<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ______
COMMISSION FILE NUMBER 0-29048
ACCENT COLOR SCIENCES, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-1380314
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 CONNECTICUT BOULEVARD, EAST HARTFORD, CONNECTICUT 06108
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (860) 610-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the registrant's common stock as of October
31, 1999 was 18,865,865.
<PAGE> 2
ACCENT COLOR SCIENCES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements................................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 16
Item 2. Changes in Securities and Use of Proceeds............................. 16
Item 3. Defaults Upon Senior Securities....................................... 16
Item 4. Submission of Matters to a Vote of Security Holders................... 16
Item 5. Other Information..................................................... 16
Item 6. Exhibits and Reports on Form 8-K...................................... 16
Signatures ...................................................................... 17
</TABLE>
2
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ACCENT COLOR SCIENCES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,456,989 $ 1,048,425
Accounts receivable 282,100 1,321,782
Inventories (Note 3) 1,990,620 2,269,016
Prepaid expenses and other assets 217,992 216,564
------------ ------------
Total current assets 3,947,701 4,855,787
Fixed assets, net 1,316,689 1,933,043
Other assets, net 70,983 71,575
------------ ------------
Total assets $ 5,335,373 $ 6,860,405
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Obligations under capital leases $ 35,916 $ 64,014
Accounts payable 982,151 961,626
Accrued expenses 778,249 588,966
Customer advances and deposits 920,000 --
Deferred revenue 874,000 595,000
Note payable, net of discount (Note 4) 486,000 --
------------ ------------
Total current liabilities 4,076,316 2,209,606
------------ ------------
Obligation under capital leases -- 23,116
Long-term debt, net of discount (Note 6) 2,334,746 2,235,593
Other long-term liabilities 510,115 601,759
------------ ------------
Total non-current liabilities 2,844,861 2,860,468
------------ ------------
Total liabilities 6,921,177 5,070,074
------------ ------------
Mandatorily redeemable convertible preferred stock,
no par value, 500,000 shares authorized, 1,828 and 3,500
issued and outstanding (Note 5) 2,372,953 3,097,368
------------ ------------
Shareholders' equity (deficit):
Common stock, no par value, 35,000,000
shares authorized, 18,865,862 and 12,841,881
shares issued and outstanding 47,630,061 46,307,927
Accumulated deficit (51,588,818) (47,614,964)
------------ ------------
Total shareholders' equity (deficit) (3,958,757) (1,307,037)
------------ ------------
Total liabilities, mandatorily redeemable convertible
preferred stock and shareholders' equity (deficit) $ 5,335,373 $ 6,860,405
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue (Note 2) $ 1,475,004 $ 664,689 $ 6,328,909 $ 2,002,939
Costs and expenses:
Costs of production 1,318,789 861,495 5,824,721 3,638,749
Research and development 538,612 895,614 2,152,184 3,423,716
Marketing, general and administrative 631,321 885,268 2,024,641 3,004,740
------------ ------------ ------------ ------------
2,488,722 2,642,377 10,001,546 10,067,205
------------ ------------ ------------ ------------
Other (income) expense:
Interest expense 118,040 81,740 312,823 96,833
Interest income (3,748) (31,427) (11,606) (103,122)
------------ ------------ ------------ ------------
114,292 50,313 301,217 (6,289)
------------ ------------ ------------ ------------
Net loss (1,128,010) (2,028,001) (3,973,854) (8,057,977)
Imputed dividend on preferred stock (Note 5) -- -- -- (920,000)
------------ ------------ ------------ ------------
Accretion to redemption value on mandatorily
redeemable convertible preferred stock (Note 5) 396,009 -- (780,145) --
------------ ------------ ------------ ------------
Net loss applicable to common stock $ (732,001) $ (2,028,001) $ (4,753,999) $ (8,977,977)
============ ============ ============ ============
Net loss (basic & diluted) per common share $ (.04) $ (.16) $ (.30) $ (.74)
============ ============ ============ ============
Weighted average common shares
Outstanding 18,021,641 12,440,308 15,688,027 12,212,415
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before accretion to redemption value on
mandatorily redeemable convertible preferred
stock
And imputed dividend $(3,973,854) $(8,057,977)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 825,858 893,588
Loss on disposal of fixed assets 91,313 15,706
Changes in assets and liabilities:
Accounts receivable 1,039,682 (564,587)
Inventories 278,396 (2,005,978)
Prepaid expenses and other assets (1,428) 201,717
Accounts payable and accrued expenses 209,808 (417,918)
Customer advances and deposits 920,000 (85,600)
Deferred revenue 279,000 1,784,600
Other long-term liabilities (91,644) 56,071
----------- -----------
Net cash used in operating activities (422,869) (8,180,378)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 49,195 6,875
Purchases of fixed assets (234,267) (138,374)
Cost of patents -- (17,825)
----------- -----------
Net cash used in investing activities (185,072) (149,324)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (51,214) (44,984)
Proceeds from issuance of debt 470,000 --
Proceeds from issuance of warrants 80,000 325,000
Net proceeds from issuance of common stock 502,719 --
Proceeds from exercise of options & warrants -- 44,625
Common stock issued to service provider 15,000 --
Net proceeds from issuance of preferred
stock through offerings and conversion of debt -- 3,921,038
Increase in long term debt -- 2,175,000
----------- -----------
Net cash provided by financing activities 1,016,505 6,420,679
----------- -----------
Net increase (decrease) in cash and cash
equivalents 408,564 (1,909,023)
Cash and cash equivalents at beginning of
period 1,048,425 4,005,563
----------- -----------
Cash and cash equivalents at end of period $ 1,456,989 $ 2,096,540
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
<S> <C> <C> <C> <C>
DECEMBER 31, 1997 11,989,855 $ 45,114,633 $(37,845,111) $ 7,269,522
Proceeds from sale of warrants -- 810,000 -- 810,000
Imputed dividend on mandatorily
redeemable convertible preferred
stock -- (920,000) -- (920,000)
Exercise of options 37,500 44,625 -- 44,625
Conversion of mandatorily
redeemable convertible preferred
stock 814,526 933,669 -- 933,669
Warrants issued with debt -- 325,000 -- 325,000
Net loss before imputed dividend (9,769,853) (9,769,853)
---------- ------------ ------------ ------------
DECEMBER 31, 1998 12,841,881 46,307,927 (47,614,964) (1,307,037)
Conversion of mandatorily
redeemable convertible preferred
stock 4,863,984 1,504,560 -- 1,504,560
Accretion to redemption
Amount (Note 5) -- (780,145) -- (780,145)
Common stock issued to
service provider 60,000 15,000 -- 15,000
Warrants issued with debt -- 80,000 -- 80,000
Proceeds from sale (Note 4) 1,100,000 502,719 -- 502,719
Net loss (3,973,854) (3,973,854)
---------- ------------ ------------ ------------
SEPTEMBER 30, 1999 (UNAUDITED) 18,865,865 $ 47,630,061 $(51,588,818) $ (3,958,757)
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
ACCENT COLOR SCIENCES, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM CONDENSED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly its financial position as of September
30, 1999 and the results of operations and cash flows for the nine months ended
September 30, 1999 and 1998. The December 31, 1998 balance sheet has been
derived from the Company's audited financial statements at that date. These
interim condensed financial statements should be read in conjunction with
Management's Discussion and Analysis and financial statements included in the
Company's Annual Report for the year ended December 31, 1998.
The results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of these financial
statements are as follows:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
The Company has established warranty policies that, under specific conditions,
enable customers to return products. The Company provides reserves for potential
returns and allowances and warranty costs at the time of revenue recognition.
The Company recognizes revenue when it establishes sufficient warranty
experience to estimate future warranty costs or, for new products, when the
warranty period has expired. Prior to October 1, 1998, the Company did not have
adequate information and experience to estimate potential returns, allowances
and warranty costs, and accordingly, revenue resulting from Truecolor Systems
was deferred until the end of the warranty period. During the fourth quarter of
1998, the Company concluded that it had adequate warranty information and
experience to begin recognizing revenue upon the shipment of systems to its
original OEM customer. Revenue is generally recognized upon product shipment for
spare parts and consumables.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials and components $ 496,735 $1,185,529
Work-in-process 519,805 299,271
Finished goods 974,080 784,216
---------- ----------
$1,990,620 $2,269,016
========== ==========
</TABLE>
4. INTERIM FINANCING
On September 7, 1999, the Company received $502,719 from the sale of 1,100,000
shares of common stock. In conjunction with this sale of common stock the
Company issued 550,000 warrants to purchase common stock at an exercise price of
the lower of $0.50 per share of common stock or the per share common stock
equivalent price in the Company's next equity offering in which the Company
receives net proceeds of at least $1,100,000. On the same day, the Company also
sold $550,000 worth of Series A Convertible Subordinated Notes. In conjunction
with the sale of the Notes the Company issued 275,000 warrants to purchase
common stock. It also issued 275,000 warrants to purchase common stock
contingent upon the Noteholders converting their notes to common stock. The
warrants were issued at an exercise price of the lower of $0.50 per share of
common stock or the per share common stock equivalent price in the Company's
next equity offering in which the Company receives net proceeds of at least
$1,100,000. The Notes accrue interest at the rate of 7% per year.
7
<PAGE> 8
ACCENT COLOR SCIENCES, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
Pursuant to provisions in certain warrant agreements, anti-dilution adjustments
are to be made to the exercise price and/or the number of common shares
purchasable under the warrant in certain circumstances. During 1999, adjustments
were made to previously issued warrants that will increase the number
outstanding by 40,770 giving a total of 3,093,377 warrants outstanding on
September 30, 1999. The range of exercise prices for the warrants is from $0.50
to $6.66. The range on June 30, 1999 was from $1.00 to $7.04. From June 30, 1999
to September 30, 1999, 825,000 new warrants have been issued.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In December 1997, the Company's Board of Directors designated a series of 4,500
shares of the Company's previously authorized preferred stock, no par value per
share, to be designated as the Series B Convertible Preferred Stock ("Series B
Stock"). On January 13, 1998 the Company completed a private equity financing
providing net proceeds to the Company of $3.9 million. In connection with the
financing, the Company issued 4,500 shares of Series B Stock at a price of
$1,000 per share and warrants to purchase the Company's common stock. The
warrants issued are exercisable into 300,000 shares of common stock with an
exercise price of $2.75 and an expiration date of January 9, 2003. Additionally,
warrants exercisable into 115,385 shares of common stock with an exercise price
of $2.50 and an expiration date of January 9, 2003 were issued to the placement
agent for services provided. In connection with the sale of the units, the
Company agreed to register the common stock issuable upon the conversion of the
Series B Stock and the exercise of the warrants.
The Series B Stock, no par value per share, is convertible into such number of
shares of common stock as is determined by dividing the stated value ($1,000) of
each share of Series B Stock (as such value is increased by an annual premium of
6%) by the then current conversion price of the Series B Stock (which is
determined, generally, by reference to 85% of the average of the closing market
price of the common stock during the five consecutive trading days immediately
preceding the date of determination) subject to certain restrictions and
adjustments. The Series B Stock has voting rights as defined in the Company's
Certificate of Incorporation, bears no dividends and ranks senior to the
Company's common stock. In the event of any voluntary or involuntary liquidation
of the Company, the Series B holders shall be entitled to a liquidation
preference equal to the stated value of the stock plus the accrued premium
through the date of final distribution. Upon occurrence of specific events, as
defined in the agreement, the holder may redeem the Series B Stock for cash. The
Company, however, has the unilateral right to pre-empt the right of holders of
the Series B Stock from demanding cash redemption of their shares by paying to
them within five days of the specific event, as liquidated damages, 25% of the
face amount of the Series B Stock then outstanding. Such liquidated damages can
be paid in cash or shares at the Company's election. The Company also has
optional redemption rights.
The Company initially reserved 6,300,000 shares of common stock for issuance
pursuant to the conversion of the Series B Stock. This number of shares
represented an estimate based on 200% of the number of common shares that would
have been issuable upon conversion with an exercise price of $1.875 per share
(4,800,000) plus 1,500,000 shares issuable under the terms of the Certificate of
Designation in the event of certain failures by the Company to comply with
various provisions thereof, including maintaining its common stock listing on
the NASDAQ Stock Market. In addition, 415,385 shares of common stock, subject to
adjustments in accordance with the terms of each warrant, were reserved for
issuance pursuant to the exercise of the warrants described above.
On August 10, 1998 and March 22, 1999, pursuant to the terms of the Certificate
of Designation and approval by the Board of Directors, the Company increased the
number of reserved shares of common stock for issuance upon the conversion of
the Series B Stock by 2,567,652 and 3,833,699 shares, respectively. This was
done because the reserved amount had fallen below 135% of the number of shares
of common stock issuable upon conversion of the then outstanding shares of
Series B Stock. The actual number of shares issuable upon conversion could be
materially less or more than this number depending on factors that cannot be
predicted by the Company. The number of shares issuable upon conversion is
dependent on the market price of the common stock at the time of the conversion.
As of September 30, 1999, 2,672 shares of Series B Stock had been converted into
5,678,510 shares of common stock at an average conversion price of $0.58 per
share.
8
<PAGE> 9
ACCENT COLOR SCIENCES, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
The Company's common stock was delisted from the NASDAQ Stock Market effective
March 17, 1999 as the Company was not in compliance with NASDAQ's minimum bid
price and net tangible asset level. Consequently, each holder of the Company's
Series B Stock had the right to require the Company to redeem such holder's
shares of Series B Stock at a redemption price specified in the Company's
Certificate of Incorporation.
On April 6, 1999, the Company elected to forgo its right to prevent demand
redemption on its outstanding shares of Series B Preferred Stock , which
resulted in the reclassification of 2,028 shares of the Series B Stock at a
carrying value of $1,767,076 into Mandatorily Redeemable Convertible Preferred
Stock. An additional $1,176,154 was accreted to Redeemable Preferred Stock to
reflect the increase in redemption value from April 6, 1999 to June 30, 1999 in
accordance with the redemption price specified in the Company's Certificate of
Incorporation. Such accretion was charged against common stock and also
increased the net loss applicable to common shareholders.
From June 30, 1999 to September 30, 1999 a decrease of $396,009 in the
redemption value of the Series B Preferred Stock was credited to common stock
and also decreased the net loss applicable to common shareholders. As of
September 30, 1999 there were 7,022,841 shares of common stock reserved for
issuance pursuant to the conversion of the 1,828 shares of Redeemable Preferred
Stock issued and outstanding. The features and rights of the Redeemable
Preferred Stock remain the same as those explained with the exception that the
remaining holders may demand redemption of their outstanding shares at any point
in time.
6. MODIFICATION OF DEBT TERMS
On August 2, 1999, the Company and IBM Corporation entered into an agreement to
defer the interest payments owed by ACS to IBM arising out of the original Loan
Agreement between the two companies dated July 21, 1998. This modification
provides that the interest payments of approximately $63,000 due on the first
day of each quarter during 1999 be deferred until December 31, 2000. Beginning
with the interest payment due on January 1, 2000, the Company, however, is to
make interest payments on the first day of each quarter during 2000 as required
by the original Loan Agreement.
9
<PAGE> 10
ACCENT COLOR SCIENCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998.
Total Net Sales. The Company currently sells its Truecolor system with a 90-day
warranty, which starts when the printer is installed at the end-user customer
site. The Company recognizes revenue when it has established sufficient warranty
experience to estimate future warranty costs or, for new products, when the
warranty period has expired. Prior to the quarter ended December 31, 1998, the
Company deferred revenue on printer shipments until the end of the 90-day
warranty period. During the quarter ended December 31, 1998, the Company, in
accordance with its revenue recognition policy on printer sales, concluded that
it had adequate warranty experience to begin recognizing revenue upon shipment
of printers to its primary OEM customer. As of September 30, 1999 the Company
had deferred revenue of $874,000 related to Truecolor Systems shipped. Total net
sales were $1,475,000 for the three months ended September 30, 1999 compared to
$665,000 for the three months ended September 30, 1998. Printer sales
represented 61% of total net sales for the three months ended September 30, 1999
while sales of consumables and spare parts represented 39%.
Backlog. At September 30, 1999, the Company has a backlog of 57 systems. The
Company has a contractual commitment for an additional 50 systems.
Printers. Printer sales were $903,000 for the three months ended September 30,
1999 compared to $140,000 for the three months ended September 30, 1998. During
the third quarter of 1998, revenue from printer shipments was deferred until the
end of the warranty period, resulting in revenue recognition on a total of 1
system. Revenue for the third quarter of 1999 reflected the shipment of 7 new
systems.
Consumables and Spare Parts Sales. Consumables and spare parts sales were
$572,000 for the three months ended September 30, 1999 compared to $525,000 for
the three months ended September 30, 1998. This increase of 9% was due to a
larger installed printer base in the third quarter of 1999 compared to 1998
resulting in the consumption of more ink and spare parts.
Costs of Production. Costs of production increased 53% from $861,000 for the
three months ended September 30, 1998 to $1,319,000 for the three months ended
September 30, 1999. This increase was attributed to the cost of goods sold
related to increased sales of printers and consumables totaling $673,000 and was
offset by a decrease in other production related costs totaling $215,000.
Research and Development Expenses. Research and development expenses primarily
consist of the cost of personnel and equipment needed to conduct the Company's
research and development efforts, including manufacturing prototype systems.
Research and development expenses decreased 40% from $896,000 for the three
months ended September 30, 1998 to $539,000 for the three months ended September
30, 1999 as the Company continued to direct its efforts toward production and
market development with less significant emphasis on research and development.
The decrease in research and development was primarily attributed to a reduction
in payroll and related costs due to a reduction in personnel.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses decreased 29% from $885,000 for the three months ended
September 30, 1998 to $631,000 for the three months ended September 30, 1999.
This decrease was primarily due to a reduction in payroll related costs due to
headcount reductions in addition to a decrease in general, professional and
consulting costs. These items were offset by an increase of $31,000 reflecting
higher payroll related costs necessary to maintain skilled service technicians.
Interest Expense and Other (Income) Expense. Interest expense increased from
$82,000 for the three months ended September 30, 1998 to $118,000 for the three
months ended September 30, 1999. This increase was attributed to interest and
debt discount amortization on the IBM loan, which was obtained by the Company in
July 1998. Interest income decreased from $31,000 for the three months ended
September 30, 1998 to $4,000 for the three months
10
<PAGE> 11
ACCENT COLOR SCIENCES, INC.
ended September 30, 1999. This decrease in interest income was attributed to a
greater amount of cash available for investment in the third quarter of 1998 due
to the private equity financing completed in January 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998.
Total Net Sales. Total net sales were $6,329,000 for the nine months ended
September 30, 1999 compared to $2,003,000 for the nine months ended September
30, 1998. Printer sales represented 77% of total net sales for the nine months
ended September 30, 1999 while sales of consumables and spare parts represented
23%.
Printers. Printer sales were $4,899,000 for the nine months ended September 30,
1999 compared to $827,000 for the nine months ended September 30, 1998. In the
first nine months of 1998, revenue from printer shipments was deferred until the
end of the warranty period, resulting in revenue recognition on a total of 9
systems of which 2 were Truecolor System upgrades. Revenue for the first nine
months of 1999 reflected the shipment of 37 new systems and 3 system upgrades.
Consumables and Spare Parts Sales. Consumables and spare parts sales were
$1,430,000 for the nine months ended September 30, 1999 compared to $1,176,000
for the nine months ended September 30, 1998. This increase of 22% was due to a
larger installed printer base in the first nine months of 1999 compared to the
first nine months of 1998 resulting in the consumption of more ink and spare
parts.
Costs of Production. Costs of production increased 60% from $3,639,000 for the
nine months ended September 30, 1998 to $5,825,000 for the nine months ended
September 30, 1999. This increase was attributed to the cost of goods sold
related to increased sales of printers and consumables totaling $3,375,000 and
was offset by a decrease in other production related costs totaling $1,189,000.
Research and Development Expenses. Research and development expenses primarily
consist of the cost of personnel and equipment needed to conduct the Company's
research and development efforts, including manufacturing prototype systems.
Research and development expenses decreased 37% from $3,424,000 for the nine
months ended September 30, 1998 to $2,152,000 for the nine months ended
September 30, 1999 as the Company continued to direct its efforts toward
production and market development with less significant emphasis on research and
development. The decrease in research and development was primarily attributed
to the following: (i) a reduction in payroll and related costs due to the
reduction in personnel and (ii) a decrease in materials, supplies and equipment
associated with research and development activities.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses decreased 33% from $3,005,000 for the nine months ended
September 30, 1998 to $2,025,000 for the nine months ended September 30, 1999.
This decrease was primarily due to a reduction in payroll related costs due to
headcount reductions and the funding of the Company's Marketing personnel by IBM
in addition to a decrease in general, professional and consulting costs. These
items were offset by an increase of $150,000 reflecting higher payroll related
costs necessary to maintain skilled service technicians.
Interest Expense and Other (Income) Expense. Interest expense increased from
$97,000 for the nine months ended September 30, 1998 to $313,000 for the nine
months ended September 30, 1999. This increase was attributed to interest and
debt discount amortization on the IBM loan, which was obtained by the Company in
July 1998. Interest income decreased from $103,000 for the nine months ended
September 30, 1998 to 12,000 for the nine months ended September 30, 1999. This
decrease in interest income was attributed to a greater amount of cash available
for investment in the first quarter of 1998 due to the private equity financing
completed in January 1998.
11
<PAGE> 12
ACCENT COLOR SCIENCES, INC.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for funding has continued from period to period as it has
increased its marketing, sales and service efforts, continued its research and
development activities for the enhancement of Truecolor systems and increased
production of Truecolor systems. To date, the Company has financed its
operations through customer payments, borrowings and the sale of equity
securities.
Operating activities consumed $8.2 million in cash during the first nine months
of 1998 compared to $423,000 in the first nine months of 1999. This decrease in
cash utilized was primarily attributed to a decrease in the net loss of the
Company, a decrease in inventory purchases, an increase in payments from
customers and a slowdown in the payment of accounts payable.
Capital expenditures increased from $138,000 for the nine months ended September
30, 1998 to $234,000 for the nine months ended September 30, 1999. Capital
expenditures during the nine months of 1999 primarily reflected acquisitions of
equipment to support the Company's value engineering activities. The Company has
no significant capital expenditure commitments at September 30, 1999.
As of September 30, 1999, the Company's primary source of liquidity was cash and
cash equivalents totaling $1,457,000. Based on the current operating plan of the
Company, the primary requirements for cash through the remainder of 1999 will be
to fund operating losses, commercial production of the enhanced Truecolor
System, marketing and sales activities and the further development and
enhancement of the Company's products. The Company's currently planned research
and development activities are focused on value engineering to improve system
profit margin and developing higher resolution ink jet printing and other
enhancements to the Truecolor Systems.
On September 7, 1999, the Company received $502,719 from the sale of 1,100,000
shares of common stock. In conjunction with this sale of common stock the
Company issued 550,000 warrants to purchase common at an exercise price of the
lower of $0.50 per share of common stock or the per share common stock
equivalent price in the Company's next equity offering in which the Company
receives net proceeds of at least $1,100,000. On the same day, the Company also
sold $550,000 worth of Series A Convertible Subordinated Notes. In conjunction
with the sale of the Notes the Company issued 275,000 warrants to purchase
common stock. It also issued 275,000 warrants to purchase common stock
contingent upon the Noteholders converting their notes to common stock. The
warrants were issued at an exercise price of the lower of $0.50 per share of
common stock or the per share common stock equivalent price in the Company's
next equity offering in which the Company receives net proceeds of at least
$1,100,000. The Notes accrue interest at the rate of 7% per year.
On August 2, 1999, the Company and IBM entered into an agreement to defer the
interest payments owed by ACS to IBM arising out of the original Loan Agreement
between the two companies dated July 21, 1998. The agreement provides that the
interest payments due on the first day of each quarter during 1999 be deferred
until December 31, 2000. Beginning with the interest payment due on January 1,
2000, the Company, however, is to make interest payments on the first day of
each quarter during 2000 as required by the original Loan Agreement.
In July, the Company received orders and contractual commitments from IBM and
Xerox exceeding $10 million, which are deliverable in the year 2000. These
orders and commitments are subject to certain conditions and cancellation rights
in the event of default by the Company. In addition, our value engineering plan
is focused on improving product profit margin and is anticipated to help improve
profits. We, however, expect revenues to be significantly lower for the second
half of 1999 due to the year 2000 transition concerns of our OEM customers.
While the Company continues to control its expenses to align them with revenues,
the Company expects that quarterly net losses will continue through at least the
first half of 2000. As a result, we will need to secure additional financing to
carry us over until the year 2000 shipments provide adequate cash flow to fund
operations. We have engaged an investment banking firm with whom the Company has
had a long relationship to assist in meeting our
12
<PAGE> 13
ACCENT COLOR SCIENCES, INC.
capital needs. They were instrumental in obtaining the interim financing.
However, there can be no assurance that additional equity or debt financing will
be available on terms acceptable to the Company or available at all. The
inability to obtain additional financing and to generate sufficient cash from
operations could require the Company to reduce or eliminate expenditures for
research and development, production or marketing of its products, or otherwise
curtail or discontinue its operations.
The Company expects shipments of its products to be severely curtailed in the
fourth quarter of 1999 reflecting year 2000 concerns on the part of its
customers and users of its products. During this slowdown, the Company is
concentrating on completing its value engineering efforts and expects shipments
of its Truecolor systems in response to its current backlog to resume later in
the first quarter of 2000. Results of operations for the fourth quarter of 1999
and the first quarter may be expected to reflect this slowdown.
13
<PAGE> 14
ACCENT COLOR SCIENCES, INC.
YEAR 2000
Year 2000 Compliance. The information presented below related to year 2000
compliance contains forward-looking statements that are subject to risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed below and elsewhere in this Form 10-Q regarding Year 2000
compliance.
Year 2000 Issue Defined. The Year 2000 (Y2K) issue is the result of certain
computer hardware, operating system software and software application programs
having been developed using two digits rather than four digits to define a year.
For example the clock circuit in the hardware may be incapable of holding a date
beyond the year 1999, some operating systems recognize a date using "00" as the
year 1900 rather than 2000 and certain applications may have limited date
processing capabilities. These problems could result in the failure of major
systems or miscalculations, which could have material impact on companies
through business interruption or shutdown, financial loss, damage to reputation,
and legal liability to third parties.
State of Readiness. The Company's Information Technology department (IT) began
addressing the Y2K issue in 1996 as we evaluated the purchase of new software
applications and hardware systems. During the fourth quarter of 1996 IT
researched methodologies to manage the Y2K program and established a process
that matched the resources available within the Company. The initial step in the
process was to organize a team of both IT and non-IT employees and explain their
roles in the process. The second step of the process was to establish an
inventory of all potential areas where the Y2K problem could exist. The
inventory included; server hardware (BIOS), server operating systems, server
application software, network device hardware and software, PC hardware (BIOS),
PC operating systems, PC application software, phone system, security system,
the Company's products (hardware BIOS and software), and our vendors. Each area
listed in the inventory was assigned to a team member to evaluate the current
Y2K compliance and where required, recommend a solution to correct a Y2K
problem. A database was created for all items to track the status to completion.
All IT systems have been updated to be Y2K complaint. The phone system was
updated to be Y2K compliant in third quarter 1999. During second and third
quarters of 1999, we have tested the compliance of primary software applications
in our test environment to confirm that vendor statements are consistent with
our test results.
Accent Color Sciences, Inc. Products. The Company designs and manufactures
high-speed color printing systems for integration with digital high-speed black
on white printers. The Company has tested and confirmed that the printer's BIOS
are Y2K compliant where required. Software that operates on the printer has been
tested and is confirmed to be Y2K compliant. Future software releases will
include as part of the software regression test a reconfirmation that the
software remains Y2K compliant.
Third Party Relationships. The Company's business operations are heavily
dependent on third party materials suppliers. The Company is working with all
key external partners to identify and attempt to mitigate the potential risks of
Y2K. The failure of external parties to resolve their own Y2K issues, in a
timely manner, could result in a material financial risk to the Company. As part
of the overall Y2K program, the Company is actively communicating with third
parties through correspondence. Because the Company's Y2K compliance is
dependant on the timely Y2K compliance of third parties, there can be no
assurance that the Company's efforts alone will resolve all Y2K issues.
Contingency Plans. The Company's testing of its IT systems and software indicate
that computer-based systems do not require additional Y2K activity. Where
practicable, contingency plans for utilities, communications, security and
facilities are in place. We cannot give any assurance that we will be able to
develop contingency plans that will address all issues that may arise in the
year 2000.
Costs to Address Year 2000 Issues. The Y2K costs incurred to date have not been
material. Most software applications, BIOS and operating system upgrades to Y2K
compliance were incorporated into the Company's standard licensing agreements.
As part of the contingency planning effort we will examine additional potential
Y2K costs, where applicable.
14
<PAGE> 15
ACCENT COLOR SCIENCES, INC.
FORWARD-LOOKING STATEMENTS
The foregoing statements and analysis contain forward-looking statements and
information including information with respect to the Company's plans and
strategy for its business. Such forward-looking statements are made pursuant to
the "safe harbor" provisions of Section 21E of the Securities Exchange Act of
1934, as amended, which were enacted as part of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements contained in the
foregoing analysis include marketing, revenue and expenditure expectations, and
other strategies and anticipated events. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause actual events or the Company's actual results to differ
materially from those indicated by such forward-looking statements. These
factors include, without limitation, (i) the level of customer acceptance of the
Company's products; (ii) the ability of the Company to raise capital sufficient
to support its business plan; (iii) the rights of customers of the Company to
modify or cancel orders under the terms of related product purchase agreements,
as amended; (iv) the dependence of the Company on third party suppliers for
certain key technology elements; (v) the dependence of the Company on third
party marketing, distribution and support, including the control by the
Company's OEM customers over the timing of the introduction of its products and
the need for the Company to complete and satisfy extensive testing requirements
of its products on a timely basis; (vi) the potential fluctuations in the
Company's quarterly results of operations; and (vii) the ability of the Company
to identify and remediate significant internal Year 2000 problems and ensure
that corrective action, if necessary, is being taken by the Company's customers
and suppliers. Further information on factors that could cause actual results to
differ from those anticipated is detailed in the Company's Annual Report for
1998 as filed with the Securities and Exchange Commission. Any forward-looking
information contained herein should be considered in light of these factors.
15
<PAGE> 16
ACCENT COLOR SCIENCES, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On September 7, 1999, the company issued 1,100,000 shares of common stock;
$550,000 worth of Series A Convertible Subordinated Notes; 550,000 warrants to
purchase stock at $0.50 to the common stock purchasers; 275,000 warrants to
purchase stock at $0.50 to the Note purchasers; 275,000 warrants to purchase
stock at $0.50 to the Note purchasers, if they convert their notes. The Notes
accrue interest at the rate of 7% per year. Net proceeds to the Company were
$1,020,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Purchase Agreement Series A Convertible Subordinated Notes,
Common Stock and Warrants
Exhibit 10.2 - Series A Convertible Subordinated Note
Exhibit 10.3 - Warrant to Purchase Common Stock of Accent Color Sciences, Inc.
Exhibit 10.4 - Registration Rights Agreement
Exhibit 10.5 - Third Amendment to the April 11, 1996 Product Purchase Agreement
between International Business Machines Corporation and Accent Color Sciences,
Inc.
Exhibit 10.6 - Variations to Agreement between ACS and SET dated 27th August
1997
Exhibit 27 - Financial data schedule
(b) Reports filed on Form 8-K
On July 15, 1999, Accent Color Sciences, Inc. (the "Company"), announced that it
has received a commitment for orders totaling in excess of $5 million for
calendar year 2000 from IBM Corporation ("IBM"). The Company issued a press
release entitled "Accent Color Sciences Receives Substantial IBM Orders for
2000" on July 15 1999.
On July 22, 1999, Accent Color Sciences, Inc. (the "Company"), announced that it
has received a commitment for orders totaling in excess of $5 million for
calendar year 2000 from SET International, a Xerox Company ("SET"). This
commitment, in conjunction with the commitment for orders already received by
IBM Corporation provides Accent with commitments for orders totaling in excess
of $10 million dollars for calendar year 2000. The Company issued a press
release entitled "Accent Color Sciences Receives Substantial Orders from SET
International, A Xerox Company" on July 22, 1999.
16
<PAGE> 17
ACCENT COLOR SCIENCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCENT COLOR SCIENCES, INC.
Dated November 15, 1999 By
-------------------------------------------
Charles E. Buchheit
President and Chief Executive Officer
and Principal Financial and Accounting Officer
17
<PAGE> 1
EXHIBIT 10.1
PURCHASE AGREEMENT
SERIES A CONVERTIBLE SUBORDINATED NOTES,
COMMON STOCK AND WARRANTS
------------------------------------------
This Series A Convertible Subordinated Note, Common Stock and Warrant
Purchase Agreement, dated as of September 7, 1999, is by and between ACCENT
COLOR SCIENCES, INC., a Connecticut corporation (the "Company"), each of the
investors listed on Schedule A attached hereto, who are each referred to
individually as an "Investor," and who are collectively referred to as the
"Investors," and Pennsylvania Merchant Group (the "Placement Agent").
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below, the parties agree as follows:
1. Purchase and Sale of Series A Convertible Subordinated Notes and
Warrants.
1.1 Sale and Issuance of Series A Convertible Subordinated Notes,
Common Stock and Warrants. Subject to the terms and conditions of this
Agreement, (i) each Investor agrees, severally, to purchase at the Closing (as
hereafter defined), and the Company agrees to sell and issue to each Investor at
such closing Series A Convertible Subordinated Notes of the Company in the form
attached hereto as Exhibit I in the principal amount (in denominations of
$1,000) (individually, a "Note" and collectively the "Notes") and/or Common
Stock (the "Shares") set forth opposite each Investor's name on Schedule A
hereto and (ii) the Company agrees to deliver for the benefit of each Investor a
warrant in the form attached hereto as Exhibit II to purchase the number of
shares of the Company's Common Stock set forth opposite such Investor's name on
Schedule A hereto (individually a "Warrant" and collectively the "Warrants").
The Notes, the Shares and the Warrants are hereinafter sometimes referred to as
the "Securities".
1.2 Closing. The purchase and sale of the Securities shall take
place at the offices of Murtha, Cullina, Richter and Pinney LLP, CityPlace I,
185 Asylum Street, Hartford, Connecticut at 10:00 a.m. on September 7, 1999, or
at such other time and place as the Company and the Investors mutually agree
upon (which time and place are designated as the "Closing"); provided, however,
that if acceptable to the Company and the Investors, the Closing may be effected
by facsimile transmission of executed copies of the documents delivered at the
Closing and payment of the purchase price specified in Section 1.1 and by
sending original copies of the documents delivered at the Closing by reputable
overnight delivery service, postage or delivery charges prepaid, for delivery to
the parties at their addresses stated on the signature page of this Agreement by
the third business day following the Closing. At the Closing the Company shall
deliver to or for the benefit of each Investor, a Note substantially in the form
of Exhibit I and/or Share certificate in the principal amount or for the number
of Shares set forth opposite such Investor's name on Schedule A hereto and a
Warrant in the form attached hereto as Exhibit II to purchase that number of
shares of the Company's Common Stock set forth opposite such Investor's name on
Schedule A hereto against payment of the purchase price therefor by check, wire
transfer, or any combination thereof, to which such Investor is entitled.
<PAGE> 2
2. Representations and Warranties of the Company. Knowing that each
Investor is relying thereon, the Company hereby represents and warrants to each
Investor that:
2.1 Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Connecticut and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of
the Company will consist immediately prior to the Closing, of 35,000,000 shares
of common stock, without par value ("Common Stock"), of which 17,765,865 shares
are issued and outstanding, and 500,000 shares of Preferred Stock, without par
value, of which 1,828 shares designated as Series B Convertible Preferred Stock,
stated value $1,000.00 per share ("Series B Preferred Stock"), are issued and
outstanding. Such shares of currently outstanding Series B Preferred Stock are
now redeemable in cash or convertible into shares of Common Stock in accordance
with the terms thereof, at the election of the holder. The outstanding shares of
Common Stock and Series B Preferred Stock are all duly and validly authorized
and issued, fully paid and nonassessable.
2.3 Options and Warrants. There are outstanding options to
purchase 1,335,250 shares of Common Stock and warrants to purchase 2,227,607
shares of Common Stock. The Board of Directors of the Company has granted
options to purchase an additional 1,842,500 shares of Common Stock conditional
on shareholder approval of a 2,000,000 share increase in shares of Common Stock
available under the Company's 1995 Stock Incentive Plan out of which such shares
would then be reserved.
2.4 Except as otherwise set forth above and in the Company's
filings with the Securities and Exchange Commission, there are no other
authorized, issued or outstanding securities of the Company and there is no
outstanding subscription, option, convertible or exchangeable security,
preemptive right, warrant, call or agreement (other than this Agreement)
relating to the Common Stock or any other obligation or commitment to issue any
shares of capital stock of the Company.
2.5 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization and execution and delivery of this Agreement, the Securities and
the Registration Rights Agreement in the form attached hereto as Exhibit III
(the "Registration Rights Agreement") the performance of all obligations of the
Company hereunder and thereunder, and the authorization and issuance (or
reservation for issuance) of the Shares and the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants, has been taken or will be
taken prior to the Closings. This Agreement, the Securities and the Registration
Rights Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
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<PAGE> 3
2.6 Valid Issuance of Common Stock. The Shares and the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants have
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Company's Certificate of Incorporation, the Securities
will be duly and validly issued, fully paid, and nonassessable and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement, the Notes and the Warrants and under applicable state and U.S.
federal securities laws.
2.7 Offering. Subject in part to the truth and accuracy of the
Investors' representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Securities as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Act"), and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
2.8 Use of Proceeds. The net proceeds received by the Company from
the sale of the Securities shall be used by the Company for working capital
purposes.
2.9 Filed Information. The Company has delivered to each Investor
a true and complete copy of its latest Annual Report on Form 10-K and its latest
Quarterly Report on Form 10-Q. All reports, registrations, documents, statements
and other filings required to be made by the Company with the Securities and
Exchange Commission ("SEC") have been timely filed. None of the such materials
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company is in discussion with the staff
concerning the proper reporting for financial statement purposes of its Series B
Preferred Stock in response to an assertion by the staff of the SEC that such
stock should be reported in the "mezzanine" section of the balance sheet as of
the end of 1998 and the quarter ended March 31, 1999 in the same manner as such
stock is recorded on the balance sheet of the Company as of June 30, 1999. In
the event that the Company is unsuccessful in persuading the staff of the SEC of
the correctness of the Company's position, then the Company may be required to
amend its Annual Report on Form 10-K for the year ended December 31, 1998 and
its Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 in order
to revise the recording of its Series B Preferred Stock in a manner similar to
the manner in which such stock is recorded on the balance sheet of the Company
as filed with its Quarterly Report on Form 10-Q for the quarter ended June 30,
1999. Such Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 may
also be amended to reflect certain allocations between the first and second
quarters of 1999 as a result of any amendment to the report for the quarter
ended March 31, 1999.
3. Representations and Warranties of the Investors. Each Investor
hereby represents and warrants severally (and not jointly) that:
3.1 Authorization. The Investor has full power and authority to
enter into this Agreement, and such Agreement constitutes such Investor's valid
and legally binding obligation, enforceable in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting
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<PAGE> 4
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies. All actions on the part of the Investors necessary for the
authorization, execution and delivery of this Agreement and performance of all
the obligations contemplated hereby, have been taken or will be taken prior to
the Closing.
3.2 Purchase Entirely for Own Account. This Agreement is made with
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Securities to be received by such Investor and the Common
Stock issuable upon conversion and exercise thereof (the "Underlying
Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof except in accordance with the Act, and that such Investor has
no present intention of selling, granting any participation in, or otherwise
distributing the same, by executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities or
Underlying Securities.
3.3 Disclosure of Information. Such Investor acknowledges receipt
of the reports referred to in Sections 2.9 of this Agreement. Such Investor
believes it has received all the information it considers necessary or
appropriate for deciding whether to purchase the Securities. Such Investor
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Securities and the business, properties, prospects and financial condition
of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of such Investor to rely thereon.
3.4 Investment Experience. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
Investor also represents it has not been organized for the purpose of acquiring
the Securities.
3.5 Accredited Investor. Such Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
Securities and Underlying Securities it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Act only in certain limited circumstances.
In this connection, such Investor represents that it is familiar with SEC Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or
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<PAGE> 5
any portion of the Securities unless and until the transferee has agreed in
writing for the benefit of the Company to be bound by this Section 3 provided
and to the extent this Section is then applicable; and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a reasonably
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company that such disposition will not require registration of such shares under
the Act; provided that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144.
3.8 Legends. It is understood that the certificates evidencing the
Securities and Underlying Securities may bear legends to the following effect:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT AND SUCH STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH ACT.
4. Placement Agent. The Company has authorized Pennsylvania
Merchant Group (the "Placement Agent") to act as Placement Agent with regard to
the offer and sale to certain Investors of the Securities, and the Placement
Agent represents and agrees with the Company as follows:
4.1 Sales to Accredited Investors. The Placement Agent has and
will only make offers and sales of the Securities to Investors or potential
Investors it reasonably believes to be "accredited investors" as that term is
defined in Section 3.5 hereof.
4.2 Regulation D Compliance. Offers and sales of the Securities
have and will be made in compliance with Regulation D under the Act, to the
extent applicable to the Placement Agent, and the Placement Agent has not and
shall not offer to sell the Securities by any form of general solicitation or
general advertising that is prohibited by Rule 502(c) promulgated under the Act.
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<PAGE> 6
4.3 Compliance Generally. The Placement Agent has and will observe
all securities laws and regulations applicable to it in any jurisdiction in
which it has or may offer, sell or deliver the Securities and it will not,
directly or indirectly, offer, sell or deliver the Securities or distribute or
publish any prospectus, circular, advertisement or other offering material in
relation to the Securities in or from any state in the United States or country
or jurisdiction except under circumstances that will result in compliance with
any applicable laws and regulations.
4.4 Sales Commissions. In consideration of the Placement Agent's
services hereunder, the Company shall pay Placement Agent in cash on the Closing
Date a commission of seven percent (7%) of the total proceeds to the Company
from the sale of the Securities.
5. State Securities Laws. The Company will provide applicable notices
and legends as may be required by applicable state securities laws.
6. Covenants of the Company.
6.1 Delivery of Financial Statements. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within one
hundred and twenty (120) days after the end of each fiscal year of the Company,
financial statements audited and certified by independent public accountants of
nationally recognized standing selected by the Company.
(b) as soon as practicable, but in any event within sixty (60)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, unaudited financial statements for such fiscal quarter.
6.2 Indebtedness. Without the written consent of the Investors
holding a majority of the Notes, the Company shall not incur aggregate
indebtedness in excess of $1,000,000.
6.3 Compensation. The Company shall not use the proceeds received
from the sale of the Securities to pay any management fees or bonuses to any
executive employee of the Company without the written consent of the Investors
holding a majority of the Notes.
6.4 Dividends. Without the written consent of the Investors
holding a majority of the Notes, the Company shall not declare, set aside, or
pay any cash or other dividend or make any cash or other distribution with
respect to its Common Stock.
6.5 Preferred Stockholder Commitment. The Company has received the
commitment of holders of Series B Preferred Stock to grant the Company 90 days
from September 1, 1999 to either:
(a) Redeem all Series B Preferred Stock for face amount plus
accrued 6% premium; or
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<PAGE> 7
(b) Convert all Series B Preferred Stock into Common Stock on
the same terms as the sale of Common Stock in a private placement resulting in
gross proceeds of at least $4 million (less any part of the aggregate principal
amount of the Notes not required to be repaid out of such proceeds) which closes
during such 90-day period.
This commitment is contingent upon the purchase of Securities
resulting in net proceeds to the Company of at least $1,000,000.
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations and
covenants of the Company, the Investors and the Placement Agent contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Investors.
7.2 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Connecticut without giving effect to
conflict of law principles. The parties irrevocably consent to the exclusive
jurisdiction of the Superior Court of the State of Connecticut at Hartford,
Connecticut or the United States District Court for the District of Connecticut.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart hereof.
7.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, all notices, consents or
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given (i) when
delivered personally, (ii) three business days after being mailed by first class
mail, postage prepaid, or (iii) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the signature page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 24 hours thereafter by a
signed original sent in the manner provided in the preceding
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<PAGE> 8
sentence. Any party may change its address for notice and the address to which
copies must be sent by giving notice of the new addresses to the other parties
in accordance with this Section, except that any such change of address notice
shall not be effective unless and until received.
7.7 Finder's Fee. Except the fees to be paid to the Placement
Agent under Section 4 of this Agreement, each party represents that it neither
is nor will be obligated for any finders' fee or commission in connection with
this transaction. The Company agrees to indemnify and hold harmless each
Investor from any liability for any finder's fee, commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) incurred by the Company or for which the
Company or any of its officers, employees or representatives is responsible.
7.8 Expenses. Irrespective of whether a Closing is effected, each
party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.9 Amendments and Waivers. 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), only with the written consent of the Company and the Majority
Investors and, as to any modification of Sections 4.4 or 7.7, the Placement
Agent. Any amendment or waiver effected in accordance with this paragraph shall
be binding upon each holder of any securities purchased under this Agreement at
the time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
7.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement with respect to the subject matter
hereof among the parties, and no party shall be liable or bound to any other
party in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
7.12 Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
7.13 Interpretation. The parties acknowledge that each has been
represented by counsel in connection with this Agreement, and that the
provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of the parties, without regard to which party or party's
counsel drafted this Agreement.
-8-
<PAGE> 9
ACCENT COLOR SCIENCES, INC.
SERIES A CONVERTIBLE SUBORDINATED NOTES
BRIDGE LOAN
SIGNATURE PAGE
Please complete two copies of the Signature Page and return both copies to:
Pennsylvania Merchant Group, Four Falls Corporate Center, West Conshohocken, PA
19428-2961, Attn: Mary E. Bowler.
- --------------------------------- ------------------------------------
Purchasor's Name-Please Print Nominee Name (if appropriate)
- -------------------------------- ------------------------------------
Social Security/Tax I.D. Number Telephone Number
------------------------------------
Fax Number
- -------------------------------- ------------------------------------
Address City, State and Zip Code
_____/s/_________________________ ____________________________________
Signature Date
- ----------------------------------------------------------------------------
PRINCIPAL AMOUNT TO BE PURCHASED $_______________
FUNDS SHOULD BE WIRED TO: SUMMIT BANK/TRUST, Attention: Shernetta Harris
Hackensack, NJ ABA #021202162 GL A/C 477-02. For credit to the Account of Accent
Color Sciences, Inc. Trust Account #2970056498.
- ----------------------------------------------------------------------------
AGREED TO AND ACCEPTED:
PENNSYLVANIA MERCHANT GROUP
By: /s/ Date:
- ------------------------------------- --------------------------------
Mary E. Bowler
Vice President - Administration
ACCENT COLOR SCIENCES, INC.
By:/s/ Date:
- --------------------------- --------------------------------
Charles E. Buchheit
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<PAGE> 10
<TABLE>
<CAPTION>
Schedule A
Investors:
Original Principal
Name/Address Amount of Notes Number of Shares Warrants
<S> <C> <C> <C>
Orbis Pension Trustees Limited $550,000.00 ---- 550,000 shares
The PMG Eagle Fund ---- 1,100,000 550,000 shares
</TABLE>
<PAGE> 1
EXHIBIT 10.2
THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE. THIS NOTE AND SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF REGISTRATION
UNDER SUCH ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
$------------
(ORIGINAL PRINCIPAL AMOUNT) NO.------------
ACCENT COLOR SCIENCES, INC.
SERIES A CONVERTIBLE SUBORDINATED NOTE
September ___, 1999
1. GENERAL. Accent Color Sciences, Inc., a Connecticut corporation (the
"Company"), for value received, hereby promises to pay to the order of (the
"Lender"), or the holder hereof, the principal amount of _________ Thousand
Dollars ($_______), on the earlier of (i) February 1, 2000, and (ii) the date
that is three business days after the Company consummates its next Equity
Financing (the "Payment Date"), in such currency of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debt. Interest at the rate of 7% per year shall accrue on the
outstanding principal balance of this Note. Interest accrued on the outstanding
principal balance from the date of this Note until the Payment Date shall be
paid on the Payment Date. All payments of principal and interest on this Note
shall be paid by Company check sent first class mail, postage prepaid, to such
address as the holder hereof shall notify the Company of in writing, or, absent
such notice, to the last address of such holder as recorded in the Company's
books. Interest shall be computed on the basis of a 365-day year. The Company
shall have the right from time to time to prepay without penalty all or any
portion of the principal and interest due under this Note upon three business
days prior written notice to the holder hereof.
2. THE NOTE. As used herein, the term "Note" refers to this Series A
Convertible Subordinated Note and to any Note or Notes executed and delivered by
the Company in exchange or replacement hereof pursuant to Section 4 and in
accordance with the terms of the Series A Convertible Subordinated Note, Common
Stock and Warrant Purchase Agreement between the Company and the investors
listed on Schedule A thereto dated as of September ___, 1999 (the "Purchase
Agreement"). Unless the context otherwise requires, the term holder is used to
mean the person named as Lender in Section 1 or any other person who shall at
the time be a legal successor to the Lender or the assignee of this Note.
3. SUBORDINATION. The Company hereby agrees, and the holder of this
Note by its acceptance agrees, that the payment of the principal of and interest
on the Note is hereby expressly
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<PAGE> 2
made subordinate and junior in right of payment, to the extent set forth in the
following paragraphs (a), (b) and (c), to the prior payment in full of all
Senior Debt (as defined in Section 5 below) of the Company, whether such Senior
Debt, except as provided in Section 5 below, is incurred prior to, on or after
the date hereof:
(a) In the event of insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings relative
to the Company or to any of the property of the Company, or in the event of any
proceedings for voluntary liquidation, dissolution, or other winding-up of the
Company, whether or not involving insolvency or bankruptcy, then the holders of
Senior Debt shall be entitled to receive payment in full of all principal of and
interest on all Senior Debt before the holder of this Note shall be entitled to
receive any payment on account of principal or interest on this Note, and to
that end the holders of Senior Debt shall be entitled to receive for application
in payment thereof any payment or distribution of any kind or character, whether
in cash or property or securities, which may be payable or deliverable in any
such proceedings in respect of this Note.
(b) In the event that this Note is declared due and payable prior
to its stated maturity, by reason of the occurrence of an Event of Default
hereunder (under circumstances when the provisions of the foregoing paragraph
(a) shall not be applicable), then all principal of and interest on all Senior
Debt outstanding at the time of such declaration shall first be paid in full,
before any payment on account of principal or interest is made upon this Note.
(c) The Company may make payments and, subject to Section 1 of
this Note, prepayments of the principal of and interest of this Note if, at the
time of the payment and immediately after giving effect thereto, (i) there
exists no default in any payment with respect to any Senior Debt and (ii) there
shall not have occurred an event of default (other than a default in the payment
of amounts due thereon) with respect to any Senior Debt, as defined in the
instrument under which the same is outstanding, permitting the holders thereof
to accelerate the maturity thereof, other than an event of default which shall
have been cured or waived or shall have ceased to exist. Should the holder of
this Note, while there exists a default or an event of default as provided in
the immediately preceding sentence, and after being notified by the holder of
the Senior Debt of the default, receive any such payment, or should the holder
of this Note receive any distribution in bankruptcy, dissolution, or similar
insolvency proceedings in regard to the Company, the holder of the Note will
hold such payment or distribution in trust for the holder of the Senior Debt and
will pay over such amounts to such holder to apply to the Senior Debt until the
same is paid in full.
The provisions of this Section 3 are for the purpose of defining the
relative rights of the holders of Senior Debt and the holder of the Note against
the Company and its property. Nothing herein shall impair, as between the
Company and the holder of this Note, the obligation of the Company, which is
unconditional and absolute, to pay to the holder the principal and interest in
accordance with the terms and the provisions hereof; nor shall anything herein
prevent the holder of this Note from exercising all remedies otherwise permitted
by applicable law or hereunder upon default under this Note, subject to the
rights, if any, under this Section 3 of holders of Senior Debt to receive cash,
property, stock or obligation otherwise payable or deliverable to the holder of
this Note. The Company acknowledges and agrees that the rights of the holder of
this Note with respect to the Company's cash, property, rights and other assets
of any kind are senior and prior to the rights
-2-
<PAGE> 3
of any holder of capital stock of the Company arising from such capital stock
and the Company shall issue no other notes or debt instruments except such as
comply with the Purchase Agreement and are subordinated to this Note in right of
payment on the same basis on which this Note is subordinated to Senior Debt as
provided in this Section, and except that the Company may have additional Senior
Debt.
4. EXCHANGE OR REPLACEMENT OF NOTE.
(a) Subject to Section 13 of this Note, the holder of this Note
may in person or by duly authorized attorney surrender the Note for exchange at
the office of the Company, and at the expense of the Company receive in exchange
therefor a new Note in the same aggregate principal amount as the aggregate
unpaid principal amount of the Note so surrendered and bearing interest at the
same rate as the Note so surrendered, each such new Note to be dated as of the
date to which interest has been paid on the Note so surrendered and to be in
such principal amount and payable to such permitted assignee or transferee, as
such holder may designate in writing; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any new Note in a name other than that
of the holder of the Note surrendered in exchange therefor. Five days prior
written notice of the holder's intention to make such exchange shall be given to
the Company.
(b) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Note and (in case of loss,
theft or destruction) of indemnity reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of this Note. Any Note made and
delivered in accordance with the provisions of this paragraph (b) shall be dated
as of the date to which interest has been paid on this Note.
5. DEFINITIONS. As used herein, the following terms have the following
respective meanings:
"Person" shall mean an individual, a company, a limited liability
company, a partnership, a trust, an unincorporated organization and a government
or any department, agency or political subdivision thereof, or any other legal
entity.
"Equity Financing" shall mean a private or public offering of the
Company's Common Stock resulting in receipt of at least $1,100,000 in gross
proceeds by the Company.
"Senior Debt" shall mean the principal of, interest on and, if
applicable, any premium on (i) indebtedness for money borrowed of the Company
outstanding as of the date hereof, (ii) additional indebtedness incurred by the
Company after date hereof for money borrowed from a customer of the Company;
(iii) additional indebtedness incurred by the Company after the date hereof for
money borrowed from a bank, savings and loan association trust company,
insurance company or similar financial institution, (iv) purchase money secured
debt, (v) obligations of the Company as lessee under leases of real or personal
property which are treated as capital lease obligations under generally accepted
accounting principals, (vi) any other indebtedness for money
-3-
<PAGE> 4
borrowed of the Company which the Company and holders of at least a majority of
the principal amount of the Notes then outstanding from time to time expressly
and specifically agree in writing shall constitute "Senior Debt" and (vii) any
deferrals, renewals, refinancings or extensions of any of the foregoing.
6. REMEDIES.
6.1 EVENTS OF DEFAULT DEFINED. The entire principal amount of and
all accrued interest on this Note shall, at the option of the holder hereof
exercised by written notice to the Company (except under Section 6.1(d) and
Section 6.1(e) below, in which case the entire principal amount of and all
accrued interest on the Note shall automatically become due and payable),
forthwith become and be due and payable (subject, however, to the enforcement
provisions contained in Section 6.2) if any one or more of the following events
(herein called "Events of Default") shall have occurred and be continuing (for
any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree of order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) if default shall be made in the due and punctual payment of
the principal of or interest on this Note or on any other indebtedness of the
Company to Lender, when and as the same shall become due and payable, whether at
the maturity of any installment thereof, by acceleration, or otherwise;
(b) if any material default, breach or violation shall be made in
the performance or observance of any of the other covenants, agreements,
representations, warranties or conditions of the Company contained in this Note,
any other instrument evidencing indebtedness of the Company to Lender, or in the
Purchase Agreement; provided that no Event of Default, not otherwise
specifically stated in this Section 6.1, shall be deemed to have occurred if the
Company cures such default, breach or violation within 30 days after having
received notice thereof from the holder of this Note;
(c) if the Company shall default beyond any period of grace
provided with respect thereto in the payment of principal of or interest on any
Senior Debt or in the performance or observance of any other material
obligation, term or condition under such Senior Debt or otherwise fail promptly
to pay such Senior Debt when due and payable, unless such holder shall have
waived such default or non-payment after its occurrence or unless such holder
shall have failed to give any notice required to create a default thereunder;
(d) if the Company shall
(1) admit in writing its inability to pay its debts generally
as they become due,
(2) file a petition in bankruptcy or a petition to take
advantage of any insolvency act,
-4-
<PAGE> 5
(3) make an assignment for the benefit of its creditors,
(4) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its property,
(5) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt, or
(6) file a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof;
(e) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without the consent of the Company, a receiver of
the Company or of the whole or any substantial part of its property, or
approving a petition filed against it seeking reorganization or arrangement of
the Company under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any State thereof, and such order,
judgment or decree shall not be vacated or set aside or stayed within 60 days
from the date of entry thereof;
(f) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody or
control of the Company or of the whole or any substantial part of its property
and such custody or control shall not be terminated or stayed within 60 days
from the date of assumption of such custody or control; or
(g) if the Company enters into a merger, consolidation,
liquidation, dissolution, sale of all or substantially all of its stock or
assets, or similar restructuring or reclassification.
6.2 SUITS FOR ENFORCEMENT. In case any one or more of the Events of
Default specified in Section 6.1 hereof shall have occurred, the holder of this
Note may, subject to Section 3, proceed to protect and enforce its rights either
by suit in equity and/or by action at law, whether for the specific performance
of any covenant or agreement contained in this Note, other instrument, or the
Purchase Agreement or in aid of the exercise of any power granted in this Note,
other instrument, or the Purchase Agreement, or proceed to enforce the payment
of this Note or to enforce any other legal or equitable right of the registered
holder of this Note. In addition to any amounts otherwise payable under this
Note, the holder shall be entitled to recover all reasonable costs and expenses
related to enforcement of this Note, including without limitation, legal and
accounting fees and court costs.
The remedies of the holder provided herein, in the Purchase
Agreement, and in the documents referred to therein shall be cumulative and
concurrent, and may be pursued singly, successively, or together at the sole
discretion of the holder, and may be exercised as often as occasion therefor
shall occur; and the failure to exercise any such right or remedy shall in no
event be construed as a waiver or release thereof.
-5-
<PAGE> 6
Except as expressly set forth herein, the Company hereby waives
demand, notice of demand, notice of nonpayment or dishonor, protest and notice
of protest of this Note, and all other notices not specifically required hereby
in connection with the delivery, acceptance, performance, default, or
enforcement of the payment of this Note, and agrees that its liability hereunder
shall be unconditional.
The holder shall not be deemed, by any act of omission or
commission, to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by the holder, and then only to the extent
specifically set forth in writing. A waiver of one event shall not be construed
as continuing or as a bar to or waiver of any right or remedy to a subsequent
event.
6.3 REMEDIES CUMULATIVE. No remedy herein conferred upon the
holder of this Note is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
6.4 REMEDIES NOT WAIVED. No course of dealing between the Company
and the holder hereof or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any rights of such
holder.
7. CONVERSION OF NOTE
7.1 RIGHT TO CONVERT
(a) The holder of this Note shall have the right, at
such holder's option, at any time prior to maturity of this Note or prior to
receipt of notice of the Company's intent to prepay this Note pursuant to
Section 1 hereof, to convert all or any portion of the unpaid principal amount
hereof plus all accrued and unpaid interest (the sum of the unpaid principal
amount plus all accrued and unpaid interest as calculated at any time during the
Term of this Note shall be referred to as the "Note Value") into shares of the
Company's Common Stock, no par value (the "Common Stock") at the lower of (i)
$.50 per share and (ii) the per share common stock equivalent price in the
Company's next equity offering in which the Company receives net proceeds of at
least $1,100,000, subject to adjustment from time-to-time pursuant to Section
7.2 hereof ("Conversion Price").
(b) Upon conversion of all or a portion of the Note
Value hereof, the obligation due hereunder shall be deemed reduced to the extent
of the value of the aggregate Conversion Price of the Common Stock acquired
thereby. The reduction of the obligation due hereunder upon the conversion of a
portion of the Note Value shall first reduce accrued and unpaid interest and
then reduce the unpaid principal amount.
7.2 ADJUSTMENTS
The Conversion Price and the number of shares
purchasable hereunder are subject to adjustment from time-to-time as follows:
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<PAGE> 7
(a) ISSUANCE OF ADDITIONAL STOCK.
(i) If the Company shall issue any Additional Stock
without consideration or for a consideration per share less than the Conversion
Price in effect immediately prior to the issuance of such Additional Stock, the
Conversion Price in effect immediately prior to each such issuance shall
forthwith be adjusted to a price per share equal to the product obtained by
multiplying the Conversion Price in effect immediately prior to the issuance of
such Additional Stock by a fraction, (i) the numerator of which is equal to the
sum of (x) the number of shares of Common Stock deemed outstanding on a fully
as-converted basis immediately prior to such issuance (including shares deemed
to be outstanding as provided in Section 7.2(a)(vi)) and (y) the quotient of the
aggregate consideration received by the Company upon such issuance, divided by
the Conversion Price in effect immediately prior to the issuance of such
Additional Stock and (ii) the denominator of which is the total number of shares
of Common Stock deemed outstanding on a fully as-converted basis (including
shares deemed outstanding as provided in Section 7.2(a)(vi)) immediately after
(and including) such issuance.
(ii) No adjustment of the Conversion Price shall be
made in an amount less than one cent per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
No adjustment of such Conversion Price pursuant to Section 7.2(a)(i) shall have
the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(iii) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Company for underwriting or otherwise
in connection with the issuance and sale thereof.
(iv) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(v) In the event Additional Stock is issued together
with other shares or securities or other assets of the Company for consideration
which covers both, the consideration allocable to the Additional Stock shall be
the proportion of such consideration so received, computed as provided in
Sections 7.2(a) (iii) and (iv) above, as determined in good faith by the Board
of Directors.
(vi) In the case of the issuance (after September
___, 1999 (the "Original Issue Date")) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this Section 7.2(a):
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<PAGE> 8
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Sections 7.2(a)(iii), (iv) and (v)) if any, received by the Company upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby. Notwithstanding anything to
the contrary herein, no further adjustment shall be made for the actual issuance
of Common Stock or any payment of such consideration upon the exercise of any
such options or rights or the conversion or exchange of such securities.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Company for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Sections 7.2(a)(iii), (iv) and (v)).
Notwithstanding anything to the contrary herein, no further adjustment shall be
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion
or exchange of such securities.
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to the
Company upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price, to the extent in any way affected by or
computed using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
that remain in effect) actually issued upon the exercise
-8-
<PAGE> 9
of such options or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Section
7.2(a)(vi)(1) and (2) shall be appropriately adjusted to reflect any change,
termination, or expiration of the type described in either Section 7.2(a)(vi)(3)
or (4).
(6) The consideration for Common Stock deemed
paid pursuant to Sections 7.2(a)(vi)(1) and (2) shall be appropriately adjusted
to reflect any change, termination or expiration of the type described in either
Section 7.2(a)(vi)(3) and (4).
(vii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to Section
7.2(a)(vi)) by the Company after the Original Issue Date other than:
(1) Common Stock issued pursuant to the events
described in Sections 7.2(b), (c), (d) or (e) hereof;
(2) shares of Common Stock issuable to
employees, agents, consultants, advisors or directors of the Company pursuant to
stock options or stock awards granted or to be granted, provided that the grant
of such options or awards shall have been approved by the Board of Directors;
(3) shares of Common Stock issuable pursuant
to warrants outstanding as of the Original Issue Date or any Warrants issued or
to be issued pursuant to the Purchase Agreement; or
(4) shares of Common Stock issued or issuable
upon conversion of shares of Series B Preferred Stock outstanding on the date
hereof.
(b) Merger, Sale of Assets, etc. If at any time
while this Note, or any portion thereof, is outstanding, there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale of transfer of the Company's properties and assets
as, or substantially as, en entirety to any other person, this Note shall
thereafter represent the right to acquire the number of shares of stock or other
securities which the holder of this Note would have owned immediately after the
consummation of such reorganization, merger, consolidation, sale or transfer, if
this Note had been converted immediately before the effective date of the
reorganization, merger, consolidation, sale or transfer.
-9-
<PAGE> 10
(c) Reclassification, etc. If the Company, at any
time while this Note, or any portion hereof, remains outstanding by
reclassification of securities or otherwise, shall change any of the securities
as to which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities that were
subject to the conversion rights under this Note immediately prior to such
reclassification or other change and the Conversion Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 7.2.
(d) Split, Subdivision or Combination of Shares. If
the Company at any time while this Note, or any portion hereof, remains
outstanding shall split, subdivide or combine the securities as to which
conversion rights under this Note exist, into a different number of securities
of the same class, the Conversion Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(e) Adjustments for Dividends in Stock or Other
Securities. If while this Note, or any portion hereof, remains outstanding, the
holders of the securities as to which conversion rights under this Note exist at
the time shall have received, or, on or after the record date fixed for the
determination of eligible shareholders, shall have become entitled to receive,
without payment therefor, other or additional stock or other securities of the
Company by way of dividend or distribution, then and in each case, this Note
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this conversion, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities of the Company that such holder would hold on the date of
such exercise had it been the holder of record of the security receivable upon
conversion of this Note on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock available by it as aforesaid during
such period, giving effect to all adjustments called for during such period by
the provisions of this Section 7.2.
(f) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment pursuant to this Section 7.2, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of this Note a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request, at any time, of any such holder, furnish or
cause to be furnished to such holder a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the Conversion Price at the time in effect;
and (iii) the number of shares that at the time would be received upon the
conversion of the Note.
7.3 EXERCISE OF CONVERSION PRIVILEGE. In order to exercise the
conversion privilege, the holder of this Note shall present it to the Company at
the office of the Company, accompanied by written notice to the Company that the
holder elects to convert this Note, or, if less than the entire Note Value
hereof is to be converted, the portion hereof to be converted. Such notice shall
also state the name or names (with address) in which the certificate or
certificates for shares that shall be issuable on such conversion shall be
issued. As soon as practicable after the receipt of such notice and the
presentation of this Note, the Company shall issue and shall deliver to the
holder
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<PAGE> 11
of this Note a certificate or certificates for the number of full shares
issuable upon the conversion of this Note (or portion hereof), and provision
shall be made for any fraction of a share as provided in Section 7.4 hereof.
Such conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which such notice shall have been received by
the Company and this Note shall have been presented as aforesaid, the conversion
shall be at the conversion price in effect at such time, and at such time the
rights of the holder of this Note as such holder shall cease (to the extent this
Note is so converted) and the person or persons in whose name or names any
certificate of certificates for shares shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby. Upon conversion of only a part of the Note Value of this
Note, appropriate notation shall be made on this Note of the principal amount so
converted, and the holder following such notation shall retain this Note. Upon
conversion of the balance of the Note Value of this Note, the holder shall
surrender this Note to the Company.
7.4 ADJUSTMENT FOR FRACTIONAL SHARES. No fractional shares or
scrip shall be issued upon conversions of the Note. The number of full shares
issuable upon conversion thereof shall be computed on the basis of the aggregate
Note Value of the Note (or portion thereof) so surrendered. The remaining Note
Value shall be paid in cash.
7.5 RESERVATION OF SHARES. The Company will at all times
reserve and keep available out of its Common Stock, solely for the purpose of
issuance upon conversion of this Note as herein provided, such number of shares
of Common Stock as shall then be issuable upon the conversion of this Note
pursuant to the terms of this Section 7. The Company covenants that all shares
which will be so issuable shall, upon the conversion of this Note as herein
provided, be duly and validly issued and fully paid and nonassessable by the
Company.
7.6 TAXES. The issuance of certificates for shares upon
conversion of this Note shall be made without charge to the holder of this Note
for any issuance tax in respect thereto.
8. Amendments and Waivers. Amendments of this Note may be made or
compliance with any term, covenant, agreement, condition or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively), upon the written consent of the
Company and the holders of at least a majority of the principal amount of the
Notes then outstanding; provided, however, that no amendment, omission or waiver
of this Note shall be made without the written consent of the holder of this
Note if such amendment, omission or waiver would (i) cause any change in the
principal amount or rate of interest under this Note, (ii) extend the time of
payment of this Note, (iii) affect or impair in any way the obligation of the
Company in respect of the principal of or interest on this Note or (iv) cause
any change in this Section 8 hereof. Any such amendment or waiver shall be
binding upon the holder, upon each future holder of this Note and upon the
Company, whether or not this Note shall have been marked to indicate such
amendment or waiver, but any substitute Note issued thereafter shall bear a
notation referring to any such amendment or continuing waiver.
9. SUCCESSORS AND ASSIGNS. This Note shall be binding upon the parties
and their respective successors and assigns.
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<PAGE> 12
10. SEVERABILITY. Should any part but not the whole of this Note for
any reason be declared invalid, such decision shall not affect the validity of
any remaining portion, which remaining portion shall remain in force and effect
as if this Note had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties that they would have
executed the remaining portion of this Note without including any such part
which may, for any reason, be hereafter declared invalid.
11. CAPTIONS. The descriptive headings of the various Sections or parts
of this Note are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
12. GOVERNING LAW. This Note shall be governed and construed under the
laws of the State of Connecticut without giving effect to the conflict of law
principles . The parties irrevocably consent to the exclusive jurisdiction of
the Superior Courts of the State of Connecticut at Hartford, Connecticut or the
United States District Court for the District of Connecticut.
13. RESTRICTIONS. This Note shall not be transferable except in
compliance with the provisions of Sections 3 and 4 of the Purchase Agreement.
- -------------------------------------------------------------------------------
ATTEST: ACCENT COLOR SCIENCES, INC.
By:
- ----------------------------
Name: Willard F. Pinney, Jr. /s/
-----------------------------------------------
Title: Secretary Name: Charles E. Buchheit
Title: President and Chief Executive Officer
-12-
<PAGE> 1
EXHIBIT 10.3
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SAID ACT AND ALL OTHER APPLICABLE
SECURITIES LAWS OR ANY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
No. W - _____ Warrant to Purchase up to ____ Shares
of Common Stock (subject to adjustment and
including Contingent Shares, as defined below)
Date: September ___, 1999
WARRANT TO PURCHASE COMMON STOCK
OF
ACCENT COLOR SCIENCES, INC.
Void after September ___, 2004
---------------------------------------------------------------
This certifies that, for value received, _______, or registered assigns
("Holder") is entitled, subject to the terms and conditions set forth below, to
purchase from ACCENT COLOR SCIENCES, INC. (the "Company"), a Connecticut
corporation, up to ____ shares of common stock of the Company, no par value (or
such other number of shares of common stock as may be determined in accordance
with Section 2 hereof) (the "Common Stock"), as constituted on the date hereof
(the "Warrant Issue Date"), upon surrender hereof, at the principal office of
the Company referred to below, with the subscription form attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United States
or otherwise as hereinafter provided, at the Exercise Price as set forth in
Section 2 below. The number, character and Exercise Price of such shares of
Common Stock are subject to adjustment as provided below. The term "Warrant" as
used herein shall include this Warrant, which is one of a series of warrants
issued for the Common Stock, and any warrants delivered in substitution or
exchange therefor as provided herein.
This Warrant is issued in connection with the transactions described in Section
1 of the Series A Convertible Subordinated Note, Common Stock and Warrant
Purchase Agreement between the Company and the investors listed on Schedule A
thereto, dated as of September ___, 1999 (the "Purchase Agreement"). Pursuant to
the Purchase Agreement, the Holder of this Warrant purchased a Series A
Convertible Subordinated Note in the principal amount of _____________________
($_________) (the "Note") and/or shares of the Company's Common Stock (the
"Shares). The Holder of this Warrant is subject to certain restrictions set
forth in the Purchase Agreement and shall be entitled to certain rights and
privileges set forth in the Purchase
<PAGE> 2
Agreement. This Warrant is one of the Warrants referred to as the "Warrants" in
the Purchase Agreement.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
("Term") commencing at 9:00 a.m., Hartford, Connecticut time, on the date hereof
and ending at 5:00 p.m., Hartford, Connecticut time, on September ___, 2004, and
shall be void thereafter. If this Warrant relates to the purchase of a Note,
then this Warrant shall be exercisable as to ______ shares of Common Stock, at
any time after issuance. This Warrant shall be exercisable as to the remaining
_____ shares of Common Stock (the "Contingent Shares"), only after the Holder
has voluntarily converted any principal amount under the Holder's Note, pursuant
to Section 7.1(a) thereof, into Common Stock, and only in the same proportion
that the amount of principal converted into Common Stock bears to the original
principal balance of the Note. By way of example, if Holder has converted $5,000
of principal of a Note into Common Stock, and the Note had an original principal
balance of $10,000, then the Holder would be entitled to exercise his Warrant
for up to 50% of the Contingent Shares covered by his Warrant.
2. EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price at which
this Warrant may be exercised shall be the lower of (i) $.50 per share of Common
Stock and (ii) the per share Common Stock equivalent price in the Company's next
equity offering in which the Company receives net proceeds of at least
$1,100,000. The Exercise Price is subject to adjustment from time to time
pursuant to Section 11 hereof. If the Exercise Price shall be less than $.50 as
a result of clause (ii) of the first sentence of this Section 2, the number of
shares that this Warrant shall thereafter evidence the right to receive shall be
determined by (a) dividing the principal amount of the Note purchased by the
Holder of this Warrant by such Exercise Price, or (b) dividing the total number
of Shares purchased by the Holder of this Warrant, as adjusted for any such
lower equity offering price in accordance with the Purchase Agreement, by two.
3. EXERCISE OF WARRANT.
(a) MANNER OF EXERCISE. The purchase rights represented by
this Warrant are exercisable by the Holder in whole or in part, at any time, or
from time to time, during the term hereof as described in Section 1 above, by
the surrender of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company), upon payment (i) in cash or by check acceptable to the Company, (ii)
by cancellation by the Holder of indebtedness of the Company to the Holder, or
(iii) by a combination of (i) and (ii), of the purchase price of the shares to
be purchased.
(b) TIME OF EXERCISE. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
shares of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As promptly as practicable on or after such date and in any event
within 10 days thereafter, the Company at its expense, will issue and deliver to
the person or persons
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<PAGE> 3
entitled to receive the same a certificate or certificates for the number of
shares issuable upon such exercise. In the event that this Warrant is exercised
in part, the Company at its expense, shall execute and deliver a new Warrant of
like tenor exercisable for the number of shares for which this Warrant may then
be exercised.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein
to the contrary, if the fair market value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, the holder may elect to receive
shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with the properly endorsed Notice of Exercise and notice of
such election in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:
Y (A-B)
X = -------
A
X = the number of shares of Common Stock
to be issued to the Holder
Y = the number of shares of Common
Stock purchasable under the Warrant
or, if only a portion of the Warrant
is being exercised, the portion of
the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one share
of the Company's Common Stock (at
the date of such calculation)
B = Exercise Price (as adjusted to the
date of such calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that where there exists a public market for the
Company's Common Stock at the time of such exercise, the fair market value per
share shall be the average of the closing bid and asked prices of the Common
Stock quoted in the Over-the-Counter Market Summary or the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or on any exchange on which the Common Stock
is listed, whichever is applicable, as published in the Eastern Edition of The
Wall Street Journal for the five trading days prior to the date of determination
of fair market value. Notwithstanding the foregoing, in the event the Warrant is
exercised in connection with the Company's initial public offering of Common
Stock, the fair market value per share shall be the per share offering price to
the public of the Company's initial public offering.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share
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<PAGE> 4
to which the Holder would otherwise be entitled, the Company shall make a cash
payment equal to the Exercise Price multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On 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, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. RIGHTS OF SHAREHOLDERS. Subject to Sections 9 and 11 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the
Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 7(a) above, issuing the Common Stock or other securities
then issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act") and subject to Section 3 of the Purchase
-4-
<PAGE> 5
Agreement, title to this Warrant may be transferred by endorsement (by the
Holder executing the Assignment Form annexed hereto) and delivery in the same
manner as a negotiable instrument transferable by endorsement and delivery.
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Warrant with respect to compliance with the Act and with
the limitations on assignments and transfers contained in this Section 7, and
Section 3 of the Purchase Agreement, the Company at its expense shall issue to
or on the order of the Holder a new warrant or warrants of like tenor, in the
name of the Holder or as the Holder (on payment by the Holder of any applicable
transfer taxes) may direct, for the number of shares issuable upon exercise
hereof.
(e) RESTRICTIONS ON TRANSFER. The Holder of this Warrant by
acceptance hereof agrees that the transfer of this Warrant and the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
(the "Securities") are subject to the provisions of Sections 3 and 4 of the
Purchase Agreement, which include restrictions on transfer of the Securities;
and this Warrant and the Securities shall be entitled to all rights and benefits
accorded thereto in the Purchase Agreement, and the applicable provisions of the
Purchase Agreement are hereby incorporated herein by reference.
8. RESERVATION OF STOCK. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation (the
"Certificate") to provide sufficient reserves of shares of Common Stock issuable
upon exercise of the Warrant. The Company further covenants that all shares that
may be issued upon the exercise of rights represented by this Warrant, upon
exercise of the rights represented by this Warrant and payment of the Exercise
Price, all as set forth herein, will be free from all taxes, liens and charges
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein). The Company agrees
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
9. NOTICES OF CERTAIN EVENTS.
(a) In case:
(i) the Company shall take a record of the
holders of its Common Stock (or other stock or securities at the time receivable
upon the exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or 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
(ii) 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
-5-
<PAGE> 6
another corporation, or any conveyance of all or substantially all of the assets
of the Company to another corporation, or
(iii) of any voluntary 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 Holder or Holders a notice
specifying, as the case may be, (A) 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 (B) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
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 stock or
securities at the time receivable 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, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
(b) All such notices, advices and communications shall be
deemed to have been received (i) when delivered personally, (ii) three business
days after being mailed by first class mail, postage prepaid, or (iii) one
business day after being sent by a reputable overnight delivery service, postage
or deliver charges prepaid. Notices, advices and communications may also be
given by prepaid telegram or facsimile and shall be effective on the date
transmitted if confirmed within 24 hours thereafter by a signed original sent in
the manner provided in the preceding sentence.
10. AMENDMENTS AND WAIVERS.
(a) MANNER OF AMENDMENT. Any term of this Warrant may be
amended or waived upon the written consent of the Company and the Holder and
further provided that the number of shares of Common Stock subject to the
Warrant and the Exercise Price may not be amended, and the right to exercise
this Warrant may not be waived, without the written consent of the Holder of
this Warrant (it being agreed that an amendment to or waiver under any of the
provisions of Section 11 of this Warrant shall not be considered an amendment of
the number of shares subject to the Warrant or the Exercise Price).
(b) NO CONTINUING WAIVER. No waivers of, or exceptions to, any
term, condition or provision of this Warrant, in any one or more instances,
shall be deemed to be, or construed as, further or continuing waiver of any such
term, condition or provision.
11. ADJUSTMENTS. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
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<PAGE> 7
(a) ISSUANCE OF ADDITIONAL STOCK.
(i) If the Company shall issue any Additional
Stock without consideration or for a consideration per share less than the
Exercise Price in effect immediately prior to the issuance of such Additional
Stock, the Exercise Price in effect immediately prior to each such issuance
shall forthwith be adjusted to a price per share equal to the product obtained
by multiplying the Exercise Price in effect immediately prior to the issuance of
such Additional Stock by a fraction, (i) the numerator of which is equal to the
sum of (x) the number of shares of Common Stock deemed outstanding on a fully
as-converted basis immediately prior to such issuance (including shares deemed
to be outstanding as provided in Section 11(a)(vi)) and (y) the quotient of the
aggregate consideration received by the Company upon such issuance, divided by
the Exercise Price in effect immediately prior to the issuance of such
Additional Stock, and (ii) the denominator of which is the total number of
shares of Common Stock deemed outstanding on a fully as-converted basis
(including shares deemed outstanding as provided in Section 11(a)(vi))
immediately after (and including) such issuance.
(ii) No adjustment of the Exercise Price shall
be made in an amount less than one cent per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
No adjustment of such Exercise Price pursuant to Section 11(a)(i) shall have the
effect of increasing the Exercise Price above the Exercise Price in effect
immediately prior to such adjustment.
(iii) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Company for underwriting or otherwise
in connection with the issuance and sale thereof.
(iv) In the case of the issuance of the Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined by
the Board of Directors irrespective of any accounting treatment.
(v) In the event Additional Stock is issued
together with other shares or securities or other assets of the Company for
consideration which covers both, the consideration allocable to the Additional
Stock shall be the proportion of such consideration so received, computed as
provided in Sections 11(a) (iii) and (iv) above, as determined in good faith by
the Board of Directors.
(vi) In the case of the issuance (after
September ___, 1999 (the "Original Issue Date")) of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock or options to
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<PAGE> 8
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this Section 11(a):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Sections 11(a)(iii), (iv) and (v)) if any, received by the Company upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby. Notwithstanding anything to
the contrary herein, no further adjustment shall be made for the actual issuance
of Common Stock or any payment of such consideration upon the exercise of any
such options or rights or the conversion or exchange of such securities.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Company for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Sections 11(a)(iii), (iv) and (v)).
Notwithstanding anything to the contrary herein, no further adjustment shall be
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion
or exchange of such securities.
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to the
Company upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Exercise Price, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Exercise Price, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related
-8-
<PAGE> 9
to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
that remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Section
11(a)(vi)(1) and (2) shall be appropriately adjusted to reflect any change,
termination, or expiration of the type described in either Section 11(a)(vi)(3)
or (4).
(vii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to
have been issued pursuant to Section 11(a)(vi)) by the Company after the
Original Issue Date other than:
(1) Common Stock issued pursuant to the events
described in Sections 11(b), (c), (d) or (e) hereof;
(2) shares of Common Stock issuable to
employees, agents, consultants, advisors or directors of the Company pursuant to
stock options or stock awards granted or to be granted, provided that the grant
of such options or awards shall have been approved by the Board of Directors;
(3) shares of Common Stock issuable pursuant
to warrants outstanding as of the Original Issue Date or any Warrants issued or
to be issued pursuant to the Purchase Agreement;
(4) shares of Common Stock issued or issuable
upon conversion of shares of Series B Preferred Stock issued and outstanding on
the date hereof; or
(b) MERGER, SALE OF ASSETS, ETC. If at any time while this
Warrant or any portion thereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property whether in the form of securities, cash or otherwise,
or (iii) a sale or transfer of the Company's properties and assets as, or
substantially as, an entirety to any other person, this Warrant shall thereafter
represent the right to acquire the number of shares of stock or other securities
which the Holder of this Warrant would have owned immediately after the
consummation of such reorganization, merger, consolidation, sale or transfer, if
the Holder of this Warrant had exercised this Warrant immediately before the
effective date of the reorganization, merger, consolidation, sale or transfer.
(c) RECLASSIFICATION, ETC. If the Company, at any time while
this Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or
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<PAGE> 10
otherwise, shall change any of the securities as to which purchase rights under
this Warrant exist into the same or a different number of securities of any
other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 11.
(d) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(e) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES. If
while this Warrant, or any portion hereof, remains outstanding and unexpired the
holders of the securities as to which purchase rights under this Warrant exist
at the time shall have received, or, on or after the record date fixed for the
determination of eligible shareholders, shall have become entitled to receive,
without payment therefor, other or additional stock or other securities of the
Company by way of dividend, then and in each case, this Warrant shall represent
the right to acquire, in addition to the number of shares of the security
receivable upon exercise of this Warrant, and without payment of any additional
consideration therefor, the amount of such other or additional stock or other
securities of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available to it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth, in reasonable detail, the event requiring the adjustment or
readjustment, the amount of such adjustment or readjustment, the method by which
such adjustment or readjustment was calculated, the Exercise Price at the time
in effect, and the number of shares and the amount, if any, of other property
that at the time would be received upon the exercise of the Warrant. The Company
shall upon the written request, at any time, of any such Holder, furnish or
cause to be furnished to such Holder a like certificate.
(g) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to this Section 11, this Warrant shall thereafter
evidence the right to receive upon payment of the adjusted Exercise Price that
number of shares of Common Stock (calculated to the nearest hundredth) obtained
from the following formula:
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<PAGE> 11
X = Y x A
---
B
X = the adjusted number of shares of
Common Stock issuable upon exercise
of the Warrant by payment of the
adjusted Exercise Price.
Y = the number of shares of Common
Stock previously issuable upon the
exercise of the Warrant by payment
of the Exercise Price prior to
adjustment.
A = the Exercise Price prior to adjustment.
B = the adjusted Exercise Price.
* * *
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized as of the date first above written,
intending to be legally bound hereby.
ACCENT COLOR SCIENCES, INC.
By:/s/
---------------------------------------
Name:
Title:
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<PAGE> 13
NOTICE OF EXERCISE
To: ACCENT COLOR SCIENCES, INC.
The undersigned hereby elects to purchase shares of Common
Stock of Accent Color Sciences, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price for such shares in
full.
Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
-----------------------------------
(Name)
-----------------------------------
(Name)
- --------------------------------
(Date)
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<PAGE> 14
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
and does hereby irrevocably constitute and appoint Attorney
- ------------------------- to make such transfer on the books of Accent Color
Sciences, Inc. maintained for the purpose, with full power of substitution in
the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee has acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the shares of stock so purchased are being acquired for
investment and not with a view toward distribution or resale.
-----------------------------
Signature of Holder
Dated
- -----------------------
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<PAGE> 1
EXHIBIT 10.4
ACCENT COLOR SCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of
September 7, 1999, is between Accent Color Sciences, Inc., a Connecticut
corporation (the "Company"), and each investor set forth on Schedule A hereto
(individually an "Investor" and collectively with all other Investors, the
"Investors").
BACKGROUND
Pursuant to that certain Series A Convertible Subordinated Note,
Common Stock and Warrant Purchase Agreement, dated the date hereof, between the
Company and the Investors (the "Purchase Agreement"), the Company has conducted
a bridge financing in which it has offered for sale Series A Convertible
Subordinated Notes (the "Notes"), shares of Common Stock (the "Bridge Shares")
and Warrants (the "Warrants") to purchase the Company's common stock. In order
to induce the Investors to purchase the Notes, the Bridge Shares and the
Warrants, the Company has agreed to provide the registration rights set forth in
this Agreement.
AGREEMENT
Now, therefore, in consideration of the various covenants and
agreements contained herein and in the Purchase Agreement, and intending to be
legally bound hereby, the Company agrees with the Investors as follows:
1. REGISTRATION RIGHTS.
1.1 CERTAIN DEFINITIONS. Capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
(a) "Commission" shall mean the Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.
(b) "Common Stock" shall mean the common stock, no
par value, of the Company.
(c) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(d) "Investors" shall have the meaning assigned in
the preamble to this Agreement and shall include each assignee or successor to
each Investor.
<PAGE> 2
(e) The terms "Register", "Registered" and "Registration"
refer to a registration effected by preparing and filing a Registration
Statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such Registration Statement by the
Commission.
(f) "Registrable Securities" shall mean the Shares so long as
such shares are ineligible for sale under subparagraph (k) of Rule 144.
(g) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 1 hereof, including, without
limitation, all federal and state registration, qualification and
filing fees, Nasdaq or exchange listing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by
any such Registration and the reasonable fees and disbursements of
counsel for the Selling Shareholders, as selling shareholders.
(h) "Registration Statement" shall mean Form S-1, Form SB-1,
Form S-2, Form SB-2 or Form S-3, promulgated by the Commission (or any
successor forms) whichever is applicable.
(i) "Restriction Termination Date" shall mean, with respect to
any Registrable Securities, the earliest of (i) the date that such
Registrable Securities shall have been Registered and sold or otherwise
disposed of in accordance with the intended method of distribution by
the seller or sellers thereof set forth in the Registration Statement
covering such securities or transferred in compliance with Rule 144,
and (ii) the date that an opinion of counsel to the Company containing
reasonable assumptions (which opinion shall be subject to the
reasonable approval of counsel to any affected Investor) shall have
been rendered to the effect that the legend referred to in Section
3.8(a) of the Subscription Agreement can be properly removed as
inapplicable because the Registrable Securities covered thereby can be
freely traded and such legend shall have been removed.
(j) "Rule 144" shall mean Rule 144 promulgated by the
Commission pursuant to the Securities Act.
(k) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(l) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable
Securities pursuant to this Agreement.
(m) "Selling Shareholders" shall mean the holder or holders of
Registrable Securities who requests Registration under Section 1
herein.
(n) "Shares" shall mean the Bridge Shares and the Common Stock
issued to the Investors upon conversion of the Notes and upon exercise
of the Warrants.
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<PAGE> 3
(p) "Other Registrable Securities" shall mean (i) the Common
Stock issued to holders of the Company's Series B Preferred Stock upon
conversion of such stock and with respect to which such holders have been
granted registration rights pursuant to the Registration Rights Agreement
between the Company and such holders, and (ii) the Common Stock held by common
shareholders of the Company and with respect to which such shareholders have
been granted registration rights pursuant to the Registration Rights Agreement
between the Company and such shareholders.
1.2 REQUIRED REGISTRATION. If the Company shall be requested by holders
of at least a majority of the outstanding Shares to effect the Registration of
Registrable Securities, then the Company shall promptly give written notice of
such proposed Registration to all holders of Shares, and thereupon the Company
shall promptly use its best efforts to effect the Registration of the
Registrable Securities that the Company has been requested to Register for
disposition as described in the request of such holders of Shares and in any
response received from any of the holders of Shares within ten (10) days or such
longer period as shall be set forth in the notice, after the giving of the
written notice by the Company; provided, however, that the Company shall not be
obligated to effect any Registration except in accordance with the following
provisions:
(a) The Company shall not be obligated to file and cause to
become effective more than one (1) Registration Statement in which Registrable
Securities are Registered pursuant to this Section 1.2.
(b) Notwithstanding the foregoing, the Company may include in
each such Registration requested pursuant to this Section 1.2 any authorized but
unissued shares of Common Stock (or treasury shares) for sale by the Company or
any issued and outstanding shares of Common Stock for sale by others; provided,
however, that, if the number of shares of Common Stock so included pursuant to
this clause (b) exceeds the number of Registrable Securities requested by the
holders of Shares requesting such Registration, then such Registration shall be
deemed to be a Registration in accordance with and pursuant to Section 1.3 of
this Agreement (and not this Section 1.2); and provided further, however, that
the inclusion of such authorized but unissued shares of Common Stock (or
treasury shares) by the Company or issued and outstanding shares of Common Stock
by others in such Registration shall not prevent the holders of Shares
requesting such Registration from registering the entire number of Registrable
Securities requested by them.
(c) The Company shall not be required to file a registration
statement pursuant to this Section 1.2: (i) within six (6) months after any
other registration by the Company or (ii) for six (6) months after the request
for Registration under this Section 1.2 if the Company is then engaged in
negotiations regarding a material transaction which has not otherwise been
publicly disclosed, or such shorter period ending on the date, whichever first
occurs, that such transaction is publicly disclosed, abandoned or consummated.
1.3 PIGGYBACK REGISTRATION.
-3-
<PAGE> 4
(a) Each time that the Company proposes to Register a public
offering solely of its Common Stock (not including an offering of Common stock
issuable upon conversion or exercise of other securities), other than pursuant
to a Registration Statement on Form S-4 or Form S-8 or similar or successor
forms (collectively, "Excluded Forms"), the Company shall promptly give written
notice of such proposed Registration to all holders of Shares, which shall offer
such holders the right to request inclusion of any Registrable Securities in the
proposed Registration.
(b) Each holder of Shares shall have ten (10) days or such
longer period as shall be set forth in the notice from the receipt of such
notice to deliver to the Company a written request specifying the number of
shares of Registrable Securities such holder intends to sell and the holder's
intended plan of disposition.
(c) In the event that the proposed Registration by the Company
is, in whole or in part, an underwritten public offering of securities of the
Company, any request under Section 1.3(b) may specify that the Registrable
Securities be included in the underwriting on the same terms and conditions as
the shares of Common Stock, if any, otherwise being sold through underwriters
under such Registration.
(d) Upon receipt of a written request pursuant to Section
1.3(b), the Company shall promptly use its best efforts to cause all such
Registrable Securities to be Registered, to the extent required to permit sale
or disposition as set forth in the written request.
(e) Notwithstanding the foregoing, if the managing underwriter
of an underwritten public offering determines and advises in writing that the
inclusion of all Registrable Securities proposed to be included in the
underwritten public offering, together with any other issued and outstanding
shares of Common Stock proposed to be included therein by holders other than the
holders of Registrable Securities (such other shares hereinafter collectively
referred to as the "Other Shares"), would interfere with the successful
marketing of the securities proposed to be included in the underwritten public
offering, then the number of such shares to be included in such underwritten
public offering shall be reduced, and shares shall be excluded from such
underwritten public offering in a number deemed necessary by such managing
underwriter, to the extent necessary, pro rata with respect to the Registrable
Securities sought to be included therein and all Other Shares otherwise entitled
to be included therein.
(f) All Shares that are not included in the underwritten
public offering shall be withheld from the market by the holders thereof for a
period, not to exceed 6 months following a public offering, that the managing
underwriter reasonably determines as necessary in order to effect the
underwritten public offering. The holders of such Shares shall execute such
customary documentation as the managing underwriter reasonably requests to
evidence this lock-up.
1.4 PREPARATION AND FILING. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 1 to use its best efforts
to effect the Registration of any Registrable Securities, the Company shall, as
expeditiously as practicable:
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<PAGE> 5
(a) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities and use its best efforts
to cause such Registration Statement to become and remain effective in
accordance with Section 1.4(b) hereof, keeping each Selling Shareholder advised
as to the initiation, progress and completion of the Registration;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statements and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for six months or, if sooner, until all Registrable Securities covered
by such Registration Statement have been sold, and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
Registrable Securities covered by such registration statement;
(c) furnish to each Selling Shareholder such number of copies
of any summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Selling Shareholder may reasonably request in order to
facilitate the public sale or other disposition of such Registrable Securities;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as each Selling Shareholder
shall reasonably request and do any and all other acts or things which may be
necessary or advisable to enable such holder to consummate the public sale or
other disposition in such jurisdictions of such Registrable Securities;
provided, however, that the Company shall not be required to consent to general
service of process, qualify to do business as a foreign corporation where it
would not be otherwise required to qualify or submit to liability for state or
local taxes where it is not liable for such taxes; and
(e) at any time when a prospectus covered by such Registration
Statement is required to be delivered under the Securities Act within the
appropriate period mentioned in Section 1.3(b) hereof, notify each Selling
Shareholder of the happening of any event as a result of which the prospectus
included in such Registration, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing and, at the request of such seller, prepare,
file and furnish to such seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein not misleading in
the light of the circumstances then existing.
1.5 EXPENSES. The Company shall pay all Registration Expenses incurred
by the Company in complying with this Section 1; provided, however, that all
Selling Expenses applicable to the Registrable Securities covered by
registrations effected pursuant to Section 1 hereof shall be borne by the seller
or sellers thereof based on the number of Registrable Securities sold by such
seller or sellers.
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<PAGE> 6
1.6 INFORMATION FURNISHED BY INVESTOR. It shall be a condition
precedent to the Company's obligations under this Agreement as to any Selling
Shareholder that such Selling Shareholder furnish to the Company in writing such
information regarding such Selling Shareholder and the distribution proposed by
such Selling Shareholder as is required by the Securities Act or otherwise by
the Commission.
1.7 INDEMNIFICATION.
(a) Company's Indemnification of Investors. The Company shall
indemnify each Selling Shareholder, each of its officers, directors and
constituent partners, and each person controlling such Selling Shareholder, and
each underwriter thereof, if any, and each of its officers, directors,
constituent partners, and each person who controls such underwriter, against all
claims, losses, damages or liabilities (or actions in respect thereof) suffered
or incurred by any of them, to the extent such claims, losses, damages or
liabilities arise out of or are based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any Registration Statement
covering the sale of Registrable Securities or any related prospectus, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state blue sky laws applicable to the
Company and relating to actions or inaction required of the Company in
connection with any such Registration; and the Company will reimburse each such
Selling Shareholder, each such underwriter, each of their officers, directors
and constituent partners and each person who controls any such Selling
Shareholder or underwriter, for any legal and any other expenses as reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the indemnity contained in
this Section 1.7(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if settlement is effected without the
consent of the Company (which must not be unreasonably withheld); and provided,
however, that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based
upon any untrue statement or omission based upon written information furnished
to the Company by such Selling Shareholder, underwriter, controlling person or
other indemnified person for use in connection with the offering of securities
of the Company.
(b) Selling Shareholder's Indemnification of Company. Each
Selling Shareholder (severally and not jointly) shall indemnify the Company,
each of its directors and officers, each underwriter, if any, of the Company's
Registrable Securities covered by a Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other Selling Shareholder, each of its officers, directors and
constituent partners and each person controlling such other Selling Shareholder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) suffered or incurred by any of them and arising out of or based upon
any untrue statement (or alleged untrue statement) of a material fact contained
in such Registration Statement or related prospectus, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not
-6-
<PAGE> 7
misleading, which in either case arises from written information provided by the
Selling Shareholder for inclusion in such Registration Statement; and will
reimburse the Company, each other Selling Shareholders, such directors,
officers, partners, persons, underwriters and controlling persons for any legal
and any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action.
(c) Indemnification Procedure. Promptly after receipt by an
indemnified party under this Section 1.7 of notice of the commencement of any
action which may give rise to a claim for indemnification hereunder, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 1.7, notify the indemnifying party in
writing of the commencement thereof and generally summarize such action. The
indemnifying party shall have the right to participate in and to assume the
defense of such claim, and shall be entitled to select counsel for the defense
of such claim with the approval of any parties entitled to indemnification,
which approval shall not be unreasonably withheld. Notwithstanding the
foregoing, the parties entitled to indemnification shall have the right to
employ separate counsel (reasonably satisfactory to the indemnifying party) to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified parties unless the named parties to
such action or proceedings include both the indemnifying party and the
indemnified parties and the indemnifying party or such indemnified parties shall
have been advised by counsel that there are conflicting interests between the
indemnified parties and the indemnifying party (in which case, if the
indemnified parties notify the indemnifying party in writing that they elect to
employ separate counsel at the reasonable expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding on behalf of the indemnified parties; it being understood,
however, that the indemnifying party shall not, in connection with any such
action or proceeding or separate or substantially similar or related action or
proceeding in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate counsel at any time for all indemnified parties, which counsel
shall be designated in writing by the Investors of a majority of the Registrable
Securities).
(d) Contribution. If the indemnification provided for in this
Section 1.7 from an indemnifying party is unavailable to an indemnified party
hereunder in respect to any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the statements
or omissions which result in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or indemnified party
and the parties' relative intent, knowledge, access to information supplied by
such indemnifying party or indemnified party and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses
-7-
<PAGE> 8
reasonably incurred by such party in connection with investigating or defending
any action, suit, proceeding or claim.
2. COVENANTS OF THE COMPANY. The Company agrees as follows:
(a) The Company will notify the holders of Registrable
Securities included in a Registration Statement of the issuance by the
Commission of any stop order suspending the effectiveness of such Registration
Statement or the initiation of any proceedings for that purpose. The Company
will make every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the earliest
possible time.
(b) If the Common Stock is then listed on a national
securities exchange, the Company will use its best efforts to cause the
Registrable Securities to be listed on such exchange. If the Common Stock is not
then listed on a national securities exchange, the Company will use its best
efforts to facilitate the reporting of the Registrable Securities on the Nasdaq
National Market.
(c) The Company will take all other reasonable actions
necessary to expedite and facilitate disposition of the Registrable Securities
by the holders thereof pursuant to the Registration Statement.
(d) With a view to making available to the holders of
Registrable Securities the benefits of Rule 144 promulgated under the Securities
Act and any other rule or regulation of the Commission that may at any time
permit the Investors to sell securities of the Company to the public without
registration, the Company agrees to:
(i) make and keep public information available,
as those terms are understood and defined in Rule 144, at all times
after 90 days after the effective date of the first Registration
Statement filed by the Company for the offering of its securities to
the general public;
(ii) file with the Commission in a timely manner
all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) furnish to each holder of Shares, so long
as such holder of Shares owns any Shares, forthwith upon written
request (a) a written statement by the Company that it has complied
with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement
filed by the Company), the Securities Act and the Exchange Act (at
any time after it has become subject to such reporting requirements),
(b) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company,
and (c) such other information as may be reasonably requested and as
is publicly available in availing the holders of Shares of any rule
or regulation of the Commission which permits the selling of any such
securities without registration.
-8-
<PAGE> 9
(e) Prior to the filing of the Registration Statement or any
amendment thereto (whether pre-effective or post-effective), and prior to the
filing of any prospectus or prospectus supplement related thereto, the Company
will provide each Selling Shareholder with copies thereof.
4. MISCELLANEOUS.
(a) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given if given in
accordance with the Purchase Agreement.
(b) 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), only with the
written consent of the Company and the holders of Warrants representing a
majority of the shares of Common Stock issuable upon conversion of the Notes.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Investor, each assignee or transferee of such Investor and the
Company.
(c) This Agreement shall be governed and construed under the
laws of the State of Connecticut without giving effect to the conflict of law
principles. The parties irrevocably consent to the exclusive jurisdiction of the
Superior Courts of the State of Connecticut at Hartford, Connecticut or the
United States District Court for the District of Connecticut.
(d) If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(e) This Agreement and the documents referred to herein
constitute the entire agreement hereto with respect to the subject matter hereof
among the parties, and no party shall be liable or bound to any other party in
any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
IN WITNESS WHEREOF, the Company has caused this Registration Agreement
to be duly executed by its authorized officer whose signature appears below.
ACCENT COLOR SCIENCES, INC.
By: /s/___________________________
Name: Charles E. Buchheit
Title: President and Chief Executive Officer
-9-
<PAGE> 10
SCHEDULE A
Investors
Orbis Pension Trustees Limited
The PMG Eagle Fund
-10-
<PAGE> 1
T H I R D A M E N D M E N T
This is the Third Amendment ("Amendment") to the April 11, 1996 Product Purchase
Agreement ("Agreement") that was entered into by and between International
Business Machines Corporation ("IBM") and Accent Color Sciences, Inc. ("ACS").
Both IBM and ACS agree to the following terms and conditions:
1.0 ACS' address in the opening paragraph of the Agreement is revised to read,
"800 Connecticut Blvd, East Hartford, Connecticut 06108."
2.0 The definition in Section 1.7, "Epidemic Failure," is revised in its
entirety to read:
"Epidemic Failure" shall mean [*]
3.0 The definition in Section 1.11, "Printer Engines," is revised in its
entirety to read:
"Printer Engines" shall mean the printing systems, as listed in Attachment
1, sold by Seller to Buyer under this Agreement.
4.0 The definition, "Event of Default," is added to the Agreement as a new
Section 1.18 as follows:
"Event of Default" shall mean any of the following events:
(i) Seller shall fail or be unable for any reason to provide Products,
Spare Parts, and/or Supplies within [*] following receipt of
written notice of default from Buyer;
(ii) Seller shall assign this Agreement in violation of the terms of
Section 17.5;
(iii) Seller shall fail to provide Buyer Product enhancements as
required by Section 8.4 or new Products as required by Section
8.5;
(iv) Seller shall fail to comply with any other material term of this
Agreement; or
(v) Seller shall fail, in a timely fashion, to receive and maintain
financing in sufficient
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1
<PAGE> 2
amount to maintain its capability to perform its obligations under
this Agreement.
5.0 The definition, "Change of Control," is added to the Agreement as a new
Section 1.19 as follows:
"Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is used in Sections 3(a)(9) and
13(d) of the 1934 Act) becomes a "beneficial owner" (as such
term is used in Rule 13d-3 promulgated under the 1934 Act) of
thirty (30) percent or more of the Seller's capital stock
having general voting power to elect the directors of Seller;
(ii) the majority of the Seller's board of directors consists of
individuals other than the members of the board as of July 21,
1998 (the "Incumbent Directors"); provided that any person
becoming a director subsequent to the date hereof whose
nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be
considered to be an Incumbent Director;
(iii) the merger or consolidation of Seller with or into another
corporation and, after such merger or consolidation is
consummated, either (A) Seller is not the surviving
corporation, or (B) if Seller is the surviving corporation,
then Seller is a wholly-owned subsidiary of another
corporation and the stockholders of Seller, immediately before
such merger or consolidation is consummated, do not own at
least 80% of the voting capital stock of Seller's parent
corporation immediately after such merger or consolidation is
consummated;
(iv) the sale, lease, transfer or disposition of 20% or more of
Seller's assets outside the normal course of business; or
(v) Seller adopts a plan of liquidation providing for the
distribution of all or substantially all of its assets.
6.0 Section 2.1 is revised in its entirety to read:
TERM. This Agreement shall begin on the Commencement Date and shall
continue in effect for six (6) years.
7.0 The following paragraph is added to the Agreement as a new Section 3.8:
SUPPORT OF MARKETING AND TECH SUPPORT. In an effort to aid Seller in
its support of Buyer's sales efforts concerning the Products, Buyer
agrees to pay Seller an
2
<PAGE> 3
amount equal to [*] every month for a period commencing on March 1,
1999 and ending on August 31, 1999. Buyer agrees to make its initial
payment to Seller within thirty days of this Amendment. Seller agrees
to apply such payment for its reasonable marketing expenses incurred
supporting Buyer's sales efforts and field technical support, including
the salaries of its marketing personnel, the procurement of printing
supplies in its demonstration center and travel expenses. This
represents a purchase of services by Buyer and not a loan of monies by
Buyer. If an Event of Default has occurred, Buyer's obligation under
this Section for additional payments shall terminate effective
immediately.
8.0 The first sentence of the first paragraph of Section 4.2 is revised in
its entirety to read as follows: "Except with respect to Buyer's
commitment expressed in Section 4.6 below, purchase orders shall serve
as Buyer's only commitment to purchase."
9.0 The paragraph following Table I in Section 4.2 is revised in its
entirety to read:
The lead time period for purchase of Spare Parts will be three (3)
months. The lead time period for purchase of Supplies will be three (3)
months for standard ink colors. For special or other non-standard
colors, the lead time period will be targeted at three (3) months and
Seller will use its commercially reasonable efforts to reach a three
(3) month lead time for special, non-standard ink colors. As volumes of
sales increase, Seller will use its commercially reasonable efforts to
reduce the lead time for delivery of finished Printer Engine units. In
addition, Seller will use its commercially reasonable efforts to reduce
the lead time for delivery of standard ink colors to sixty (60) days
beginning in the first quarter, 2000.
10.0 Section 4.3 is revised in its entirety to read:
ORDER ACCEPTANCE. Seller shall provide Buyer with a written or
electronic notice of acceptance or rejection of a purchase order no
later than seven (7) calendar days after receipt of the written order.
Seller may specify phased delivery of Printer Engines as part of order
acceptance if such phased delivery is within the purchase order lead
time periods as specified in 4.2. Any purchase order to which Seller
fails to respond within such seven (7) calendar days shall be deemed to
have been accepted by Seller. Any rejection shall include the reason
for rejection. Seller may reject a purchase order only if it fails to
comply with the forecast, except as permitted herein, and other terms
and conditions of this Agreement.
11.0 The following paragraph is added to the Agreement as a new Section 4.6:
FIRM PURCHASE COMMITMENT. Buyer agrees to buy a minimum of [*] Printer
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3
<PAGE> 4
Engines of the valued-engineered version from Seller during the
calendar year 2000; provided, however, such commitment to purchase is
subject to the following conditions:
(i) Spare Parts, Supplies and Options and Features are readily
available to Buyer from Seller as specified in Section 4.2;
(ii) such Printer Engines comply with the Printer Specifications;
(iii) such Printer Engines are readily available to Buyer with
initial deliveries beginning no later than March 31, 2000;
(iv) no Epidemic Failures which substantially, given clear and
convincing evidence, affect Buyer's ability to market such
Printer Engines occur during the twelve (12) month period;
(v) such Printer Engines remain competitive. In the event a
competing product is introduced which significantly, given
clear and convincing evidence, impacts Buyer's overall sales
of the Printer Engines, Buyer shall be relieved of the minimum
commitment;
(vi) all Printer Engines purchased before December 31, 2000,
regardless of whether developmental or production versions,
shall count as part of [*] unit commitment; and
(vii) an Event of Default has not occurred.
12.0 The following paragraph is added to the Agreement as a new Section 4.7:
PROJECTED LIVES OF SPARE PARTS AND SUPPLIES. The parties agree to meet
regularly to monitor Spare Part and Supply item failures that are
adversely affecting Buyer's cost estimate for supplying maintenance
services on the Products. Whenever a Spare Part or Supply item is
consistently failing early such that Buyer is contemplating invoking
its rights to corrective action as described below, Buyer agrees to
provide Seller with such failed Spare Parts or Supply items in an
amount sufficient to determine base causes of such failures or with
results from laboratory simulations of such failures. In the event any
Spare Part or Supply item consistently fails to meet its projected life
expectancy set forth in Attachment 8 such that it materially affect
Buyer's cost estimate for supplying maintenance services on the
Products, then Seller agrees to implement a mutually agreed upon
corrective action plan within [*] days after Buyer gives Seller written
notice of such failures and has given Seller either representative
failed Spare Parts or Supply items or the results of the simulation
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FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
4
<PAGE> 5
analysis. Such corrective action plan shall include compensation given
by Seller to Buyer's for its increased costs, both labor and material,
and a plan to correct the design and/or manufacture so that the
affected item meets its projected life expectancy. In the event
Seller's corrective action plan includes a remanufacturing process,
Buyer agrees to supply Seller with such failed Spare Parts or Supply
items.
13.0 Section 5.2 is revised in its entirety to read:
DELIVERY. Delivery of Products shall be F.O.B. Seller's location at 800
Connecticut Blvd, East Hartford, Connecticut 06108.
14.0 Section 7.2 is revised in its entirety to read:
TERMS OF PAYMENT. For invoices received before January 1, 2001, Buyer
shall pay Seller in full in U.S. dollars for Products it purchases as
soon as practical but no later than [*] days of receipt of Seller's
invoice therefor. For invoices received on or after January 1, 2001,
Buyer shall pay Seller in full in U.S. dollars for Products it
purchases within [*] days of receipt of Seller's invoice therefor.
For those Printer Engines ordered in compliance with Section 4.6,
Seller may invoice Buyer [*] dollars for each such Printer Engine at
such time it needs to start ordering supplies for the manufacture of
such Printer Engine. Buyer shall be entitle to a lien on Seller's total
inventory of goods to the extent that Buyer has made Printer Engine
down payments for which no deliveries to Buyer have been made. Seller
shall only use such down payment for the purchase of such components
for Buyer's ordered Printer Engines.
15.0 Section 8.5 is revised by adding the following to the end, "The parties
agree, no later than October 1, 1999, using commercially reasonable
efforts, to put a plan in place for the development of the [*] Printer
Engine [*]."
16.0 The existing Sections 10.6, "Epidemic Failures," and 10.7, "Limitation
of Warranties," are renumbered to Section 10.7, "Epidemic Failures,"
and 10.8, "Limitation of Warranties."
17.0 The following paragraph is added to the Agreement as a new Section
10.6:
REMEDY FOR BREACH OF WARRANTY FOR CERTAIN SPARE PARTS. For certain
Spare Parts, the list of which the parties will mutually agree, in lieu
of any of the remedies listed above in Section 10.5 for breaches of the
warranty set forth in Section 10.1, [*]
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
5
<PAGE> 6
18.0 The following paragraph is added to the Agreement as a new Section
10.9:
SALE NOTIFICATION. Seller covenants that it shall promptly notify
Buyer, in accordance with Section 17.9, upon Seller's decision to take
steps or upon learning that a third party intends to take, or has
taken, steps that, if successful, would result in a Change of Control.
19.0 The following paragraph is added to the Agreement as a new Section
12.4:
REMANUFACTURE OF PRODUCTS. Seller agrees to provide a remanufacturing
program upon mutually agreeable terms for certain Products during the
term of this Agreement at a time when the volume of such used Products
warrants such a program.
20.0 The following paragraph is added to the Agreement as a new Section
12.5:
MAINTENANCE OF SKILLS. Seller agrees to retain the services of
sufficient number of employees with sufficient skills and training such
that Seller maintains its capability to perform its obligations under
this Agreement.
21.0 Section 17.5 is revised in its entirety to read:
ASSIGNMENT. Neither party shall assign this Agreement to any other
party without the prior written consent of the other party hereto,
which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, a party may assign its rights or any of its obligations to a
third party in connection with a merger or consolidation of the
assignor or a transfer or sale to such third party of all or
substantially all of the Seller assets in the case of such transfer or
sale involving the Seller, or all or substantially all of the assets of
the division of Buyer presently known as the IBM Printing Systems
Company in the case of such transfer or sale involving the Buyer,
except that, notwithstanding the foregoing, Seller may not assign its
rights or delegate its duties hereunder to any person (natural or
otherwise) which has not agreed to be bound by the obligations of this
Agreement. Any assignment contrary to these terms shall be void and
considered an Event of Default.
22.0 Section 17.9 is revised in its entirety to read:
NOTICES Any notice which may be or is required to be given under this
Agreement shall be in writing, and shall be deemed to have been
received:
a) when delivered personally,
b) when sent by confirmed facsimile,
c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or
d) one (1) day after deposit with a commercial overnight carrier
with written verification
6
<PAGE> 7
of receipt.
All notices shall be sent to the addresses set forth below:
Notices regarding technical information:
BUYER: SELLER:
[*] [*]
Senior Engineer Director of Programs
6300 Diagonal Highway 800 Connecticut Blvd.
Boulder, CO 80301 East Hartford, CT 06108
Notices regarding contract administration, daily operations and updates
and modifications to the contract attachments:
BUYER: SELLER:
[*] [*]
Contract Administrator/Engineer Director
1701 North Street 800 Connecticut Blvd.
Endicott, NY 13760 East Hartford, CT 06108
Notices regarding contract modifications and contract interpretation:
BUYER: SELLER:
[*] [*]
Director, Business Alliances President & CEO
6300 Diagonal Highway 800 Connecticut Blvd.
Boulder, CO 80301 East Hartford, CT 06108
23.0 Section 17.19 is revised in its entirety to read:
NO MINIMUM COMMITMENT. Except with respect to Section 4.6, both Buyer
and Seller understand and agree that the Agreement does not obligate
Buyer to purchase a minimum amount of Products.
24.0 Attachment 1 is deleted in its entirety and replaced with Attachment 1
as attached hereto.
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7
<PAGE> 8
25.0 The fourth paragraph under the heading, "Technical Support,"of
Attachment 6 is revised in its entirety to read:
Technical support outside of normal business hours will only be
requested after Buyer has exhausted all other technical support
channels. These include an on site customer engineer, a district
customer engineer and Boulder level 2 support. Both Buyer's engineering
and Seller's engineering staffs will be responsible for level 3
support. Seller will provide a telephone number and fax number which
will be available twenty-four (24) hours per day and seven (7) days per
week.
26.0 Attachment 6 is revised to add the following the first paragraph under
the heading, "On Site Support":
<TABLE>
<S> <C>
Weekdays (Monday through Friday: 8 am -5 pm) [*]
After Hours (M, Tu, Wed and Th: 5:01 pm to 7:59 am) [*]
Weekends (5:01 pm Friday through 7:59 am Monday) and Holidays (per [*]
Buyer's schedule)
</TABLE>
1. There will be no charge for technical support if the problem
is due to a Defect in design, manufacturing or a Seller
supplied diagnostic tool, resulting in a failure of the
Products to conform to the agreed upon Product Specifications.
Both Buyer and Seller agree to implement a process to ensure
that travel situations are charged to the appropriate party.
2. Travel costs to and from Buyer's designated site and Seller's
location in East Hartford, Conn. are not covered in above
table.
3. The minimum charge will be for 8 hours.
4. The rates listed above cover labor, lodging, meals and local
transportation. Spare Parts and Supplies provided by Seller
will be charged in accordance with Attachments 8 and 10.
27.0 Attachment 8 is deleted in its entirety and replaced with the Spare
Parts table attached hereto and the following:
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
8
<PAGE> 9
World Wide Emergency Order Process:
Note: Buyer will place Emergency Orders only after it has searched
through its various field stocking locations and has determined that
the part is not available. If the situation should arise where Buyer or
Seller deem that the Emergency Order process is not being properly used
both parties agree to meet and reach a solution which is mutually
agreeable to both parties.
In the event that the Buyer has to place an Emergency Order because a
Spare Part was not available through the normal parts replenishment
process the handling fees described below should be waived. Buyer and
Seller will agree when these situations occur.
1. Buyer's Emergency Order shall be placed against separate
purchase orders issued at the time of order execution.
2. Seller will use its resources to attempt to meet a [*]
compliance to ship all Emergency Orders within 24 hours unless
otherwise specified by Buyer.
3. Emergency Orders shall be limited to one (1) line item per
Order and a maximum of one (1) piece per each line item.
4. Seller will make every reasonable effort to make Emergency
Orders available at its East Hartford, CT facility.
5. Freight charges from Sellers designated delivery point for
Emergency Orders to Buyers designated destination are the
responsibility of the Buyer.
6. Buyer's EO's shall be invoiced at the agreed upon Spare Parts
price plus the following fees for special handling per line
item.
7. Seller's Delivery point is FOB East Hartford, Connecticut.
Buyer's designated shipper will be responsible for all customs
and international shipping documentation, customs fees, duty
fees, etc.
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 10
8. The fees and times for handling Emergency Orders are described
below:
<TABLE>
<CAPTION>
TIME FEE
<S> <C>
Normal Working [*]
Hours
Off Hours on [*]
Weekends
Weekends and [*]
Holidays
</TABLE>
The times in the above table are defined in Attachment 6.
In addition the Seller may specify parts to be shipped within
48 to 72 hours after notification from Buyer. The charge for
handling this type of order is [*]. This will be known as a
"2-to-3 day" order. All of the other conditions described in
this section remain in effect for this type of order.
Maintenance Parameters:
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 11
Both Buyer and Seller agree that the following table outlines the
objectives which both parties will work to. Any changes to the table
will require the consent of both Buyer and Seller. [*]
28.0 Attachment 10 is deleted in its entirety and replaced with Attachment
10 as attached hereto.
29.0 The remaining terms and conditions contained in the Agreement shall be
unchanged.
30.0 This Amendment embodies the entire understanding of the parties with
respect to the subject matter described herein and shall supersede all
previous communications, representations and understandings, either
oral or written, between the parties relating to the subject matter
hereof. No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing and signed by the duly
authorized representatives of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective authorized representatives.
INTERNATIONAL BUSINESS MACHINES CORPORATION
By:
(Signature)
Name:
Title:
Date:
ACCENT COLOR SCIENCES, INC.
By:
(Signature)
Name:
Title:
Date:
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 12
Attachment 1: Printer, Options, and Features
[*]
Attachment 10: Supplies Listing, Prices, and Order Process
[*]
[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
12
<PAGE> 1
Exhibit 10.6
Groupe SET International
(A Xerox Company)
ZI de Villemilan
2 Boulevard Arago
91320 Wissous
France
Accent Color Sciences Inc
800 Connecticut Boulevard
East Hartford
CT 06108
USA
For the attention of Chuck Buchheit
21st July 1999
RE: VARIATIONS TO AGREEMENT BETWEEN ACS AND SET DATED 27TH AUGUST 1997
("ACS CONTRACT")
Dear Chuck
Following our discussions and negotiations over the past weeks, concluding with
our telephone conversation last Thursday, I should like to confirm the terms
under which our respective companies will do business in future. I have done
this by way of reference to the above agreement which covered the sale of ACS's
TrueColor System Product to SET.
In addition I have dealt with two other matters. Firstly, the agreement by which
SET shall return the 41W system to you. Secondly, the agreement to modify
forthwith the second agreement, also dated 27th August 1997, which covered the
sale of SET's CES product to ACS ("SET Agreement").
1. TERMS OF NEW BUSINESS
Save where indicated below the obligations of ACS and SET shall be as set out in
the ACS Contract and references are to clauses in that agreement. If there is
any conflict between the terms as set out below and those contained in the ACS
Contract the terms here take precedence.
These Terms apply to the following ACS products: 1A (current design), and VE
(both pre-production and production models). They also refer to five exhibits:
<TABLE>
<S> <C>
I VE System Acceptance Test Plan
II 1A Machine Change List
III RMA Procedure
IV QA Inspection Procedure
V VE System Specification
</TABLE>
1
<PAGE> 2
Save for Exhibit IV, the Parties agree to use their best efforts to conclude
their agreement of the Exhibits on or by 6th August 1999. If for any reason
agreement cannot be reached by this date then SET reserves the right to cancel
its purchase order for the [*] VE systems without liability to ACS. Following
agreement of the Exhibits they shall be initialled and dated by the parties and
incorporated into this Agreement. Exhibit IV shall be agreed by January 2000.
II. PRODUCT DEVELOPMENT
VE Product
SET's performance and reliability requirements for the VE product and the
schedule for acceptance testing is more fully described in the Acceptance Test
Plan at Exhibit I (sent to you under separate cover). SET has purchased [*]
pre-production VE systems for development and testing purposes. The parties
agree that the three systems shall be deployed and supported as follows:
- - VE System #1
To be located at ACS' premises in East Hartford and fully supported by ACS
at ACS' expense. SET shall ship to East Hartford a 3057 printer with pre-
and post-processing equipment (e.g. an unwinder and either a folding table
or cutter, to be agreed between SET and ACS prior to shipment), together
with SET's CES software (collectively known as the "SET Product") in
accordance with the agreed timetable in Exhibit I. SET shall, via Xerox'
PSSU, provide engineering support and all supplies and consumables, except
paper, for the SET Product at its expense. ACS shall supply all paper. All
of the equipment (SET Product and VE System #1) will remain the property of
SET and shall be delivered up to SET upon request.
If SET requests that the equipment be located off of ACS' premises then ACS
shall provide support for VE System #1 but at its usual rates.
- - VE System #2
Location to be in Europe and advised by SET. Without charge to SET, ACS
shall install VE#2 and provide on-site support to SET until such time as
there has been a satisfactory handover to SET, such period of support not
to exceed five (5) working days. "Satisfactory handover" means that ACS has
used its reasonable efforts to demonstrate to SET that VE#2 meets the
specification more fully described in Exhibit V, and transferred sufficient
documentation, knowledge and skills to SET as is necessary to enable SET
personnel who are reasonably familiar with ACS's M2000 product to perform
tests in accordance with Exhibit I. Following handover clause 9.2 of the
ACS Contract shall apply.
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 3
- VE System #3
To be located at the premises of a customer of SET's in Europe: ACS to
be advised of location. Without charge to SET or to the customer, ACS
shall install VE#3 and provide on-site support until such time as
there has been a satisfactory handover to SET. "Satisfactory handover"
is as defined above save that an additional pre-condition is that the
customer must formally sign off that it is satisfied with the
installation of the VE system. Following handover clause 9.2 of the
ACS Contract shall apply.
SET agrees to waive the requirement for ACS to supply a declaration of
conformity with EEC Directives, in accordance with section A of
Exhibit I, prior to shipment of VE System #3 to the customer.
Reviews: The parties shall perform periodic reviews of their progress against
the agreed timetable as set out in Exhibit I using a combination of telephone
calls to each other and face-to-face meetings, to be agreed by the parties.
III. PURCHASE AND SALE OF PRODUCTS FOLLOWING DEVELOPMENT
1A (M2000HC) Product
ACS shall provide to SET such support as described below to ensure the
saleability before the end of 1999 of the [*] 1A systems already purchased by
SET. Specifically, ACS shall
i) close all items on the 1A Machine Change List (attached as Exhibit II)
which are outstanding on the date of execution of this Variation; and
ii) provide technical support by telephone in accordance with clause 9.2 of the
ACS Contract.
Items which are added to the 1A Machine Change List following execution of this
Variation shall be addressed according to a timetable to be agreed by the
parties.
The parties acknowledge and confirm that the terms of the ACS Contract apply to
SET's purchase of these systems, in particular ACS confirms that it shall
continue after 1999 to support the systems and supply spares and consumables in
accordance with the terms of the ACS Contract.
VE Product
- - Prices, Ordering, Payment: [*]
- - Cancellation: Provided that ACS meets the requirements and timetable set
out in Exhibit I SET shall not cancel its order for [*] of the VE systems.
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[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3
<PAGE> 4
Save as set out above, SET may cancel any portion of the remainder of the
1999 Purchase Order, without cause, and with the following liability, if a
written notice (facsimile is acceptable) of such cancellation is given by
SET at least [*] days prior to the scheduled delivery date. [*] Upon
receipt of notice of cancellation, ACS shall make every reasonable effort
to cancel commitments for, resell or divert materials and work-in-progress.
If requested by SET, ACS shall Deliver to Set the materials and
work-in-progress paid for by SET as a result of the cancellation of the
remainder of the 1999 Purchase Order or any portion thereof.
ACS's failure to complete all aspects of the Acceptance Test Plan (Exhibit
I) by the agreed deadline of 22nd March 2000 shall give to SET the right to
cancel the 1999 Purchase Order in its entirety without liability provided
that notice of cancellation is prompt and in writing.
- - Delivery Schedule: ACS shall deliver the systems to SET at the rate of [*]
systems per month, the first delivery to be in March 2000, unless
instructed otherwise by SET in writing.
- - Inspection: Within a reasonable period following its arrival at SET's
premises, SET shall inspect each system according to a QA procedure to be
agreed by the Parties by January 2000. The agreed procedure, which shall be
based upon suggestions made by Jean Luc Laurent and Michel Lemoine, shall
be documented by the parties and incorporated into this agreement as
Exhibit IV. In the event that a system fails such QA procedure ACS may, at
its discretion, either send an engineer from the United States to inspect
the system or recall the system to the United States at its expense to
investigate the cause of non-compliance. If upon investigation by ACS the
system is found to be to the agreed specification then ACS' costs shall be
shared between the parties equally.
- - Support: Unless agreed otherwise, ACS shall install [*] VE systems and
provide on-site support until such time as there has been a satisfactory
handover to SET. "Satisfactory handover" shall be as defined above. ACS
agrees to meet the "out of pocket" expenses of its personnel i.e. travel,
accommodation and subsistence, up to a cumulative total of [*], beyond
which SET agrees to reimburse ACS for all reasonable "out-of-pocket"
expenses upon production of receipts.
ACS shall provide on-site technical and marketing support as requested in
writing by SET at ACS's usual rates. SET shall reimburse to ACS all
reasonable expenses for travel upon production of receipts. If requested by
SET in writing ACS shall perform sample generation support without charge
on the following conditions:
i) the SET Product and VE#1 system remain installed and operational in E
Hartford and
ii) development and support activities take priority and
iii) SET pays for the ink.
- --------
[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
4
<PAGE> 5
ACS has the right to refuse to perform sample generation without charge if
the request has above average resource/cost implications for ACS.
- - Training: ACS shall, at its expense, provide formal "train the trainer"
training for up to ten (10) SET and/or Xerox engineers at a location to be
decided by SET. Class sizes are restricted to five (5) attendees. In the
event that the training is at ACS' premises in the US, SET shall meet its
attendees' expenses; else if it is in Europe then ACS will meet the
expenses of its own personnel. ACS agrees to provide future training
classes upon SET's request, the charges for which will be agreed beforehand
(Chuck/Fred, please let me have your current charges). SET agrees to give
ACS at least 30 days notice of its requirement for training.
In addition the following shall apply to all ACS Products:
8.1 Express Warranties
ACS warrants that its Products are Year 2000 compliant and thus shall be able to
accurately process date data (including but not limited to, calculating,
comparing and sequencing from, into and between the twentieth and twenty-first
centuries, including leap year calculations.
Abnormal Frequent Failures
The parties agree to list those parts that have seen abnormal frequent failures
by March 2000. The parties agree to follow the procedure known as the "RMA
procedure" and more fully described in Michel Lemoine's note dated 2nd June 1999
(as updated) and extracted and attached as Exhibit III.
8.3 Mandatory Retrofits
This clause is varied such that ACS shall bear the cost of installation. In
addition, ACS to decide whether to implement the retrofit themselves or to
compensate SET; if SET perform retrofit the parties will agree on SET's rates
and on a cap to SET's total cost beforehand and SET's costs will be auditable by
ACS.
19.1 Accent Color Indemnity
This clause is varied such that the indemnity extends to infringements of any
patent recognized in Germany, Italy and Spain. ACS shall so indemnify all VE
systems delivered to SET from March 2000.
2. RETURN OF 41W WITHOUT LIABILITY
5
<PAGE> 6
With respect to the 41W system that SET has in its possession SET agrees to
return this to ACS by the end of 1999 at SET's expense. ACS shall not charge SET
for the system or hold SET liable in any way for any damage to the system or
loss to ACS. Notwithstanding the foregoing, ACS shall charge SET for the costs
of replacing any missing parts on the 41W.
3. VARIATION TO THE SECOND PRODUCT DEVELOPMENT AND DISTRIBUTION AGREEMENT
("SET AGREEMENT")
The parties agree to vary the above agreement dated 27th August 1997 between SET
and ACS under which SET agreed to sell to ACS its CES Product without liability
in the following manner:
SET shall have the right to refuse to supply its CES product to ACS if in the
opinion of either SET and/or Xerox ACS intends to supply CES to a competitor of
SET and/or Xerox, save that SET shall lose this right if it has not purchased
and received into Europe any ACS product, excluding spares or ink, in the 12
months preceding ACS's order for CES. For the avoidance of doubt, "Xerox" shall
mean Xerox Corporation, Xerox Limited or any associate or subsidiary company of
Xerox Corporation.
Please execute both copies of this letter where indicated below acknowledging
your agreement to the above.
Yours sincerely
Jerry Luckett
Managing Director
SET Electronique S.A.
We, Accent Color Sciences Inc., hereby acknowledge and agree to the terms set
out in this letter.
Signed
Name:
Title:
Date:
Exhibit I VE System Acceptance Test Plan
[*]
Exhibit II 1A Machine Change List
- --------
[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
6
<PAGE> 7
[*]
Exhibit III RMA Procedure
Subject: EXHIBIT III - WARRANTY PARTS REPLACEMENT PROCEDURE FOR CONTRACT
AMENDMENT
Warranty, In-warranty parts replacement procedure, and Emergency Part Request
procedure:
- - WARRANTY
- - Inspection clause:
- Upon receipt, a new machine will undergo a QC acceptance inspection
(see Exhibit IV) and then run 5000 feet in Belgium. At the conclusion
of this inspection SET will send a QC report to ACS. The report will
be discussed as part of the weekly call and both parties will agree on
closure that the machine has passed inspection.
- 40WH is only machine that has not passed SET inspection.
- - Abnormally Frequent Failure clause:
- Both parties will agree on a list of parts that have seen abnormally
frequent failures. Any parts on this list will be considered under
warranty until they are removed from the list.
- Parts will be removed from the list based upon EC and field kit
acceptance by SET.
- Other parts may be added to the list based upon the abnormally
frequent failures criteria set forth in the contract.
- Any other part failures on a machine, after it has passed inspection,
will be considered out of warranty. This includes early life failures
of parts not on the abnormal failure list.
- - IN-WARRANTY PARTS REPLACEMENT PROCEDURE
1. If a part has failed and is considered by SET to be in-warranty (see
above), SET faxes an RMA request to ACS to return the failed part. RMA
request includes:
- SET request # (for reference until ACS sends an actual RMA #)
- Part # to be returned (if printhead, the printhead serial #)
- Description of problem
- Printer serial #
- Point of contact to clarify questions
2. ACS determines expected ship date (based upon request date & part
availability)
3. ACS emails RMA with planned ship date "and SET reference number" to
SET (address needed!).
4. If ACS Tech Support closes out an RMA because of direct action on
their part, they will notify ACS Materials group to close out the RMA.
5. SET generates a separate purchase order for the full value of the
part. Included on the purchase order is:
- Full price of the part
- Requested ship date based on ACS expected ship date -
discrepancies will be escalated to ACS and SET management
- Ship To information
6. ACS sends the part to SET - sent UPS Ground International - at ACS
expense - referencing the PO (if SET requires expedited shipment, ACS
will send the part UPS Red International - but at SET expense).
7. ACS issues an invoice to SET against the purchase order for the full
value of the part at time of shipment.
8. Upon receipt of the replacement part, SET will return the failed part
to ACS within 45 days; shipping charges are at ACS expense.
a) If part failure is determined to be covered by warranty, ACS will issue
full credit to SET for the value of the part, cancelling out the open
invoice issued above.
b) If part failure is determined by ACS to be out of warranty, ACS' invoice
for the replacement part will remain and no credit will be issued. At SET's
request, ACS can return the failed parts to SET, at SET expense.
- - EMERGENCY PARTS PROCESS
- --------
[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7
<PAGE> 8
1. "When a part fails that is not in SET inventory - EMERGENCY PART
REQUEST PROCESS - get part out within 24 to 48 hours - based upon
availability.
2. SET generates a part request, by fax, with a PO# on it (viewed as an
emergency PO - with normal price for the part on it) and sends to ACS.
3. ACS sends a confirmation to SET, by fax, with expected part
availability.
4. ACS ships the part out. SET is responsible for all shipping and
handling charges (It is understood that this is an expedited part
request - emergency)
5. If it is an "EMERGENCY - EMERGENCY" - for example on the weekend - a
call is made to 001-860-610-4040 and information will be left with the
answering service of who and where ACS can call to get accurate
information. The answering service will contact ACS, ACS will call SET
to confirm the requirements. ACS will then take appropriate action.
Exhibit IV QA Inspection Procedure
Exhibit IV shall be agreed by January 2000
Exhibit V VE System Specification
[*]
- --------
[*]OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,456,989
<SECURITIES> 0
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2,372,953
0
<COMMON> 47,630,061
<OTHER-SE> (51,588,818)
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<SALES> 1,475,004
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