**SECURITIES PURCHASE AGREEMENT**

 

by and between

 

**HOFMANN& CO**

Buyer

 

and

 

**NETWORKCOMPUTING DEVICES, INC.**

As Issuer andSeller

 

 

 

Dated August 29,2001

 

**SECURITIES PURCHASE AGREEMENT**

 

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

 

**RECITALS**

 

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

 

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

 

NOW, THEREFORE, inconsideration of the recitals and the mutual covenants, representations,warranties, conditions, and agreement hereinafter expressed, the Parties agreeas follows:

 

**ARTICLEI - PURCHASE AND SALE**

** **

1.1.          The Shares.  Upon the terms and subject to the conditionsset forth in this Agreement, at the Closing (as defined below), the Sellershall issue and deliver to Buyer, free and clear of all security interests,claims, and restrictions, and Buyer shall purchase and accept from Seller, anaggregate of Five Hundred Thirty Thousand (530,000) shares of ConvertiblePreferred Stock of the Seller having the rights, privileges, and designationsset forth on Exhibit A hereto (the “Preferred Shares”).  The Preferred Shares shall be convertibleinto Common Stock (the “Conversion Shares”) on the terms and conditions setforth in Exhibit A.  The Buyer understandsthat the Shares and the Conversion Shares, when issued, have not been registeredunder the Securities Act of 1933, as amended (the “Act”) and will bear a legendrestricting retransfer in accordance with the Act.

 

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

 

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

 

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

 

1.5           Deliveries of Seller at Closing.  Subject to the conditions to Seller’sobligations in Article V, at each Closing, Seller shall deliver to Buyer acertificate or certificates evidencing the Preferred Shares and the Warrantsduly endorsed or accompanied by a duly executed stock power, together with suchother documents identified in Article IV, duly executed by Seller.

 

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

** **

**ARTICLEII - REPRESENTATIONS AND WARRANTIES OF SELLER**

 

Except as set forth inthe Schedule of Exceptions attached hereto as Exhibit C, Seller hereby makesthe following representations and warranties to Buyer, each of which is trueand 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 toexecute and deliver this Agreement, to perform its obligations hereunder, andto consummate the transactions contemplated hereby.

 

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

 

2.3           Enforceability.  This Agreement has been duly executed anddelivered by the Seller and constitutes a legal, valid and binding obligationof 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 generalapplication relating to or effecting creditor rights generally; and (iii) tothe extent that the indemnification provisions in Section 7.2 hereof may belimited by State or Federal Law.

 

2.4           No Violation; Consents.  The execution and delivery of this Agreementby Seller, the performance by Seller of its obligations hereunder and theconsummation by Seller of the transactions contemplated by this Agreement willnot (i) contravene any provision of the certificate of incorporation or bylawsof the Seller, (ii) violate or conflict with any law, statute, ordinance, rule,regulation, decree, writ, injunction, judgment or order of any governmentalauthority or of any arbitration award which is either applicable to, bindingupon or enforceable against the Seller, (iii) conflict with, result in anybreach of, or constitute a default (or an event which would, with the passageof time or the giving of notice or both, constitute a default) under, or give riseto a right to terminate, amend, modify, abandon or accelerate, any contractwhich is applicable to, binding upon or enforceable against the Seller, or (v)require the consent, approval, authorization or permit of, or filing with ornotification to, any governmental authority, except any filings with theSecurities and Exchange Commission (the “SEC”) and other securities filingsrequired to be made by Seller subsequent to the consummation of thetransactions contemplated hereunder.

 

2.5           Corporate Existence andQualification.  The Seller is acorporation duly incorporated, validly existing, and in good standing under thelaws of the State of Delaware; it is duly qualified and in good standing ineach foreign jurisdiction where its failure to so qualify would materiallyadversely effect the Seller.  The Sellerhas the corporate power and authority to own and use its properties and totransact the business in which it is engaged.

 

2.6           Capitalization.  The authorized capital stock of the Sellerconsists of 30,000,000 shares of common stock, par value $0.001 per share, and3,000,000 shares of preferred stock.  Asof the date hereof, there are issued and outstanding 17,613,237 Common Sharesand 220,000 shares of Series B Convertible Preferred Stock, all of which havebeen 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 filingsin 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 and10-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 allassets reflected on its most recent balance sheet, free and clear of allmortgages, security interests, claims, restrictions and other encumbrances,except as set forth in the Filings, and there exists no restriction on the useor transfer of such assets or property. No such assets or property are in the possession of others and theSeller holds no property on consignment. The Seller holds all permits, licenses and other approvals necessary toconduct the business in which it is engaged.

 

2.8           Financial Information.  The audited and unaudited financialinformation set forth in the Filings (the “Financial Information”), and hasbeen prepared in accordance with generally accepted accounting principlesconsistently applied during the periods involved (“GAAP”), and fairly presentsthe financial condition and results of operations of the Seller as of the datesand for the periods presented therein. The books and records of the Seller have been, and are being, maintainedin all material respects in accordance with the GAAP.

 

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

 

2.10         No Breach of Law or GoverningDocument.  The Seller is not and hasnot 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 Governmentpermit, franchise, or license, or any provision of its certificate ofincorporation or its bylaws.  The Sellerhas not received any notice alleging such default, breach or violation.  Neither the execution of this Agreement northe consummation of the transactions contemplated hereby constitute or willconstitute or result in any such default, breach or violation.

 

2.11         Litigation.  Except as reflected in the Filings, there isno action, suit, or other legal or administrative proceeding or governmentalinvestigation pending or threatened against or by Seller, or any of itsproperties or assets, which alone or in the aggregate would have a materialadverse effect upon the Seller, or which questions the validity orenforceability of this Agreement or the transactions contemplated hereby.  There are no outstanding orders,injunctions, decrees or stipulations issued by any governmental authority inany proceeding to which the Seller is a party which have not been complied within 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 registrationsthereof and applications therefor, trade secret, software program, invention,proprietary process, and item of proprietary know-how and other intellectualproperty necessary for the conduct of its business as currently conducted (the“Intellectual Property”);

 

(b)           To its knowledge, the Seller is theexclusive owner of all internally developed prospect lists, customer lists,projections, analyses, and market studies, free and clear of all restrictionswhatsoever, and has the unrestricted right to use any other such materials usedby 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 IntellectualProperty or of the other technology used in the business of the Seller does notconflict with, contravene, infringe upon, interfere with, or violate anypatent, trademark, copyright or other intellectual property right of any thirdperson or require the acquiescence, agreement or consent of any third person;and

 

(d)           To its knowledge, the IntellectualProperty and the other technology used in the business of the Seller are notsubject to a challenge or claim of infringement, interference or unfaircompetition or other claim and, to the knowledge of Seller or the Seller, theIntellectual Property is not being infringed upon or violated by any thirdperson.

 

2.15         Disclosure.  No representation or warranty by Seller inthis 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 orin connection with this Agreement, contains or will contain as of the ClosingDate any untrue statement of a material fact or any omission of a material factnecessary to make the respective statements contained herein or therein, inlight of the circumstances under which the statements were made, notmisleading.

 

2.16         Brokers; Finders.  Seller has not incurred any obligation forany finder's or broker's or agent's fees or commissions or similar compensationin 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 preventconsummation of the transactions contemplated by this Agreement.

** **

**ARTICLEIII - REPRESENTATIONS AND WARRANTIES OF BUYER**

 

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

 

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

 

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

 

3.3           No Violation.  The execution and delivery of this Agreementby Buyer, the performance by Buyer of the obligations hereunder and theconsummation by Buyer of the transactions contemplated by this Agreement willnot (i) violate or conflict with any law, statute, ordinance, rule, regulation,decree, writ, injunction, judgment or order of any governmental authority or ofany arbitration award which is either applicable to, binding upon orenforceable against Buyer, (ii) conflict with, result in any breach of, orconstitute a default (or an event which would, with the passage of time or thegiving of notice or both, constitute a default) under, or give rise to a rightto terminate, amend, modify, abandon or accelerate, any contract which isapplicable to, binding upon or enforceable against Buyer, (iii) result in orrequire the creation or imposition of any lien upon or with respect to theSecurities being acquired by Buyer, or (iv) require the consent, approval,authorization or permit of, or filing with or notification to, any governmentalauthority, except any filings with the SEC and other filings required to bemade by Buyer subsequent to the consummation of the transaction.

 

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

 

3.5           Investment Experience. TheBuyer is an accredited investor, as such term is defined under Regulation Dpromulgated 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 thanUS$200,000 in each of the last two years or US$300,000 jointly with his or herspouse during those years and a reasonable expectation of reaching the sameincome level in the current year.TheBuyer acknowledges that it can bear the economic risk and complete loss of itsinvestment in the Shares and has such knowledge and experience in financial orbusiness matters that it is capable of evaluating the merits and risks of theinvestment contemplated hereby.

 

3.6           Investment Representation.  Buyer is acquiring the Shares for its ownaccount, for investment and without any view to resale or distribution of theShares or any portion thereof.  Buyeracknowledges that the sale of the Securities hereunder has not been registeredor qualified under the Act, or under any state securities laws, and that anyretransfer of the Shares by the Buyer will accordingly be restricted.  The certificates representing the Shareswill bear a legend to the effect that the Shares may not be transferred exceptin a transaction registered or qualified under applicable securities laws or ina transaction exempt from such registration or qualification, as evidenced byan opinion of counsel or other evidence satisfactory to the Seller and itscounsel.

 

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

 

3.6.2        Exemption from Registration.  Buyer further acknowledges that, in theevent all of the requirements of Rule 144 are not met, compliance with anotherregistration exemption will be required; and that, although Rule 144 is notexclusive, the staff of the SEC has expressed its opinion that personsproposing to sell private placement securities other than in a registeredoffering and other than pursuant to Rule 144, will have a substantial burden ofproof in establishing that an exemption from registration is available for suchoffers or sales, that such persons and the brokers who participate in thetransactions do so at their own risk. There is no assurance that any exemption from registration under theSecurities Act will be available or, if available, will allow such person todispose of, or otherwise transfer, all or any portion of the Securities.

 

3.7           Disclosure of Information. TheBuyer has had access to such financial and other information concerning theSeller and the Shares as the Buyer deems necessary in order to make a decisionto acquire the Shares, including an opportunity to ask questions of and receiveinformation from the Seller.  Neithersuch inquiries nor any other due diligence investigation conducted by the Buyershall modify, amend or affect the Buyer’s right to rely on the Seller’s representationsand warranties contained in this Agreement.

 

3.8           Brokers, Finders.  Buyer has not incurred any obligation forany finder's or broker's or agent's fees or commissions or similar compensationin 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 otherrestriction which would prevent consummation of the transactions contemplatedby this Agreement.

 

**ARTICLEIV - CONDITIONS TO BUYER'S OBLIGATIONS**

 

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

 

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

 

4.2           Performance of Agreement.  Seller shall have fully performed andcomplied with all covenants, conditions, and other obligations under thisAgreement 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 adversechange in the Seller’s business, prospects or financial condition between thedate hereof and Closing.

 

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

 

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

 

**ARTICLE V - CONDITIONS TO SELLER’SOBLIGATIONS**

 

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

 

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

 

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

 

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

 

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

 

**ARTICLEVI - ADDITIONAL COVENANTS OF THE PARTIES**

 

6.1           Conduct of Business BeforeClosing.  From the date hereof,until Closing, Seller shall (a) cause the business of the Seller to beoperating in the ordinary course of business and (b) not take any action whichwould require a change or addition to or deletion from the disclosures ofSeller pursuant to Article II hereof, without the prior written consent ofBuyer.

 

6.2           Public Disclosure.  No Party to this Agreement shall make anypublic disclosure of the terms hereof or the transactions contemplated herebywithout the prior written consent of the other Party, except as required bylaw.  In the event circumstances shallchange requiring, in the opinion of either Party, a public release, the Partyproposing to make the announcement will advise the other in advance and willgive the other Party the opportunity to comment on the form of the proposedannouncement.  Buyer shall not discloseto any third person any confidential information relating to the Seller,without the prior written consent of the Seller.  Notwithstanding the foregoing, Buyer may disclose suchinformation, as may be reasonably required, to its attorneys, accountants, and advisors, financial and otherwise, inorder to evaluate the investment opportunity presented herein.

 

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

 

**ARTICLEVII - INDEMNIFICATION**

 

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

 

7.2           Indemnification of Buyer.  Seller shall hold Buyer harmless andindemnify it from and against, and waives any claim for contribution orindemnity with respect to, any and all claims, losses, damages, liabilities,expenses or costs (“Buyer Losses”) plus reasonable attorneys' fees and expensesincurred 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 arisingout of any breach or violation of Seller’s representations, warranties,covenants, or agreements contained in this Agreement, including provisions ofthis Article VII.

 

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

 

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

 

**ARTICLEVIII - MISCELLANEOUS PROVISIONS**

 

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

 

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

 

8.3           Assignment; Binding Agreement.  This Agreement and various rights andobligations arising hereunder shall inure to the benefit of and be binding uponBuyer, its successors, and permitted assigns and Seller, its successors andpermitted assigns.  Neither thisAgreement nor any of the rights, interests, or obligations hereunder may betransferred, delegated, or assigned (by operation of law or otherwise) byeither of the Parties hereto without the prior written consent of the otherParty.

 

8.4           Counterparts.  This Agreement may be executedsimultaneously in multiple counterparts, each of which shall be deemed anoriginal, but all of which taken together shall constitute one and the sameinstrument.

 

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

 

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

 

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

 

IN WITNESSWHEREOF, each of the Parties hereto has caused this Agreement to be executed asof the date first above written.

 
| BUYER:            |                           | SELLER:                         |
|-------------------|--------------------------------|---------------------------------|
|              |                           |                            |
| HOFMANN & CO. |                           | NETWORK COMPUTING  DEVICES, INC |
|              |                           |                            |
|              |                           |                            |
| By:               |                           |                            | By: |   |
|              | Name:   Gottfried Hofmann |                            |   | Name: |
|              | Title:   Partner          |                            |   | Title |

 

**EXHIBITA**

** **

**NETWORK COMPUTING DEVICES, INC.**

** **

**AMENDED**

**CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS**

**OF THE TERMS OF THE SERIES B AND SERIES C PREFERREDSTOCK**

** **

**(Pursuantto Section 151 of the General Corporation Law of the State of Delaware)**

 

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

 

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

 

RESOLVED, that thedesignations, preferences and rights of the Series B Preferred Stock of theCorporation are hereby amended, and a new series of Preferred stock of theCorporation, designated Series C Preferred Stock, is hereby created, and thatthe 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 $.001per share, and “Series C Preferred Stock” (the “Series C Preferred Stock”), parvalue $.001 per share.  The number ofshares initially constituting the Series B Preferred Stock and the Series CPreferred Stock shall be 290,000 shares and 530,000 shares, respectively.  The Series B Preferred Stock and Series CPreferred Stock are sometimes referred to together as the “Series PreferredStock.”

#  

# Section 2:               DIVIDENDS AND DISTRIBUTIONS.

#####  

##### (a)           Dividends. The holders of theSeries B Preferred Stock (the “Series B Holders”) and the holders of the SeriesC Preferred Stock (the “Series C Holders” or, collectively with the Series BHolders, the “Series Holders”) shall be entitled to receive when, as and ifdeclared by the Board of Directors, out of any assets legally availabletherefor, dividends not less than, and in preference and priority to anypayment of, any dividend or distribution on the Common Stock or any other classor series of stock of the Corporation ranking junior to the Series PreferredStock and pro rata with payment of any dividend on any class or seriesof stock of the Corporation ranking on a parity with the Series Preferred Stockas to dividends.  Such dividends on theSeries B Preferred Stock and the Series C Preferred Stock shall accrue at therate of $.41 per share and $.23 per share, respectively, per annum from thedate of issuance to the date of payment, based on the actual number of dayselapsed, 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 31st,and November 30th of each year, and upon any Liquidation (ashereinafter defined). In the event dividends in less than the full preferentialamount shall be paid to the holders of the Series Preferred Stock, suchdividends shall be distributed ratably among such holders in proportion to thefull preferential amont that each such holder is otherwise entitled to receiveunder this Section 2(a).

#####  

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

#####  

##### (c)           Necessary Actions. TheCorporation shall take any and all corporate action necessary to declare andpay the dividends required.

#  

# Section 3:               LIQUIDATION.

#####  

##### (a)           Liquidation Defined.“Liquidation” means any voluntary or involuntary liquidation, dissolution orwinding up of the affairs of the Corporation, other than any dissolution,liquidation or winding up in connection with any reincorporation of theCorporation in another jurisdiction.  ACorporate Transaction (as hereinafter defined) shall be deemed to be aLiquidation.  As used herein, “CorporateTransaction” shall mean (i) any consolidation or merger of the Corporation withor into any other corporation or other entity or person, or any other corporatereorganization, in which the stockholders of the Corporation immediately priorto 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 dispositionof all or substantially all of the assets of the Corporation.

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##### (b)           Rights. Upon a Liquidation, ashereinabove defined, after payment or provision for payment of the debts andother liabilities of the Corporation, and prior to any distribution to theholders of Series A Participating Preferred Stock or Common Stock of theCorporation, the Series Holders shall be entitled to receive, out of theremaining assets of the Corporation available for distribution to itsstockholders, an amount equal to $7.00 per share plus accrued and unpaiddividends, 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 shareplus accrued and unpaid dividends, if any, with respect to each share of SeriesC Preferred Stock (the “Series C Liquidation Preference”).  Following the payment of the full amount ofthe Series B Liquidation Preference and the Series C LiquidationPreference and any preference that is payable to the holders of any otherseries of Preferred Stock, the holders of Series Preferred Stock andCommon Stock and, to the extent provided for in the Certificate ofIncorporation, such other series of Preferred Stock, shall receive theirratable and proportionate share, on a per share and as-converted to CommonStock basis, of the remaining assets to be distributed with respect to suchSeries Preferred Stock, such other series of Preferred Stock and Common Stock,respectively.  If upon any Liquidationthe assets of the Corporation available for distribution to its stockholdersshall be insufficient to pay to the Series Holders and the holders of anyother class of capital stock ranking on a parity with the Series PreferredStock (“Parity Holders”) the full Series B Liquidation Preference, SeriesC Liquidation Preference and liquidation preference payable to such Parity Holders(“Parity Preference”), respectively, the Series B Holders, Series CHolders and Parity Holders shall share pro rata in any distribution of assetsin accordance with such full Series B Liquidation Preference, Series CLiquidation Preference and Parity Preference amounts, respectively.

#  

# Section 4:               VOTING RIGHTS.

 

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

#  

# Section 5:               CONVERSION.

#####  

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

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

#  

# Section 6:               REDEMPTION.

 

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

#  

# Section 7:               NO REISSUANCE.

 

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

#  

# Section 8:               PROTECTIVE PROVISIONS.

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##### (a)           Required Consents. In additionto any other vote or consent required herein or by law, the affirmative vote orwritten consent of the Series B Holders owning a majority of the outstandingSeries B Preferred Stock, and the Series C Holders owning a majority of theoutstanding Series C Preferred Stock, each voting as a separate class, shall benecessary 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 fromtime to time (the “Certificate of Incorporation”), or the Bylaws of theCompany, that affects adversely the voting powers, preferences, priorities orother special rights or privileges, qualifications, limitations, orrestrictions of such series of Preferred Stock;

######  

###### (ii)           Any redemption or repurchase ofcapital stock of the Company (except for acquisitions of Common Stock by theCompany under stock option or restricted stock agreements with employeesapproved by the Board of Directors);

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###### (iii)          Any material disbursement of fundsoutside of the ordinary course of the Company’s business;

######  

###### (iv)          Any consolidation or merger of theCompany with or into any other Company or other entity or person, or theentering into any other corporate reorganization;

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

######  

###### (vi)          Any voluntary dissolution, liquidationwinding-up or partial liquidation of the Company, or any distribution ortransaction in the nature of a partial liquidation or distribution, or any saleor 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 subsidiaryof the Company); or

######  

###### (vii)         Any increase or decrease in theauthorized number of shares of any series or class of the Company’s capitalstock.

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##### (b)           Financial Reports. The Companywill furnish to the Series Holders, as soon as practicable, and in any casewithin 75 days after the end of each fiscal quarter, unaudited quarterlyfinancial statements, and within 90 days after the end of each fiscal year,annual audited financial statements (all prepared in accordance with generallyaccepted accounting principles consistently applied).

#  

# Section 9:               NO IMPAIRMENT

 

The Company willnot, by amendment of its Certificate of Incorporation or through anyreorganization, transfer of assets, consolidation, merger, dissolution, issueor sale of securities or any other voluntary action, avoid or seek to avoid theobservance or performance of any of the terms of the Series Preferred Stock setforth herein, and will at all times in good faith assist in the carrying out ofall such terms and in the taking of all such action as may be necessary orappropriate in order to protect the rights of the Series Holders againstimpairment. Without limiting the generality of the foregoing, the Company willtake all such action as may be necessary or appropriate in order that theCompany may reserve for issuance, and validly and legally issue fully paid andnon-assessable Company shares on the conversion of all Series Preferred Stockfrom time to time outstanding.

#  

# Section 10:             NOTICES.

 

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

 

3.             That the foregoing amendment has been duly adopted inaccordance with Section 242 of the General Corporation Law of the State ofDelaware.

 

[Remainder of pageintentionally left blank.]

 

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

 
|   |                                  |
|--------|---------------------------------------|
|   | Rudolph G. Morin, President and Chief |
|   | Executive Officer                     |

 

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