0001104659-01-503217.txt : 20020410 0001104659-01-503217.hdr.sgml : 20020410 ACCESSION NUMBER: 0001104659-01-503217 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK COMPUTING DEVICES INC CENTRAL INDEX KEY: 0000886138 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 770177255 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20124 FILM NUMBER: 1787265 BUSINESS ADDRESS: STREET 1: 350 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4156940650 MAIL ADDRESS: STREET 1: 350 NORTH BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 j2183_10q.htm 10-Q Prepared by MERRILL CORPORATION

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
		Act of 1934 for the quarterly period ended September 30, 2001

o		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 0-20124

NETWORK COMPUTING DEVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware	77-0177255
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

301 Ravendale Drive, Mountain View, California	94043
(Address of principal executive offices)	(Zip Code)

(650) 694-0650
(Registrant's telephone number, including area code)

Common Stock, $0.001 par value
(Title of class)

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 ý No o

As of September 30, 2001, 17,613,237 shares of the registrant’s Common Stock were outstanding.

NETWORK COMPUTING DEVICES, INC.

INDEX

Description
Cover Page

Index

Part I:			Financial Information

	Item 1: Financial Statements

		Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000

		Condensed Consolidated Statements of Operations for the Three and Nine- Month Periods Ended September 30, 2001 and 2000

		Condensed Consolidated Statements of Cash Flows for the Nine- Month Periods Ended September 30, 2001 and 2000

		Notes to Condensed Consolidated Financial Statements

	Item 2: Management's Discussion and Analysis of Financial Condition And Results of Operations

	Item 3: Quantitative and Qualitative Disclosure About Market Risk

		Part II: Other Information

	Item 3: Defaults Upon Senior Securities

	Item 6: Exhibits and Reports on Form 8-K

Signature

NETWORK COMPUTING DEVICES, INC.

Part I: Financial Information

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

ASSETS
	(unaudited) September 30, 2001			December 31, 2000
Current assets:
Cash and cash equivalents	$	517		$	1,419
Short-term investments	-			339
Accounts receivable, net of allowances of $1,436 and $5,629 as of September 30, 2001 and December 31, 2000, respectively	8,145			9,160
Inventories	5,720			7,635
Prepaid assets	848			2,667
Other current assets	-			1,500
Total current assets	15,230			22,720


Property and equipment, net	789			1,530
Goodwill and other assets	2,128			2,602
Total assets	$	18,147		$	26,852


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,883		$	5,545
Accrued expenses	3,275			4,047
Deferred revenue	327			1,297
Notes payable	5,317			7,947
Other current liabilities	120			243
Total current liabilities	16,922			19,079


Shareholders' equity:
Preferred stock	1,500			1,500
Common stock	18			18
Capital in excess of par	62,380			62,380
Accumulated deficit	(62,673		)	(56,125		)
Total shareholders' equity	1,225			7,773
Total liabilities and shareholders' equity	$	18,147		$	26,852

See accompanying notes.

NETWORK COMPUTING DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2001			2000			2001			2000
Net revenues:

Hardware products	$	7,174		$	8,972		$	26,078		$	31,783
Software products	933			1,468			2,629			3,511
Services	280			638			1,405			2,684
Total net revenues	8,387			11,078			30,112			37,978
Cost of revenues:
Hardware products	6,352			7,380			20,165			28,387
Software products	300			204			845			757
Services	75			326			177			1,206
Total cost of revenues	6,727			7,910			21,187			30,350

Gross Margin	1,660			3,168			8,925			7,628

Operating expenses:
Research and development	645			1,399			2,020			7,514
Marketing and selling	2,584			3,831			9,175			17,700
General and administrative	1,089			1,877			3,330			6,331
Business restructuring	-			1,645			-			4,206
Acquired in-process research and development	-			-			-			1,800
Total operating expenses	4,318			8,752			14,525			37,551

Operating loss	(2,658		)	(5,584		)	(5,600		)	(29,923		)
Interest expense, net	(548		)	(191		)	(873		)	(314		)

Loss before income taxes	(3,206		)	(5,775		)	(6,473		)	(30,237		)
Provision for income taxes	21			97			75			448

Net loss	$	(3,227	)	$	(5,872	)	$	(6,548	)	$	(30,685	)

Net loss per share
Basic and diluted	$	(0.18	)	$	(0.35	)	$	(0.37	)	$	(1.85	)

Shares used in per share computations
Basic and diluted	17,613			16,710			17,613			16,628

See accompanying notes.

NETWORK COMPUTING DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2001			2000
Cash flow from operations:
Net loss
Reconciliation of net loss to cash used in operations	$	(6,548	)	$	(30,685	)
In process research and development charge	-			1,800
Depreciation	806			1,780
Amortization of goodwill	302			380
Non cash restructuring charge	-			336
Changes in:
Accounts receivable, net	1,015			11,040
Inventories	1,915			5,739
Prepaid expenses and other current assets	1,819			446
Accounts payable	2,338			(656		)
Accrued expenses	(772		)	738
Deferred revenue	(970		)	(700		)
Other current liabilities	(123		)	162
Cash used in operations	(218		)	(9,620		)
Cash flows from investing activities:
Acquisition of business	-			(2,224		)
Purchases of short-term investments	-			(998		)
Sales and maturities of short-term investments	339			4,223
Changes in other assets	172			417
Property and equipment purchases	(65		)	(469		)
Cash provided by (used in) investing activities	446			949
Cash flows from financing activities:
Principal payments on capital lease obligations	-			(69		)
Proceeds from short-term debt	28,676			25,248
Principal payments on short-term debt	(31,306		)	(21,383		)
Proceeds from issuance of preferred stock, net	1,500			798
Cash provided by (used in) financing activities	(1,130		)	4,594
Decrease in cash and equivalents	(902		)	(4,077		)
Cash and equivalents:
Beginning of period	1,419			4,781
End of period	$	517		$	704

See accompanying notes.

NETWORK COMPUTING DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

The unaudited condensed consolidated financial information of Network Computing Devices, Inc. and its wholly-owned subsidiaries (the "Company") furnished herein reflects all adjustments, consisting only of normal recurring entries, which in the opinion of management are necessary to fairly state our consolidated financial position, results of operations and cash flows for the periods presented. The functional currency for the Company is the U.S. dollar. All significant inter-company balances and transactions have been eliminated in consolidation. This Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in our 2000 Annual Report on Form 10-K. The consolidated results of operations for the three- and nine-month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2001. Certain reclassifications have been made to prior period amounts to conform to current presentation. No reclassifications impacted net loss or shareholders' equity.

Going Concern Uncertainty

The Company has incurred losses from continuing operations for the year ended December 31, 2000 of approximately $32.7 million and for the three- and nine-month periods ended September 30, 2001 of approximately $3.2 million and $6.5 million, respectively. The Company has a working capital deficit of $1.3 million at September 30, 2001. The Company’s continuation as a going concern is dependent upon its ability to obtain additional financing or refinancing as may be required and ultimately to attain profitability. The Company is actively marketing its existing and new products, which it believes will ultimately lead to profitable operations. However, no assurance can be given that these available funds will meet the Company’s cash requirements in the future. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Revenue Recognition

Hardware Revenues

Hardware revenues consist primarily of revenues from the sale of thin client products and related hardware. Hardware revenues are recognized when the products are shipped following receipt of a valid purchase order. According to contracts with certain international distributors, revenue is recognized when the shipment is made available at a third party logistics center and the buyer is notified of the availability. We warrant our hardware products for defects in materials for a period of three years. During this warranty period, the customer may return defective product to us and at our option we will either repair or replace the defective product. In the event we are unable to accomplish the repair or replacement of the defective product, we may refund customer the corresponding purchase price. We reduce revenues and cost of sales by an amount representing estimated returns, which we estimate, based upon historical experience factors. Warranty costs are accrued based upon actual units sold based upon estimates derived from historical experience.

Software Revenues

Software revenues consist of revenues from the sale of software products. Software revenues are recognized when the software license is sold and the software is delivered. We do not offer free software upgrades and because we provide 30-day complimentary telephone support for software, there is no undelivered element related to software sales. Software products that are included in revenue for the periods presented are (i) NCD ThinPATH, (ii) NCD Wincenter, our multi-user Windows NT application server software, (iii) NCD PC-Xware, our thin client software for PCs, and (iv) NCDware, our proprietary thin client software.

Service Revenues

Services revenues are generated from the sale of hardware service contracts. Our Extended Warranty Program extends the three- year standard warranty, and our Express Exchange Program provides for the shipment of a replacement unit within 24 - 48 hours, upon customer request. Service revenues are recognized ratably over the term of the hardware service contract. Our deferred revenue includes all unrecognized service revenue.

Net Loss Per Share

Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and potential common shares from stock options and warrants outstanding, when dilutive, using the treasury stock method. At September 30, 2001 and 2000 there were 5,558,562 and 4,538,936 options and warrants outstanding, respectively. There were also 220,000 shares of convertible preferred stock (convertible into 2,200,000 shares of common stock) outstanding at September 30, 2001. Such options, warrants and convertible preferred shares could potentially dilute earnings per share ("EPS") in the future, but they were not included in the computation of diluted EPS because to do so would have been antidilutive for those periods.

Inventories

Inventories stated at the lower of standard costs, which approximates actual cost on a first-in, first-out basis, or market, consisted of (in thousands):

	September 30, 2001			December 31, 2000

Purchased components and sub-assemblies	$	6,287		$	10,367
Work in process	400			776
Finished goods	4,534			4,363
Total inventories	11,221			15,506
Less reserves	(5,501		)	(7,871		)
Net inventories	$	5,720		$	7,635

Interest and tax payments

Interest payments, primarily interest on notes payable, were $248,000 and $191,000 for the three months ended September 30, 2001 and 2000, respectively and $487,000 and $314,000 for the first nine months of 2001 and 2000, respectively. Income tax payments, primarily foreign, were $20,000 and $28,000 for the three months ended September 30, 2001 and 2000, respectively, and $38,000 and $147,000 for the first nine months of 2001 and 2000, respectively.

Operating Segments and Major Customers

The company has one operating segment, sales of thin client hardware and software.

The percentages of total net revenues represented by sales to major customers are as follows:

	Three Months Ended September 30				Nine Months Ended September 30
	2001		2000		2001		2000
GTS Gral (Europe)*	16	%	-		10	%	-
Adtcom (Europe)	-		25	%	9	%	22	%
Ingram Micro	9	%	17	%	7	%	7	%
Tech Data (U.S. & Europe)	5	%	1	%	9	%	14	%

* GTS Gral is a European distributor substantially owned by a director of the Company.

Business Acquisition

On January 7, 2000, we acquired the net assets of Multiplicity LLC ("Multiplicity") in a purchase business combination with a total purchase price of $2.2 million. Subsequent to this acquisition, a substantial portion of the acquired assets and goodwill were written off in a restructuring. The purchase price was allocated as follows:

In-process research and development	$	1,800
Other intangible assets	200
Goodwill	160
Tangible assets	40

Restructuring Charges

On March 31, 2000 we announced a restructuring plan involving a general reduction in workforce affecting all classes of employees and exiting certain leased facilities. Approximately 60 employees were terminated under this plan. In connection with the plan, we recorded a restructuring charge of $2.6 million consisting of $2.4 million for employee separation costs and $0.2 million for facility exit costs.

During the third quarter of 2000 we undertook a new restructuring plan which involved a general reduction in workforce affecting all classes of employees, exiting certain leased facilities and discontinuing development activities related to several product lines. This plan was necessitated by the termination of our contract with IBM as well as the change in market conditions. Approximately 40 employees were terminated under this plan. In connection with these actions, we recorded a restructuring charge of $1.6 million consisting of cash charges of $1.0 million for employee separation costs and $0.2 million for facility exit costs, and non-cash charges of $0.4 million related to the discontinued product lines, including the recognition of an impairment loss of $0.3 million on the intangibles attributable to our purchase of Multiplicity.

Approximately $0.2 million remains unpaid and is included in accrued liabilities as of September 30, 2001. The restructuing plan is expected to be completed during the fourth quarter of 2001.

Notes Payable

On October 30, 2001, we secured a $5.0 million line of credit with Silicon Valley Bank ("SVB"). The line is secured by substantially all of our assets and bears interest at a rate of prime plus 2%. In connection with this line of credit we issued warrants to SVB to purchase 650,000 shares of Common Stock at a price of $.50 per share. The warrants expire on October 31, 2006.

Concurrent with the SVB financing, we paid off our working capital line of credit obtained on March 30, 2000 from Foothill Capital. Such line of credit was secured by substantially all of our assets. As of June 30, 2001, we were in default of the minimum EBITDA (Earnings Before Income Taxes, Depreciation and Amortization) covenant of $38,000 for the three month period ended June 30, 2001. Under the terms of the agreement, borrowings during the third quarter of 2001 bore interest at a rate of prime plus 6.75%, which includes a covenant default rate of 4% (for a total of 12.75% at September 30, 2001). As of the date of termination of our agreement with Foothill Capital, the total amount outstanding under the line of credit was approximately $0.8 million. For the three- and nine-month periods ended September 30, 2001, fees amounting to $260,000 and $299,000 respectively, were included in interest expense. During the same three-and nine-month periods total interest expense on the line of credit amounted to $451,000 and $575,000, respectively and the corresponding effective annual interest rate was 54% and 19%, respectively. For the three- and nine-month periods ended September 30, 2000, total interest expense on the line of credit amounted to $138,000 and $268,000, respectively.

In August 2000, we concluded an agreement with SCI Technology, Inc. ("SCI"), a subsidiary of SCI Systems, Inc., to convert $3.3 million of our accounts payable to them into a thirteen-month note (the "Convertible Note"). The Convertible Note, issued in September 2000 had an interest rate of six and one-half percent (6.5%) per annum and an option to convert each dollar of the outstanding principal into one share of our Common Stock at anytime during the Convertible Note period at a conversion price of $1.00 per share. In August 2001, the Convertible Note was extended for an additional year with an increase in the interest rate from 6.5% per annum to eight percent (8%) per annum computed on the unpaid balance beginning October 1, 2001 and the conversion price was reduced to $.62 per share.

On October 17, 2001, we concluded an agreement with SCI to convert $1.0 million of our accounts payable to them into a note, which matures on September 29, 2002 and bears interest at a rate of eight percent (8%). This note is not convertible.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

This discussion includes forward-looking statements, including but not limited to statements with respect to our future financial performance, operating results, plans and objectives. Actual results may differ materially from those currently anticipated depending upon a variety of factors, including those described below under the sub-heading, "Future Performance and Risk Factors."

The following discussion should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes thereto included in Part I -- Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2000, contained in our 2000 Annual Report on Form 10-K.

Network Computing Devices, Inc. provides thin client hardware and software that delivers simultaneous, high-performance, easy-to-manage and cost effective access to all of the information on enterprise intranets and the Internet from thin client, UNIX and PC desktops. Our product line includes the NCD ThinSTAR line of Windows-based terminals, the NCD Explora network terminals and NCD NC900 network computers. On the software side, our products are the NCD ThinPATH family of client and server software, developed to enhance the connectivity, management and features of the NCD thin clients as well as PCs in accessing information and applications on Windows servers. These products are sold through OEMs, system integrators and distributor/VAR channels worldwide.

Recent Developments

At September 30, 2001, we had cash of approximately $517,000. During the year ended December 31, 2000 and the quarter ended September 30, 2001, we incurred losses of $32.7 million and $3.2 million, respectively, and during those periods our cash and cash equivalents decreased by approximately $3.4 million and $0.9 million, respectively. Based on these factors, among others, there is doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital or obtain financing and ultimately to achieve profitability and positive cash flow.

On October 30, 2001, we received $2,000,000 in capital through a private placement of 530,000 shares of Series C Convertible Preferred Stock ("Series C Preferred") pursuant to an August 29, 2001 purchase agreement between the Company and the purchaser. The Series C Preferred shares were issued on November 13, 2001. As of September 30, 2001, the Series C Preferred Shares were recorded as equity with an offsetting subscription receivable also being classified as equity. The Series C Preferred shares are entitled to dividends of $.23 per annum, which accrue semi-annually if not paid. Each share of the Series C Preferred is convertible into ten shares of Common Stock at the election of the holder, subject to the Company obtaining prior approval from its shareholders to amend the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock by not less than 5,300,000 shares. In connection with this private placement, the purchaser also received warrants to purchase 1,200,000 shares of Common Stock at $.62 per share. The warrants expire on August 29, 2006.

Concurrent with the SVB financing, we paid off our working capital line of credit obtained on March 30, 2000 from Foothill Capital. Such line of credit was secured by substantially all of our assets. As of June 30, 2001, we were in default of the minimum EBITDA (Earnings Before Income Taxes, Depreciation and Amortization) covenant of $38,000 for the three-month period ended June 30, 2001. Under the terms of the agreement, borrowings during the third quarter of 2001 bore interest at a rate of prime plus 6.75%, which includes a covenant default rate of 4% (for a total of 12.75% at September 30, 2001). As of the date of termination of our agreement with Foothill Capital, the total amount outstanding was approximately $0.8 million. For the three- and nine-month periods ended September 30, 2001, fees amounting to $260,000 and $299,000, respectively, were included in interest expense. During the same three-and nine-month periods total interest expense on the line of credit amounted to $451,000 and $575,000, respectively and the corresponding effective annual interest rate was 54% and 19%, respectively. For the three- and nine-month periods ended September 30, 2000, total interest expense on the line of credit amounted to $138,000 and $268,000, respectively.

On March 20, 2001, our Common Stock was delisted from the Nasdaq National Market due to the failure to maintain a minimum bid price of $1.00 per share. Our Common Stock is now trading on the OTC Bulletin Board, which is considered to be less liquid and more volatile than the Nasdaq National Market.

In December 2000, we raised $1,500,000 in capital through a private placement of 220,000 shares of Series B Convertible Preferred Stock ("Series B Preferred") with an investor who was appointed as a member of the Company's board of directors on January 11, 2001. At the Company's Annual Meeting held on May 29, 2001, the investor did not stand for election, but he was subsequently reappointed as a member of the Company's board of directors on November 6, 2001. The Series B Preferred shares are entitled to dividends of $.41 per annum, which accrue semi-annually if not paid. Each share of Series B Preferred is convertible into ten shares of Common Stock at the election of the holder. In connection with this private placement, the purchaser also received warrants to purchase 600,000 shares of Common Stock at $.75 per share. The warrants expire on December 28, 2005.

In December 2000, we entered into a mutual settlement of all claims with Tektronix. The claims represented unpaid commitments by both parties. As part of the settlement, we issued 750,000 shares of Common Stock to Tektronix (as a vendor). The value of the stock was determined by the closing price of our Common Stock on the Nasdaq National Market on the date of the settlement and a gain on the settlement of $821,000 was recorded in December 2000.

During the third quarter of 2000 we undertook a new restructuring plan which involved a general reduction in workforce affecting all classes of employees, exiting certain leased facilities and discontinuing development activities related to several product lines. This plan was necessitated by the termination of our contract with IBM as well as a change in market conditions. Approximately 40 employees were terminated under this plan. In connection with these actions, we recorded a restructuring charge of $1.6 million consisting of cash charges of $1.0 million for employee separation costs and $0.2 million for facility exit costs, and non cash charges of $0.4 million related to the discontinued product lines, including the recognition of an impairment loss of $0.3 million on the intangibles attributable to our purchase of Multiplicity LLC ("Multiplicity"). Approximately $0.2 million remains unpaid and is included in accrued liabilities as of September 30, 2001. The restructuring plan is expected to be completed by the fourth quarter of 2001.

Results of Operations

Total Net Revenues

Total net revenues for the third quarters of 2001 and 2000 were $8.4 million and $11.1 million, respectively, representing a decrease of 24%, and $30.1 million and $38.0 million for first nine months of 2001 and 2000, respectively, representing a decrease of 21%. A discussion of the decrease in total net revenues follows under "Hardware Revenues", "Software Revenues" and "Service Revenues".

Hardware Revenues

Hardware revenues were $7.2 million and $9.0 million for the third quarters of 2001 and 2000, respectively, representing a decrease of 20%, and $26.1 million and $31.8 million for the first nine months of 2001 and 2000, respectively, representing a decrease of 18%. The decrease in hardware revenues is due to fewer thin client unit sales and the loss of sales to IBM, whose agreement with us terminated on December 31, 2000.

Software Revenues

Revenues from software products were $0.9 million and $1.5 million for the third quarters of 2001 and 2000, respectively, representing a decrease of 40% and $2.6 million and $3.5 million for the first nine months of 2001 and 2000, respectively, representing a decrease of 26%. The decrease in software revenues reflected the corresponding decrease in related hardware revenues resulting from reduced thin client unit sales.

Service Revenues

Service revenues were $0.3 million and $0.6 million for the third quarters of 2001 and 2000, respectively, representing a decrease of 50%, and $1.4 million and $2.7 million for the first nine months of 2001 and 2000, respectively, representing a decrease of 48%. Service revenues have declined as a result of the decline in the purchase and/or renewal of hardware service contracts. This is due in part to the customers' preferences to purchase spare units with their initial orders rather than purchase hardware service contracts.

Gross Margin on Hardware Revenues

Gross margin on hardware revenues represents revenues less cost of revenues related to hardware products. Our gross margins on hardware revenues were $0.8 million and $1.6 million for the third quarters of 2001 and 2000, respectively, and $5.9 million and $3.4 million for the first nine months of 2001 and 2000, respectively. Our gross margin percentages on hardware revenues were 12% and 18% for the third quarters of 2001 and 2000, respectively, and 23% and 11% for the first nine months of 2001 and 2000, respectively. The increase in gross margins during the nine-month periods was attributable primarily to a significant write off of certain inventory during the first six months of 2000.

Gross Margin on Software Revenues

Gross margin on software revenues represents revenues less cost of revenues related to software products. Our gross margins on software revenues were $0.6 million and $1.3 million for the third quarters of 2001 and 2000, respectively, and $1.8 million and $2.8 million for the first nine months of 2001 and 2000, respectively. This decrease was across all product lines. Our gross margin percentages on software revenues were 68% and 86% for the third quarters of 2001 and 2000, respectively, and 68% and 78% for the first nine months of 2001 and 2000, respectively. The reduction on gross margin percentages resulted from higher discounts to customers during 2001.

Gross Margin on Service Revenues

Gross margin on service revenues represents revenues less cost of revenues related to services. Our gross margins on service revenues were $0.2 million and $0.3 million for the third quarters of 2001 and 2000, respectively, and $1.2 million and $1.5 million for the first nine months of 2001 and 2000, respectively. The decreases resulted both from the expiration of existing hardware service contracts and a declining number of new hardware service contracts. Our gross margin percentages were 73% and 49% for the third quarters of 2001 and 2000, respectively, and 87% and 55% for the first nine months of 2001 and 2000, respectively. The improvement in gross margin percentages resulted from reduced costs associated with the Extended Warranty and Express Warranty programs.

Research and Development Expenses

Research and development ("R&D") expenses were $0.6 million and $1.4 million for the third quarters of 2001 and 2000, respectively, and $2.0 million and $7.5 million for the first nine months of 2001 and 2000, respectively. The decrease in R&D spending was the result of reduced salary and employee benefit expenses associated with the reduction in our R&D personnel as part of our restructuring and cost containment programs.

Marketing and Selling Expenses

Marketing and selling expenses were $2.6 million and $3.8 million for the third quarters of 2001 and 2000, respectively, and $9.2 million and $17.7 million for the first nine months of 2001 and 2000, respectively. The decrease in 2001 resulted from the implementation of our cost reduction plans and a significant reduction in our marketing programs.

General and Administrative Expenses

General and administrative expenses were $1.1 million and $1.9 million for the third quarters of 2001 and 2000, respectively, and $3.3 million and $6.3 million for the first nine months of 2001 and 2000, respectively. The decrease of $0.8 million between the third quarter of 2001 and the third quarter of 2000 as well as the decrease of $3.0 million between the first nine months of 2001 and the first nine months of 2000, is due primarily to a reduction in our workforce, cost reduction programs and a reduction in foreign currency translation losses resulting from our transition to solely a U.S. dollar denominated invoicing policy, which became effective January 1, 2001.

Charge For Acquired In-Process Research and Development

During the first quarter of 2000, we incurred a charge of $1.8 million of in-process research and development associated with the acquisition of Multiplicity in January 2000. The amount allocated to in-process research and development was determined by a third party assessment using established techniques for the high-technology industry.

Interest Expense, Net

Interest expense, net, was $548,000 and $191,000 for the third quarters of 2001 and 2000, respectively, and $873,000 and $314,000 for the first nine months of 2001 and 2000, respectively. The increases from period to period reflects a $313,000 increase in interest expense due to the line of credit with Foothill Capital, our issuance of a $3.3 million convertible note in September 2000, dividends accrued on our Series B Convertible Preferred Stock and a $12,000 decrease in interest income, due primarily to decreased average balances in interest-earning accounts Loan amendment fees incurred in connection with the refinancing of the line of credit totaled $299,000 of which $260,000 was recorded as interest expense in the third quarter of 2001 and $299,000 was recorded in the nine months ended September 30, 2001. Our effective annual interest rate on our line of credit was 54% and 19% for the three- and nine-month periods ended September 30, 2001 and total interest expense on the line of credit was approximately $451,000 and $138,000 for the third quarters of 2001 and 2000, respectively, and approximately $575,000 and $268,000 for the first nine months of 2001 and 2000, respectively.

Income Taxes

The provision for income taxes for the first nine months of 2001 is for foreign income taxes. We continue to generate tax net operating loss carryforwards for the United States federal and state jurisdictions. However, no deferred tax assets have been recognized in respect of these carryforwards because continued losses create uncertainty about our ability to generate sufficient taxable income to realize the related benefits.

Capital Requirements

Capital spending requirements for the remainder of 2001 are estimated at approximately $40,000.

Liquidity

As of September 30, 2001, we had combined cash and equivalents and short-term investments totaling $0.5 million, and $5.3 million in notes payable, consisting of $2.0 million in bank indebtedness and $3.3 million outstanding on SCI's convertible note. Cash used in operations was $0.2 million in the first nine months of 2001 compared to cash used in operations of $9.6 million for the first nine months of 2000. In the first nine months of 2001, a net loss of $6.5 million was offset by management's emphasis to continue to reduce certain asset accounts evidenced by a decrease in inventories of $1.9 million, prepaid expenses of $1.8 million, accounts receivable of $1.0 million, accrued expenses of $0.8 million and deferred revenue of $1.0 million. In the first nine months of 2000, a net loss of $30.7 million and a decrease in accounts payable of $0.7 million were only partially offset by a decrease in accounts receivable and inventories of $11.0 million and $5.7 million, respectively, and an increase in accrued expenses of $0.7 million.

Cash provided by investing activities of $0.4 million in the first nine months of 2001 resulted from the maturity of short-term investments of $0.3 million and a reduction in other assets of $0.1 million. Cash provided by investing activities of $0.9 million in the first nine months of 2000 is the result of sales and maturities of short-term investments of $4.2 million offset by the cash used to acquire Multiplicity of $2.2 million and purchases of short-term investments of $1.0 million.

Cash used in financing activities of $1.1 million in the first nine months of 2001 resulted from the receipt of $1.5 million for the sale of convertible preferred stock offset by the net reduction of the outstanding balance under our line of credit of $2.6 million. Cash provided by financing activities of $4.6 million in the first nine months of 2000 reflects the proceeds of $3.9 million from borrowings under the line of credit and proceeds of $0.8 million from the issuance of common stock. Principal payments on capital lease obligations were $0.1 million during the first nine months of 2000.

On October 30, 2001, we secured a $5.0 million line of credit with SVB. The line is secured by substantially all of our assets and bears interest at a rate of prime plus 2%. In connection with this line of credit we issued warrants to SVB to purchase 650,000 shares of Common Stock at a price of $.50 per share. The warrants expire on October 31, 2006.

Concurrent with the SVB financing, we paid off our line of credit obtained on March 30, 2000 from Foothill Capital. Such line of credit was secured by substantially all of our assets. As of June 30, 2001, we were in default of the minimum EBITDA covenant of $38,000 for the three month period ended June 30, 2001.Under the terms of the agreement, borrowings during the third quarter of 2001 bore interest at a rate of prime plus 6.75% (for a total of 12.75% at September 30, 2001). As of the date of termination of our agreement with Foothill Capital, the total amount outstanding under the line of credit was approximately $0.8 million. For the three- and nine-month periods ended September 30, 2001, fees amounting to $260,000 and $299,000, respectively, were included in interest expense. During the same three-and nine-month periods total interest expense on the line of credit amounted to $451,000 and $575,000, respectively and the corresponding effective annual interest rate was 54% and 19%, respectively. For the three- and nine-month periods ended September 30, 2000, total interest expense on the line of credit amounted to $138,000 and $268,000, respectively.

In August 2001, our thirteen-month Convertible Note issued to SCI in September 2000 in the amount of $3.3 million was extended for an additional year with an increase in the interest rate from 6.5% per annum to eight percent (8%) per annum computed on the unpaid balance beginning October 1, 2001 and the conversion price was reduced to $.62 per share.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board finalized Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”), and No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.

As of September 30, 2001, the net carrying amount of goodwill remaining after the purchase of the Network Displays Business unit of Tektronix in December 1998 is $1.7 million and there are no intangible assets relating to the purchase of Multiplicity in January 2000. Amortization expense during the three and nine-month periods ended September 30, 2001 was $101,000 and $302,000, respectively. At present, the Company is currently assessing, but has not yet determined the impact the adoption of SFAS 141 and SFAS 142 will have on its financial position and results of operations.

Future Performance and Risk Factors

Our future business, operating results and financial condition are subject to various risks and uncertainties, including those described below.

Evolving Thin Client Computing Market

We derive substantially all of our revenues from the sale of thin client network computing products and related software. Initially, our thin client product offerings primarily focused on the UNIX marketplace using the X.11 display protocol in X-terminal thin client devices and X server software for personal computers. Following our March 1996 OEM agreement with Citrix Systems, Inc. ("Citrix") we were able to offer WinCenter multi-user Windows NT application server software, which provided Windows applications to our own as well as other devices that relied on the X.11 display protocol. We also moved to offer the Citrix ICA protocol on our X-terminal thin clients. Sales of network computers to traditional X.11 customers remains an important part of our business. In June 1998 we entered into a licensing agreement with Microsoft which enabled us to offer new, lower-priced thin client network computing devices known as Windows-based terminals. Recently, we have seen intense competition from alternative desktop systems, particularly personal computers, whose selling prices are at historic lows for relatively high performance configurations, and which can be configured to work in the same manner as Windows-based terminals. Despite the lower total cost of ownership of thin client devices, our future success will depend substantially upon increased acceptance of the thin client computing model and the successful marketing of our new thin client computing hardware and software products into the server and web-based computing markets. There can be no assurance that our new thin client computing products will compete successfully with alternative desktop solutions or that the thin client computing model will be widely adopted in the rapidly evolving desktop computer market. The failure of new markets to develop for our thin client computing products would have a material, adverse effect on our business, operating results and financial condition.

Competition

The market for thin client products and similar products that facilitate access to data over networks are characterized by rapidly changing technology and evolving industry standards. We experience significant competition from other network computer manufacturers, suppliers of personal computers and workstations and software developers. Competition within the thin client computing market has intensified over the past several quarters, resulting in price reductions and reduced profit margins. We expect this intense competition and pricing pressure to continue, and there can be no assurance that we will be able to continue to compete successfully against current and future competitors as the desktop computer market evolves and competition increases. There is the possibility that competition in the future could come from companies not currently in the market or with greater resources than ours which would adversely affect our operating results.

Fluctuations in Operating Results

Our operating results have varied significantly, particularly on a quarterly basis, as a result of a number of factors, including general economic conditions affecting industry demand for computer products, the timing and market acceptance of new product introductions by us and our competitors, the timing of significant orders from and shipments to large customers, periodic changes in product pricing and discounting due to competitive factors. Our operating results may fluctuate in the future as a result of these and other factors, including our success in developing and introducing new products, our product and customer mix, licensing costs, the level of competition which we experience and our ability to develop and maintain strategic business alliances.

We operate with a relatively small backlog. Revenues and operating results therefore generally depend on the volume and timing of orders received, which are difficult to forecast and which may occur disproportionately during any given quarter or year. Our expense levels are based in part on our forecast of future revenues. If revenues are below expectations, our operating results may be adversely affected. Like others in our industry, we experience a disproportionate amount of shipments occurring in the last month of our fiscal quarters. This increases the risk of material quarter-to-quarter fluctuations in our revenues and operating results.
New Product Development and Timely Introduction of New and Enhanced Products

The markets for our products are characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles. Our future results will depend to a considerable extent on our ability to continuously develop, introduce and deliver in quantity new hardware and software products that offer our customers enhanced performance at competitive prices. The development and introduction of new products is a complex and uncertain process requiring substantial financial resources and high levels of innovation, accurate anticipation of technological and market trends and the successful and timely completion of product development. Once a hardware product is developed, we must rapidly bring it into volume production, a process that requires accurate forecasting of customer requirements in order to achieve acceptable manufacturing costs. The introduction of new or enhanced products also requires us to manage the transition from older, displaced products in order to minimize disruption to customer ordering patterns, avoid excessive levels of older product inventories and ensure that adequate supplies of new products can be delivered to meet customer demand. As we are continuously engaged in this product development and transition process, our operating results may be subject to considerable fluctuation, particularly when measured on a quarterly basis. The inability to finance important research and development projects, delays in the introduction of new and enhanced products, the failure of such products to gain market acceptance, or problems associated with new product transitions could adversely affect our operating results.

Reliance on Independent Distributors and Resellers

We rely significantly on independent distributors and resellers for the distribution of our products. However, there can be no assurance that our distributors and resellers will continue their current relationships with us or that they will not give higher priority to the sale of other products, which could include products of our competitors. A reduction in sales effort or discontinuance of sales of our products by our distributors and resellers could lead to reduced sales and could adversely affect our operating results. In addition, there can be no assurance as to the continued viability or the financial stability of our distributors and resellers, our ability to retain our existing distributors and resellers or our ability to add distributors and resellers in the future.

Reliance on Independent Contractors

We rely on independent contractors for virtually all of the manufacture of our thin client computing products and accessories. Our reliance on these independent contractors limits our control over delivery schedules, quality assurance and product costs. In addition, a number of our independent suppliers are located abroad. Our reliance on these foreign suppliers subjects us to risks such as the imposition of unfavorable governmental controls or other trade restrictions, changes in tariffs and political instability. We currently obtain all of our thin client computing products from SCI, which has locations in Thailand as well as various other countries throughout the world. Although we believe that the manufacture of our products could be relocated to one of SCI's other facilities if necessary within a few weeks, any significant interruption in the supply of products from this contractor would have a material, adverse effect on our business and operating results. On July 16, 2001, SCI and Sanmina announced their intention to merge the two companies. As a result of this pending merger, any potential change in strategic direction by the new entity, could have a significant impact on our operations.

A number of components and parts used in our products, including certain semiconductor components, also are currently available from single or limited sources of supply. We have no long-term purchase agreements or other guaranteed supply arrangements with suppliers of these single or limited source components. We have generally been able to obtain adequate supplies of parts and components in a timely manner from existing sources under purchase orders and endeavor to maintain inventory levels adequate to guard against interruptions in supplies. However, our inability to obtain sufficient supplies of these parts and components from existing suppliers or to develop alternate supply sources would adversely affect our operating results.

International Sales

International sales and operations may be subject to risks such as the imposition of governmental controls, export license requirements, restrictions on the export of technology, political instability, trade restrictions, changes in tariffs and difficulties in staffing and managing international operations and managing accounts receivable. In addition, the laws of certain countries do not protect our products and intellectual property rights to the same extent as the laws of the United States. There can be no assurance that these factors will not have an adverse effect on our future international sales and, consequently, on our operating results.

Dependence on Key Personnel

Our success depends to a significant degree upon the continuing contributions of our senior management and other key employees. We believe that our future success will depend in large part on our ability to attract and retain highly-skilled engineering, managerial, sales and marketing personnel. Competition for such personnel is intense, and there can be no assurance that we will be successful in attracting, integrating and retaining such personnel. Failure to attract and retain key personnel could have a material, adverse effect on our business, operating results or financial condition.

Volatility of Stock Price

The market price of our common stock has fluctuated significantly over the past several years and is subject to material fluctuations in the future in response to announcements concerning us or our competitors or customers, quarterly variations in operating results, announcements of technological innovations, the introduction of new products or changes in product pricing policies by us or our competitors, general conditions in the computer industry, developments in the financial markets and other factors. In particular, shortfalls in our quarterly operating results from historical levels or from levels forecast by securities analysts could have an adverse effect on the trading price of the common stock. We may not be able to quantify such a quarterly shortfall until the end of the quarter, which could result in an immediate and adverse effect on the common stock price. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations that have particularly affected the market prices for technology companies and which have been unrelated to the operating performance of the affected companies. Broad market fluctuations of this type may adversely affect the future market price of our common stock.

Liquidity

Our capital requirements will depend on many factors, including but not limited to the market acceptance of our product, the response of our competitors to our product and our ability to continue to grow software revenue. In addition to the financing we received in March 2000 (line of credit), January 2001 (convertible preferred stock) and October, 2001 (line of credit and convertible preferred stock), we may be required to seek additional financing before we achieve positive cash flow. In that event, no assurance can be given that additional financing will be available, or that if available, it will be available on terms acceptable to us, or our shareholders. If adequate funds are not available to satisfy our short-term or long-term capital requirements we may be required to limit our operations significantly. Based on the factors discussed above, among other things, there is doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital or additional financing, and ultimately achieve profitability and/or positive cash flow.

As of September 30, 2001, we had combined cash and equivalents totaling $0.5 million, and $5.3 million in notes payable, consisting of $2.0 million in bank indebtedness and $3.3 million in other debt.

In August 2001, our thirteen-month Note issued to SCI in September 2000 in the amount of $3.3 million was extended for an additional year with an interest rate of 6.5% per annum computed on the unpaid balance from August 31, 2000 to September 30, 2001 and eight percent (8%) per annum computed on the unpaid balance beginning October 1, 2001 and an option to convert each dollar of the outstanding principal into one share of our Common Stock at anytime during the new Note period at a conversion price of $.62 per share.

Going Concern Uncertainty

The Company has incurred losses from continuing operations for the year ended December 31, 2000 of approximately $32.7 million and for the three- and nine-month periods ended September 30, 2001 of approximately $3.2 million and $6.5 million, respectively. The Company’s continuation as a going concern is dependent upon its ability to obtain additional financing or refinancing as may be required and ultimately to attain profitability. The Company is actively marketing its existing and new products, which it believes will ultimately lead to profitable operations. However, no assurance can be given that these available funds will meet the Company’s cash requirements in the future. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

All of our international sales are now denominated in U.S. dollars. We still have a few small accounts receivable and minimal amounts of property and equipment denominated in Euros as of September 30, 2001, which are subject to exchange rate fluctuations. This will potentially affect our operating results negatively or positively, depending on the value of the U.S. dollar against the Euro, although the effect on our results of operation is not expected to be material. The Company's line of credit bears interest at a variable rate, which fluctuates with market conditions.

NETWORK COMPUTING DEVICES, INC.

PART II - OTHER INFORMATION

Item 3. Defaults Upon Senior Securities

As of June 30, 2001, we were in default under a covenant under our line of credit with Foothill Capital requiring us to achieve minimum EBITDA of $38,000 for the three- month period ended June 30, 2001. In July 2001, the line of credit was amended to eliminate this covenant and reduce the maximum amount of the credit line from $15.0 million to $3.5 million. In August 2001, the maximum credit line was reduced to $3.25 million from $3.5 million and the maturity date of the line of credit was extended to September 15, 2001. Finally, in September 2001, the line of credit was amended to reduce the maximum amount of the credit line from $3.25 million to $3.0 million and extend the maturity date to October 15, 2001 in order to provide additional time for another lender to extend a new revolving credit facility to us. On October 30, 2001, we secured this new credit facility and terminated our line of credit with Foothill Capital.

Item 6. Exhibits and Reports on Form 8-K.

(a)	The following exhibits are filed herewith:

	Exhibit 4.1	Amended and Restated Convertible Promissory Note, dated August 31, 2001, by and between Network Computing Devices, Inc. and SCI Technology, Inc.

	Exhibit 4.2	Amended and Restated Registration Rights Agreement, dated August 29, 2001, by and among Network Computing Devices, Inc., SCI Technology, Inc., Guenther Pfaff and Hofmann & Co.

	Exhibit 4.3	Warrant, dated August 29, 2001, issued to Hofmann & Co.

	Exhibit 10.60	Amended and Restated Registration Rights Agreement, dated August 29, 2001, by and among Network Computing Devices, Inc., SCI Technology, Inc., Guenther Pfaff and Hofmann & Co. (Reference is made to Exhibit 4.2)

	Exhibit 10.67	Securities Purchase Agreement, dated August 29, 2001, by and between Network Computing Devices, Inc. and Hofmann & Co.

	Exhibit 10.68	Warrant, dated August 29, 2001, issued to Hofmann & Co. (Reference is made to Exhibit 4.3)

	Exhibit 10.69	Amended and Restated Convertible Promissory Note, dated August 31, 2001, by and between Network Computing Devices, Inc. and SCI Technology, Inc. (Reference is made to Exhibit 4.1)

	Exhibit 10.70	Amendment No. 6 to the Loan and Security Agreement, dated September 14, 2001, by and between Network Computing Devices, Inc. and Foothill Capital Corporation.

(b)	The Company filed no reports on Form 8-K during the three-month period ended September 30, 2001.

NETWORK COMPUTING DEVICES, INC.

SIGNATURE

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.

	Network Computing Devices, Inc.
	(Registrant)
Date: November 14, 2001
	By:	/s/ Michael A. Garner
		Michael A. Garner
		Chief Financial Officer and Secretary
		(Duly Authorized and Principal Financial and Accounting Officer)

EX-4.1 3 j2183_ex4d1.htm EX-4.1 Prepared by MERRILL CORPORATION

AMENDED AND RESTATED

CONVERTIBLE PROMISSORY NOTE

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

AMOUNT: $3,300,000

DATE: August 31, 2001

This AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE (the “Note”) is made and entered into as of the 31^st day of August, 2001, by and among NETWORK COMPUTING DEVICES, INC., a Delaware corporation (the "Company" or the “Maker”) and SCI TECHNOLOGY, INC., an Alabama corporation (“SCI” or “Holder”).

WHEREAS, SCI is the holder of a certain Convertible Promissory Note made by the Company dated August 31, 2000 in the principal sum of Three Million Three Hundred Thousand US Dollars ($3,300,000), with interest computed at an annual rate of six and one-half percent (6.5%) and payable on September 30, 2001. The parties desire to extend the Note for an additional period of one year with interest computed at an annual rate of eight percent (8%).

NOW, FOR VALUE RECEIVED, the undersigned, NETWORK COMPUTING DEVICES, INC., a Delaware corporation (hereinafter referred to as the “Company” or the “Maker”) unconditionally promises to pay to the order of SCI TECHNOLOGY, INC., an Alabama corporation (“Holder”), at such place as may be designated by Holder, the PRINCIPAL SUM of Three Million Three Hundred Thousand US Dollars ($3,300,000), or so much of such sum as may be due and owing at the time of maturity, together with interest from August 31, 2000 to September 30, 2001 on the unpaid balance hereunder, computed at an annual rate of six and one-half percent (6.5%) and from October 1, 2001 on the unpaid balance hereunder, computed at an annual rate of eight percent (8%). Interest shall be due based on a 360 day year and the actual number of days elapsed (subject to adjustment pursuant to Section 2). The indebtedness evidenced hereby shall be due and payable as provided for in the terms and conditions set forth below:

1. Maker. The term “Maker” as used in this Note shall include the Maker and the respective successors and assigns thereto or thereof; provided, however, that neither this Note nor the obligations of Maker hereunder can be assigned without the prior written consent of Holder, such consent to be given or withheld in Holder’s sole discretion.

2. Interest. During the existence of any Event of Default (as defined in Section 13) under this Note, the unpaid principal of this Note shall bear interest on each day until paid at a per annum rate of the WSJ Prime Rate plus 2%, but only to the extent that payment of such interest on such principal or interest is enforceable under applicable law. The “WSJ Prime Rate” is the highest “Prime Rate” as published daily in The Wall Street Journal under the heading “Money Rates.” The WSJ Prime Rate in effect at any time will change each time and as of the date that a new Prime Rate is published. In the event the WSJ Prime Rate is discontinued, Holder shall substitute an index determined by the Holder to be comparable, in its reasonable discretion.

3. Payment; Maturity Date. Unless converted as provided herein, the principal and accrued interest under this Note shall be due and payable in full on September 29, 2002 (the “Maturity Date”). Principal and interest shall be payable to Holder when due in lawful money of the United States of America in immediately available funds at such place as Holder may from time to time notify the Maker in writing. The Maker may not prepay this Note, in whole or in part, at any time without the prior written consent of the Holder, such consent to be given or withheld in its sole discretion.

4. Use of Proceeds. This Note evidences the accounts payable of Maker, due and owing to Holder at the date hereof as set forth on Exhibit “A” attached hereto.

5. Application of Payments. All payments received hereunder may be applied, at Holder’s option, first to the payment of any expenses or charges payable hereunder and accrued interest, with the balance being applied to principal, or in such other order as Holder shall determine.

6. Conversion.

(a) Optional Conversion. Subject to and in compliance with the provisions of this Section 6, the entire outstanding principal amount of this Note, may, at the option of Holder, by notice given to the Maker (a “Conversion Notice”) at any time commencing on the date hereof and ending sixty days after the Maturity Date (the “Conversion Period”), be converted into the number of validly issued, fully-paid and nonassessable shares of common stock, par value $.001 per share, of the Company (the “Stock”) equal to (i) the outstanding principal amount of the Note divided by (ii) $.62 (the “Conversion Price”). Shares of Stock issued upon conversion of this Note or of any note issued in exchange for or upon the transfer of this Note are referred to herein as “Conversion Shares.”

(b) Mechanics of Conversion. If the Holder exercises its right to convert this Note, the entire principal balance shall automatically convert into Conversion Shares at the date of the Conversion Notice (“Conversion Date”). As promptly as practicable after the Conversion Date, but in no event later than within 5 days after the Company’s receipt of the Conversion Notice, the Maker shall issue and shall cause its transfer agent to issue and deliver to the Holder a certificate or certificates for the number of whole shares of Stock issuable upon the conversion of this Note in the name of the Holder hereof. The conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date, and at such time the rights of the Holder as holder of this Note as to the principal balance so converted shall cease, and the Holder shall be deemed to have become the holder of record of the shares of Stock so issued.

(c) Adjustment for Reorganization. Consolidation. Merger. etc. In case at any time or from time to time, the Maker shall effect a reorganization, consolidate with or merge into any other person, or transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Maker, then, in each such case, Holder, on the conversion hereof as provided in this Section 6 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Stock issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if Holder had so converted this Note, immediately prior thereto.

(i) Dissolution. In the event of any dissolution of the Maker following the transfer of all or substantially all of its properties or assets, the Maker, if this Note has not been paid in full prior to such dissolution and if this Note is thereafter converted, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash) receivable by the holder of this Note after the effective date of such dissolution.

(ii) Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 6, this Note shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the conversion of this Note after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Maker, whether or not such person shall have expressly assumed the terms of this Note.

(d) No Fractional Shares. No fractional shares of Stock or scrip representing fractional shares shall be issued upon the conversion of this Note. Instead of any fractional shares of Stock which would otherwise be issuable upon conversion of this Note, the Maker shall pay to the holder of this Note an appropriate cash adjustment in respect of any fractional shares.

(e) Reservation of Stock. The Maker shall at all times reserve and keep available out of its authorized but unissued shares of Stock, solely for the purpose of effecting the conversion of this Note, such number of its shares of Stock as shall from time to time be sufficient to effect the conversion of this Note, and if at any time the number of authorized but unissued shares of Stock shall not be sufficient to effect the conversion of this Note, the Maker shall take such corporate action as may be necessary to increase its authorized but unissued shares of Stock to such number of shares as shall be sufficient for such purpose.

(f) Transfer Restriction: Legend. Each share certificate evidencing the shares of Stock issued as Conversion Shares may bear the following legend (and any additional legend required by (i) any applicable state securities laws and (ii) any securities exchange upon which such shares may, at the time of such exercise, be listed) on the face thereof unless at the time of exercise such shares shall be registered under the Securities Act (as defined in Section 9):

“The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be sold or transferred in the absence of such registration or any exemption therefrom under said Act and state securities laws.”

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued under a registration statement of the securities represented thereby) shall also bear such legend unless the Company receives an opinion of counsel for the holder thereof to the effect that the securities represented thereby are not, at such time, required by law to bear such legend.

(g) Adjustment Upon Changes In Stock. The Conversion Price and the number of shares of Stock issuable hereunder are subject to adjustment from time to time as follows:

(i) Stock Issuance. Stock Dividend. Stock Split or Subdivision of Shares. If the number of shares of Stock outstanding at any time after the date hereof is increased by the issuance of Stock, or securities convertible into stock, for a consideration per share of Stock of less than $.62 per share (other than (A) shares of the Company’s Series B Preferred Stock outstanding on the date hereof, (B) up to 530,000 shares of the Company’s Series C Preferred Stock, (C) up to 1,200,000 shares of Stock issuable upon exercise of warrants issued to the purchasers of Series C Preferred Stock, or (E) shares of Stock issuable upon conversion or exercise of any convertible securities, options or warrants that are outstanding on the date hereof), or as a result of a stock dividend payable in shares of Stock, or by a subdivision or split-up of shares of Stock, then, upon issuance of such Stock or other securities convertible into Stock or following the record date fixed for the determination of holders of Stock entitled to receive such stock dividend, subdivision or split-up, as the case may be, the Conversion Price shall be appropriately decreased and the number of shares of Stock issuable upon conversion of this Note shall be appropriately increased in proportion to such increase in outstanding shares. No adjustment shall be made as a result of the issuance of shares of Stock pursuant to existing stock plans of the Company in an amount up to the maximum number of shares of Stock approved for issuance under such plans at the date hereof.

(ii) Combination of Shares. If, at any time after the date hereof, the number of shares of Stock outstanding is decreased by a combination of the outstanding shares of Stock, then, following the record date for such combination, the Conversion Price shall be appropriately increased and the number of shares of Stock issuable upon conversion of this Note shall be appropriately decreased in proportion to such decrease in outstanding shares.

7. The Company's Representations. The Company represents and warrants to the Holder that:

(a) the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing in each other jurisdiction where the conduct of its business or the ownership of its properties require such qualification and where failure to be so qualified would have a material adverse effect on the Company. The Company has full corporate power and authority and is entitled to own or lease its properties and carry on its business as and in all places where such business is conducted and such properties are owned or leased;

(b) as of the date hereof and before giving effect to this Note, the Company's total authorized Stock and total issued and outstanding shares of Stock are as set forth in Exhibit B. Except as set forth in Exhibit B, there are no options, warrants or rights to acquire shares or other securities of the Company authorized, issued or outstanding, nor is the Company obligated in any other manner to issue shares or other securities. All shares and other securities of the Company presently issued and outstanding are duly authorized, validly issued, fully paid and nonassessable and were authorized, offered, issued and sold without violating the terms of any applicable preemptive or similar statutory or contractual rights to which the Company is a party or that is otherwise binding upon the Company. Neither the execution and delivery of this Note nor conversion and issuance of the Conversion Shares, if and when issued, does or will violate the terms of any applicable preemptive or similar statutory or contractual rights to which the Company is party or that is otherwise binding upon the Company. Except as set forth in the Company's certificate of incorporation, as amended, and bylaws, as amended, there are no restrictions on the transfer of shares of stock or other securities of the Company other than those imposed by relevant federal and state securities laws or Nasdaq stock market rules;

(c) the Company has the full corporate power and authority to execute, deliver and perform this Note (and to borrow hereunder), and that certain Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") dated August 29, 2001. The Company has taken all necessary and appropriate corporate action to authorize the execution, delivery and performance of this Note and the Registration Rights Agreement, each of which has been duly and validly executed and delivered by the Company and constitute the valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and by general equitable principles;

(d) the execution, delivery and performance by the Company of this Note and the Registration Rights Agreement do not and will not violate any provision of any applicable law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect and known to the Company, or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Company is a party or by which its properties may be bound or affected (each such indenture, agreement, lease or instrument, a "Material Agreement");

(e) there is no fact peculiar to the Company which materially adversely affects (or is reasonably likely to materially adversely affect) the business, property or assets, or financial condition of the Company which has not been disclosed to Holder in writing by or on behalf of the Company prior to the date hereof in connection with the transactions contemplated hereby or by the Registration Rights Agreement;

(f) there are no legal proceedings pending or to the Company's knowledge threatened, against, by or affecting the Company before any court or administrative agency which, if adversely determined, could materially adversely affect (or is reasonably likely to materially adversely affect) the business, assets, liabilities, financial condition or results of operations of the Company, the rights or remedies of Holder under, or the legality, validity or enforceability of, this Note and the Registration Rights Agreement;

(g) the Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under the certificate of incorporation or bylaws of the Company which is or could become applicable to the Holder or the issuance of this Note or the Conversion Shares. None of the transactions contemplated by this Note or the Registration Rights Agreement, including the conversion of the Note into shares of Stock, will trigger any poison pill provisions of any of the Company's stockholders' rights or similar agreements;

(h) the Company has delivered to the Holder copies of its audited financial statements as of December 31, 2000 and its unaudited financial statements as of June 30, 2001 included in its most current Form 10-K and Form 10-Q, respectively. (the "Financial Statements"). The Financial Statements are true, complete and correct and have been prepared in accordance with generally accepted accounting principles, consistently applied; and

(i) the Company is not engaged principally, or as one of its important activities, in the business of purchasing or carrying any "margin stock", as that term is defined in Section 221.2(h) of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the indebtedness evidenced by this Note will be or has been used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation X of said Board of Governors.

8. Covenants. For so long as any present or future debts, liabilities and obligations of the Company owing to the Holder (including its successors and assigns) arising under or in connection with this Note (collectively, "Obligations") remain outstanding, which Obligations are binding on all of the Company's successors and assigns, the Company covenants and agrees that:

(a) the Company shall not (i) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); or (ii) convey, sell, transfer or otherwise encumber or dispose of in one transaction or a series of transactions, all or substantially all of its business or assets;

(b) the Company shall not permit to exist or enter into any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any affiliate of the Company or with any director, officer or employee of the Company, (i) except for salaries and other remuneration paid to employees in the ordinary course of business at levels consistent with past practices (subject to annual increases in compensation consistent with past practices); (ii) reimbursement of reasonable bona fide business expenses incurred in the conduct of the Company's business in the ordinary course consistent with its past practices; or (iii) as approved by the Board of Directors of the Company by vote of disinterested directors;

(c) as long as Holder holds this Note or owns the Conversion Shares, the Company will cause the Stock to continue at all times to be registered under Section 12 of the Securities and Exchange Act of 1934 ("Exchange Act") or subject to Section 15(d) of the Exchange Act, will timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13, 14 or 15(d) of the Exchange Act and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or suspend such reporting and filing obligations. As long as Holder holds this Note or owns the Conversion Shares, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holder and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as the Holder may reasonably request, all to the extent required from time to time to enable the Holder to sell the Conversion Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act. Upon the request of Holder, the Company shall deliver to Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.

(d) the Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the issuance of this Note or the Conversion Shares in a manner that would require the registration under the Securities Act of the issuance of this Note to Holder or the sale of the Conversion Shares to Holder, or to issue securities in such circumstances that is likely to result in such offering being integrated with the issuance of this Note to Holder or the sale of the Conversion Shares in such manner that stockholder approval would be required pursuant to any stockholder approval provision applicable to the Company or its securities.

(e) (1) the Company shall (i) not later than twenty (20) business days after the date hereof, prepare and file with Nasdaq (as well as any other national securities exchange or market on which the Stock is then listed) additional shares listing applications or letters acceptable to Nasdaq covering and listing a number of shares of Stock which is at least equal to 100% the maximum number of Conversion Shares then issuable, assuming that the payment of all future dividends on such shares then outstanding were made in shares of Stock, (ii) take all steps necessary to cause the Conversion Shares to be approved for listing on Nasdaq (as well as on any other national securities exchange or market on which the Stock is then listed) as soon as possible thereafter, (iii) maintain, so long as any other shares of Stock shall be so listed, such listing of all Conversion Shares, and (iv) provide to Holder evidence of such listing. The Company shall promptly provide to Holder copies of any notices it receives from Nasdaq regarding the continued eligibility of the Stock for listing on such automated quotation system. The Company shall pay all fees and expenses in connection with satisfying its obligations under this subsection (e)(l).

(2) the Company at all times shall reserve a sufficient number of shares of its authorized but unissued Stock to provide for the full conversion of this Note into Stock. If at any time the number of shares of Stock authorized and reserved for issuance is insufficient to cover 100% of the number of Conversion Shares issuable upon conversion of this Note (based on the Conversion Price in effect from time to time) without regard to any limitation on conversions or exercises, the Company will promptly take all corporate action necessary to authorize and reserve 100% of such required shares of Stock, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company's obligations under this subsection (e)(2), in the case of an insufficient number of authorized shares, and using best efforts to obtain stockholder approval of an increase in such authorized number of shares.

9. Holder's Representations. By its acceptance of this Note, the Holder hereby acknowledges and represents and warrants to the Maker that:

(a) Holder is experienced in evaluating and investing in companies such as the Company, and is an "accredited investor" (as such term is defined in Section 2(15) of the Securities Act of 1933 (the "Securities Act");

(b) Holder is acquiring the Note for investment for Holder's own account and not with a view to, or for resale in connection with, any distribution thereof. Holder understands that the Note has not been registered under the Securities Act by reason of an exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of Holder's investment intent; and

(c) The Note must be held indefinitely unless it is subsequently registered under the Securities Act or an exemption from such registration is available.

10. Financial Information. The Maker will from time to time deliver to the Holder such information respecting the condition or operations, financial or otherwise, or property of the Maker and its subsidiaries as the Holder may reasonably request, including, without limitation all public filings made with the Securities and Exchange Commission.

11. Expenses. Maker herewith agrees to pay, on demand, all costs and expenses of collection of this Note or of any endorsement or guaranty hereof and/or the enforcement of Holder's rights with respect to this Note, including, without limitation, reasonable attorneys fees actually incurred by Holder if this Note is collected by an attorney-at-law.

12. Holder. The term "Holder" as used in this Note shall include Holder's successors, endorsees and assigns.

13. Events of Default.

(a) The occurrence of any one or more of the following events will constitute a default by the Maker hereunder (each, an "Event of Default"): (i) the Maker fails to pay when due any amount payable under this Note and Holder does not deliver a Conversion Notice within the Conversion Period; (ii) Maker fails to perform or breaches a covenant or agreement in this Note or in the Registration Rights Agreement , or the Maker takes or omits to take any action that if taken or not taken by the Maker would constitute a breach of any such covenant or agreement and Maker fails to cure such breach or omission within thirty days after written notice from Holder; (iii) any statement, representation, or warranty made by the Maker or on its behalf in connection with this Note or in the Registration Rights Agreement proves to have been untrue, incorrect, misleading or incomplete in any material respect as of the date made; (iv) the Maker is in default under any other agreement with the Holder (or any of its affiliates) or under any other instrument executed by the Maker in favor of the Holder (or any of its affiliates); (v) the Maker shall fail to pay when due any other indebtedness for borrowed money owed by it to any person in an amount in excess of $1,000,000 and such default shall continue beyond any applicable grace period and is not otherwise waived by such person; (vi) the Maker becomes insolvent as defined in the Uniform Commercial Code or any similar law in its jurisdiction of incorporation or makes an assignment for the benefit of creditors, or an action is brought by the Maker seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property, or the Maker commences a voluntary case under the U.S. Federal Bankruptcy Code or any similar law in any relevant jurisdiction, or a reorganization or arrangement proceeding is instituted by the Maker for the settlement, readjustment, composition or extension of any of its debts upon any terms, or an action or petition is otherwise brought by the Maker seeking similar relief or alleging that it is insolvent or unable to pay its debts as they mature; (vii) an action is brought against the Maker seeking its dissolution or liquidation of any of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property, and such action is consented to or acquiesced in by the Maker or is not dismissed within sixty (60) days of the date upon which it was instituted, or a proceeding under the U.S. Federal Bankruptcy Code or any similar law in any relevant jurisdiction is instituted against the Maker and an order for relief is entered in such proceeding or such proceeding is consented to or acquiesced in by it or is not dismissed within sixty (60) days of the date upon which it was instituted, or a reorganization or arrangement proceeding is instituted against the Maker for the settlement, readjustment, composition or extension of any of its debts upon any terms and such proceeding is consented to or acquiesced in by it or is not dismissed within sixty (60) days of the date upon which it was instituted, or an action or petition is otherwise brought against the Maker seeking similar relief or alleging that it is insolvent, unable to pay its debts as they mature or generally not paying its debts as they become due and such action or petition is consented to or acquiesced in by it or is not dismissed within sixty (60) days of the date upon which it was brought; or (viii) dissolution of or liquidation of the Maker.

(b) Subject to Section 6, upon the occurrence of an Event of Default, Holder, at its option, without demand or notice of any kind, may declare this Note immediately due and payable, whereupon the Maturity Date hereunder shall be the date of such declaration and all outstanding principal and accrued interest shall become immediately due and payable; provided,

however, that upon the occurrence of any Event of Default described in clause (vi) or (vii) above, this Note, without demand, notice or declaration by the Holder of any kind, shall automatically and immediately become due and payable.

(c) Upon the occurrence of an Event of Default hereunder, the Holder, without notice or demand of any kind, may hold and set off against any or all outstanding principal or interest owing under this Note as the Holder may elect, any balance or amount to the credit of the Maker in any deposit, agency, reserve, holdback or other account of any nature whatsoever maintained by or on behalf of the Maker with the Holder or any of its affiliates at any of its offices, regardless of whether such accounts are general or special and regardless of whether such accounts are individual or joint.

14. Usury. In no event shall the amount or rate of interest due and payable under this Note exceed the maximum amount or rate of interest allowed by applicable law and, in the event any such excess payment is made by the Maker or received by the Holder, such excess sum shall be credited as a payment of principal (or if no principal shall remain outstanding, shall be refunded to the Maker). It is the express intent hereof that the Maker not pay and the Holder not receive, directly or indirectly or in any manner, interest in excess of that which may be lawfully paid under applicable law. All interest (including all charges, fees or other amounts deemed to be interest) which is paid or charged under this Note shall, to the maximum extent permitted by applicable law, be amortized, allocated and spread on a pro rata basis throughout the actual term

of this Note.

15. Time of the Essence. Time is of the essence with respect to the obligations of the Maker evidenced hereby. Demand, presentment, notice, notice of demand, notice for payment, protest and notice of dishonor are hereby waived by the Maker. The Holder shall not be deemed to waive any of its rights under this Note unless such waiver be in writing and signed by the Holder. No delay or omission by the Holder in exercising any of its rights under this Note shall operate as a waiver of such rights and a waiver in writing on one occasion shall not be construed as a consent to or a waiver of any right or remedy on any future occasion.

16. Choice of Law. This Note shall be governed by and construed under the internal laws of the State of Alabama without giving effect to conflicts of laws. Whenever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

17. Waiver of Jury Trial

MAKER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT MAKER MAY HAVE UNDER ANY APPLICABLE LAW TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT OR LEGAL ACTION WHICH MAY BE COMMENCED BY OR AGAINST HOLDER CONCERNING THE INTERPRETATION, CONSTRUCTION, VALIDITY, ENFORCEMENT OR PERFORMANCE OF THIS NOTE OR ANY OTHER AGREEMENT OR INSTRUMENT EXECUTED IN CONNECTION HEREWITH, INCLUDING THE REGISTRATION RIGHTS AGREEMENT. TN THE EVENT ANY SUCH SUIT OR LEGAL ACTION IS COMMENCED BY HOLDER, MAKER HEREBY EXPRESSLY AGREES, CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY IN WHICH HOLDER'S ADDRESS SHOWN BELOW IS LOCATED WITH RESPECT TO SUCH SUIT OR LEGAL ACTION, AND MAKER ALSO EXPRESSLY CONSENTS AND SUBMITS TO AND AGREES THAT VENUE IN ANY SUCH SUIT OR LEGAL ACTION IS PROPER IN SAID COURTS AND COUNTY AND MAKER HEREBY EXPRESSLY WAIVES ANY AND ALL PERSONAL RIGHTS UNDER APPLICABLE LAW OR IN EQUITY TO OBJECT TO THE JURISDICTION AND VENUE IN SAID COURTS AND COUNTY. THE JURISDICTION AND VENUE OF THE COURTS CONSENTED AND SUBMITTED TOAND AGREED UPON IN THIS PARAGRAPH ARE NOT EXCLUSIVE BUT ARE CUMULATIVE AND IN ADDITION TO THE JURISDICTION AND VENUE OF ANY OTHER COURT UNDER ANY APPLICABLE LAW OR IN EQUITY.

18. Notices. All notices and other communications hereunder shall be in writing and shall be delivered to Maker by overnight courier or mailed, first-class postage prepaid, addressed to Maker at the address set forth beneath Maker’s signature below. Notice shall be effective upon the earlier of (I) receipt or (ii) five days after mailing as provided above.

IN WITNESS WHEREOF, the parties hereto have caused this Note to be duly executed and delivered by their respective duly authorized corporate officers as of the date first written above.

	NETWORK COMPUTING DEVICES, INC.


[CORPORATE SEAL]	By:
		Rudolph G. Morin
		President and Chief Executive Officer

	Attest:

		By:
		Title:

	Address for notices:
		301 Ravendale Drive
		Mountain View, California 94043-5207
		Attn: President

	SCI TECHNOLOGY, INC.


	By:
	Name:
	Title:

	Attest:

	By:
	Title:

	Address for Notices:

EXHIBIT A

LIST OF ACCOUNTS

EXHIBIT B

CAPITALIZATION

As of June 30, 2001 (in thousands)

Shareholders' equity:
Preferred stock, $0.001 par value: 3,000,000 shares authorized; Shares designated are: Series A Participating Preferred Stock, $0.001 par value: 500,000 shares authorized, none issued or outstanding; Series B Convertible Preferred Stock, $0.001 par value: 290,000 shares authorized; 220,000 shares issued and outstanding as of June 30, 2001	$	1,500
Common stock, $0.001 par value: 30,000,000 shares authorized; 17,613,237 shares issued and outstanding as of June 30, 2001	18
Capital in excess of par value	62,380
Accumulated deficit	(59,447		)
Total shareholders' equity	$	4,451

Stock options:

As of June 30, 2001, there were 2,802,458 options outstanding under NCD's stock option plans at a weighted average exercise price of $3.19.

Warrants:

As of June 30, 2001, there were warrants outstanding to purchase 1,000,000 and 600,000 shares of NCD common stock at exercise prices of $8.00 and $.75, respectively.

EX-4.2 4 j2183_ex4d2.htm EX-4.2 Prepared by MERRILL CORPORATION

AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is made and entered into as of the 29th day of August, 2001, by and among NETWORK COMPUTING DEVICES, INC., a Delaware corporation (the "Company"), SCI TECHNOLOGY, INC., an Alabama corporation (“SCI”), GUENTHER PFAFF, an individual (“Pfaff”), and HOFMANN & CO., a Swiss Partnership (“Hofmann”).

ARTICLE I

BACKGROUND

Section 1.1. Background. SCI, Pfaff and Hofmann (each a “Holder” and collectively the “Holders”) are the holders of certain convertible securities convertible into, and Warrants to purchase, Common Stock, par value $.001 per share ("Stock"), of the Company. The parties desire to provide for the registration of the shares of Stock issuable or issued to the Holder upon conversion of the convertible securities or exercise of the Warrants

Such convertible securities and Warrants have been issued to the Holders without registration under the Securities Act of 1933, as amended (the “Securities Act”), and the Stock likewise has not been registered. The parties desire to provide for the registration of the Stock.

SCI and Pfaff have each entered into Registration Rights Agreements with the Company (the “Prior Agreements”) pursuant to which the Company granted SCI and Pfaff certain registration rights with respect to their Stock. The parties desire to amend and restate the Prior Agreements by terminating them and replacing them in their entirety with this Agreement.

ARTICLE II

DEFINITIONS

Section 2.1 Definitions. For purposes of this Agreement, the following capitalized terms have the respective meanings set forth below:

(a) The term “Form S-3” means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act.

(b) The term “Holder” means any person owning or having the right to acquire Registrable Securities or any heirs or assigns thereof in accordance with this Agreement.

(c) The term “register,” “registered,” and “registration” refers to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

(d) The term “Other Covered Securities” means the shares of Common Stock of the Company issued to Tektronix, Inc. on December 8, 2000.

(e) The term “Registrable Securities” means (i) the shares of Stock, and (ii) any other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Stock listed in clause (i) above. Notwithstanding the foregoing, Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) effectively registered under the Securities Act and sold or distributed to any Person pursuant to an effective registration statement covering it, or (B) sold in a transaction exempt from the registration and prospectus delivery requirement of the Securities Act so that all transfer restrictions, and restrictive legends with thereto, if any, are removed upon the consummation of such sale.

(f) The number of shares of “Registrable Securities then outstanding” shall be the number of shares of Stock that are Registrable Securities which are then issued and outstanding, plus those which are issuable pursuant to then exercisable or convertible securities.

(g) The term “Registration Expenses” means all expenses incident to the Company's performance of or compliance with Article 3 including, without limitation, all registration and filing fees; all fees and expenses of complying with securities or blue sky laws; all printing expenses; the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits required by or incident to such performance and compliance; and the reasonable fees and disbursements of one counsel for the Holders.

(h) The term “SEC” means the Securities and Exchange Commission.

(i) The term “Selling Expenses” means all underwriting discounts, selling commissions and transfer taxes applicable to the sale of Registrable Securities.

ARTICLE III

REGISTRATION RIGHTS

Section 3.1 Demand Registration.

(a) If at any time after issuance of the Stock to a Holder, the Company receives a written request from such Holder that the Company file a registration statement under the Securities Act covering the registration of all or a portion of the Registrable Securities of the Holder then outstanding, then the Company shall as soon as practicable effect such registration of the Registrable Securities of the Holder. Such obligation shall include, without limitation, the execution of an undertaking to file post-effective amendments and to effect appropriate registrations or qualifications under applicable blue sky or other state securities laws and appropriate compliance with exemptive regulations issued under the Securities Act and any other governmental requirements or regulations.

(b) If the Holder intends to use an underwriter to distribute the Registrable Securities covered by its request, it shall so advise the Company in its request. In such event, the Holder shall (together with the Company) enter into an underwriting agreement with an underwriter selected by the Holder, subject to the approval of the Company which shall not be unreasonably withheld. The Company shall not register any other securities in connection with any such demand registration, other than Registrable Securities, Other Covered Securities and securities registered for its own account. Notwithstanding any other provision of this subsection, if the underwriter advises the Holder and the Company in writing that marketing factors require a limitation of the number of shares to be included in the underwriting, then shares, if any, other than Registrable Securities and Other Covered Securities shall first be excluded from such registration to the extent required by such underwriting limitation, and thereafter, Registrable Securities and Other Covered Securities shall be excluded in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and Other Covered Securities held by such Holders and such other holders. If the number of shares of Registrable Securities so excluded exceeds twenty percent (20%) of the number of shares of Registrable Securities which the Holder has requested be included in such registration, then the Holder shall be entitled either (i) to require that the registration be deferred for such period of time as the Holder, the Company and the underwriter may mutually agree upon, but in no event for more than ninety (90) days from delivery of a written notice of the Holder to the Company requesting such delay, or (ii) to withdraw the registration request, in which case it shall not count as a demand registration for purposes of the limitation in Section 3.1(d). The Company shall not effect a public offering of any securities of the Company similar to the Registrable Securities being offered in the underwritten offering, or convertible or exercisable for Registrable Securities during the period commencing ten (10) days prior to and ending one hundred twenty (120) days after the effective date of the applicable registration statement, other than a sale of Other Covered Securities.

(c) Notwithstanding the foregoing, if the Company shall furnish to the Holder a certificate signed by the President or Chief Executive Officer of the Company stating that, in the good faith judgment of the board of directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period not more than ninety (90) days after receipt of the request of the Holder; provided, however, that the Company may not utilize this right more than once in any 12-month period.

(d) Notwithstanding the foregoing, the Company shall not be obligated to take any action to effect any registration, qualification or compliance pursuant to this Section 3.1 in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction.

(e) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 3.1(a) at the request of any Holder after the Company has effected two demand registrations at such Holder’s request and each such registration has been declared or ordered effective and kept effective for at least one hundred twenty (120) days. Notwithstanding the immediately preceding sentence or the provisions of Section 3.1(b), a registration will not count as a demand registration under Section 3.1(a) unless the Holder was able to sell a minimum of seventy-five (75%) of the shares sought to be registered in such registration.

Section 3.2. Company Registration. If at any time the Company proposes to register any of its securities under the Securities Act, whether or not for sale for its own account, on a form and in a manner which would permit registration of its shares for sale to the public under the Securities Act (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan, an offering or sale of securities pursuant to a Form S-4 (or successor form) registration statement, or an SEC Rule 145 transaction), it will each such time give prompt written notice to the Holder of its intention to do so, describing such securities and specifying the form and manner and the other relevant facts involved in such proposed registration, and upon the written request of the Holder delivered to the Company within thirty (30) days after the giving of any such notice, the Company will effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holder to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid). The Company will use its commercially reasonable efforts to cause the Registrable Securities as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent required to permit the sale or other disposition by the Holder of such Registrable Securities so registered. If any registration pursuant to this Section 3.2 shall be, in whole or in part, an underwritten public offering of securities, the Company shall so advise the Holders as a part of the written notice given pursuant to this Section 3.2. In such event the right of any Holder to registration pursuant to this Section 3.2 shall be conditioned upon such Holder’s participation in such underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company, but subject to the reasonable approval of Holders holding more than a majority of the Registrable Securities to be included in such registration. Notwithstanding any other provision of this Section 3.2, if the managing underwriter determines that marketing factors require limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities to be included in such registration. The Company shall so advise all Holders and other holders distributing their securities through such underwriting and the number of shares of securities that may be included in the registration and underwriting (other than in behalf of the Company) shall be allocated among all Holders and such other holders (provided that such other holders have contractual rights to participate in such registration which are not subordinate to the Holders’) in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders and such other holders.

Section 3.3 Form S-3 Registration. If, at a time when Form S-3 (or any comparable successor form) is available for the registration of Registrable Securities and the Company is eligible to use Form S-3 (or such successor form) for such registration, the Company shall receive from a Holder a written request that the Company effect a registration on Form S-3 (or such successor form) of any of the Holder's Registrable Securities, the Company will promptly give written notice of the proposed registration to the Holder and, as soon as practicable, effect such registration and all such related qualifications and compliances as may be reasonably requested and as would permit or facilitate the sale and distribution of all Registered Securities as are specified in such request. The rights of each Holder to request registration under this Section 3.3 shall be in addition to all other registration rights in this Agreement. The Company shall have no obligation to effect a registration under Section 3.3 more than three times for any particular Holder.

Section 3.4. Registration Expenses. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 3.1, 3.2 and 3.3 shall be borne by the Company; and all Selling Expenses shall be borne by each Holder and any other holders of the securities so registered pro rata on the basis of the number of their shares so registered.

Section 3.5. Registration Procedures.

(a) When the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in this Article 3, the Company shall as expeditiously as possible:

(i) prepare and file with the SEC a registration statement on the appropriate form with respect to such Registrable Securities and use reasonable efforts to cause such registration statement to become effective as promptly as practicable, and upon the request of the Holders, keep such registration statement effective for at least one hundred twenty (120) days;

(ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until the earlier of: (a) such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Holders set forth in such registration statement; or (b) the expiration of one hundred and twenty (120) days after such registration statement becomes effective;

(iii) furnish to the Holders such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as the Holder may reasonably request;

(iv) use its best efforts to register and qualify all securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the Holders shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable the Holders to consummate the disposition in such jurisdictions of its Registrable Securities covered by such registration statement, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction;

(v) furnish to each Holder a signed counterpart, addressed to the seller, of (A) an opinion of counsel for the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), and (B) a "cold comfort" letter signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and its accountants' letters delivered to underwriters in underwritten public offerings of securities and, in the case of the accountants' letter, such other financial matters, as the Holder may reasonably request;

(vi) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter of such offering;

(vii) immediately notify the Holders, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any 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 each Holder prepare and furnish 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 Registrable Securities, 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 statements therein not misleading in the light of the circumstances then existing; and

(viii) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its securities holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month of the first fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act.

The Company may require each Holder, when any registration is being effected with respect to any of the Holder's Registrable Securities, to furnish the Company such information regarding the Holder and the distribution of the securities as the Company may from time to time request in writing for inclusion in the applicable registration statement as required by law or by the SEC in connection therewith.

Section 3.6. Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, the Company will give the Holders and any underwriter, if any, and their counsel and accountants, a reasonable opportunity to participate in the preparation of such registration statement and other documents related thereto, and will give them reasonable access to books and records and personnel such as is reasonably necessary to facilitate preparation of such documents and filing.

Section 3.7. Furnish Information. It shall be a condition precedent to the obligation of the Company to take any action pursuant to this Article 3 with respect to the Registrable Securities of any Holder that the Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of the Holder's Registrable Securities.

Section 3.8. Indemnification. In the event any Registrable Securities are included in a registration statement under this Article 3:

(a) The Company will indemnify and hold harmless the Holder, its directors and officers, and each other person, if any, who controls the Holder within the meaning or the Securities Act, against any losses, claims, damages, liabilities and expenses (including reasonable legal fees and expenses and costs of investigation), joint or several, to which the Holder or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus included therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) 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, and the Company will reimburse the Holder, and each such director, officer, and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable to such an indemnified person in any such case to the extent (but only to the extent) that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus summary prospectus, amendment or supplement or any documents incorporated by reference in any of the above in reliance upon and in conformity with written information furnished by such indemnified person to the Company and designated by such person to be for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder or any such director, officer, or controlling person and shall survive the transfer of such securities by the Holder.

(b) To the extent permitted by law, the Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement in or omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus included therein, or any amendment or supplement thereto or any documents incorporated by reference in any of the above, if such statement or omission was made solely in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by the Holder specifically stating that it is for inclusion in such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by the Holder; provided, however, that the Holder's liability hereunder shall not exceed the aggregate net offering proceeds received by the Holder.

(c) If the indemnification provided for in this Section 3.8 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities, expenses or action in respect thereof referred to herein, then the indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities, expenses or actions in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, in connection with the statement or omissions which resulted in such losses, claims, damages, liabilities, expenses or actions as well as any other relevant equitable considerations, including the failure to give the notice required hereunder. The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holder agree that it would not be just and equitable if contributions pursuant to this Section 3.8(c) were determined by pro rata allocation or by any other method of allocation which did not take account of the equitable considerations referred to above. The amount paid or payable to an indemnified party as a result of the losses, claims, damages, liabilities or action in respect thereof, referred to above, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the contribution provisions of this Section 3.8, in no event shall the amount contributed by the Holder exceed the aggregate net offering proceeds received by such seller from the sale of such shares. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation.

(d) Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 3.8, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 3.8 except to the extent the failure to give notice is prejudicial to the indemnifying party. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof; provided, however, that if the indemnified party or parties reasonably determine that there may be a conflict between the positions of the indemnifying party or parties and of the indemnified party or parties in conducting the defense of such action or proceeding or that there may be legal defenses available to such indemnified party or parties different from or in addition to those available to the indemnifying party or parties, then counsel for the indemnified party or parties shall be entitled to conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interests of the indemnified party or parties (and the indemnifying party or parties shall bear the reasonable legal and other expenses incurred in connection therewith). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a full and final release from all liability in respect to such claim or litigation.

Section 3.9. Rule 144 and 144A. The Company will file the reports required to be filed by it under the Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act') (or, if the Company is not required to file such reports, will, upon the request of a Holder, make publicly available other information necessary to comply with Rule 144(c) and Rule 144A, as applicable), and will take such further action as a Holder may reasonably request, all to the extent required from time to time to enable the Holder to sell shares of the Company without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of a Holder, the Company will deliver to the Holder (i) a verified, written statement of the President or Chief Financial Officer as to whether it has complied with such requirements; (ii) if applicable, a copy of the most recent annual or quarterly report of the Company; and (iii) such other reports and documents as the Holder may reasonably request to avail itself of Rule 144, 144A or any other rule or regulation of the SEC allowing the Holder to sell its shares of the Company without registration.

Section 3.10. Termination. Any registration rights granted pursuant to this Article III shall terminate with respect to any Holder at such date when the Registrable Securities beneficially owned by such Holder represents not more than 1% of the Company’s outstanding Common Stock and may be sold under Rule 144 during any ninety (90) day period.

ARTICLE IV

GENERAL

Section 4.1. 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 Holders beneficially owning a majority of the Registrable Securities then outstanding.

Section 4.2 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered, or mailed by first-class mail, postage prepaid, addressed, if to a Holder, to the attention of such Holder, addressed in the manner set forth beneath the Holder’s signature below or at such address, or to the attention of such other officer, as the Holder shall have furnished to the Company in writing a notice properly given hereunder or, if to the Company, to the attention of its Secretary, addressed in the manner set forth beneath the Company's signature below, or at such other address, or to the attention of such other officer, as the Company shall have furnished to the Holder in a notice properly given hereunder.

Section 4.3. Adjustments. This Agreement shall apply to any shares of Stock issued to the Holder with respect to, upon exercise or conversion of, or in exchange for, any Registrable Securities, held by the Holder, by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, except for shares of capital stock which have been distributed by the Holder to the public pursuant to a registration statement or Rule 144 (or any successor provision) under the Securities Act.

Section 4.4. Miscellaneous.

(a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not. This Agreement may not be assigned by any Holder other than to a transferee of all of the Registrable Securities that such Holder holds or has the right to acquire.

(b) This Agreement embodies the entire agreement and understanding between the Holder and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof.

(c) The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.

(d) This Agreement may be executed in two or more counterparts (including by facsimile), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(e) Time is of the essence under this Agreement.

(f) This Agreement shall be governed by and construed under the internal laws of the State of Delaware without giving effect to conflicts of laws. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(g) Each of the Prior Agreements is hereby terminated and shall be of no further force or effect.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized corporate officers as of the date first written above.

		"Company"
		NETWORK COMPUTING DEVICES, INC.


		By:
		Name: Rudolph G. Morin
		Title: President and Chief Executive Officer

		Address for notices:
		301 Ravendale Drive
		Mountain View, California 94043-5207

		"Holders"

		SCI TECHNOLOGY, INC.


		By:

		Title:

		Address for notice:





		GUENTHER PFAFF




		Address for notice:







		HOFMANN & CO.


		By:
		Name:					Gottfried Hofmann
		Title:					Partner

		Address for notice:
		Wiesenrain 5
		6314 Unteraegeri
		Switzerland

EX-4.3 5 j2183_ex4d3.htm EX-4.3 Prepared by MERRILL CORPORATION

NETWORK COMPUTING DEVICES, INC.

WARRANT

NO. 13

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION UNDER SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

Void after 5:00 p.m. August 29, 2006

Warrants To Purchase Common Stock
Dated: August 29, 2001

WARRANT CERTIFICATE REPRESENTING

WARRANTS TO PURCHASE COMMON STOCK OF

NETWORK COMPUTING DEVICES, INC.

FOR VALUE RECEIVED, NETWORK COMPUTING DEVICES, INC., a corporation organized and existing under the laws of Delaware (the "Company"), hereby certifies that the holder identified on the final page (the “Holder”) of this Warrant (the "Warrants", and each right to purchase a share of Common Stock, a "Warrant") is entitled, subject to the terms set forth below, at any time or from time to time hereafter, but not later than August 29, 2006, to purchase from the Company fully paid and non-assessable shares of Common Stock in the amount set forth opposite the Holder’s name. These Warrants and all rights hereunder, to the extent such rights shall not have been exercised, shall terminate and become null and void at 5:00 p.m., New York time, on August 29, 2006.

DEFINITIONS

The terms defined below, whenever used in this Warrant, shall have the respective meanings hereinafter specified. Whenever used in this Warrant, any noun or pronoun shall be deemed to include both the singular and plural and to cover all genders.

"Assignment" means the form of Assignment appearing at the end of this Warrant.

"Common Stock" means the Company's authorized Common Stock, $.001 par value.

"Commission" means the United States Securities and Exchange Commission, or any other Federal agency then administering the Securities Act.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and any similar or successor U.S. federal statute, and the rules and regulations of the Commission (or its successor) thereunder, all as the same shall be in effect at the time.

"Exercise Period" means the period commencing on the date hereof and terminating at 5:00 p.m., New York time, on August 29, 2006.

"Exercise Price" means the price per share of Common Stock set forth in Section 1A hereof, as such price may be adjusted from time to time pursuant to Section 1.

"Form of Subscription" means the Form of Subscription appearing at the end of this Warrant.

"Holder" means the person in whose name this Warrant is registered on the books of the Company maintained for such purpose.

"Securities Act" means the Securities Act of 1933, as amended, or any similar U.S. Federal statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time.

SECTION 1. Exercise of Warrants: Term; Exercise Price;

Adjustments of Exercise Price

1A. Exercise of Warrants. Subject to the conditions of this Section 1, the holder of any Warrant at the holder's option may exercise such holder's rights under all or any part of the Warrants to purchase shares of the Company's Common Stock (the "Warrant Shares") at any time during the Exercise Period at a price (the "Exercise Price") equal to Fifty Cents ($.50) per share, subject to adjustment as hereinafter provided.

1B. Adjustment of Exercise Price for Other Transactions. If and whenever after the date hereof the Company shall issue or sell any shares of its Common Stock for a consideration per share less than the Exercise Price in effect immediately prior to the time of such issue or sale then, forthwith upon such issue or sale, the Exercise Price with respect to the exercise of any Warrant subsequent to such event shall be reduced to the lower of the prices (calculated to the nearest cent) determined as follows:

(a) by dividing (1) an amount equal to the sum of (A) the aggregate number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Exercise Price, and (B) the consideration, if any, received by the Company upon such issue or sale, by (2) the aggregate number of shares of Common Stock of all classes outstanding immediately after such issue or sale; and

(b) by multiplying the Exercise Price in effect immediately prior to the time of such issue or sale by a fraction, the numerator of which shall be (1) the sum of (A) the aggregate number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Market Price immediately prior to such issue or sale plus (B) the consideration received by the Company upon such issue or sale; and the denominator of which shall be (2) the product of (A) the aggregate number of shares of Common Stock of all classes outstanding immediately after such issue or sale, multiplied by (B) the Market Price immediately prior to such issue or sale.

No adjustment of the Exercise Price, however, shall be made in an amount less than 1% of the Exercise Price, but any such lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, provided, however, upon the exercise of the Warrants, the Company shall make all necessary adjustments not theretofore made to the Exercise Price up to and including the date upon which the Warrant is exercised.

1C. Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the number of shares issuable on exercise of this Warrant shall be proportionately increased, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the number of shares issuable on exercise of this Warrant shall be proportionately reduced.

1D. Changes in Common Stock. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or sale, transfer or other disposition of all or substantially all of its properties to another corporation, shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each holder of Warrants shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the shares of the Common Stock of the Company immediately theretofore issuable upon exercise of the Warrants, such shares of stock, securities or properties, if any, as may be issuable or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore issuable upon exercise of the Warrants had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of each holder of Warrants to the end that the provisions hereof (including without limitation provisions for adjustment of the Exercise Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise thereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition, unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing or otherwise acquiring such properties shall assume, by written instrument executed and mailed or delivered to the holders of Warrants at the last address of such holders appearing on the books of the Company, the obligation to deliver to such holders such shares of stock, securities or properties as, in accordance with the foregoing provisions, such holders may be entitled to acquire. The above provisions of this subparagraph shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers, or other dispositions.

1E. Notice of Adjustment. Upon any adjustment of the Exercise Price, then and in each such case the Company shall give written notice thereof to the registered Holder, which notice shall state the Warrant price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon written request of the Holder, the Company shall promptly obtain the opinion of a firm of independent certified public accountants (which may be the regular auditors of the Company) of recognized national standing selected by the Company's Board of Directors, which opinion shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares of Common Stock issuable upon Exercise of the Warrant or Warrants held by each holder of Warrants, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The good faith determination of the Board of Directors based upon such accountants opinion shall be final and binding with respect to any adjustment required hereunder.

1F. Certain Events. If any event occurs as to which in the opinion of the Board of Directors of the Company the other provisions of Section 1 hereof are not strictly applicable or if strictly applicable would not fairly protect the conversion rights of the holders of the Warrants in accordance with the essential intent and principles of such provisions, then such Board of Directors shall appoint a firm of independent certified public accountants (which may be the regular auditors of the Company) of recognized national standing, which shall give their opinion upon the adjustment, if any, on a basis consistent with such essential intent and principles, necessary to preserve, without dilution, the rights of the holders of the Warrants. Upon receipt of such opinion by the Board of Directors, the Company shall forthwith make the adjustments described therein; provided, however, that no such adjustment pursuant to this Section 1F shall have the effect of increasing the Exercise Price as otherwise determined pursuant to Section 1 hereof except in the event of a combination of shares of the type contemplated in Section ID and then in no event to an amount larger than the exercise price as adjusted pursuant to Section ID.

1G. Prohibition of Certain Actions. The Company will not (i) authorize or issue, or agree to authorize or issue, any shares of its capital stock of any class preferred as to dividends or as to the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Company otherwise than for full and fair consideration in hand paid to the Company concurrent with any such issuance; or (ii) take any action which would result in any adjustment of the Exercise Price if the total number of shares of Common Stock issuable after such action upon exercise of all of the Warrants would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation.

1H. Stock to be Reserved. The Company will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon the exercise of Warrants as herein provided, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants, and the Company will maintain at all times all other rights and privileges sufficient to enable it to fulfill all its obligations hereunder.

1I. Registration and Listing of Common Stock. If any shares of Common Stock required to be reserved for purposes of exercise of Warrants hereunder require registration with or approval of any governmental authority under any Federal or state law (other than the Securities Act) before such shares may be issued upon exercise, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. Shares of Common Stock issuable upon exercise of the Warrants shall be registered by the Company under the Securities Act or similar statute then in effect. If and so long as the Common Stock is listed on any national securities exchange or quoted on the Nasdaq Stock Market, the Company will, at its expense, obtain promptly and maintain the approval for listing or quotation thereon upon official notice of issuance, of shares of Common Stock issuable upon exercise of the then outstanding Warrants and maintain the listing or quotation of such shares after their issuance; and the Company will also cause the listing on such national securities exchange or quotation on Nasdaq, will register under the Exchange Act and will maintain such listing or quotation of, any other securities that at any time are issuable upon exercise of the Warrants, if and at the time that any securities of the same class shall be listed on such national securities exchange or quoted on Nasdaq by the Company or shall require registration under the Exchange Act. The Shares are subject to a separate Registration Rights Agreement.

1J. No Charge for Issuance. The issuance of certificates for shares of Common Stock upon exercise of Warrants shall be made without charge to the holders of the Warrants, other then payment of the exercise price.

1K. Closing of Books. The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Common Stock issued or issuable upon the exercise of any Warrant in any manner which interferes with the timely exercise of such Warrant.

1L. No Rights or Liabilities as Shareholders. No Warrant shall entitle any holder thereof to any of the rights of a shareholder of the Company. No provision of this Warrant, in the absence of the actual exercise of such Warrant or any part thereof by the holder thereof into Common Stock issuable upon such exercise, shall give rise to any liability on the part of such holder as a shareholder of the Company, whether such liability shall be asserted by the Company or by creditors of the Company.

1M. Fractional Shares. The Company shall not issue fractional shares of Common Stock or scrip representing fractional shares of Common Stock upon any exercise of this Warrant. As to any fractional share of Common Stock which the Holder would otherwise be entitled to purchase from the Company upon such exercise, the Company shall purchase from the Holder such fractional share at a price equal to an amount calculated by multiplying such fractional share (calculated to the nearest 1/100th of a share) by its Market Price on the date the Form of Subscription is received by the Company. Payment of such amount shall be made in cash or by check payable to the order of the Holder at the time of delivery of any certificate or certificates arising upon such exercise.

SECTION 2. METHOD OF EXERCISE OF WARRANTS

The Warrants may be exercised by the surrender of this Certificate, with the Form of Subscription attached hereto duly executed by the holder, to the Company at its principal office, accompanied by payment of the Exercise Price for the number of shares of Common Stock specified. The Warrants may be exercised for less than the full number of shares of Common Stock called for hereby by surrender of this Certificate in the manner and at the place provided above, accompanied by payment for the number of shares of Common Stock being purchased. If the Warrants should be exercised in part only, the Company shall, upon surrender of this Warrant Certificate for cancellation, execute and deliver a new Warrant Certificate evidencing the right of the holder to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant Certificate at the office of the Company, in proper form for exercise, accompanied by the full Exercise Price in cash or certified or bank cashier's check, the holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Common Stock shall not then be actually delivered to the holder.

As soon as practicable after the exercise of these Warrants in whole or in part and, in any event, within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of and delivered to the holder a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (and any new Warrants) to which the holder shall be entitled upon such exercise. Each certificate for shares of Common Stock so delivered shall be in such denominations as may be requested by the holder and shall be registered in the name of the holder or such other name as the holder may designate.

SECTION 3. PAYMENT OF TAXES

The issuance of certificates for shares of Common Stock upon exercise of the Warrants shall be made without charge to the holders of the Warrants exercised for any issuance tax in respect thereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer of any certificate or Warrant.

SECTION 4. MUTILATED OR MISSING WARRANT CERTIFICATES

Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant Certificate, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification and upon surrender and cancellation of this Warrant Certificate, if mutilated, the Company will execute and deliver a new Warrant Certificate of like tenor and date.

SECTION 5. RESTRICTIONS ON TRANSFER

5A. In General. This Warrant and the Common Stock issued upon the exercise hereof shall not be transferable except upon the conditions hereinafter specified, which conditions are intended to insure compliance with the provisions of the Securities Act and any applicable state securities laws in respect of the transfer of this Warrant or any such Common Stock.

5B. Restrictive Legends. This Warrant (including each Warrant issued upon the transfer of any Warrant) shall bear on the face thereof a legend substantially in the form of the notice endorsed on the first page of this Warrant.

Each certificate for shares of Common Stock initially issued upon the exercise of this Warrant and each certificate for shares of Common Stock issued to a subsequent transferee of such certificate shall, bear on the face thereof a legend reading substantially as follows:

In the event that a registration statement covering the shares of Common Stock issued upon exercise of this Warrant shall become effective under the Securities Act or in the event that the Company shall receive an opinion of its counsel that, in the opinion of such counsel, such legend is not, or is no longer, necessary or required (including, without limitation, because of the availability of the exemption afforded by Rule 144 of the Regulations of the Securities and Exchange Commission), the Company shall, or shall instruct its transfer agents and registrars to, remove such legend from the certificates evidencing such shares of Common Stock or issue new certificates without such legend in lieu thereof.

5C. Notice of Proposed Transfer; Registration Not Required. The Holder of this Warrant or the holder of any shares of Common Stock issuable upon the exercise hereof (the “Warrant Shares”) by acceptance hereof or thereof, agrees to give written notice to the Company, prior to any transfer of this Warrant, the Warrant Shares or any portion hereof or thereof, of its intention to make such transfer which notice shall include a brief description of such proposed transfer.

If in the opinion of counsel to the Company or counsel to the transferor reasonably acceptable to the Company the proposed transfer may be effected without registration or qualification under any Federal or state law whereupon the Holder shall be entitled to transfer this Warrant or Warrant shares in accordance with the terms of the notice delivered to the Company and the opinion of counsel. The Company shall not be required to implement any unregistered transfer of the Warrant or Warrant Shares without such opinion of counsel.

SECTION 6 MISCELLANEOUS

6A. Nonwaiver. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies.

6B. Notice Generally. Any notice, demand or delivery to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to (a) the Holder at its last known address appearing on the books of the Company maintained for such purpose or (b) the Company at its principal office referred to in the Purchase Agreement. The Holder and the Company may each designate a different address by notice to the other pursuant to this Section 6B.

6C. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder.

6D. Amendment. This Warrant may not be modified or amended except by written agreement of the parties.

6E. Headings. The headings of the Sections of this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

6F. Governing Law. Except to the extent the corporation statute of Delaware applies, this Agreement shall be governed by and construed and enforced under the laws of California without reference to the principles of the conflicts of laws thereof.

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, as of the day and year first above written.

WARRANT NO. 13				WARRANTS TO PURCHASE
				1,200,000 WARRANT SHARES
ISSUED TO: HOFMANN & CO.




NETWORK COMPUTING DEVICES, INC.

By:
Name: Rudolph G. Morin
Title: President and Chief Executive Officer

Dated: Mountain View, California
August 29, 2001

FORM OF SUBSCRIPTION

DATE: _______________, 200__

WARRANT # ____________

TO: NETWORK COMPUTING DEVICES, INC.

The Undersigned, the holder of the within Warrants, hereby, irrevocably elects to exercise all or part of the purchase right represented by such Warrants for, and to purchase thereunder, shares of Common Stock of NETWORK COMPUTING DEVICES, INC. (the "Company") and herewith makes payment of $__________ to the Company, evidenced by delivery of the Holder’s certified or bank check and requests that the certificate representing such shares be issued in the name of, and be delivered to Holder, at the address indicated below.

The Undersigned represents that he is acquiring the Common Stock for his own account, for investment and without any view to resale or distribution of the Common Stock or any portion thereof. The Undersigned acknowledges that the sale of the Common Stock hereunder has not been registered or qualified under the Securities Act, or under any state securities laws, and that any retransfer of the Common Stock by the Undersigned will accordingly be restricted. The certificates representing the Common Stock will bear a legend to the effect that the Common Stock may not be transferred except in a transaction registered or qualified under applicable securities laws or in a transaction exempt from such registration or qualification, as evidenced by an opinion of counsel or other evidence satisfactory to the Company and its counsel.

The Undersigned acknowledges that the Common Stock must be held indefinitely unless subsequently registered under the Securities Act or the Company receives an opinion of counsel satisfactory to the Company that such registration is not required. The Undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of stock purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the stock. In the absence of a prior registration of the Common Shares underlying the securities being sold, the Undersigned agrees to be bound by any applicable restrictions, and acknowledges that the Undersigned may be required to hold the Shares for an indefinite period of time, subject to prior registration of the Common Stock into which the Shares are convertible.

The Undersigned further acknowledges that, in the event all of the requirements of Rule 144 are not met, compliance with another registration exemption will be required; and that, although Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and other than pursuant to Rule 144, will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, that such persons and the brokers who participate in the transactions do so at their own risk. There is no assurance that any exemption from registration under the Securities Act will be available or, if available, will allow such person to dispose of, or otherwise transfer, all or any portion of the Common Stock.

The Undersigned acknowledges that he can bear the economic risk and complete loss of his investment in the Common Stock and has such knowledge and experience in financial or business matters that he is capable of evaluating the merits and risks of the investment contemplated hereby.


		(Name of Holder)



		(Authorized Signatory)



		(Address)



(Telephone #)

ASSIGNMENT FORM

(To be executed only upon the assignment of the within Warrant)

To: NETWORK COMPUTING DEVICES, INC.

FOR VALUE RECEIVED the undersigned registered Holder of the within Warrant

hereby sells, assigns and transfers unto

whose address is

all of the rights of the undersigned under the within Warrant, with respect to a certain Warrant to purchase shares of Common Stock of NETWORK COMPUTING DEVICES, INC. and if such shares of Common Stock shall not include all the shares of Common Stock issuable as provided in the within Warrant, then a new Warrant of like tenor for the number of shares of Common Stock of NETWORK COMPUTING DEVICES, INC., not being transferred hereunder shall be issued in the name of and delivered to the undersigned, and does hereby irrevocably constitute and appoint

as attorney in fact to register such transfer on the books of The Company maintained for the purpose, with full power of substitution in the premises.

Dated	______________,_________

Signature Guaranteed:		By:
		(Signature of Registered Holder)



By:
[Title: ]

NOTICE: The signature to this Assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

The signature to this Assignment must be guaranteed by a commercial bank or trust company of the United States or a member firm of the New York Stock Exchange.

EX-10.67 6 j2183_ex10d67.htm EX-10.67 Prepared by MERRILL CORPORATION

SECURITIES PURCHASE AGREEMENT

by and between

HOFMANN & CO

Buyer

and

NETWORK COMPUTING DEVICES, INC.

As Issuer and Seller

Dated August 29, 2001

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”) is entered into as of August 29, 2001, by and between Network Computing Devices, Inc., a Delaware corporation (“Seller”), and Hofmann & Co, a Swiss Partnership incorporated in Unteraegeri (“Buyer”) (each a “Party” and together “Parties”).

RECITALS

Buyer desires to purchase from Seller, on the following terms and conditions, certain newly issued Shares (as defined below) and Warrants (as defined below) of the Seller, from the Seller; a publicly-traded corporation; and

Seller desires to issue and deliver the Shares and Warrants to Buyer, each on the following terms and conditions, set forth herein.

NOW, THEREFORE, in consideration of the recitals and the mutual covenants, representations, warranties, conditions, and agreement hereinafter expressed, the Parties agree as follows:

ARTICLE I - PURCHASE AND SALE

1.1. The Shares. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined below), the Seller shall issue and deliver to Buyer, free and clear of all security interests, claims, and restrictions, and Buyer shall purchase and accept from Seller, an aggregate of Five Hundred Thirty Thousand (530,000) shares of Convertible Preferred Stock of the Seller having the rights, privileges, and designations set forth on Exhibit A hereto (the “Preferred Shares”). The Preferred Shares shall be convertible into Common Stock (the “Conversion Shares”) on the terms and conditions set forth in Exhibit A. The Buyer understands that the Shares and the Conversion Shares, when issued, have not been registered under the Securities Act of 1933, as amended (the “Act”) and will bear a legend restricting retransfer in accordance with the Act.

1.2 Warrants. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined below), the Seller shall issue and deliver to Buyer, free and clear of all security interests, claims, and restrictions, and Buyer shall purchase and accept from Seller, an aggregate of One Million Two Hundred Thousand (1,200,000) Warrants to purchase additional Shares of Common Stock (the “Warrant Shares”) of the Seller on the terms, and subject to the conditions, of the form of Warrants (the “Warrants”) annexed hereto as Exhibit B hereof. The Buyer understands that neither the Warrants nor the Warrant Shares have been registered under the Act, and that the Warrants, and Warrant Shares when issued, will bear a legend restricting retransfer in accordance with the Act.

1.3 Consideration. The consideration that Buyer shall pay, and the Seller shall accept, for the Preferred Shares and Warrants is Two Million Dollars (U.S. $2,000,000).

1.4 Closing; Cooperation. The Closing shall take place at the office of the Seller at 10:00 A.M. local time on August 29, 2001, or, if the conditions to the Closing are not by then satisfied, upon satisfaction of such conditions, the date on which the Closing actually occurs being referred to herein as the “Closing Date.” Each Party shall reasonably cooperate, as to matters under such Party's control, in the satisfaction of conditions to the obligations of the Parties at the Closing; provided, that the foregoing shall not require either Party to waive any condition herein to its obligations at the Closing or to incur any substantial cost not otherwise required hereunder.

1.5 Deliveries of Seller at Closing. Subject to the conditions to Seller’s obligations in Article V, at each Closing, Seller shall deliver to Buyer a certificate or certificates evidencing the Preferred Shares and the Warrants duly endorsed or accompanied by a duly executed stock power, together with such other documents identified in Article IV, duly executed by Seller.

1.6 Deliveries of Buyer at Closing. Subject to the conditions to Buyer’s obligations in Article IV, at each Closing, Buyer shall deliver to Seller the Purchase Price by wire transfer of immediately available funds, and the documents identified in Article V, duly executed by Buyer.

ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the Schedule of Exceptions attached hereto as Exhibit C, Seller hereby makes the following representations and warranties to Buyer, each of which is true and correct on the date hereof and each of which shall survive the Closing:

2.1 Power and Authority. The Seller has the power and capacity to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby.

2.2 Shares and Warrants. The Preferred Shares, Conversion Shares, Warrants, and Warrant Shares (collectively the “Securities”) will be, when issued, fully paid, non-assessable securities of the Seller, free and clear of all security interests, claims, restrictions and voting agreements of any kind. The Seller will transfer good and marketable title to the Shares and Warrants at the Closing, free and clear of all liens, security interests, claims, liens and voting agreements subject to (i) laws of general application relating to specific performance, injunctive relief and other equitable remedies; (ii) applicable laws of general application relating to or affecting creditor rights generally; and (iii) to the extent that the indemnification provisions in Section 7.2 hereof may be limited by State or Federal Law.

2.3 Enforceability. This Agreement has been duly executed and delivered by the Seller and constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to (i) laws of general application relating to specific performance, injunctive relief and other equitable remedies; (ii) applicable laws of general application relating to or effecting creditor rights generally; and (iii) to the extent that the indemnification provisions in Section 7.2 hereof may be limited by State or Federal Law.

2.4 No Violation; Consents. The execution and delivery of this Agreement by Seller, the performance by Seller of its obligations hereunder and the consummation by Seller of the transactions contemplated by this Agreement will not (i) contravene any provision of the certificate of incorporation or bylaws of the Seller, (ii) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any governmental authority or of any arbitration award which is either applicable to, binding upon or enforceable against the Seller, (iii) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any contract which is applicable to, binding upon or enforceable against the Seller, or (v) require the consent, approval, authorization or permit of, or filing with or notification to, any governmental authority, except any filings with the Securities and Exchange Commission (the “SEC”) and other securities filings required to be made by Seller subsequent to the consummation of the transactions contemplated hereunder.

2.5 Corporate Existence and Qualification. The Seller is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware; it is duly qualified and in good standing in each foreign jurisdiction where its failure to so qualify would materially adversely effect the Seller. The Seller has the corporate power and authority to own and use its properties and to transact the business in which it is engaged.

2.6 Capitalization. The authorized capital stock of the Seller consists of 30,000,000 shares of common stock, par value $0.001 per share, and 3,000,000 shares of preferred stock. As of the date hereof, there are issued and outstanding 17,613,237 Common Shares and 220,000 shares of Series B Convertible Preferred Stock, all of which have been duly authorized and validly issued and are fully paid and non-assessable, and warrants to purchase an additional 1,600,000 shares of Common Stock.

2.7 Property and Permits. Except as set forth in the Seller’s filings in accordance with the Securities Exchange Act of 1934 (the “Exchange Act”) including the Seller’s 10-K for the fiscal year ended December 31, 2000 and 10-Q for the fiscal quarter ending June 30, 2001, (collectively the “Filings”) the Seller is the sole owner of all right, title, and interest in and to all assets reflected on its most recent balance sheet, free and clear of all mortgages, security interests, claims, restrictions and other encumbrances, except as set forth in the Filings, and there exists no restriction on the use or transfer of such assets or property. No such assets or property are in the possession of others and the Seller holds no property on consignment. The Seller holds all permits, licenses and other approvals necessary to conduct the business in which it is engaged.

2.8 Financial Information. The audited and unaudited financial information set forth in the Filings (the “Financial Information”), and has been prepared in accordance with generally accepted accounting principles consistently applied during the periods involved (“GAAP”), and fairly presents the financial condition and results of operations of the Seller as of the dates and for the periods presented therein. The books and records of the Seller have been, and are being, maintained in all material respects in accordance with the GAAP.

2.9 Changes Since June 30, 2001. Except as set forth in the Filings, since June 30, 2001, the Seller has not (i) issued any capital stock or other securities; (ii) made any distribution of or with respect to its capital stock or other securities or purchased or redeemed any of its securities; (iii) sold, leased or transferred any of its properties or assets other than in the ordinary course of business consistent with past practice; (iv) made or obligated itself to make capital expenditures out of ordinary course of business consistent with past practice; (v) made any payment in respect of its liabilities other than in the ordinary course of business consistent with past practice; or (vi) agreed to do or authorized any of the foregoing.

2.10 No Breach of Law or Governing Document. The Seller is not and has not been in default under or in breach or violation of any applicable statute, law, treaty, convention, ordinance, decree, order, injunction, rule, directive, or regulation of any Government (“Law”) or the provisions of any Government permit, franchise, or license, or any provision of its certificate of incorporation or its bylaws. The Seller has not received any notice alleging such default, breach or violation. Neither the execution of this Agreement nor the consummation of the transactions contemplated hereby constitute or will constitute or result in any such default, breach or violation.

2.11 Litigation. Except as reflected in the Filings, there is no action, suit, or other legal or administrative proceeding or governmental investigation pending or threatened against or by Seller, or any of its properties or assets, which alone or in the aggregate would have a material adverse effect upon the Seller, or which questions the validity or enforceability of this Agreement or the transactions contemplated hereby. There are no outstanding orders, injunctions, decrees or stipulations issued by any governmental authority in any proceeding to which the Seller is a party which have not been complied with in full or which continue to impose any material obligations on the Seller.

2.12 Intellectual Property.

(a) Except as disclosed in the Filings, to its knowledge, the Seller is the sole and exclusive owner of each patent, trademark, trade name, service mark, and copyrighted work, and registrations thereof and applications therefor, trade secret, software program, invention, proprietary process, and item of proprietary know-how and other intellectual property necessary for the conduct of its business as currently conducted (the “Intellectual Property”);

(b) To its knowledge, the Seller is the exclusive owner of all internally developed prospect lists, customer lists, projections, analyses, and market studies, free and clear of all restrictions whatsoever, and has the unrestricted right to use any other such materials used by the Seller but not internally developed;

(c) To its knowledge, the ownership, use, licensing, purchase, or sale by or to the Seller of any of the Intellectual Property or of the other technology used in the business of the Seller does not conflict with, contravene, infringe upon, interfere with, or violate any patent, trademark, copyright or other intellectual property right of any third person or require the acquiescence, agreement or consent of any third person; and

(d) To its knowledge, the Intellectual Property and the other technology used in the business of the Seller are not subject to a challenge or claim of infringement, interference or unfair competition or other claim and, to the knowledge of Seller or the Seller, the Intellectual Property is not being infringed upon or violated by any third person.

2.15 Disclosure. No representation or warranty by Seller in this Agreement or in any other document or agreement to be delivered hereunder, and no information furnished to Buyer by or on behalf of Seller pursuant to or in connection with this Agreement, contains or will contain as of the Closing Date any untrue statement of a material fact or any omission of a material fact necessary to make the respective statements contained herein or therein, in light of the circumstances under which the statements were made, not misleading.

2.16 Brokers; Finders. Seller has not incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby.

2.17 Restrictive Documents. Seller is not subject to any charter, by-law, mortgage, lien, lease, agreement, instrument, order, law, rule, regulation, judgment or decree or any other restriction which would prevent consummation of the transactions contemplated by this Agreement.

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby makes the following representations and warranties to Seller, each of which is true and correct on the date hereof and each of which shall survive the Closing:

3.1 Status. Buyer is a partnership with the power and authority to enter into this transaction, and execute and deliver this Agreement, perform its obligations hereunder, and to consummate the transactions contemplated hereby. Buyer has the power and capacity to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. Buyer has taken all action necessary to authorize its execution and delivery of this Agreement, the performance of its respective obligations hereunder and the consummation of the transactions contemplated hereunder.

3.2 Enforceability. This Agreement has been duly executed and delivered by Buyer and constitutes a legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with its terms.

3.3 No Violation. The execution and delivery of this Agreement by Buyer, the performance by Buyer of the obligations hereunder and the consummation by Buyer of the transactions contemplated by this Agreement will not (i) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any governmental authority or of any arbitration award which is either applicable to, binding upon or enforceable against Buyer, (ii) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any contract which is applicable to, binding upon or enforceable against Buyer, (iii) result in or require the creation or imposition of any lien upon or with respect to the Securities being acquired by Buyer, or (iv) require the consent, approval, authorization or permit of, or filing with or notification to, any governmental authority, except any filings with the SEC and other filings required to be made by Buyer subsequent to the consummation of the transaction.

3.4 Financial Condition. Buyer has sufficient assets to enter into this Agreement and to consummate the transactions contemplated hereby.

3.5 Investment Experience. The Buyer is an accredited investor, as such term is defined under Regulation D promulgated under the Act, which may require that the Buyer have more than US$ 5,000,000 in assets or that each constituent partner of the Buyer have either (i) a net worth in excess of US$1,000,000 or (ii) income of more than US$200,000 in each of the last two years or US$300,000 jointly with his or her spouse during those years and a reasonable expectation of reaching the same income level in the current year.The Buyer acknowledges that it can bear the economic risk and complete loss of its investment in the Shares and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby.

3.6 Investment Representation. Buyer is acquiring the Shares for its own account, for investment and without any view to resale or distribution of the Shares or any portion thereof. Buyer acknowledges that the sale of the Securities hereunder has not been registered or qualified under the Act, or under any state securities laws, and that any retransfer of the Shares by the Buyer will accordingly be restricted. The certificates representing the Shares will bear a legend to the effect that the Shares may not be transferred except in a transaction registered or qualified under applicable securities laws or in a transaction exempt from such registration or qualification, as evidenced by an opinion of counsel or other evidence satisfactory to the Seller and its counsel.

3.6.1 Restrictions on Transfer. Buyer acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or the Company receives an opinion of counsel satisfactory to the Company that such registration is not required. Buyer is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of stock purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the stock. In the absence of a prior registration of the Common Shares underlying the securities being sold, the Buyer agrees to be bound by any applicable restrictions, and acknowledges that the Buyer may be required to hold the Shares for an indefinite period of time, subject to prior registration of the Common Stock into which the Shares are convertible.

3.6.2 Exemption from Registration. Buyer further acknowledges that, in the event all of the requirements of Rule 144 are not met, compliance with another registration exemption will be required; and that, although Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and other than pursuant to Rule 144, will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, that such persons and the brokers who participate in the transactions do so at their own risk. There is no assurance that any exemption from registration under the Securities Act will be available or, if available, will allow such person to dispose of, or otherwise transfer, all or any portion of the Securities.

3.7 Disclosure of Information. The Buyer has had access to such financial and other information concerning the Seller and the Shares as the Buyer deems necessary in order to make a decision to acquire the Shares, including an opportunity to ask questions of and receive information from the Seller. Neither such inquiries nor any other due diligence investigation conducted by the Buyer shall modify, amend or affect the Buyer’s right to rely on the Seller’s representations and warranties contained in this Agreement.

3.8 Brokers, Finders. Buyer has not incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby.

3.9 Restrictive Documents. Buyer is not subject to any agreement, instrument, order, law, rule, regulation, judgment or decree or any other restriction which would prevent consummation of the transactions contemplated by this Agreement.

ARTICLE IV - CONDITIONS TO BUYER'S OBLIGATIONS

The obligations of Buyer at the Closing shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (unless waived in writing by Buyer):

4.1 Accuracy of Representations and Warranties. Seller’s representations and warranties set forth in Article II shall have been true and correct in all material respects when made and shall be true and correct in all material respects on the Closing Date as though such representations and warranties were made at and as of such date and time.

4.2 Performance of Agreement. Seller shall have fully performed and complied with all covenants, conditions, and other obligations under this Agreement to be performed or complied with by them at or prior to the Closing.

4.3 No Adverse Change. There shall have been no material adverse change in the Seller’s business, prospects or financial condition between the date hereof and Closing.

4.4 Certificate. Seller shall have delivered to Buyer at the Closing a certificate of Seller, dated the Closing Date, to the effect that the conditions set forth in Sections 4.1, 4.2 and 4.3 have been satisfied. Such certificate shall be deemed an additional representation and warranty of Seller hereunder.

4.5 Registration Rights Agreement. Seller shall have entered into, executed and delivered a Registration Rights Agreement, in form and substance satisfactory to Buyer, providing for at least one demand registration of the Conversion Shares and the Warrant Shares, and an unlimited number of piggyback registrations of such Conversion Shares and Warrant Shares.

ARTICLE V - CONDITIONS TO SELLER’S OBLIGATIONS

The obligations of Seller at the Closing shall be subject to the satisfaction at the Closing of the following conditions (unless waived in writing by Seller):

5.1 Accuracy of Representations and Warranties. Buyer's representations and warranties set forth in Article III shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date as though such representations and warranties were made at and as of such date and time.

5.2 Performance of Agreement. Buyer shall have fully performed and complied with all covenants, conditions, and other obligations under this Agreement to be performed or complied with by it at or prior to the Closing.

5.3 Certificate. Buyer shall have delivered to Seller at the Closing a certificate of Buyer, dated the Closing Date, to the effect that the conditions set forth in Sections 5.1 and 5.2 have been satisfied. Such certificate shall be deemed an additional representation and warranty of Buyer hereunder.

5.4 Registration Rights Agreements. Buyer shall have entered into, executed and delivered a Registration Rights Agreement, as provided in Section 4.5 hereof.

ARTICLE VI - ADDITIONAL COVENANTS OF THE PARTIES

6.1 Conduct of Business Before Closing. From the date hereof, until Closing, Seller shall (a) cause the business of the Seller to be operating in the ordinary course of business and (b) not take any action which would require a change or addition to or deletion from the disclosures of Seller pursuant to Article II hereof, without the prior written consent of Buyer.

6.2 Public Disclosure. No Party to this Agreement shall make any public disclosure of the terms hereof or the transactions contemplated hereby without the prior written consent of the other Party, except as required by law. In the event circumstances shall change requiring, in the opinion of either Party, a public release, the Party proposing to make the announcement will advise the other in advance and will give the other Party the opportunity to comment on the form of the proposed announcement. Buyer shall not disclose to any third person any confidential information relating to the Seller, without the prior written consent of the Seller. Notwithstanding the foregoing, Buyer may disclose such information, as may be reasonably required, to its attorneys, accountants, and advisors, financial and otherwise, in order to evaluate the investment opportunity presented herein.

6.3 Further Assurances. From and after each Closing, the Parties shall do such acts and execute such documents and instruments as may be reasonably required to make effective the transactions contemplated hereby.

ARTICLE VII - INDEMNIFICATION

7.1 Survival. The respective representations and warranties made by the Parties in Articles II and III and certificates under Sections 4.4 and 5.3 shall survive the Closing Date but the right to bring a claim for indemnification under this Article VII shall expire on the first anniversary of the Closing Date unless a claim with respect thereto shall have been made against the Party responsible for indemnification hereunder (the “Indemnifying Party”).

7.2 Indemnification of Buyer. Seller shall hold Buyer harmless and indemnify it from and against, and waives any claim for contribution or indemnity with respect to, any and all claims, losses, damages, liabilities, expenses or costs (“Buyer Losses”) plus reasonable attorneys' fees and expenses incurred in connection with Buyer Losses and/or enforcement of this Agreement (“Buyer Indemnified Losses”) incurred or to be incurred by it to the extent resulting from or arising out of any breach or violation of Seller’s representations, warranties, covenants, or agreements contained in this Agreement, including provisions of this Article VII.

7.3 Indemnification of Seller. Buyer shall hold Seller, its officers, directors, and affiliates (“Seller Indemnified Persons”), harmless and indemnify each of them from and against, and waives any claim for contribution or indemnity with respect to, any and all claims, losses, damages, liabilities, expenses or costs (“Seller Losses”) plus reasonable attorneys' fees and expenses incurred in connection with Seller Losses and/or enforcement of this Agreement. (“Seller Indemnified Losses”) incurred or to be incurred by any of them to the extent resulting from or arising out of any breach or violation of Buyer’s representations, warranties, covenants, or agreements contained in this Agreement, including provisions of this Article VII.

7.4 Notice of Claim. In the event that Buyer seeks indemnification, or Seller seeks indemnification on behalf of a Seller Indemnified Person, such Party seeking indemnification (the “Indemnified Party”) shall give written notice to the other party (the “Indemnifying Party”) specifying the facts constituting the basis for such claim and the amount, to the extent known, of the claim asserted. The Indemnifying Party shall pay the amount of any valid claim not more than thirty days (30) after the Indemnified Party provides notice to the Indemnifying Party of such amount, or otherwise take the entire burden, including all reasonable legal fees and expenses, of defending and holding harmless the Indemnified Party against such claim or liability.

ARTICLE VIII - MISCELLANEOUS PROVISIONS

8.1 Notice. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and made upon being delivered either by courier or telecopier delivery to the Party for whom it is intended, provided that if delivered by telecopier, a copy thereof is deposited, postage prepaid, certified or registered mail, return receipt requested, bearing the address shown in this Agreement for, or such other address as may be designated in writing hereafter by, such Party:

8.2 Entire Agreement. This Agreement embodies the entire understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings relative to such subject matter.

8.3 Assignment; Binding Agreement. This Agreement and various rights and obligations arising hereunder shall inure to the benefit of and be binding upon Buyer, its successors, and permitted assigns and Seller, its successors and permitted assigns. Neither this Agreement nor any of the rights, interests, or obligations hereunder may be transferred, delegated, or assigned (by operation of law or otherwise) by either of the Parties hereto without the prior written consent of the other Party.

8.4 Counterparts. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

8.5 Headings; Interpretation. The article and section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Agreement.

8.6 Expenses. Seller and Buyer shall each pay all costs and expenses incurred by either of them in connection with the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, fees and expenses of attorneys, investment bankers and accountants.

8.7 Governing Law. This Agreement shall in all respects be construed in accordance with and governed by the substantive laws of the State of California, without reference to its conflict of law rules.

IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be executed as of the date first above written.

BUYER:		SELLER:

HOFMANN & CO.		NETWORK COMPUTING DEVICES, INC


By:		By:
	Name: Gottfried Hofmann		Name:
	Title: Partner		Title

EXHIBIT A

NETWORK COMPUTING DEVICES, INC.

AMENDED

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS

OF THE TERMS OF THE SERIES B AND SERIES C PREFERRED STOCK

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

The undersigned President and Chief Executive Officer of Network Computing Devices, Inc., organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:

That, on August 29, 2001, the Board of Directors of the Corporation adopted the following resolution changing the designations, preferences and rights of the terms of the Series B Preferred Stock and creating a series of 530,000 shares of Preferred Stock designated as Series C Preferred Stock:

RESOLVED, that the designations, preferences and rights of the Series B Preferred Stock of the Corporation are hereby amended, and a new series of Preferred stock of the Corporation, designated Series C Preferred Stock, is hereby created, and that the designation and amount thereof and the powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

Section 1: DESIGNATION AND AMOUNT.

The shares of such series shall be designated as “Series B Preferred Stock” (the “Series B Preferred Stock”), par value $.001 per share, and “Series C Preferred Stock” (the “Series C Preferred Stock”), par value $.001 per share. The number of shares initially constituting the Series B Preferred Stock and the Series C Preferred Stock shall be 290,000 shares and 530,000 shares, respectively. The Series B Preferred Stock and Series C Preferred Stock are sometimes referred to together as the “Series Preferred Stock.”

Section 2: DIVIDENDS AND DISTRIBUTIONS.

(a) Dividends. The holders of the Series B Preferred Stock (the “Series B Holders”) and the holders of the Series C Preferred Stock (the “Series C Holders” or, collectively with the Series B Holders, the “Series Holders”) shall be entitled to receive when, as and if declared by the Board of Directors, out of any assets legally available therefor, dividends not less than, and in preference and priority to any payment of, any dividend or distribution on the Common Stock or any other class or series of stock of the Corporation ranking junior to the Series Preferred Stock and pro rata with payment of any dividend on any class or series of stock of the Corporation ranking on a parity with the Series Preferred Stock as to dividends. Such dividends on the Series B Preferred Stock and the Series C Preferred Stock shall accrue at the rate of $.41 per share and $.23 per share, respectively, per annum from the date of issuance to the date of payment, based on the actual number of days elapsed, and shall be payable on the payment date fixed by the declaration or, if no payment date is fixed, shall accrue semi-annually on May 31^st, and November 30^th of each year, and upon any Liquidation (as hereinafter defined). In the event dividends in less than the full preferential amount shall be paid to the holders of the Series Preferred Stock, such dividends shall be distributed ratably among such holders in proportion to the full preferential amont that each such holder is otherwise entitled to receive under this Section 2(a).

(b) Distributions. As used in this Section 2, the term “distribution” shall mean a transfer of cash, property or securities without consideration, whether by way of dividend or otherwise, or the purchase or redemption of shares of the Corporation.

(c) Necessary Actions. The Corporation shall take any and all corporate action necessary to declare and pay the dividends required.

Section 3: LIQUIDATION.

(a) Liquidation Defined. “Liquidation” means any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, other than any dissolution, liquidation or winding up in connection with any reincorporation of the Corporation in another jurisdiction. A Corporate Transaction (as hereinafter defined) shall be deemed to be a Liquidation. As used herein, “Corporate Transaction” shall mean (i) any consolidation or merger of the Corporation with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Corporation immediately prior to such consolidation, merger or reorganization own less than fifty percent (50%) of the Corporation’s voting power immediately after such consolidation, merger or reorganization, or (ii) a sale, lease, transfer or other disposition of all or substantially all of the assets of the Corporation.

(b) Rights. Upon a Liquidation, as hereinabove defined, after payment or provision for payment of the debts and other liabilities of the Corporation, and prior to any distribution to the holders of Series A Participating Preferred Stock or Common Stock of the Corporation, the Series Holders shall be entitled to receive, out of the remaining assets of the Corporation available for distribution to its stockholders, an amount equal to $7.00 per share plus accrued and unpaid dividends, if any, with respect to each share of Series B Preferred Stock (the “Series B Liquidation Preference”) and an amount equal to $3.80 per share plus accrued and unpaid dividends, if any, with respect to each share of Series C Preferred Stock (the “Series C Liquidation Preference”). Following the payment of the full amount of the Series B Liquidation Preference and the Series C Liquidation Preference and any preference that is payable to the holders of any other series of Preferred Stock, the holders of Series Preferred Stock and Common Stock and, to the extent provided for in the Certificate of Incorporation, such other series of Preferred Stock, shall receive their ratable and proportionate share, on a per share and as-converted to Common Stock basis, of the remaining assets to be distributed with respect to such Series Preferred Stock, such other series of Preferred Stock and Common Stock, respectively. If upon any Liquidation the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay to the Series Holders and the holders of any other class of capital stock ranking on a parity with the Series Preferred Stock (“Parity Holders”) the full Series B Liquidation Preference, Series C Liquidation Preference and liquidation preference payable to such Parity Holders (“Parity Preference”), respectively, the Series B Holders, Series C Holders and Parity Holders shall share pro rata in any distribution of assets in accordance with such full Series B Liquidation Preference, Series C Liquidation Preference and Parity Preference amounts, respectively.

Section 4: VOTING RIGHTS.

In addition to other rights provided herein or by law, the Series Holders shall be entitled to vote on all matters submitted to the stockholders of the Corporation for vote or consent and, except when a single class vote is required, will vote with the holders of Common Stock as one class. Each Series Holder shall be entitled to one vote per share of Common Stock issuable upon conversion of the shares of Series Preferred Stock then held by such holder.

Section 5: CONVERSION.

(a) Rate. The Series B Preferred Stock and the Series C Preferred Stock shall be convertible, at the option of the holder thereof at a rate of ten (10) shares of Common Stock for each share of Series B Preferred Stock or Series C Preferred Stock, subject to appropriate adjustment in the event of any stock split, stock dividend or reverse stock split affecting the Common Stock where the Series B Preferred Stock or Series C Preferred Stock is not treated in an equivalent manner. Notwithstanding the foregoing, the Series C Preferred Stock shall not be convertible unless and until the Certificate of Incorporation of the Corporation is amended to increase the number of authorized shares of Common Stock by not less than 5,300,000, provided that, while this restriction remains in effect, the Series C Holders shall have the same rights upon a Liquidation under Section 3 and the same voting rights under Section 4 as they would have absent this restriction.

(b) Mechanics of Conversion. Upon delivery to the Company of the certificate or certificates for the shares of Series Preferred Stock to be converted, duly endorsed or assigned in blank to the Company (if required by it), the Company shall issue and deliver to or upon the written order of a Series Holder, to the place designated by such holder, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled.

Section 6: REDEMPTION.

The Series B Preferred Stock and the Series C Preferred Stock may not be redeemed by the Corporation without the consent of the holders of all of the Series B Preferred Stock or Series C Preferred Stock, respectively, then outstanding.

Section 7: NO REISSUANCE.

No shares of Series Preferred Stock acquired by the Company by reason of exchange, conversion or otherwise shall be reissued and all such shares shall be canceled, retired and eliminated from the shares of Series Preferred Stock which the Company shall be authorized to issue.

Section 8: PROTECTIVE PROVISIONS.

(a) Required Consents. In addition to any other vote or consent required herein or by law, the affirmative vote or written consent of the Series B Holders owning a majority of the outstanding Series B Preferred Stock, and the Series C Holders owning a majority of the outstanding Series C Preferred Stock, each voting as a separate class, shall be necessary for effecting or validating the following actions:

(i) Any amendment, alteration, repeal, or waiver of any provision of the Certificate of Incorporation of the Company (including the filing of any Certificate of Designations), as in effect from time to time (the “Certificate of Incorporation”), or the Bylaws of the Company, that affects adversely the voting powers, preferences, priorities or other special rights or privileges, qualifications, limitations, or restrictions of such series of Preferred Stock;

(ii) Any redemption or repurchase of capital stock of the Company (except for acquisitions of Common Stock by the Company under stock option or restricted stock agreements with employees approved by the Board of Directors);

(iii) Any material disbursement of funds outside of the ordinary course of the Company’s business;

(iv) Any consolidation or merger of the Company with or into any other Company or other entity or person, or the entering into any other corporate reorganization;

(v) Any termination of the Company’s line of business as of the date of the first issuance of Series B Preferred Stock or substitution of an unrelated line of business as its principal focus of the Company’s activities;

(vi) Any voluntary dissolution, liquidation winding-up or partial liquidation of the Company, or any distribution or transaction in the nature of a partial liquidation or distribution, or any sale or other transfer of all or substantially all of the assets of the Company (including shares, or all or substantially all of the assets, of any subsidiary of the Company); or

(vii) Any increase or decrease in the authorized number of shares of any series or class of the Company’s capital stock.

(b) Financial Reports. The Company will furnish to the Series Holders, as soon as practicable, and in any case within 75 days after the end of each fiscal quarter, unaudited quarterly financial statements, and within 90 days after the end of each fiscal year, annual audited financial statements (all prepared in accordance with generally accepted accounting principles consistently applied).

Section 9: NO IMPAIRMENT

The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series Preferred Stock set forth herein, and will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Series Holders against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may reserve for issuance, and validly and legally issue fully paid and non-assessable Company shares on the conversion of all Series Preferred Stock from time to time outstanding.

Section 10: NOTICES.

All notices, requests and other communications shall be in writing addressed to the Company at its principal office or to the Series Holders at their addresses appearing on the stock ownership records of the Company and delivered by a nationally recognized overnight mail carrier, certified mail return receipt requested or facsimile. Any notice sent by nationally-recognized overnight mail carrier shall be deemed to be delivered on the expected date of delivery. Any notice sent by certified mail, return receipt requested, shall be deemed to be delivered 3 days after mailing. Any notice sent by facsimile shall be deemed delivered upon the receipt by sender of written confirmation of transmission.

3. That the foregoing amendment has been duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 29th day of August, 2001.


	Rudolph G. Morin, President and Chief
	Executive Officer

EX-10.70 7 j2183_ex10d70.htm EX-10.70 Prepared by MERRILL CORPORATION

AMENDMENT NUMBER SIX TO
LOAN AND SECURITY AGREEMENT

THIS AMENDMENT NUMBER SIX TO LOAN AND SECURITY AGREEMENT (this “Amendment”), is entered into as of September __, 2001, between FOOTHILL CAPITAL CORPORATION, a California corporation, (“Foothill”), and NETWORK COMPUTING DEVICES, INC., a Delaware corporation (“Borrower”), with reference to the following facts:

WHEREAS, Foothill and Borrower are parties to that certain Loan and Security Agreement, dated as of March 30, 2000 (as amended, restated, or modified from time to time, the “Agreement”);

WHEREAS, Borrower has requested that Foothill make certain changes to the Agreement; and

WHEREAS, Foothill is willing to consent to these certain changes and take other actions with respect to the Agreement, all on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the above recitals and the mutual promises contained herein, Foothill and Borrower hereby agree as follows:

1. Defined Terms All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Agreement, as amended hereby.

2. Amendments to the Agreement

a. Section 1.1 of the Agreement hereby is amended by adding or amending and restating, as applicable, the following defined terms in the proper alphabetical order:

“Sixth Amendment” means that certain Amendment Number Six to Loan and Security Agreement, dated as of September ___, 2001, between Borrower and Foothill.

“Sixth Amendment Closing Date” means the date that all conditions set forth in Section 5 of the Sixth Amendment have been satisfied.

“Sixth Amendment Fee” has the meaning ascribed thereto in Section 4 of the Sixth Amendment.

“Maximum Amount” means $3,000,000.

b. Section 2.1 is hereby amended by deleting the text of subsection (z)(i)(A) appearing within the definition of Borrowing Base and inserting the following in place thereof:

“the lesser of 75% of Eligible Foreign Accounts (provided, that (1) beginning on September 17, 2001, the figure 75% shall be decreased by 0.5% on each business day and (2) beginning on October 1, 2001, such figure shall be decreased by 1.0% on each business day until such time as the Obligations have been paid in full in accordance with the terms of this Agreement), plus”;

c. Section 2.1 is hereby amended by deleting the text of subsection (z)(i)(B)(1) appearing within the definition of Borrowing Base and inserting the following in place thereof:

“(1) 75% of Eligible Extended Term Foreign Accounts (provided, that (1) beginning on September 17, 2001, the figure 75% shall be decreased by 0.5% on each business day and (2) beginning on October 1, 2001, such figure shall be decreased by 1.0% on each business day until such time as the Obligations have been paid in full in accordance with the terms of this Agreement),”;

d. Section 3.4 of the Agreement is hereby amended by deleting the first sentence thereof and inserting the following in place thereof:

“This Agreement shall become effective upon the execution and delivery hereof by Borrower and Foothill and shall continue in full force and effect for a term ending on October 15, 2001 (the “Maturity Date”).”

3. Representations and Warranties. Borrower hereby represents and warrants to Foothill that:

(a) the execution, delivery, and performance of this Amendment and of the Agreement, as amended by this Amendment, are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected,

(b) this Amendment and the Agreement, as amended by this Amendment, constitute Borrower’s legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms, and

(c) this Amendment has been duly executed and delivered by Borrower.

4. Conditions Precedent to Amendment. The satisfaction of each of the following shall constitute conditions precedent to the effectiveness of this Amendment:

(a) Foothill shall have received an amendment fee (the “Sixth Amendment Fee”) in an amount equal to $10,000.

(b) Foothill shall have received the reaffirmation and consent attached hereto as Exhibit A, duly executed and delivered by an authorized officer of each Guarantor;

(c) The representations and warranties in this Amendment, the Agreement as amended by this Amendment and any other amendments thereto, and the other Loan Documents shall be true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date);

(d) No Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein;

(e) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any governmental authority against Borrower or Foothill; and

(f) All other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Foothill and its counsel.

5. Miscellaneous.

(a) Upon the effectiveness of this Amendment, each reference in the Agreement to “this Agreement”, “hereunder”, “herein”, “hereof” or words of like import referring to the Agreement shall mean and refer to the Agreement as amended by this Amendment.

(b) Upon the effectiveness of this Amendment, each reference in the Loan Documents to the “Loan Agreement”, “thereunder”, “therein”, “thereof” or words of like import referring to the Agreement shall mean and refer to the Agreement as amended by this Amendment.

(d) This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Amendment. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of a manually executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver a manually executed counterpart of this Amendment but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

[Remainder of page left intentionally blank]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.

	NETWORK COMPUTING DEVICES, INC.,
	a Delaware corporation


	By:
	Name:
	Title:


	FOOTHILL CAPITAL CORPORATION,
	a California corporation


	By:
	Name:
	Title:

Exhibit A

REAFFIRMATION AND CONSENT

All capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in that certain Amendment Number Six to Loan and Security Agreement, dated as of September __, 2001 (the “Amendment”). The undersigned hereby (a) represents and warrants to Foothill that the execution, delivery, and performance of this Reaffirmation and Consent are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected; (b) consents to the amendment of the Agreement by the Amendment and to the transactions described therein; (c) acknowledges and reaffirms its obligations owing to Foothill under the Guaranty and any other Loan Documents to which it is a party; and (d) agrees that each of the Guaranty and any other Loan Documents to which it is a party is and shall remain in full force and effect. Although the undersigned has been informed of the matters set forth herein and has acknowledged and agreed to same, it understands that Foothill has no obligations to inform it of such matters in the future or to seek its acknowledgement or agreement to future amendments, and nothing herein shall create such a duty. Delivery of an executed counterpart of this Reaffirmation and Consent by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Reaffirmation and Consent. Any party delivering an executed counterpart of this Reaffirmation and Consent by telefacsimile also shall deliver an original executed counterpart of this Reaffirmation and Consent but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Reaffirmation and Consent. This Reaffirmation and Consent shall be governed by the laws of the State of California.

	AUSTRALIA, NETWORK COMPUTING DEVICES (BENELUX) B.V., a company organized under the laws of The Netherlands

	By:
	Name:
	Title:


	NETWORK COMPUTING DEVICES (CANADA), INC., a corporation organized under the laws of Canada

	By:
	Name:
	Title:

	NETWORK COMPUTING DEVICES (FRANCE) S.A.R.L., a company organized under the laws of France

	By:
	Name:
	Title:


	NETWORK COMPUTING DEVICES, GMBH, a company organized under the laws of Germany

	By:
	Name
	Title:


	NCD GRAPHIC SOFTWARE CORPORATION, an Oregon corporation

	By:
	Name:
	Title:


	NETWORK COMPUTING DEVICES (FSC), INC., a Guam corporation

	By:
	Name:
	Title:


	NCD ACQUISITION CORP., an Indiana corporation

	By:
	Name:
	Title:

	NETWORK COMPUTING DEVICES (UK), LTD., a company organized under the laws of England

	By:
	Name:
	Title:


	NETWORK COMPUTING DEVICES SCANDINAVIA AB, a company organized under the laws of Sweden

	By:
	Name:
	Title:

FORM 10-Q

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934 for the transition period from __________ to _________

ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

General and Administrative Expenses

PART II - OTHER INFORMATION

Section 1: DESIGNATION AND AMOUNT.

Section 2: DIVIDENDS AND DISTRIBUTIONS.

(b) Distributions. As used in this Section 2, the term “distribution” shall mean a transfer of cash, property or securities without consideration, whether by way of dividend or otherwise, or the purchase or redemption of shares of the Corporation.

(c) Necessary Actions. The Corporation shall take any and all corporate action necessary to declare and pay the dividends required.

Section 3: LIQUIDATION.

Section 4: VOTING RIGHTS.

Section 5: CONVERSION.

Section 6: REDEMPTION.

Section 7: NO REISSUANCE.

Section 8: PROTECTIVE PROVISIONS.

(ii) Any redemption or repurchase of capital stock of the Company (except for acquisitions of Common Stock by the Company under stock option or restricted stock agreements with employees approved by the Board of Directors);

(iii) Any material disbursement of funds outside of the ordinary course of the Company’s business;

(iv) Any consolidation or merger of the Company with or into any other Company or other entity or person, or the entering into any other corporate reorganization;

(v) Any termination of the Company’s line of business as of the date of the first issuance of Series B Preferred Stock or substitution of an unrelated line of business as its principal focus of the Company’s activities;

(vii) Any increase or decrease in the authorized number of shares of any series or class of the Company’s capital stock.

Section 9: NO IMPAIRMENT

Section 10: NOTICES.

(b) this Amendment and the Agreement, as amended by this Amendment, constitute Borrower’s legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms, and

(c) this Amendment has been duly executed and delivered by Borrower.

Exchange Act of 1934 for the transition period from __ to _