Sales Agency Agreement 12/8/97

AUGMENT SYSTEMS, INC.


A minimum of 6,000,000 and
a maximum of 9,000,000 Shares of Common Stock


SALES AGENCY AGREEMENT


Sunrise Securities Corp. 135 E. 57th Street New York, New York 10022


December 8, 1997


Dear Sirs:


Augment Systems, Inc., a Delaware corporation (the "Company"), proposes to offer for sale in a private offering (the "Offering") pursuant to Rule 506 of Regulation D ("Regulation D") under the Securities Act of 1933, as amended (the "Act"), a minimum of 6,000,000 (including "Affiliate Shares", as hereinafter defined, if any) and a maximum of 9,000,000 shares of common stock, par value $.01 per share (the "Shares"). This Offering is being made solely to "accredited investors" as defined in Regulation D. This is to confirm our agreement concerning your acting as our exclusive placement agent (the "Placement Agent") in connection with the Offering.


The Company has prepared and has delivered to the Placement Agent copies of a confidential private placement memorandum, dated December 8, 1997, relating to, among other things, the Company, the Shares and the terms of the sale of the Shares. Such confidential private placement memorandum, including all exhibits thereto and all documents delivered therewith and incorporated by reference therein, is referred to herein as the "Memorandum" unless such confidential private placement memoranda or any such exhibits or documents shall be supplemented or amended in accordance with this Agreement, in which event the term "Memorandum" shall refer to such confidential private offering memorandum and such exhibits and documents as so supplemented or amended from and after the time of delivery to the Placement Agent of such supplement or amendment.


1. Appointment of Placement Agent.


On the basis of the representations and warranties contained herein, and subject to the terms and conditions set forth herein, the Company hereby appoints you as its Placement Agent and grants to you the exclusive right to offer, as its agent, the Shares pursuant to the terms of this Agreement. On the basis of such representations and warranties, and subject to such conditions,


2 you hereby accept such appointment and agree to use your best efforts to secure subscriptions to purchase a minimum of 6,000,000 and a maximum of 9,000,000 Shares pursuant to the terms of this Agreement. The agency created hereby is not terminable by the Company except upon termination of the Offering pursuant to the terms of this Agreement or upon expiration of the Offering Period (as hereinafter defined) in accordance with the terms of this Agreement.


2. Terms of the Offering.


(a) A minimum of 6,000,000 and a maximum of 9,000,000 Shares shall be offered for sale to prospective investors in this Offering ("Prospective Investors") at a purchase price of $1.00 per share (the "Purchase Price") of the Company's common stock, par value $.01 (the "Common Stock"). Officers, directors and employees of the Company and the Placement Agent may purchase Shares on the same terms and conditions as other investors (the "Affiliate Shares"). The Affiliate Shares shall be included in determining whether the minimum and maximum number of Shares have been subscribed for, and all references herein to subscriptions from Prospective Investors shall be deemed to include the Affiliate Shares.


(b) The Offering shall commence on the date hereof and shall expire at 5:00 P.M., New York time, on January 31, 1998, unless extended from time to time for up to an aggregate of 30 days by mutual agreement of the Company and the Placement Agent. Such period, as the same may be so extended, shall hereinafter be referred to as the "Offering Period".


(c) Each Prospective Investor who desires to purchase Shares shall be required to deliver to the Placement Agent one copy of a subscription agreement in the form annexed to the Memorandum (a "Subscription Agreement"), including the investor questionnaire, and payment in the amount necessary to purchase the number of Shares such Prospective Investor desires to purchase. The Placement Agent shall not have any obligation to independently verify the accuracy or completeness of any information contained in any Subscription Agreement or the authenticity, sufficiency or validity of any check or other form of payment delivered by any Prospective Investor in payment for Shares.


(d) Pursuant to an Escrow Agreement, dated as of December 8, 1997 (the "Escrow Agreement"), the Placement Agent has established a special account with the United States Trust Company of New York (the "Escrow Agent") entitled "Augment Systems, Inc. - Escrow Account" (the "Special Account"). The Placement Agent shall deliver each check received from a Prospective Investor to the Escrow Agent for deposit in the Special Account and shall deliver the executed copy of the Subscription Agreement received from such Prospective Investor to the Company. The Company shall notify the Placement Agent promptly of the acceptance or rejection of any subscription. The Company shall not unreasonably reject any subscription.


(e) If subscriptions to purchase at least 6,000,000 Shares are not received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, the Offering shall be canceled, all funds received by the Escrow Agent on behalf of the Company shall be refunded in full with interest, and this Agreement and the agency created hereby shall be terminated without any further obligation on the part of either party, except as provided in Section 10 hereof.


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(f) Pursuant to a Stock Escrow Agreement to be entered into on or prior to the Closing Date (the "Stock Escrow Agreement"), certain stockholders of the Company will place their shares of Common Stock into escrow with the Escrow Agent. These shares will remain in escrow until certain conditions as described therein have been satisfied, at which point, the Company and the Placement Agent shall deliver a letter to the Escrow Agent notifying it of the termination of the Stock Escrow Agreement.


(g) You may engage other persons selected by you to assist you in the Offering (each such person being hereinafter referred to as a "Selected Dealer") and you may allow such persons such part of the compensation payable to you hereunder as you shall determine. Each Selected Dealer shall be required to agree in writing to comply with the provisions of, and to make the representations, warranties and covenants contained in Sections 5(b) and 6(b) hereof by executing a form of Selected Dealer Agreement attached hereto as Exhibit I. On or prior to the Closing (as hereinafter defined), the Placement Agent shall deliver a copy of each executed Selected Dealer Agreement to the Company. By executing this Agreement, the Company hereby agrees to make, and is deemed to make, the representations and warranties to, and covenants and agreements with, each Selected Dealer (including an agreement to indemnify such Selected Dealer under Section 9 hereof) who has executed the Selected Dealer Agreement as are contained in this Agreement.


3. Closing.


(a) Subject to the conditions set forth in Section 8 hereof, if subscriptions to purchase at least 6,000,000 Shares have been received prior to the expiration of the Offering Period and accepted by the Company, the initial closing under this Agreement (the "Closing") shall be held at the offices of Squadron, Ellenoff, Plesent & Sheinfeld, LLP ("SEP&S"), 551 Fifth Avenue, New York, New York, at 10:00 A.M., New York time, on the third business day following the date upon which the Placement Agent receives notice from the Company that subscriptions to purchase at least 6,000,000 Shares (including Affiliate Shares) have been so accepted or at such other place, time and/or date as the Company and the Placement Agent shall agree upon. The Company shall provide the notice required by the preceding sentence as promptly as practicable. The date upon which the Closing is held shall hereinafter be referred to as the "Closing Date."


(b) Subject to the conditions set forth in Section 8 hereof, if, subsequent to the date the subscriptions referred to in Section 3(a) hereof are received and accepted and prior to the expiration of the Offering Period, additional subscriptions to purchase Shares are received from Prospective Investors, which subscriptions are accepted by the Company, one or more additional closings under this Agreement (each, an "Additional Closing") shall be held at the offices of SEP&S at 10:00 A.M., New York time, on the third business day following the date upon which the Placement Agent receives notice from the Company that additional subscriptions have been so accepted, or at such other place, time or date as the Company and the Placement Agent shall agree upon. The Company shall notify the Placement Agent as promptly as practicable whether any additional subscriptions so received have been accepted. The date upon which any Additional Closing is held shall hereinafter be referred to as an "Additional Closing Date."


Notwithstanding anything contained here into the contrary, in no event shall the Company accept subscriptions to purchase in excess of 9,000,000 Shares including Affiliate Shares.


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(c) At the Closing, or an Additional Closing, as the case may be, the Company shall instruct the Escrow Agent to pay to the Placement Agent at the Closing or an Additional Closing, from the funds deposited in the Special Account in payment for the Shares, the amounts payable to the Placement Agent pursuant to Section 4 of this Agreement. Promptly after the Closing Date, or an Additional Closing Date, as the case may be, the Company shall deliver to the purchasers of Shares certificates representing the Shares to which they are entitled.


4. Compensation.


(a) If subscriptions to purchase at least 6,000,000 Shares (including Affiliate Shares) are received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, you shall be entitled, as compensation for your services as Placement Agent under this Agreement, to an amount equal to 10% of the gross proceeds received by the Company from the sale of the Shares. Such compensation is payable by the Company on the Closing Date, or an Additional Closing Date, as the case may be, with respect to the Shares sold on such date and may be paid, at the Placement Agent's option, in part or in whole, in shares of the Common Stock, valued at $.90 per share, provided, however, that any such shares of Common Stock shall not be included in the calculation of the minimum or the maximum number of Shares offered for sale to prospective investors in the Offering. Any such shares of Common Stock issued pursuant to this paragraph shall be subject to the identical registration rights granted pursuant to the Registration Rights Agreement (as defined below) to investors in the Offering.


(b) If subscriptions to purchase at least 6,000,000 Shares (including Affiliate Shares) have been received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, the Company shall issue to you or, at your discretion, your Selected Dealers or your designees, in addition to the amount set forth in Section 4(a) above, warrants (individually, a "Warrant" and collectively, the "Warrants") to purchase a number of Shares of the Company equal to 10% of the aggregate number of Shares issued in the Offering including Shares issued, if any, to the Placement Agent in satisfaction of its selling commission or the non-accountable expense allowance. Each Warrant will entitle the holder thereof for a five-year period commencing on the first anniversary of the Closing Date or any Additional Closing Date as the case may be, to purchase one share of Common Stock of the Company at an exercise price equal to the Purchase Price per share (the "Warrant Shares"). The Warrants shall be in the form attached hereto as Exhibit II.


(c) Notwithstanding anything contained herein to the contrary, the number of Shares upon which the commission provided for in Section 4(a) and the Warrants described in Section 4(b) shall be based shall include Shares with respect to which the Company unreasonably rejected subscriptions.


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(d) If the Offering is terminated by the Company (i) during the Offering Period (provided you are actively pursuing the Offering during such period), (ii) during the 30 day extension period (provided you are actively pursuing the Offering during such period), or (iii) at the completion of the Offering (provided that you shall have obtained offers to purchase at least the required minimum), and within six months after such termination, the Company completes the sale of any of its equity securities (including securities convertible into equity securities) for cash, other than in connection with exercise of existing options, strategic alliances or pursuant to a transaction incident to a sale of the Company, then in any such case, the Company shall pay to you 10% of the gross sales price of such securities and shall issue to you, on the terms set forth in Section 4, warrants to purchase 10% of the securities so sold.


5. Representations and Warranties.


(a) Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Placement Agent and the Selected Dealers that:


(i) The Memorandum, as supplemented or amended from time to time, at all times during the period from the date hereof to and including the later of the Closing Date and the expiration of the Offering Period, and the last Additional Closing Date (if any), does not, and during such period will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, all in light of the circumstances under which they were made. Each contract, agreement, instrument, lease, license or other document described in the Memorandum has been accurately described therein in all material respects.


(ii) No document provided by the Company to Prospective Investors pursuant to Section 6(a)(vii) hereof, and no oral information provided by the Company to Prospective Investors, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Contracts to which the Company is a party provided by the Company to Prospective Investors shall not be deemed to contain any untrue statement of a material fact or to omit to state any material fact if the contract so provided is a true, correct and complete copy of such contract, as amended or modified through the date it is so provided.


(iii) The Company has not, directly or indirectly, solicited any offer to buy or offered to sell any Shares or any other securities of the Company during the twelve-month period ending on the date hereof except as may be described in the Memorandum or which would not be integrated with the sale of the Shares in a manner that would require the registration of the Offering pursuant to the Act and has no present intention to solicit any offer to buy or offer to sell any Shares or any other securities of the Company other than pursuant to this Agreement or pursuant to a registered public offering of the Company's securities which may be commenced after the completion of the Offering.


(iv) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with full power and authority, and all necessary consents, authorizations, approvals, orders, licenses, certificates, and permits of and from, and declarations and filings with (collectively, "Consents"), all federal, state, local, foreign, and other governmental authorities and all courts and other tribunals, to own, lease, license and use its


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6 properties and assets and to carry on its business in the manner described in the Memorandum, except where the failure to have obtained such Consents would not have a material adverse effect on the Company and the Company has not received any notice of proceedings relating to the revocation or modification of any such consent, authorization, approval, order, license certificate, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding would result in a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the Company. The Company is duly qualified to do business and is in good standing in every jurisdiction in which its ownership, leasing, licensing or use of property and assets or the conduct of its business makes such qualification necessary. The Company does not have any subsidiaries.


(v) The Company has, as of the date hereof, an authorized and outstanding capitalization as set forth in the Memorandum. Each outstanding share of capital stock of the Company is duly authorized, validly issued, fully paid and nonassessable and has not been issued and is not owned or held in violation of any preemptive rights set forth in the Company's Certificate of Incorporation or By-laws, each as amended to date, or any agreement to which the Company is a party. There is no commitment, plan or arrangement to issue, and no outstanding option, warrant or other right calling for the issuance of, any share of capital stock of the Company or any security or other instrument which by its terms is convertible into, exercisable for or exchangeable for shares of capital stock of the Company, except as may be described in the Memorandum. There is outstanding no security or other instrument which by its terms is convertible into or exchangeable for any class of share of capital stock of the Company, except as may be described in the Memorandum. The capital stock of the Company conforms to the description thereof contained in the Memorandum.


(vi) The financial statements of the Company included in the Memorandum (by incorporation by reference or otherwise) fairly present the financial position, the results of operations, cash flows and the other information purported to be shown therein at the respective dates and for the respective periods to which they apply. Such financial statements have been prepared in accordance with United States generally accepted accounting principles consistently applied throughout the periods involved, are correct and complete and are in accordance with the books and records of the Company. The selected financial data set forth under the caption "Selected Financial Data" in the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997 ("Form 10-QSB") fairly presents on the basis stated in the Form 10- QSB the information included therein. There has at no time been a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the Company from the latest information set forth in the Memorandum, except as may be described in the Memorandum as having occurred.


(vii) The financial projections provided to the Placement Agent were prepared by the management of the Company and reflect management's best estimates of future performance based upon assumptions which management believes were reasonable and fair at the time of preparation in context of the Company's history and current and reasonably foreseeable business conditions.


(viii) There is no litigation, arbitration, governmental or other proceeding (formal or informal) or claim or investigation pending or, to the knowledge of the Company, threatened with respect to the Company or any of its operations, businesses, properties or assets, except as may


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7 be described in the Memorandum or such as individually or in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business, properties or assets of the Company. The Company is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment or decree, except as may be described in the Memorandum or such as in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business, properties, assets or future prospects of the Company.


(ix) Any real property and buildings held under lease by the Company are held by it under valid, subsisting and enforceable leases with such exceptions as in the aggregate are not material.


(x) Neither the Company, nor, to the knowledge of the Company, any other party, is in violation or breach of or in default with respect to, complying with any material provision of any contract, agreement, instrument, lease, license, arrangement or understanding which is material to the Company, and each such contract, agreement, instrument, lease, license, arrangement and understanding is in full force and effect and is the legal, valid and binding obligation of the parties thereto enforceable as to them in accordance with its terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general equitable principles). Except as described in the Memorandum, the Company enjoys peaceful and undisturbed possession under all real property leases under which it is operating. The Company is not in violation or breach of, or in default with respect to, any term of its Certificate of Incorporation or its By-laws, each as amended to date.


(xi) There is no right under any patent, patent application, trademark, trademark application, trade name, service mark, copyright, franchise or other intangible property or asset (all of the foregoing being herein called "Intangibles") necessary to the business of the Company as presently conducted or as the Memorandum indicates it contemplates conducting, except as may be so designated in the Memorandum and which the Company has the right or license to use as necessary. To the Company's knowledge, except as described in the Memorandum, the Company has not infringed nor is it infringing with respect to Intangibles of others, and the Company has not received notice of infringement with respect to asserted Intangibles of others. Except as described in the Memorandum, there is no Intangible of others which has had or may in the future have a materially adverse effect on the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the Company.


(xii) The Company has all requisite power and authority to execute, deliver and perform this Agreement, the Warrants, the Subscription Agreements, the Escrow Agreement, the Stock Escrow Agreement and the Registration Rights Agreement made by the Company for the benefit of purchasers of Shares (the "Registration Rights Agreement") (collectively, the "Operative Agreements") and to consummate the transactions contemplated by the Operative Agreements. All necessary corporate proceedings of the Company have been duly taken to authorize the execution, delivery and performance by the Company of the Operative Agreements. This Agreement, the Escrow Agreement and the Stock Escrow Agreement have been duly authorized, executed, and delivered by the Company, are the legal, valid and binding obligations of the Company and are enforceable as to the Company in accordance with their terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general equitable principles). The Subscription Agreements and the Registration Rights Agreement have been duly authorized by the Company and, when executed and delivered by the Company, will be


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8 the legal, valid and binding obligations of the Company enforceable against it in accordance with their respective terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general equitable principles). No consent, authorization, approval, order, license, certificate or permit of or from, or registration, qualification, declaration or filing with, any federal, state, local, foreign or other governmental authority or any court or other tribunal is required by the Company for the execution, delivery or performance by the Company of the Operative Agreements ...