issued and outstanding. All of the issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable.
3.3 Issuance of Shares. The issuance, sale and delivery of the
------------------
Shares in accordance with this Agreement have been, or will be on or prior to
the Closing, duly authorized by all necessary corporate action on the part of
the Company, and all such shares have been duly reserved for issuance. The
Shares when so issued, sold and delivered against payment therefor in accordance
with the provisions of this Agreement will be duly and validly issued, fully
paid and non-assessable.
-2-
<PAGE>
3.4 Authority for Agreement. The execution, delivery and performance
-----------------------
by the Company of this Agreement, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms. The execution of and performance of
the transactions contemplated by this Agreement and compliance with its
provisions by the Company will not violate any order, writ, injunction, decree,
law, statute, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended and restated
to date) or any indenture, note, bond, mortgage, lease, agreement or other
instrument to which the Company or a Subsidiary is a party or by which it or any
of their respective properties are bound.
3.5 Reports, Financial Statements and Private Placement Memorandum.
--------------------------------------------------------------
The Company has previously furnished or made available to the Purchasers
complete and accurate copies, as amended or supplemented, of its (a) Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, as filed with
the SEC, (b) all other reports filed by the Company under Section 13 of the
Exchange Act with the SEC since January 1, 1998 (such reports are collectively
referred to herein as the "Company Reports") and (c) the Company's Confidential
---------------
Private Placement Memorandum, dated April 14, 1998, containing interim financial
information and disclosures for the period since December 31, 1997 (the
"Memorandum"). The Company Reports constitute all of the documents required to
----------
be filed by the Company under Section 13 of the Exchange Act with the SEC since
January 1, 1998. As of their respective dates, each of the Company Reports and
the Memorandum did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements and unaudited interim financial
statements of the Company included in the Company Reports and the Memorandum (i)
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, (ii) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by form 10-Q under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii)
------------
fairly present the consolidated financial condition, results of operations and
cash flows of the Company as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of the
Company. Except as and to the extent set forth in the
-3-
<PAGE>
Company Reports or the Memorandum, the Company and its Subsidiaries have no
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) other than liabilities and obligations that, individually and in the
aggregate, are not reasonably likely to have a material adverse effect on the
Company and its Subsidiaries taken as a whole or adversely affect the Company's
ability to perform its obligations hereunder, or any other instrument or
document contemplated hereby. The Company is eligible to use Form S-3 to effect
the registration under the Securities Act (as defined below) of outstanding
shares of its Common Stock for resale.
3.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the offer,
issuance, sale and delivery of the Shares as contemplated by this Agreement,
except such filings as shall have been made prior to and shall be effective on
and as of the Closing. Based on the representations made by the Purchasers in
Section 4 of this Agreement, the offer and sale of the Shares to the Purchasers
will be in compliance with applicable Federal and state securities laws.
3.7 Absence of Certain Changes or Events. Since the date of the
-------------------------------------
Memorandum, there has not been, occurred or arisen any change in, or any event
(including any damage, destruction or loss whether or not covered by insurance),
condition or state of facts of any character that, individually or in the
aggregate, have or are reasonably likely to have a material adverse effect on
the Company or the Company's ability to perform its obligations hereunder, or
under any other instrument or document contemplated hereby.
3.8 Intellectual Property Matters. The Company and its Subsidiaries
------------------------------
own or possess adequate licenses or other valid rights to use all material
patents, trademarks, service marks trade names, copyrights, trade secrets,
applications for trademarks and service marks, know-how and information and
other proprietary and intellectual property rights used or held for use in
connection with the business of the Company and its Subsidiaries as presently
conducted (including in connection with services provided by the Company and its
Subsidiaries to third parties). To the Company's knowledge, there is no
proceeding challenging the validity of any of the foregoing rights that,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Company and its Subsidiaries taken as a whole. To the
best of the Company's knowledge, there are no infringements of any proprietary
or intellectual property rights owned by or licensed by or to the Company or any
Subsidiary of the Company that, individually or in the aggregate, are reasonably
likely to have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
-4-
<PAGE>
4. Representations of the Purchasers. Each of the Purchasers severally
---------------------------------
represents and warrants to the Company as follows:
4.1 Investment. Such Purchaser is acquiring the Shares for his or
----------
its own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
Exhibits hereto, Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4.2 Authority. Such Purchaser has full power and authority to enter
---------
into and to perform this Agreement in accordance with its terms. Any Purchaser
that is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.3 Experience. Such Purchaser has carefully reviewed the
----------
representations and other information concerning the Company contained in this
Agreement, the Company Reports (including, without limitation, the risk factors
contained therein) and the Memorandum and has made such detailed inquiry
concerning the Company, its business and its personnel as he or it saw fit; the
officers of the Company have made available to such Purchaser any and all
written information which he or it has requested and have answered to such
Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of his
or its investment in the Company and is able financially to bear the risks
thereof.
4.4 Accredited Investor. Such Purchaser is an Accredited Investor
-------------------
within the definition set forth in Rule 501(a) of the Securities Act of 1933, as
amended (the "Securities Act").
--------------
5. Conditions to the Obligations of the Purchasers. The obligation of
-----------------------------------------------
each of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing:
5.1 Accuracy of Representations and Warranties. Each representation
------------------------------------------
and warranty contained in Section 3 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made on
and as of that date.
-5-
<PAGE>
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5.3 Certificates and Documents. The Company shall have delivered to
--------------------------
the Purchasers:
(a) The Certificate of Incorporation of the Company, as amended and in
effect as of the Closing Date (including the Certificate of Designation),
certified by the Secretary of State of the State of Delaware;
(b) Certificates, as of the most recent practicable dates, as to the
corporate good standing of the Company issued by the Secretary of State of the
State of Delaware;
(c) By-laws of the Company, as amended and in effect as of the Closing
Date, certified by its Secretary or Assistant Secretary as of the Closing Date;
and
(d) Resolutions of the Board of Directors of the Company, authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of the
Company as of the Closing Date.
5.4 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers a certificate, executed by the President and Chief Executive Officer
of the Company, dated the Closing Date, certifying to the fulfillment of the
conditions specified in Sections 5.1, 5.2 and 5.3 of this Agreement.
5.5 Opinion of Counsel. The Company shall have furnished to the
-------------------
Purchasers the opinion, dated as of the Closing Date, of its counsel addressed
to the Purchasers, that:
(a) The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware with full corporate power and authority
to own and operate its properties and to conduct its business as set forth in
the Memorandum. To the knowledge of such counsel, the Company's authorized
capital stock is as set forth in the Memorandum and the issued and outstanding
capital stock as of the date of the Memorandum is as set forth in the
Memorandum.
(b) The Shares have been duly and validly authorized and issued and are
fully paid and nonassessable, and no holders of any outstanding shares of
capital stock have any preemptive rights.
-6-
<PAGE>
(c) The Warrant Shares (as defined below), when sold and issued pursuant
to the terms and conditions set forth in the Warrant (as defined below) will
have been duly and validly authorized and issued and will be fully paid and
nonassessable and no holder of any outstanding shares of capital stock will have
any preemption rights.
5.6 Minimum Investment. Purchasers shall have tendered at the
------------------
Closing aggregate consideration not less than $50,000.00 for the purchase of
Shares.
6. Condition to the Obligations of the Company. The obligations of the
-------------------------------------------
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following conditions on or before the Closing:
6.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Purchasers contained in Section 4 shall be true on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
6.2 Minimum Investment. Purchasers shall have tendered at the
------------------
Closing aggregate consideration of not less than $50,000.00 for the purchase of
Shares.
6.3 Questionnaire. Each of the Purchasers shall have completed,
--------------
executed and delivered to the Company or Qualified Purchaser Questionnaire in
the form attached hereto as Exhibit C.
---------
7. Registration Rights.
-------------------
The Purchasers and Flomenhaft (as defined below) shall have the
following registration rights with respect to the Shares issued to them
hereunder:
7.1 Registration Rights. The Company shall utilize reasonable
-------------------
efforts to cause, within forty five (45) days following the Closing Date, a
registration statement on Form S-3 to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Securities
---------- ----------
Act") or an existing registration statement on Form S-3 (the "Registration
- --- ------------
Statement") to be amended for the purpose of registering the Shares, any shares
- ---------
of Common Stock ("Warrant Shares") issued upon exercise of the Common Stock
--------------
Purchase Warrant (the "Warrant") to be distributed to L. Flomenhaft & Co.,
-------
Incorporated ("Flomenhaft") upon the Closing and the shares of Common Stock, if
----------
any, issued pursuant to the last two sentences of this Section 7.1 (the
"Additional Shares"). Flomenhaft shall be a direct and intended beneficiary of
- ------------------
the covenants and provisions of this Article 7 with respect to the Warrant
Shares, for resale on a continuous basis from time to time by a Holder thereof.
For purposes of this Article 7, a person is deemed to be a "Holder" of Shares or
Warrant
-7-
<PAGE>
Shares whenever such person or entity is the record owner of Shares or Warrant
Shares and the term "Shares" shall include any Additional Shares. Thereafter,
the Company will use commercially reasonable best efforts to have the
Registration Statement become effective and cause the Shares and Warrant Shares
to be registered under the Securities Act, and registered, qualified or exempted
under the state securities laws of such jurisdictions as any Holder reasonably
requests, as soon as is reasonably practicable. If the Company fails to file
such Registration Statement within sixty (60) days following the Closing Date,
subject to compliance by the Company with any applicable stockholder approval
requirements imposed by law or any securities exchange or listing organization
then the Company shall issue and deliver (i) to each of the Purchasers a number
of shares of Common Stock equal to ten percent (10%) of the number of Shares
originally issued to such Purchaser pursuant to this Agreement and (ii) to
Flomenhaft a number of warrants equal to ten percent (10%) of the number of
warrants originally issued to Flomenhaft pursuant to this Agreement and the
Placement Agent Agreement (the "Placement Agent Agreement"), dated as of April
-------------------------
21, 1998, by and between the Company and Flomenhaft. If the Company fails to
file the Registration Statement within 120 days of the Closing Date, and within
each subsequent sixty (60) day period thereafter, subject to compliance by the
Company with any applicable stockholder approval requirements imposed by law or
any securities exchange or listing organization then the Company shall issue and
deliver upon the expiration of each such period (y) to each of the Purchasers a
number of shares of Common Stock equal to ten percent (10%) of the number of
Shares originally purchased by such Purchaser pursuant to this Agreement and (z)
to Flomenhaft a number of warrants equal to ten percent (10%) of the number of
warrants originally issued to Flomenhaft pursuant to this Agreement and the
Placement Agent Agreement.
7.2 Expenses of Registration. All expenses incident to the Company's
------------------------
performance of or compliance with this Section 7, including, without limitation,
all registration and filing fees (including all expenses incident to filing with
Nasdaq or any other exchange), fees and expenses of complying with securities
and blue sky laws, printing and copying expenses, fees and expenses of the
Company's counsel and accountants, and the fees and disbursements of all
independent public accountants, and the fees and disbursements of all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) shall be paid by the Company.
7.3 Furnishing of Documents. The Company shall furnish to the
-----------------------
Holders such reasonable number of copies of the Registration Statement, such
prospectuses as are contained in the Registration Statement and such other
documents as the Holders may reasonable request in order to facilitate the
offering of the Shares.
7.4 Amendments and Supplements. The Company shall prepare and
--------------------------
promptly file with the Commission, and promptly notify the Holders of the filing
of
-8-
<PAGE>
such amendments or supplements to the Registration Statement or prospectuses
contained therein, as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to the Shares or Warrants are
required to be delivered under the Securities Act, any event shall have occurred
as a result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company shall
also advise the Holders promptly after it shall receive notice of the issuance
of any stop order by the Commission suspending the effectiveness of the
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued.
If, after a Registration Statement becomes effective, the Holders desire that
the Registration Statement be amended or the Company advises the Holders that
the Company considers it appropriate that the Registration Statement (and all
other registration statements of the Company then effective and outstanding) be
amended, the Holders shall suspend any further sales of the Shares until the
Company advises the Holders that the Registration Statement has been amended.
7.5 Duration. The Company shall maintain the effectiveness of the
--------
Registration Statement until such time as the Company reasonably determines that
the Holders will be eligible to sell all of the Shares then owned by the Holders
without the need for continued registration of the shares, in three month
periods immediately preceding the termination of the effectiveness of the
Registration Statement. The Company's obligations contained in Sections 7.2,
7.3 and 7.4 shall terminate on the second anniversary of the Closing Date.
Notwithstanding the foregoing, (a) the Company may delay filing a Registration
Statement, and may withhold efforts to cause the Registration Statement to
become effective, if the Board of Directors of the Company in its good faith
judgment, determines that any registration of Shares should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other material transaction or
activity involving the Company or any of its subsidiaries (a "Valid Business
--------------
Reason"), (b) the Company may postpone filing a Registration Statement until
- ------
such Valid Business Reason no longer exists, but in no event for more than sixty
(60) days and (c) in case a Registration Statement has been filed, the Company
may cause such Registration Statement to be withdrawn and its effectiveness
terminated or may postpone amending or supplementing such Registration Statement
until such Valid Business Reason no longer exists, but in no event for more than
sixty (60) days (such period of postponement or withdrawal under sub clause (b)
or (c) above, the "Postponement Period"); and the Company shall give written
-------------------
notice of its determination to postpone or withdraw a Registration Statement and
of the fact that the Valid Business Reason for such postponement or withdrawal
no longer exists, in each case promptly after the
-9-
<PAGE>
occurrence thereof; provided, however, the Company shall not be permitted to
postpone or withdraw a Registration Statement within seventy five (75) days
after the expiration of any Postponement Period. The Holder agree that, upon
receipt of any notice from the Company that the Company has determined to
postpone or withdraw any Registration Statement, the Holder will discontinue any
disposition of Shares pursuant to such Registration Statement and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such Holder's possession
of the prospectus covering such Shares that was in effect at the time of receipt
of such notice. If the Company shall give any notice of withdrawal or
postponement of a registration statement, the Company shall, at such time as the
Valid Business Reason that caused such withdrawal or postponement no longer
exists (but in no event later than three months after the date of the
postponement or withdrawal), use its reasonable efforts to effect the
registration under the Securities Act of Shares covered by the withdrawn or
postponed registration statement in accordance with Section 7.1.
7.6 Further Information. If the Shares owned by a Holder are
-------------------
included in any registration, such Holder shall furnish the Company such
information regarding itself as the Company may reasonably request and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement.
7.7 Indemnification.
---------------
(i) The Company will indemnify and hold harmless the
Holders and each person, if any, who controls a Holder within the meaning of the
Securities Act, from and against any and all losses, damages, liabilities, costs
and expenses to which the Holders or any such controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities, costs or expenses are caused by any untrue statement of
any material fact contained in the Registration Statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or
based upon the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that, the Company will not be liable in any such case to the extent that any
such loss, claim, damage, liability, cost or expense arises out of or is based
upon an untrue statement or omission so made in conformity with information
furnished by or on behalf of any Holder or such controlling person in writing
specifically for use in the preparation thereof.
(ii) Each of the Holders will indemnify and hold harmless
the Company and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any and all losses, damages,
liabilities, costs and
-10-
<PAGE>
expenses to which the Buyer or any such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement of any
material fact contained in the Registration Statement, any prospectus contained
therein or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, to the extent and only to the extent that
such untrue statement or omission was so made in reliance upon and in strict
conformity with written information furnished by or on behalf of such Holder
specifically for use in the preparation thereof.
8. Transfer of Shares.
------------------
8.1 Restricted Shares. "Restricted Shares" means (i) the Shares and
----------------- -----------------
(ii) any other shares of capital stock of the Company issued in respect of such
shares (as a result of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
-------- -------
Stock which are Restricted Shares shall cease to be Restricted Shares (i) upon
any sale pursuant to the Registration Rights Agreement, Section 4(1) of the
Securities Act or Rule 144 under the Securities Act or (ii) at such time as they
become eligible for sale under Rule 144(k) under the Securities Act.
8.2 Requirements for Transfer.
-------------------------
(a) Restricted Shares shall not be sold, pledged, hypothecated or
otherwise disposed of or transferred unless either (i) they first shall have
been registered under the Securities Act, or (ii) the Company first shall have
been furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Purchaser which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 8 to the same extent as if he were an original
Purchaser hereunder, or (ii) a transfer made in accordance with Rule 144 under
the Securities Act.
-11-
<PAGE>
8.3 Legend. Each certificate representing Restricted Shares shall
------
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be offered, sold or
otherwise transferred, pledged or hypothecated unless and until such shares
are registered under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
9. Miscellaneous.
-------------
9.1 Successors and Assigns; Assignment. The provisions of this
----------------------------------
Agreement shall be binding upon, and inure to the benefit of, the respective
successors, assigns, and heirs, executed and minus of the parties hereto. This
Agreement, and the rights and obligations of a Purchaser hereunder, may not be
assigned by such Purchaser to any person or entity without the prior written
permission of the Company.
9.2 Confidentiality. Each of the Purchasers agrees that he or it
---------------
will keep confidential and will not use, disclose or divulge any confidential,
proprietary or secret information which such Purchaser may obtain from the
Company pursuant to financial statements, reports and other materials submitted
by the Company to the Purchaser pursuant to this Agreement, unless such
information is known, or until such information becomes known, to the public;
provided, however, that such Purchaser may disclose such information to his or
its attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their services in connection with the Purchaser's investment
in the Company provided that such persons agree to maintain the confidentiality
of such information.
9.3 Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at 13595 Dulles Technology Drive, Herndon, Virginia
22071, Attention: President, or at such other address or addresses as may have
been furnished in writing by the Company to the Purchasers, with a copy to David
Sylvester, Esq., Hale
-12-
<PAGE>
and Dorr LLP, The Willard Office Building, 1455 Pennsylvania Avenue, N.W., Suite
1000, Washington, D.C. 20004;
If to a Purchaser, at his or its address set forth on Exhibit A, or at such
---------
other address or addresses as may have been furnished to the Company in writing
by such Purchaser; or
If to Flomenhaft, at 225 West 34th Street, Suite 2008, New York, New York
10122, Attention: Ted Flomenhaft or at such other address or addresses as may
have been furnished in writing by Flomenhaft to the Company or the Purchasers,
with a copy to Eric Simonson, Esq., Kronish, Lieb, Weiner & Hellman LLP, 1114
Avenue of the America, New York, New York 10036.
Notices provided in accordance with this Section 9.3 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
9.4 Brokers. Each of the Company and the Purchaser (i) represents
-------
and warrants to the other parties hereto that other than Flomenhaft he or it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) will indemnify and save the other
parties harmless from and against any and all claims, liabilities or obligations
with respect to brokerage or finders' fees or commissions, or consulting fees
incurred by such party in connection with the transactions contemplated by this
Agreement except for such fees payable to Flomenhaft asserted by any person on
the basis of any statement or representation alleged to have been made by such
indemnifying party.
9.5 Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter.
9.6 Amendments and Waivers. Except as otherwise expressly set forth
----------------------
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the Purchaser. Any amendment or waiver effected in accordance
with this Section 9.6 shall be binding upon each holder of any Shares (including
shares of Common Stock into which such Shares have been converted) and each
future holder of all such securities and the Company. No failure or delay of
any party to this Agreement in exercising any power or right under this
Agreement will operate as a waiver thereof, and no waivers of or exceptions to
any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
-13-
<PAGE>
9.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall be one and the same document.
9.8 Section Headings. The section headings are for the convenience
----------------
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
9.9 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
9.10 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
-14-
<PAGE>
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
THE COMPANY:
NETRIX CORPORATION
By:
--------------------------------
--------------------------------------
THE PURCHASERS:
--------------------------------------
Jonathan Eilian
--------------------------------------
Steven Nodvin
--------------------------------------
Edelpraud Elper-Nodvin
--------------------------------------
Kasper Terhorst
GALT FINANCIAL, LTD.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
--------------------------------------
John Theodoracopules
G-V CAPITAL CORP.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
--------------------------------------
Kevin Muzin
--------------------------------------
Adam Hershey
--------------------------------------
Jonathan Rothschild
--------------------------------------
Leonard Flomenhaft
-15-
<PAGE>
EXHIBIT A
---------
Name and Address No. of Shares of Aggregate
of the Purchasers Common Stock Purchase Price
- ----------------- ---------------- --------------
Jonathan Eilian 32,000 $ 40,000
c/o Starwood Capital
3 Pickwick Plaza (250)
Greenwich, CT 06830
Stephen Nodvin and Edelpraud
Elper-Nodvin 40,000 $500,000
TeleVideo Global, inc.
448 North Cedar Bluff Road, #350
Knoxville, TN 37923-9906
Kasper Terhorst 12,000 $ 15,000
4477 F Shadow Hills Blvd.
Santa Barbara, CA 93105
Galt Financial, Ltd. 40,000 $ 50,000
125 West Shore Road
Huntington, NY 11743
John Theodoracopules 20,000 $ 25,000
National Shipping
545 Madison Avenue, 6th Floor
New York, NY 10022
G-V Capital Corp. 40,000 $ 50,000
Stanley Kaplan
150 Vanderbilt Motor Parkway
Suite 311
Hauppage, NY 11788
Kevin Muzin 4,000 $ 5,000
181 Housatonic Avenue
Stratford, CT 06497
Adam Hershey 8,000 $ 10,000
2025 Broadway 2G
New York, NY 20023
Jonathan Rothschild 20,000 $ 25,000
300 Mercer Street, #28F
New York, NY 10003-6742
Leonard Flomenhaft 14,000 $ 17,500
L. Flomenhaft & Company, Inc.
225 West 34th Street (2008)
New York, NY 10122
-16-
<PAGE>
Exhibit 10.20
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
---------------------------------------------------
Warrant No. PP1 Number of Shares: 140,000
(subject to adjustment)
Date of Issuance: April 24, 1998
NETRIX CORPORATION
Common Stock Purchase Warrant
-----------------------------
(Void after April 23, 2003)
Netrix Corporation, a Delaware corporation (the "Company"), for value
-------
received, hereby certifies that L. Flomenhaft & Co., Incorporated, or its
registered assigns (the "Registered Holder"), is entitled, subject to the terms
-----------------
set forth below, to purchase from the Company, at any time or from time to time
on or before April 23, 2003 at not later than 5:00 p.m. (Washington, D.C. time),
140,000 shares of Common Stock, $0.05 par value per share, of the Company, at a
purchase price of $1.75 per share. The shares purchasable upon exercise of this
Warrant, and the purchase price per share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Shares" and the "Purchase Price," respectively.
- --------------- --------------
1. Exercise.
--------
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit I duly executed by such Registered Holder or by such Registered
---------
Holder's duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment
in full, in lawful money of the United States, of the Purchase Price payable in
respect of the number of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some or all
of the Purchase Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Purchase Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (ii) the excess
of the Fair Market Value per share
<PAGE>
of Common Stock as of the effective date of exercise, as determined pursuant to
subsection 1(c) below (the "Exercise Date") over the Purchase Price per share.
-------------
If the Registered Holder wishes to exercise this Warrant pursuant to this method
of payment with respect to the maximum number of Warrant Shares purchasable
pursuant to this method, then the number of Warrant Shares so purchasable shall
be equal to the total number of Warrant Shares, minus the product obtained by
multiplying (x) the total number of Warrant Shares by (y) a fraction, the
numerator of which shall be the Purchase Price per share and the denominator of
which shall be the Fair Market Value per share of Common Stock as of the
Exercise Date. The Fair Market Value per share of Common Stock shall be
determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the NASDAQ National Market, the NASDAQ system, or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value per
share of Common Stock shall be deemed to be the last reported sale price per
share of Common Stock thereon on the Exercise Date; or, if no such price is
reported on such date, such price on the next preceding business day (provided
that if no such price is reported on the next preceding business day, the Fair
Market Value per share of Common Stock shall be determined pursuant to clause
(ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the NASDAQ National Market, the NASDAQ system or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the amount most recently
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall promptly
notify the Registered Holder of the Fair Market Value per share of Common Stock.
Notwithstanding the foregoing, if the Board of Directors has not made such a
determination within the three-month period prior to the Exercise Date, then (A)
the Fair Market Value per share of Common Stock shall be the amount next
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company), (B) the Board of Directors shall make
such a determination within 15 days of a request by the Registered Holder that
it do so, and (C) the exercise of this Warrant pursuant to this subsection 1(b)
shall be delayed until such determination is made.
(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 this
Warrant shall have
-2-
<PAGE>
been surrendered to the Company as provided in subsection 1(a) above. At such
time, the person or persons in whose name or names any certificates for Warrant
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) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the sum of (a) the number of such shares purchased by
the Registered Holder upon such exercise plus (b) the number of Warrant Shares
(if any) covered by the portion of this Warrant cancelled in payment of the
Purchase Price payable upon such exercise pursuant to subsection 1(b) above.
2. Adjustments.
-----------
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price,
the number of Warrant Shares purchasable upon the exercise of this Warrant shall
be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
-3-
<PAGE>
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, then, as
part of any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in subsection 2(a) or (b) above.
3. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to subsection 1(b) above.
4. Requirements for Transfer.
-------------------------
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership
-4-
<PAGE>
to a partner of such partnership or a retired partner of such partnership who
retires after the date hereof, or to the estate of any such partner or retired
partner, if the transferee agrees in writing to be subject to the terms of this
Section 4, or (ii) a transfer made in accordance with Rule 144 under the Act.
(c) Each certificate representing Warrant Shares (unless at the time
of exercise the Warrant Shares have been sold pursuant to a registration
statement under the Act) shall bear a legend substantially in the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH
SECURITIES ARE REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. No Impairment. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
- ---------------------
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
---------------------------
-5-
<PAGE>
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
8. Reservation of Stock; Character of Warrant Shares. The Company will
-------------------------------------------------
at all times reserve and keep available, solely for issuance and delivery upon
the exercise of this Warrant, such number of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant. All Warrant Shares issuable upon the exercise of this
Warrant, when paid or in accordance with this Warrant, shall be duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock of the
Company.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
--------------------
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered
-6-
<PAGE>
Holder (upon payment by such Registered Holder of any applicable transfer taxes)
may direct, calling in the aggregate on the face or faces thereof for the number
of shares of Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Transfers, etc.
--------------
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit II
----------
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
-------- -------
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
12. Mailing of Notices, etc. All notices and other communications from
-----------------------
the Company to the Registered Holder of this Warrant shall be mailed by first-
class certified or registered mail, postage prepaid, to the address furnished to
the Company in writing by the last Registered Holder of this Warrant who shall
have furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in
-7-
<PAGE>
this Warrant to the location of its principal office at the particular time
shall be as so specified in such notice.
13. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be changed or waived
----------------
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
15. Headings. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
-------------
accordance with the laws of the State of Delaware.
NETRIX CORPORATION
By:
-------------------------------------
[Corporate Seal] Title:
----------------------------------
ATTEST:
- ----------------------------
-8-
<PAGE>
EXHIBIT I
---------
PURCHASE FORM
-------------
To: Dated:
----------------- ------------------
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full purchase price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[_] $_________ in lawful money of the United States, and/or
[_] the cancellation of such portion of the attached Warrant as is
exercisable for a total of ______ Warrant Shares (using a Fair Market Value
of $_______ per share for purposes of this calculation).
Signature:
--------------------------
Address:
----------------------------
----------------------------
-9-
<PAGE>
EXHIBIT II
----------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under
the attached Warrant (No. ____) with respect to the number of shares of Common
Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature:
---------------- --------------------------
Dated: Witness:
---------------- ----------------------------
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,768
<SECURITIES> 0
<RECEIVABLES> 7,119
<ALLOWANCES> 1,161
<INVENTORY> 8,263
<CURRENT-ASSETS> 17,501
<PP&E> 4,769
<DEPRECIATION> 18,550
<TOTAL-ASSETS> 23,336
<CURRENT-LIABILITIES> 7,803
<BONDS> 0
0
0
<COMMON> 482
<OTHER-SE> 15,051
<TOTAL-LIABILITY-AND-EQUITY> 23,336
<SALES> 4,995
<TOTAL-REVENUES> 7,241
<CGS> 2,109
<TOTAL-COSTS> 3,523
<OTHER-EXPENSES> 4,711
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> (952)
<INCOME-TAX> 0
<INCOME-CONTINUING> (952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (952)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
