<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 31, 1999
---------------
Date of Report (Date of earliest event reported)
NHANCEMENT TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-21999 84-1360852
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(State or Other Jurisdiction (S.E.C. File Number) (IRS Employer
of Incorporation) Identification No.)
39420 Liberty Street
Suite 250
Fremont, CA 94538
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(Address of principal executive offices, including zip code)
(510) 744-3333
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(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 31, 1999, we acquired certain assets of Eastern Systems
Technology, Inc., a company engaged in the business of software development
("EASTERN"). These assets related to Eastern's software program commonly known
as "InfoFast." Under our agreement with Eastern, we acquired the assets of
Eastern in exchange for initial consideration of 675,000 shares of our Common
Stock, the transfer of which is restricted for at least one year, and additional
consideration of additional shares of our Common Stock (the "ADDITIONAL
SHARES"), in an amount equal to $400,000 divided by the closing bid price of our
shares of Common Stock as quoted on the Nasdaq SmallCap Market on the date prior
to the effectiveness of a registration statement on Form S-3 providing for the
registration of the Additional Shares. The Company's Board of Directors
determined the fair value of the assets acquired from Eastern and the
consideration to be paid to Eastern in connection with this transaction. No
independent appraisal was obtained.
In connection with the acquisition of certain of Eastern's assets, we
entered into non-compete agreements with two key employees and an employment
agreement with one of these employees. It is also anticipated that we will pay
one of these key employees royalties on certain licenses of software developed
by such employee for the Company.
Simultaneously with the closing of the asset acquisition, the Company
loaned Eastern $250,000 secured by the Additional Shares. The loan will bear
interest at a rate equal to 7% per annum and will be payable in full on the
earlier of (i) one year following the closing of the asset acquisition or (ii)
within 30 days following the effective date of the registration statement
covering the Additional Shares. If we fail to cause this registration statement
to become effective within a one-year period of time, or if no public market
exists for the Additional Shares as of the first year anniversary of the
purchase of Eastern's assets, we will not issue the Additional Shares. Rather,
we will then pay Eastern $400,000 in cash less the aggregate amount of principal
and interest then due on the $250,000 loan, and the loan will be extinguished.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired. Not Applicable.
(b) Pro Forma Financial Information. NHancement Technologies Inc. and
Subsidiaries Unaudited Pro Forma Combined Balance Sheet as of
June 30, 1999.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
2.1 Plan and Agreement of Reorganization, dated August 31, 1999, by and
among Eastern Systems Technology, Inc. ("EASTERN"), Ram V. Mani
("MANI") and NHancement Technologies Inc. (the "Company").
2.2 Form of Ratification Agreement, dated September ___, 1999, by and among
the Company, Eastern, Mani, Front-End Technologies, (Madras) Pvt. Ltd.
and Srini Ramakrishnan ("RAMAKRISHNAN").
10.51 Loan and Security Agreement, dated as of August 31, 1999, by and among
Eastern, Mani, Ramakrishnan and the Company.
10.52 Secured Promissory Note, dated as of August 31, 1999, in the original
principal amount of $250,000, payable by Eastern to the Company.
10.53 Employment Agreement, dated as of August 31, 1999, by and between Mani
and the Company.
99.1 NHancement Technologies Inc. and Subsidiaries Unaudited Pro Forma
Combined Balance Sheet as of June 30, 1999.
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NHancement Technologies Inc.
Dated: September 15, 1999 By: /s/ Douglas S. Zorn
---------------------------------
Douglas S. Zorn, President and
Chief Executive Officer
3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 Plan and Agreement of Reorganization, dated August 31, 1999, by and
among Eastern Systems Technology, Inc. ("EASTERN"), Ram V. Mani
("MANI") and NHancement Technologies Inc. (the "COMPANY").
2.2 Form of Ratification Agreement, dated September ___, 1999, by and among
the Company, Eastern, Mani, Front-End Technologies and Srini
Ramakrishnan ("RAMAKRISHNAN").
10.51 Loan and Security Agreement, dated as of August 31, 1999, by and among
Eastern, Mani, Ramakrishnan and the Company.
10.52 Secured Promissory Note, dated as of August 31, 1999, in the original
principal amount of $250,000, payable by Eastern to the Company.
10.53 Employment Agreement, dated as of August 31, 1999, by and between Mani
and the Company.
99.l NHancement Technologies Inc. and Subsidiaries Unaudited Pro Forma
Combined Balance Sheet as of June 30, 1999.
</TABLE>
<PAGE>
EXHIBIT 2.1
PLAN AND AGREEMENT OF REORGANIZATION
THIS PLAN AND AGREEMENT OF REORGANIZATION ("AGREEMENT"), dated
August 31, 1999, by and among Eastern Systems Technology, Inc., a California
corporation ("EASTERN"), Ram V. Mani ("MANI"), the only shareholder of
Eastern (the "SHAREHOLDER"), and NHancement Technologies Inc., a Delaware
corporation ("NHANCEMENT").
PLAN OF REORGANIZATION
The reorganization (the "REORGANIZATION") will comprise, in general,
the conveyance by Eastern to NHancement of substantially all the assets of
Eastern, the issuance by NHancement to Eastern of shares of NHancement's
authorized but unissued voting common stock (the "COMMON STOCK"), the
distribution by Eastern to the Shareholder of the shares of the Common Stock
received by Eastern and the dissolution of Eastern, all upon and subject to
the terms and conditions of the agreement hereinafter set forth. The parties
intend that the reorganization qualify as a tax-free reorganization within
the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended, and Section 24562(a)(3) of the California Revenue and Taxation Code,
as amended.
AGREEMENT
In order to consummate the Reorganization, and in consideration of
the representations and undertakings herein set forth, the parties agree as
follows:
1. TRANSFER OF PROPERTIES. Upon and subject to the terms and
conditions herein stated, NHancement shall acquire at the Closing provided in
Section 8 below (the "CLOSING") from Eastern, and Eastern shall transfer,
assign, and convey at the Closing to NHancement, in exchange for shares of
the Common Stock, all of the properties and assets of Eastern, including all
rights to Intuitive Search Engine Technology commonly known as "InfoFast" and
its business as a going concern, its goodwill and the right to use its
corporate name, as more generally described on Schedule 1 attached hereto,
excepting only those assets and properties of Eastern described as excluded
on such Schedule 1 (all of the foregoing assets and properties to be
transferred being referred to collectively as the "ASSETS"). Coincident with
such transfer, assignment and conveyance, Eastern shall deliver to NHancement
possession of the Assets. All such Assets shall be transferred, assigned and
conveyed by appropriate instruments satisfactory to legal counsel for
NHancement.
<PAGE>
Plan of Agreement and Reorganization
Page 2
2. ISSUANCE AND DELIVERY OF STOCK. In consideration of and in
exchange for the foregoing transfer, assignment and conveyance of the Assets
by Eastern, NHancement shall issue and deliver to Eastern at the Closing one
stock certificate registered in the name of Eastern for six hundred
seventy-five thousand (675,000) shares of the Common Stock (the "STOCK").
NHancement shall also issue and deliver to Eastern (or to the Shareholder if
Eastern shall have then been dissolved), one additional stock certificate for
an additional number of shares of Common Stock (the "ADDITIONAL STOCK") at
such time as an S-3 Registration Statement relating to such Additional Stock
is declared effective by the Securities and Exchange Commission (the "SEC").
The number of shares of Additional Stock to be issued by NHancement to
Eastern shall be that number equal to $400,000 divided by the closing bid
price of shares of Common Stock as quoted on NASDAQ one (1) business day
prior to the effective date of the S-3 Registration Statement. (The shares of
Stock and Additional Stock are hereinafter sometimes referred to collectively
as the "SECURITIES"). NHancement shall thereafter divide such stock
certificates into certificates of such denominations and registered in such
names as Eastern shall request, but under no circumstances shall NHancement
be obligated to issue certificates for fractions of a share. The right to
Additional Shares of the Common Stock shall not be assignable or transferable
in any manner whatsoever, other than by operation of law upon liquidation of
Eastern; provided, however, that the foregoing shall not prohibit Eastern
from selling shares of Additional Stock pursuant to the S-3 and distributing
the proceeds to third parties in satisfaction of Eastern's obligations.
3. ASSUMPTION OF LIABILITIES. NHancement shall not, by instrument
or otherwise, assume or agree to be responsible for or to perform, discharge
or indemnify Eastern or the Shareholder against any contracts, obligations or
liabilities of Eastern or the Shareholder of any type whatsoever, whether
accrued or contingent, due or not due or incurred or entered into by Eastern
or the Shareholder before or after the Closing, except for the contractual
obligations which NHancement shall expressly assume at and as of the Closing
as set forth in Schedule 3 attached hereto (the "ASSUMED CONTRACTS").
4. FORFEITURE OF STOCK. In the event of a breach by Mani or Srini
Ramakrishnan "RAMAKRISHNAN") of the Non-Compete Agreements dated an even date
herewith between each of Mani and Ramakrishnan and NHancement (the
"NON-COMPETE AGREEMENTS"), five hundred thousand (500,000) and one hundred
seventy-five thousand (175,000) shares, respectively, if the breach occurs
within the first year of the Non-Compete Agreements, and two hundred fifty
thousand (250,000) and eighty-seven thousand five hundred shares (87,500)
shares, respectively, if the breach occurs in the second year of the
Non-Compete Agreements, of the Stock shall be immediately forfeited to
NHancement as liquidated damages for the breach, it being understood that the
Non-Compete Agreements were a material inducement to NHancement's entering
into the Reorganization. The forfeiture shall be cumulative if both
individuals referenced above breach the Non-Compete Agreements, and the
number of shares forfeited shall be based upon the year in which the breach
occurs.
5. ASSIGNMENT OF CONTRACTS. Eastern shall use its best efforts as
reasonably directed by NHancement to obtain with respect to the Assumed
Contracts the consent of the other party or parties to the assignment of such
contracts and rights to NHancement.
<PAGE>
Plan of Agreement and Reorganization
Page 3
6. DISTRIBUTION OF SECURITIES. Eastern shall, as promptly as is
practicable after receipt thereof, wind up its business affairs and pay its
outstanding obligations to third parties and thereafter distribute the
remaining shares of the Stock and the rights to Additional Stock received by
it to the Shareholder in exchange for and in complete cancellation of their
shares of Eastern's Capital Stock.
7. DISSOLUTION OF EASTERN. Eastern shall wind up its affairs, pay
its outstanding obligations to third parties and dissolve as promptly as is
practicable after the Closing and Eastern shall not engage in any business
after the Closing without the written consent of NHancement.
8. PLACE OF CLOSING. The Closing of the transaction contemplated
by this Agreement and all deliveries hereunder shall take place at the office
of Tomlinson Zisko Morosoli & Maser LLP, 200 Page Mill Road, Second Floor,
Palo Alto, California 94306 (or at such other place as may be mutually agreed
upon) at the time of Closing set forth in Section 9 below.
9. TIME OF CLOSING. The time of Closing shall be 1:00 p.m.,
Pacific Time (or such other time as may be mutually agreed upon) on August
31, 1999 (or such other time and date as may be mutually agreed upon).
10. REPRESENTATIONS AND WARRANTIES OF EASTERN AND SHAREHOLDER.
Eastern and the Shareholder, jointly and severally, hereby represent and
warrant to NHancement that all of the statements made below in this Section
10 are true and correct in all respects. These representations and warranties
are subject to the exceptions set forth on Schedule 10 (the "SCHEDULE OF
EXCEPTIONS") furnished to NHancement, specifically identifying the relevant
Section hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder. The phrase "to the best knowledge of
Eastern" shall, when included in a representation or warranty made by a
Shareholder, mean to the best knowledge of such Shareholder.
10.1 ORGANIZATION AND STANDING. Eastern is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California and has full power and authority to carry on its business as
now conducted and as proposed to be conducted. Eastern is not required to be
qualified as a foreign corporation in any jurisdiction; provided, however,
that Eastern need not be qualified in any jurisdiction in which a failure to
qualify would not have a material and adverse effect on its operations or
financial condition.
10.2 CAPITALIZATION. The authorized capital stock of Eastern
consists of Fourteen Million (14,000,000) shares of Common Stock, all of
Eastern's issued and outstanding shares are owned beneficially and of record
by the Shareholder.
10.3 SUBSIDIARIES. Eastern has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association, joint venture, partnership
or other business entity.
<PAGE>
Plan of Agreement and Reorganization
Page 4
10.4 CORPORATE AUTHORITY AND AUTHORIZATION. Eastern has the
corporate right and authority to assign, convey and transfer the Assets to
NHancement. All corporate action on the part of Eastern, its officers,
directors and Shareholder necessary for the authorization, execution,
delivery and performance of this Agreement by Eastern and the performance of
all of Eastern's obligations hereunder has been taken. This Agreement
constitutes a valid and binding obligation of Eastern and the Shareholder,
enforceable against Eastern and the Shareholder in accordance with its terms,
except as the indemnification provisions of Section 14.7 hereof may be
limited by principles of public policy and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
10.5 GOVERNMENTAL CONSENT. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of Eastern is required in connection with the valid
execution and delivery of this Agreement, or the consummation of any other
transaction contemplated hereby.
10.6 INTELLECTUAL PROPERTY.
10.6.1 Eastern possesses and has good, valid and
marketable title, free and clear of all security interests, liens, claims,
charges, encumbrances or any other defects in title of any nature whatsoever
to, or has the valid, enforceable right to use (pursuant to written
agreements, true and correct copies of which are listed on Schedule 10.6 and
have been submitted to NHancement), all trademarks, trademark rights, trade
names, trade name rights, licenses, franchises, service marks, patents,
patent applications, copyrights, inventions, discoveries, improvements,
processes, trade secrets, confidential or proprietary information, formulae,
proprietary rights or data, shop rights, algorithms, technical data, ideas or
know-how (collectively the "INTELLECTUAL PROPERTY") necessary to conduct its
business as now being conducted or as proposed to be conducted, without
conflict with or infringement upon any valid rights of others and the lack of
which could adversely affect the operations or condition, financial or
otherwise, of Eastern. Eastern (i) owns or has the right to use (and to make,
use, sell, license and lease products incorporating or manufactured using),
free and clear of all liens, claims and restrictions, all Intellectual
Property used in the conduct of its business as now conducted or as proposed
to be conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person under or with respect to any of the
foregoing, and (ii) is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner of,
licensor of or other claimant to any patent, trademark, service mark, trade
name, copyright, license or other right with respect to the use thereof in
connection with the conduct of its business or otherwise. Eastern owns and
has the unrestricted right to use all Intellectual Property required for or
incident to the development, manufacture, operation and sale of all products
and services sold or proposed to be sold by Eastern, free and clear of any
rights, liens or claims of others, including, without limitation, former
employers of all employees of Eastern. All of the foregoing rights to
Intellectual Property are freely transferable to NHancement hereunder without
the consent or approval of any third party and following such assignment and
transfer NHancement will possess and enjoy all of such rights to Intellectual
Property as Eastern did immediately prior to such transfer and assignment.
<PAGE>
Plan of Agreement and Reorganization
Page 5
10.6.2 Set forth in Schedule 10.6 is a complete listing
of all software related in any fashion or manner whatsoever to the software
program commonly referred to as "InfoFast" (the "SOFTWARE") and its ownership
to which Eastern or either Shareholder had proprietary rights, whether sole
or shared, as of the Closing, describing therein any such sharing. All copies
of the Software were, as of the Closing, in Eastern's possession and control,
except for certain object code copies which then were in the possession of
customers of Eastern. All such customers have entered into license agreements
with Eastern that, to the best knowledge of Eastern, effectively protect
Eastern's rights in and to all such Software. For purposes of this Section,
the term "SOFTWARE" includes any set of instructions (including, without
limitation, arithmetic, logical, data transfer, data manipulation and
input/output) meant to run on, or to control the operation of, any computer,
whether those instructions are a complete program, a collection of programs
making up a subsystem or system or are merely subroutines or macroroutines
meant to operate in conjunction with other software, and whether such
instructions must be run through another computer program (commonly
referenced as a "compiler") before being usable on a computer, whether such
instructions must be used at execution time in conjunction with another
computer program (commonly referenced as an "interpreter") or whether such
instructions are in a form that can be run on a computer "as is" without
additional programs.
10.6.3 The Software will not, due to a date change: (i)
have any operational impediments, (ii) malfunction, (iii) cease to perform,
(iv) generate incorrect or ambiguous data or results with respect to
same-century and multi-century, Leap Year and other calendar formulas,
functions and data or (v) produce incorrect or ambiguous results with respect
to same-century and multi-century, Leap Year and other calendar formulas,
functions, date values and date data interfaces. The Software is free from
any computer "viruses", and other elicit code. The Software performs in all
material respects in accordance with its specifications.
10.7 MANUFACTURING RIGHTS. Eastern has not granted rights to
manufacture or assemble its products to any other person or entity.
10.8 OFFICERS, DIRECTORS AND EMPLOYEES.
10.8.1 To the best knowledge of Eastern, no present or
former officer, director or employee of Eastern is a party to or is otherwise
bound by any agreement or arrangement (including any agreement of
noncompetition) that in any way adversely affects his or her performance of
his or her duties as an officer, director or employee of Eastern or Eastern's
ability to conduct its business. Eastern has established appropriate policies
and procedures to ensure no officer, director or other employee of Eastern
misuses confidential information or trade secrets of others in the course of
their employment or other relationship with Eastern. Eastern is not a party
to any labor agreements, employment contracts, consulting agreements or any
other instruments which limit the rights of Eastern to terminate the
employment or other relationship with a particular individual at will.
Eastern is not aware that any officer, director or key employee, or that any
group of officers, directors or key employees, would not continue their
employment with NHancement on the same terms as previously employed by
Eastern.
<PAGE>
Plan of Agreement and Reorganization
Page 6
10.8.2 Eastern: (i) is not bound by or subject to any
collective bargaining agreement with respect to any of its employees nor has
any labor union requested or, to the best knowledge of Eastern, sought to
represent any of the employees, representatives or agents of Eastern, (ii)
does not have any current labor problems or disputes, pending or threatened,
(iii) does not have in effect any "employee pension benefit plans" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974) or employee benefit or similar plans qualified under Section 401 of the
Internal Revenue Code of 1986, as amended, and (iv) does not maintain, has
not in the past maintained and is not and has not been a contributor to any
multi-employer plan or single employer plan, as defined in Section 4001 of
the Employee Retirement Income Security Act of 1974, as amended, for the
employees of Eastern or any trade or business (whether or not incorporated)
which, together with Eastern, would be deemed to be a "single employer"
within the meaning of such Section 4001. Eastern has complied in all material
respects with all laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and payment of Social Security and other taxes.
10.9 CERTAIN TRANSACTIONS. Eastern is not indebted, directly
or indirectly, to any of its officers, directors or Shareholder, or to their
respective affiliates, spouses or children, in any amount whatsoever, except
for salaries and fees accrued in the ordinary course of business; none of
said officers, directors or, to the best knowledge of Eastern, Shareholder,
or any of their affiliates or members of their immediate families, are
indebted to Eastern or have any direct or indirect ownership interest in any
firm or corporation with which Eastern is affiliated or with which Eastern
has a business relationship, or any firm or corporation which competes with
Eastern (except with respect to any interest in less than five percent (5%)
of the stock of any corporation whose stock is publicly traded). No officer,
director or shareholder, or any affiliate or member of their immediate
families, is, directly or indirectly, interested in any material contract
with Eastern.
10.10 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC.
Eastern is not in violation of any term of its Articles of Incorporation or
Bylaws, as amended and in effect on and as of the Closing. Eastern is not in
violation in any respect of any term or provision of any mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
order, statute, rule or regulation applicable to it where such violation
would adversely affect Eastern, its operations or financial condition. The
execution, delivery and performance of and compliance with this Agreement
have not resulted and will not result in any violation of or conflict with,
or constitute a material default under, any mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree, order,
statute, rule or regulation applicable to it, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of Eastern; and there is no such term or provision which adversely
affects Eastern, its operations or financial condition as presently conducted
or as contemplated to be conducted. Eastern and, to the best knowledge of
Eastern, its officers, directors and key employees, are not parties to any
mortgage, indebtedness, indenture, contract, agreement, instrument, judgment,
decree or order restricting its ability to enter or compete in any line of
business or market.
<PAGE>
Plan of Agreement and Reorganization
Page 7
10.11 MATERIAL CONTRACTS AND OBLIGATIONS.
10.11.1 Included in the Schedule 10.11 is a list of
all agreements, contracts and other obligations to which Eastern is a party or
by which it is bound that are material to the operation of its business and
properties, which: (i) provide for aggregate payments to or by Eastern in excess
of Ten Thousand Dollars ($10,000), (ii) obligate Eastern to share, license or
develop any product or technology, (iii) appoint distributors, dealers or
sublicensees of Eastern's products, which agreements cannot be terminated on
thirty (30) days' notice or less or (iv) involve transactions or proposed
transactions between Eastern and its officers, directors, affiliates or any
affiliate thereof. Copies of such agreements and contracts and documentation
evidencing such other obligations have been delivered to NHancement. All of such
agreements and contracts are valid, binding and in full force and effect in all
material respects, assuming due execution by the other parties to such
agreements and contracts. There is no pending or threatened dispute or
disagreement, and there have been no events which may give rise to any dispute
or disagreement, between Eastern and any of the clients or customers of Eastern,
or any other person having a business relationship with Eastern, which dispute
or disagreement, if resolved unfavorably to Eastern, would have a materially
adverse effect on Eastern's operations or financial condition. No client or
customer of Eastern, or any other person having a business relationship with
Eastern, has indicated that it presently contemplates terminating its business
relationship with Eastern.
10.11.2 All open orders, licenses and contracts for
Eastern's products and services can be fulfilled by Eastern within its
current capacity, in accordance with the terms thereof, and the fulfillment
thereof will not result in material losses or material warranty or other
liabilities to NHancement.
10.12 HAZARDOUS WASTE DISPOSAL. To the best knowledge of
Eastern, after reasonable investigation, Eastern has materially complied with
all laws regulating the discharge and disposal of hazardous waste, the
violation of which would have a material, adverse effect on the operations or
financial condition of Eastern, including, but not limited to:
10.12.1 Comprehensive Environmental Response,
Compensation and Liability Act, 42 USC Sections 9601, et seq.;
10.12.2 Resource Conservation and Recovery Act, 42 USC
Sections 6901, et seq.;
10.12.3 Toxic Substances Control Act, 15 USC Sections
2601, et seq.;
10.12.4 California Hazardous Substances Information and
Training Act, California Labor Code Sections 6360, et seq.;
10.12.5 California Hazardous Waste Act, California
Health & Safety Code Sections 25100, et seq.;
<PAGE>
Plan of Agreement and Reorganization
Page 8
10.12.6 California Hazardous Substances Act, California
Health & Safety Code Sections 28740, et seq.; and
10.12.7 California Safe Drinking Water and Toxic
Enforcement Act of 1986, California Health & Safety Code Sections 25249.5, et
seq.
10.13 LICENSES AND PERMITS. Included in the Schedule 10.13 is
a complete and accurate list of all of the licenses, permits, authorizations
and franchises issued to, possessed by, used by or otherwise in effect with
respect to the business of Eastern. Eastern has delivered to NHancement
complete and accurate copies of all of the licenses, permits, authorizations
and franchises identified in said Schedule. All of the licenses, permits,
authorizations and franchises identified are valid and in full force and
effect. Said licenses, permits, authorizations and franchises constitute all
of the licenses, permits, authorizations and franchises required to permit
Eastern to conduct its business in the manner in which it is now being
conducted, and Eastern is not in violation or breach of any of the terms,
requirements or conditions of any of said licenses, permits, authorizations
or franchises.
10.14 LITIGATION, ETC. There are no actions, suits,
proceedings or investigations pending against Eastern or, to the best
knowledge of Eastern, any of its officers, directors or employees or its
properties, before any court or governmental agency (nor, to the best
knowledge of Eastern, is there any reasonable basis therefor or threat
thereof), which, either in any case or in the aggregate, might result in any
material adverse change in the business or financial condition of Eastern, or
in any material impairment of the right or ability of Eastern to carry on its
business as now conducted or as proposed to be conducted or in any material
liability on the part of Eastern, or any change in the current equity
ownership of Eastern, and none which questions the validity of this Agreement
or any action taken or to be taken in connection herewith. The foregoing
includes, without limiting its generality, actions pending or threatened (or
any basis therefor known to Eastern) involving the prior employment of any of
Eastern's employees, their use in connection with Eastern's business of any
information or techniques allegedly proprietary to any of their former
employers or their obligations under any agreements with prior employers.
10.15 CRIMINAL INVESTIGATIONS AND ACTIVITIES. Eastern, its
past and present officers and directors and the Shareholder: (i) have never
been convicted of a felony, (ii) have not been named as a defendant in a
pending criminal proceeding involving a felony, and (iii) are not now or ever
have been the subject of any governmental decree or order prohibiting it or
any of them from engaging in certain business activities. There is no pending
criminal investigation of any nature whatsoever into the activities of
Eastern, its officers, directors and Shareholder. Eastern has fully complied
with the provisions of the United States Export Administration Act and all
rules and regulations promulgated thereunder.
10.16 MATERIAL LIABILITIES. Eastern has no liabilities which
are, individually or in the aggregate, material to the financial condition or
operating results of Eastern which have not been disclosed on Schedule 10.16.
<PAGE>
Plan of Agreement and Reorganization
Page 9
10.17 TAXES. Eastern has prepared and filed all federal,
state and local income, withholding, sales, real property, personal property
and other tax returns that are required to be filed by it and has paid or
made provision for the payment of all taxes that have become due pursuant to
such returns. None of such returns has been audited by any state or federal
agency. No deficiency assessment or proposed adjustment of Eastern's federal,
state and or local taxes is pending, and Eastern has no knowledge of any
proposed liability for any tax to be imposed upon Eastern for which there is
not an adequate reserve reflected in Eastern's Financial Statements.
10.18 TITLE. Eastern has good and marketable title to the
Assets. Such Assets are not subject to any material liens, mortgages,
pledges, encumbrances or charges of any kind.
10.19 DISCLOSURE. Eastern has fully provided NHancement with
all of the information which NHancement has requested for deciding whether to
enter into the Reorganization hereunder and all information reasonably
necessary to enable NHancement to make such decision. This Agreement, the
Financial Statements, and any written statement or certificate furnished to
NHancement pursuant to this Agreement in connection with the transactions
contemplated by this Agreement, when taken together, do not contain any
untrue statement of a material fact nor omit to state a material fact
necessary to make the statements made not misleading.
11. REPRESENTATIONS AND WARRANTIES OF NHANCEMENT. NHancement
represents and warrants to Eastern that:
11.1 CORPORATE STATUS. NHancement is a corporation duly
organized and existing under the laws of Delaware, with an authorized, issued
and outstanding capital stock as set forth in the 1934 Act documents in
defined Section 11.4 below.
11.2 CORPORATE AUTHORITY AND AUTHORIZATION. NHancement has
the corporate right and authority to issue and deliver the securities
required to be issued hereunder to Eastern; and such shares when delivered at
or after the Closing will be fully paid and nonassessable. All corporate
action on the part of NHancement, its officers, directors and Shareholder
necessary for the authorization, execution, delivery and performance of this
Agreement by NHancement and the performance of all of NHancement's
obligations hereunder has been taken. This Agreement constitutes a valid and
binding obligation of NHancement, and enforceable against NHancement in
accordance with its terms, except of the indemnification provisions of
Section 14.7 hereof may be limited by principals of public policy and subject
to laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
11.3 GOVERNMENTAL CONSENT. No consent, approval or
authorization or designation, declaration or filing with any governmental
authority on the part of NHancement is required in connection with the valid
execution and delivery of this Agreement, or of the consummation of any other
transaction contemplated hereby except as specifically referenced in the
Agreement.
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11.4 1934 ACT DOCUMENTS. NHancement has delivered to Eastern
and the Shareholder a copy of its Form 10K for the fiscal year ending
September 30, 1998 and its Form 10Q for the quarter ending June 30, 1999 (the
"1934 ACT DOCUMENTS") filed with the SEC by NHancement pursuant to the
Securities Exchange Act of 1934 (the "1934 ACT"). None of the 1934 Documents,
when taken together, contain any untrue statement of the material fact or
omit to state a material fact necessary to make the statements made not
misleading.
12. SURVIVAL OF REPRESENTATIONS, WARRANTIES; INDEMNITY. The
respective representations and warranties given by NHancement, Eastern and
the Shareholder contained herein shall remain effective against their
respective successors, heirs and assigns and shall survive the Closing.
NHancement shall indemnify and hold Eastern and the Shareholder harmless from
any damage, claim, liability or expense, including reasonable attorneys'
fees, arising out of the breach of any representation or warranty or the
nonfulfillment of any agreement contained herein, or in any certificate to be
delivered at the Closing, by NHancement. Eastern and the Shareholder shall,
jointly and severally, indemnify and hold NHancement harmless from any
damage, claim, liability or expense, including reasonable attorneys' fees,
arising out of the breach of any representation or warranty or the
nonfulfillment of any agreement contained herein, or in any certificate to be
delivered at the Closing, by Eastern or the Shareholder.
13. SECURITIES LAWS MATTERS. Because of the exemptions from the
registration requirements of the Securities Act of 1933 (the "ACT") and from the
qualification requirements of the California Corporate Securities Law of 1968
(the "LAW") relied upon by NHancement in issuing the Securities under Section 2,
Eastern and the Shareholder represent and warrant that they:
13.1 Are aware that such Securities are highly speculative and
that there can be no assurance as to what return, if any, there may be.
13.2 Are aware of NHancement's business affairs and financial
condition and have acquired sufficient information about NHancement to reach
an informed and knowledgeable decision to acquire such Securities.
13.3 Are each acquiring such Securities for investment FOR
ITS, HIS OR HER OWN ACCOUNT ONLY and not with a view to, or for sale in
connection with, any "distribution" thereof within the meaning of the Act or
the Law (except that shares of Additional Stock may be resold pursuant to and
on the effectiveness of the S-3 Registration Statement referred to in Section
14 below (the "S-3").
13.4 Except for shares of Additional Stock registered under
the S-3, understand that such Securities have not been registered under the
Act or qualified under the Law by reason of specific exemptions therefrom,
which exemptions depend upon, among other things, the bona fide nature of
Eastern's and the Shareholder' investment intent as expressed herein. In this
connection, Eastern and the Shareholder understand that, in the view of the
SEC, the statutory basis for one exemption from the Act may not be present if
their representations mean that their present intentions are to hold such
shares for a minimum capital gains period under the tax statutes, for a
deferred sale,
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for a market rise, for a sale if the market does not rise, or for a year or
any other fixed period in the future.
13.5 Except for shares of Additional Stock registered under
the S-3, further understand that such Securities must be held indefinitely
unless subsequently registered under the Act and qualified under the Law or
an exemption from such registration and such qualification is available, and
that, except as set forth in Section 14 below, NHancement is under no
obligation to effect such registration or qualification or to assure the
availability of any such exemption.
13.6 Are aware of Rule 144 promulgated under the Act which
permits limited public resale of the Securities if it is acquired in a
non-public offering subject to the satisfaction of certain conditions,
including, among other things: the availability of certain public information
about the NHancement, the resale occurring not less than one (1) year after
he or she purchased and completed payment for the Securities to be sold, the
sale being made on the public market through a broker in an unsolicited
"broker's transaction" or to a "market maker" and the amount of the
Securities sold during any three-month period not exceeding specified
limitations (generally, one percent (1%) of all Common Stock outstanding);
except that such conditions need not be met by a person who is not an
affiliate of the NHancement at the time of sale and has not been an affiliate
for the preceding three (3) months, if the Securities to be sold have been
beneficially owned by such person for at least three (3) years prior to their
sale. The Common Stock may not be publicly traded or NHancement may not be
satisfying the current public information requirements of Rule 144 at the
time Eastern or a Shareholder wishes to sell the Securities; and thus, they
may be precluded from selling the Securities under Rule 144 even though the
minimum holding period may have been satisfied.
13.7 Further understand that in the event the requirements of
Rule 144 are not met, registration under the Act, compliance with Regulation
A or some other registration exemption will be required for any disposition
of the Securities; and that, although Rule 144 is not exclusive, the
Commission 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 and
that such persons and the brokers who participate in such transactions do so
at their own risk.
13.8 Except for shares of Additional Stock registered under
the S-3, understand that the certificates evidencing the Securities will be
imprinted with legends in substantially the following form:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT FOR THE NHANCEMENT'S OWN ACCOUNT AND NOT WITH A
VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO
SALE OR OTHER DISPOSITION OF SUCH SHARES MAY BE EFFECTED WITHOUT THE
(1) REGISTRATION OF SUCH SALE OR DISPOSITION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND
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Plan of Agreement and Reorganization
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(2) QUALIFICATION OF SUCH SALE OR DISPOSITION UNDER THE CALIFORNIA
CORPORATE SECURITIES LAW OF 1968, AS AMENDED, OR WITHOUT AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED."
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE FURTHER
SUBJECT TO A RISK OF FORFEITURE IN ACCORDANCE WITH SECTION 4 OF THE
PLAN AND AGREEMENT OF REORGANIZATION DATED AUGUST 31, 1999 BY AND AMONG
EASTERN SYSTEMS TECHNOLOGY, INC. AND THE ISSUER (A COPY OF WHICH IS
AVAILABLE FROM THE ISSUER)."
14. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION
RIGHTS; COMPLIANCE WITH SECURITIES ACT.
14.1 RESTRICTIONS ON TRANSFERABILITY. The Securities shall
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 14.
14.2 CERTAIN DEFINITIONS. As used in this Section 14, the
following terms shall have the following respective meanings:
14.2.1 "REGISTRABLE SECURITIES" shall mean the shares of
Additional Stock and any Common Stock of NHancement issued as a dividend or
other distribution with respect to or in exchange for replacement of any
shares of Additional Stock.
14.2.2 The terms "REGISTER," "REGISTERED" and
"REGISTRATION" shall refer to a registration effected by preparing and filing
an S-3 Registration Statement in compliance with the Act, and the declaration
or ordering of the effectiveness of such registration statement. Such terms
shall also include an undertaking to file all required pre and post-effective
amendments to such registration statement and the preparation, filing and
declaration or ordering of the effectiveness of appropriate applications for
the qualification or registration of securities pursuant to applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Act and any other governmental requirements or
regulations necessary to permit the lawful offer and sale of Registrable
Securities in the United States of America.
14.2.3 "REGISTRATION EXPENSES" shall mean all expenses
incurred by Eastern in complying with Section 14.3, including, without
limitation, all registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel for NHancement.
14.2.4 "SELLING EXPENSES" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities.
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14.2.5 "HOLDER" shall mean any Shareholder so long as
such Shareholder holds outstanding Registrable Securities.
14.3 REGISTRATION ON FORM S-3.
14.3.1 NHancement shall use its best efforts to qualify
for registration on Form S-3 (or successor forms); and, to that end,
NHancement shall comply with the reporting requirements of the 1934 Act.
NHancement will use its best efforts to effect promptly the registration of
all shares of Registrable Securities on Form S-3 (or successor form) as soon
as practicable but in no event later than six (6) months following the
Closing.
14.4 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Section 14.3 shall be borne by NHancement. All Selling Expenses
related to securities registered by the Holders shall be borne by the Holders.
14.5 REGISTRATION PROCEDURES. In the case of the registration
effected by NHancement pursuant to this Section14, NHancement will keep each
Holder advised in writing as to the initiation of such registration,
qualification and compliance and as to the completion thereof. At its expense
NHancement shall:
14.5.1 Keep such registration effective for a period of
ninety (90) days, or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever shall occur first; and
14.5.2 Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably
request.
14.6 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin or otherwise delay any registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 14.
14.7 INDEMNIFICATION. In the event any Registrable Securities
shall be included in a registration statement pursuant to this Section 14:
14.7.1 To the extent permitted by law, NHancement will
indemnify and hold harmless each Holder requesting or joining in a
registration and each person, if any, who controls such Holder within the
meaning of the Act against any losses, claims, damages or liabilities, joint
or several, to which they may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based on any untrue or alleged untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
arise
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out of any violation by NHancement of any rule or regulation promulgated
under the Act or any other applicable law, rule or regulation applicable to
NHancement and relating to action or inaction required of NHancement in
connection with any such registration; and will reimburse each such Holder or
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 14.7.2 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of NHancement (which consent shall
not be unreasonably withheld) nor shall NHancement be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus or
amendments or supplements thereto, in reliance upon and in conformity with
information furnished expressly for use in connection with such registration
by any such Holder or controlling person seeking the indemnification.
14.7.2 To the extent permitted by law, each Holder
requesting or joining in the registration will indemnify and hold harmless
NHancement, each of its directors, each of its officers who have signed the
registration statement and each person, if any, who controls NHancement
within the meaning of the Act and each other such Holder against any losses,
claims, damages or liabilities to which NHancement or any such director,
officer, controlling person or other Holder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or final prospectus or amendments or supplements thereto, in
reliance upon and in conformity with information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by NHancement
or any such director, officer, controlling person or other Holder in
connection with investigating or defending such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement
contained in this Section 14.7.3 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld), and provided, further, that the
liability of each Holder to reimburse legal or other expenses pursuant to
this Section shall, in each case, be limited to the total dollar amount
received by such Holder for the securities sold pursuant to such registration
by that Holder.
14.7.3 Promptly after receipt by an indemnified party
under this Section 14.7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have the
right to
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Plan of Agreement and Reorganization
Page 15
participate in and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such action,
if materially prejudicial to such indemnifying party's ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section, but the omission to so notify the
indemnifying party will not relieve such indemnifying party of any liability
that such indemnifying party may have to any indemnified party otherwise than
under this Section.
14.8 REPORTS UNDER THE 1934 ACT. With a view to making
available to the Holders the benefits of certain rules and regulations
promulgated by the SEC that may permit the Holders to sell shares of
NHancement's stock to the public without registration, NHancement agrees to:
14.8.1 Make and keep adequate current public information
available, as those terms are understood and defined in Rule 144, at all
times subsequent to the Closing; and
14.8.2 Furnish to any Holder forthwith upon request, so
long as such Holder shall own any Registrable Securities, a written statement
by NHancement that it has complied with the reporting requirements of Rule
144, and of the Act and the 1934 Act, a copy of the most recent annual or
quarterly report of NHancement, and such other reports and documents so filed
by NHancement as may be reasonably requested in availing the Holder of any
rule or regulation promulgated by the Commission that allows the selling of
any such securities without registration.
14.9 LOCKUP AGREEMENT. In consideration for NHancement's
agreeing to its obligations under this Agreement, Eastern and the Shareholder
agree not to sell, make any short sale of, loan, grant any option for the
purchase of or otherwise dispose of (i) any shares of the Stock for a one (1)
year period following the Closing and (ii) one-half (1/2) of such shares of
the Stock for an additional one (1) year period following the first
anniversary date of the Closing. All subsequent transferees or assignees of
the shares of Stock must agree in writing to the provisions set forth in this
Section 14.9 a precondition to any such transfer or assignment.
14.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights hereby
granted to the Holders to cause NHancement to register securities under
Section 14.3 above may not be assigned, in whole or in part, to any
transferee or assignee of Registrable Securities.
15. EXPENSES. Except as provided to the contrary herein, each
party shall pay all of its own costs and expenses incurred with respect to
the negotiation, execution and delivery of this Agreement.
16. SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace such void or
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Plan of Agreement and Reorganization
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unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provision.
17. ENTIRE AGREEMENT. This Agreement, the exhibits hereto, the
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto and thereto. The
express terms hereof control and supersede any course of performance or usage
of the trade inconsistent with any of the terms hereof.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and
the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as signatories.
19. FINDER'S FEES. The parties hereto each represent to every
other party that such party neither is, nor will be, obligated for any
finder's or broker's fee or commission in connection with the transactions
contemplated herein. Each party agrees to indemnify and to hold harmless all
other parties from any liability for any commission or compensation in the
nature of a finder's or broker's fee (and the costs and expenses of defending
against such liability or asserted liability) for which such indemnifying
party, its employees, agents or representatives is responsible.
20. OTHER REMEDIES. Any and all remedies herein expressly
conferred upon a party shall be deemed cumulative with and not exclusive of
any other remedy conferred hereby or by law on such party, and the exercise
of any one remedy shall not preclude the exercise of any other.
21. AMENDMENT AND WAIVERS. Any term or provision 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 by a writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof for default in payment of any
amount due hereunder or default in the performance hereof shall not be deemed
to constitute a waiver of any other default or succeeding breach or default.
22. SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
23. NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
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24. ATTORNEYS' FEES. Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled
to recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation,
costs, expenses and fees on any appeal).
25. NOTICES. Whenever any party hereto desires or is required to
give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, addressed as follows:
If to Eastern: Eastern Systems Technology, Inc.
17175 Wedgewood Avenue
Los Gatos, California 95032
If to Shareholder: Ram V. Mani
17175 Wedgewood Avenue
Los Gatos, California 95032
If to Eastern or Mani Patrick Smith, Esq.
with a copy to: 2600 El Camino Real, Suite 603
Palo Alto, California 94306
If to NHancement: NHancement Technologies Inc.
39420 Liberty Street, Suite 250
Fremont, California 94538
If to NHancement William E. Zisko, Esq.
with a copy to: Tomlinson Zisko Morosoli & Maser LLP
200 Page Mill Road, Second Floor
Palo Alto, California 94306
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth
above, they shall be effective five (5) days after being deposited in the
United States mail. Any party may change its address for such communications
by giving notice thereof to the other party in conformity with this Section.
26. TIME. Time is of the essence of this Agreement.
27. CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
shall not be construed for or against any party. A reference in this
Agreement to any Section shall include a reference to every Section the
number of which begins with the number of the Sections to which reference is
specifically made (e.g., a reference to Section 5.8 shall include a reference
to Sections 5.8.1 and 5.8.2.1). The titles
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Plan of Agreement and Reorganization
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and headings herein are for reference purposes only and shall not in any
manner limit the construction of this Agreement which shall be considered as
a whole.
28. NO JOINT VENTURE. Nothing contained in this Agreement shall be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall
have the power to control the activities and operations of any other and
their status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party shall have any power or
authority to bind or commit any other. No party shall hold itself out as
having any authority or relationship in contravention of this Section.
29. FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party, to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Agreement.
30. ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of
this Agreement are intended nor shall be interpreted to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, or partner of any party hereto or any other
person; unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof shall be personal solely between the parties
to this Agreement.
31. EXECUTION OF DOCUMENTS. At any time and from time to time
after the Closing, Eastern will execute and deliver to NHancement such
further conveyances, assignments and other written assurances as NHancement
shall reasonably request in order to vest and confirm in NHancement title to
the Assets.
32. PARTIES IN INTEREST. Nothing herein expressed or implied is
intended or shall be construed to confer upon or to give any person, firm or
corporation other than the parties hereto any rights or remedies under or by
reason hereof.
33. BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure
to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties hereto.
34. GOVERNING LAW. It is the intention of the parties hereto that
the internal laws of the State of California, U.S.A. (irrespective of its
choice of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the
rights and duties of the parties hereto.
35. COMPLETENESS OF AGREEMENT. This Agreement and the other
agreements entered into among the parties on even date herewith contain the
entire understanding between the parties
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Plan of Agreement and Reorganization
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hereto with respect to the transactions contemplated hereby and there are no
prior or contemporaneous agreements other than are in writing signed by the
parties which alter or modify this written instrument. It is intended by the
parties that this Agreement supercede all oral or contemporaneous agreements
other than those signed by the parties mentioned above. This Agreement
constitutes the final, complete and exclusive embodiment of the parties'
agreement.
36. NEGOTIATED AGREEMENT. This Agreement has been negotiated by
the parties hereto and their respective legal counsel, and the language
hereof shall not be construed for or against any such party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first written above.
NHANCEMENT: EASTERN:
NHANCEMENT TECHNOLOGIES INC.
EASTERN SYSTEMS TECHNOLOGY, INC.
By: /s/ Douglas S. Zorn
-------------------------------
Douglas S. Zorn,
President and Chief Executive By: /s/ Ram V. Mani
Officer -------------------------------
Ram V. Mani,
President and Chief Executive
Officer
SHAREHOLDER:
/s/ Ram V. Mani
------------------------------------
Ram V. Mani
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Page 20
SCHEDULE 1
ASSETS
All rights to Intuitive Search Engine Technology commonly known as
"InfoFast" and Eastern's business as a going concern, its goodwill and the
right to use its corporate name.
Such Assets include, without limitation, all trademarks, trademark
rights, trade names, trade name rights, licenses, franchises, service marks,
patents, patent applications, copyrights, inventions, discoveries,
improvements, processes, trade secrets, confidential or proprietary
information, formulae, proprietary rights or data, shop rights, algorithms,
technical data, ideas or know-how (collectively the "INTELLECTUAL PROPERTY")
necessary to conduct its business as now being conducted or as proposed to be
conducted, without conflict with or infringement upon any valid rights of
others and the lack of which could adversely affect the operations or
condition, financial or otherwise, of Eastern. For purposes of this Schedule
1, the term "INFOFAST" includes any set of instructions (including, without
limitation, arithmetic, logical, data transfer, data manipulation and
input/output) meant to run on, or to control the operation of, any computer,
whether those instructions are a complete program, a collection of programs
making up a subsystem or system or are merely subroutines or macroroutines
meant to operate in conjunction with other software, and whether such
instructions must be run through another computer program (commonly
referenced as a "compiler") before being usable on a computer, whether such
instructions must be used at execution time in conjunction with another
computer program (commonly referenced as an "interpreter") or whether such
instructions are in a form that can be run on a computer "as is" without
additional programs.
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SCHEDULE 3
ASSUMED CONTRACTS
1. ACQUISITION AGREEMENT dated effective as of August 31, 1999, by and among
Eastern Systems, Technology, Inc., a California corporation, Ram V. Mani
having his principal address at 17175 Wedgewood Avenue, Los Gatos,
California 95032, Front-End Technologies, (Madras) Pvt. Ltd., a private
limited company incorporated under the laws of the Republic of India, and
Srini Ramakrishnan having his principal address at 3695 Stevenson
Boulevard, Apt. 101, Fremont, California 94538.
2. NON-COMPETE AND TECHNOLOGY TRANSFER AGREEMENT dated August 31, 1999, by
and among Eastern Systems, Technology, Inc., a California corporation,
Front-End Technologies, (Madras) Pvt. Ltd., a private limited company
incorporated under the laws of the Republic of India, and Srini
Ramakrishnan having his principal address at 3695 Stevenson Boulevard,
Apt. 101, Fremont, California 94538
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Page 22
SCHEDULE 10.6.1
WRITTEN AGREEMENTS
1. ACQUISITION AGREEMENT dated effective as of August 31, 1999, by and among
Eastern Systems, Technology, Inc., a California corporation, Ram V. Mani
having his principal address at 17175 Wedgewood Avenue, Los Gatos,
California 95032, Front-End Technologies, (Madras) Pvt. Ltd., a private
limited company incorporated under the laws of the Republic of India, and
Srini Ramakrishnan having his principal address at 3695 Stevenson
Boulevard, Apt. 101, Fremont, California 94538.
<PAGE>
Plan of Agreement and Reorganization
Page 23
SCHEDULE 10.6.2
ADDITIONAL SOFTWARE RELATED TO INFOFAST
None
<PAGE>
Plan of Agreement and Reorganization
Page 24
SCHEDULE 10.13
LICENSES AND PERMITS
AUTHORIZATIONS AND FRANCHISES
None
<PAGE>
Plan of Agreement and Reorganization
Page 25
SCHEDULE 10.16
MATERIAL LIABILITIES
None
<PAGE>
EXHIBIT 2.2
RATIFICATION AGREEMENT
This Ratification Agreement ("AGREEMENT"), dated September __, 1999,
is made and entered into by and among NHancement Technolgies, Inc., a
Delaware corporation ("NHANCEMENT"), Eastern Systems, Technology, Inc., a
California corporation ("EASTERN"), Ram V. Mani having his principal address
at 17175 Wedgewood Avenue, Los Gatos CA 95032 ("MANI"), Front-End
Technologies, (Madras) Pvt. Ltd., a private limited company incorporated
under the laws of the Republic of India ("FRONT-END"), and Srini Ramakrishnan
having his principal address at 3695 Stevenson Boulevard, Apt. 101, Fremont
CA 94538 ("RAMAKRISHNAN").
RECITALS
A. On August 31, 1999, the parties hereto signed and delivered the
written documents described on Exhibit A hereto and by this reference
incorporated herein.
B. At the time the written documents were signed and delivered, and
until September 3, 1999, Eastern's rights, powers and privileges were
suspended by the State of California.
C. On September 3, 1999, Eastern was issued a Certificate of
Revivor by the California Franchise Tax Board.
D. A Certificate of Revivor has the effect of relieving a
corporation of its suspension, reinstating all of its rights, powers and
privileges, and validating all acts and transactions that occurred while the
corporation was suspended.
E. Effective September 3, 1999, and on the date hereof, Eastern is
a California corporation in good standing with the California Franchise Tax
Board.
CONFIRMATION AND RATIFICATION
NOW, THEREFORE, in reliance on the foregoing recitals and in
consideration of the mutual covenants and agreements contained herein, the
parties agree as follows:
1. NHancement hereby approves, confirms and ratifies each of the
written documents listed on Exhibit A to which it was and is a party.
2. Eastern hereby approves, confirms and ratifies each of the
written documents listed on Exhibit A to which it was and is a party.
<PAGE>
Ratification Agreement
Page 2
3. Front-End hereby approves, confirms and ratifies each of the
written documents listed on Exhibit A to which it was and is a party.
4. Mani hereby approves, confirms and ratifies each of the written
documents listed on Exhibit A to which he was and is a party
5. Ramakrishnan hereby approves, confirms and ratifies each of the
written documents listed on Exhibit A to which it was and is a party.
6. This Agreement may be executed in any number of counterparts,
each of which shall be an original as against any party whose signature
appears thereon and all of which together shall constitute one and the same
instrument. This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of
the parties reflected hereon as signatories.
<PAGE>
Ratification Agreement
Page 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first hereinabove written.
NHANCEMENT TECHNOLOGIES, INC.
By:
---------------------------------------
Douglas S. Zorn, President and
Chief Executive Officer
EASTERN SYSTEMS TECHNOLOGY, INC.
By:
---------------------------------------
Ram V. Mani,
President and Chief Executive Officer
FRONT-END TECHNOLOGIES (MADRAS) PVT. LTD.
By:
---------------------------------------
Srini Ramakrishnan
- ---------------------------------------------
Ram V. Mani
17175 Wedgewood Avenue
Los Gatos, California 95032
- ---------------------------------------------
Srini Ramakrishnan
3695 Stevenson Boulevard, #101
Fremont, California 94538
<PAGE>
Ratification Agreement
Page 4
EXHIBIT A
EASTERN/NHANCEMENT ACQUISITION DOCUMENT INDEX
All documents dated August 31, 1999
1. Plan and Agreement of Reorganization by and among Eastern Systems
Technology, Inc., Ram V. Mani and NHancement Technologies Inc.
2. Non-Compete and Technology Transfer Agreement by and among NHancement
Technologies Inc., Eastern Systems Technology, Inc. and Ram V. Mani
3. Non-Compete and Technology Transfer Agreement by and among Eastern
Systems Technology, Inc., Front-End Technologies (Madras) Pvt. Ltd and Srini
Ramakrishnan
4. Non-Compete and Technology Transfer Agreement by and among NHancement
Technologies Inc. Front-End Technologies (Madras) Pvt. Ltd and Srini
Ramakrishnan
5. Assignment and Transfer of Assets with Schedule 1 by Eastern Systems
Technology, Inc. in favor of NHancement Technologies Inc.
6. Acquisition Agreement by and among Eastern Systems Technology, Inc.,
Ram V. Mani, Front-End Technologies (Madras) Pvt. Ltd and Srini Ramakrishnan
7. Assignment of Contracts by Eastern Systems Technology, Inc. in favor of
Nhancement Technologies Inc.
8. Loan and Security Agreement by and among Eastern Systems Technology,
Inc., Ram V Mani, Srini Ramakrishnan and NHancement Technologies Inc.
9. Secured Promissory Note in the amount of $250,000 by Eastern Systems
Technology, Inc. to NHancement Technologies Inc.
10. UCC-1 between Eastern Systems Technology, Inc. and Srini Ramakrishnan in
favor of NHancement Technologies Inc.
11. UCC-1 between Eastern Systems Technology, Inc. and Ram V. Mani in favor
of Nhancement Technologies Inc.
12. NHancement Technologies Inc. Equity Incentive Plan - Stock Option
Agreement by and between NHancement Technologies Inc. and Ram V. Mani
13. Employment Agreement by and between NHancement Technologies Inc. and
Ram V. Mani
<PAGE>
EXHIBIT 10.51
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("LOAN AGREEMENT") is entered into by
and among Eastern Systems Technology, Inc. a California corporation ("DEBTOR"),
having its principal place of business and executive headquarters at 17175
Wedgewood Avenue, Los Gatos, California 95032, Ram V. Mani having his principal
address at 17175 Wedgewood Avenue, Los Gatos, California 95032, and Srini
Ramakrishnan having his principal address at 3695 Stevenson Boulevard, Apt. 101,
Fremont, California 94538 (each individually a "PLEDGOR" and collectively the
"PLEDGORS"), and NHancement Technologies Inc., a Delaware corporation, having
its principal place of business at 39420 Liberty Street, Suite 250, Fremont,
California 94538 ("LENDER"), with the intent and agreement that this Loan
Agreement shall be effective as of the 31st day of August, 1999.
R E C I T A L S
A. Capitalized terms used in this Loan Agreement are defined in
Article I.
B. Debtor desires to obtain loan funding from Lender pursuant to the
terms of this Loan Agreement and the other documents and instruments
constituting Debt Instruments hereunder.
B. Lender desires to provide a Loan to Debtor, subject to the
provisions provided in this Loan Agreement.
C. As the Collateral for repayment of the Loan, Debtor and Pledgors
have agreed to pledge to and to grant to Lender a security interest in all of
their right, title and interest in and to the Additional Stock and Proceeds
thereof.
A G R E E M E N T
NOW THEREFORE, in consideration of the terms and conditions contained herein,
the parties agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Loan Agreement, the following terms shall have the
meanings set forth below or elsewhere in this Loan Agreement, as the case may
be. Other terms contained in this Loan Agreement and which are not otherwise
specifically defined shall have the meanings given such terms under the
California Uniform Commercial Code.
1.1 "ADDITIONAL STOCK" shall have the meaning given such term in the
Reorganization Agreement and shall include any additional securities of Lender
issued in respect of such shares of Additional Stock.
<PAGE>
Loan and Security Agreement
Page 2
1.2 "CLOSING" AND "CLOSING DATE" shall mean such date, time and place
as the parties may agree to effect the closing of the Loan hereunder.
1.3 "COLLATERAL" shall mean all property in or upon which a security
interest is granted by Debtor to Lender under this Loan Agreement.
1.4 "DEBT INSTRUMENTS" shall mean collectively this Loan Agreement
(with its Exhibits), all Perfection Instruments and the Note, and "DEBT
INSTRUMENT" shall mean any one of the foregoing.
1.5 "DEBTOR" shall mean the party identified as such in the
introductory paragraph on Page 1.
1.6 "EFFECTIVE DATE." All references to "the date hereof", "the date of
this Loan Agreement", "the effective date hereof", "effective as of the date
hereof" or "of even date herewith" contained in any Debt Instrument with
reference to this Loan Agreement shall refer to the effective date of this Loan
Agreement set forth on the first page hereof.
1.7 "EVENT OF DEFAULT" shall mean the existence of circumstances that
constitute an Event of Default under this Loan Agreement as defined in Article
VII.
1.8 "FINANCING STATEMENT" shall mean the one or more UCC-1 Financing
Statements for filing with appropriate governmental entities prior to Closing,
each constituting a Perfection Instrument hereunder.
1.9 "GENERAL INTANGIBLES" shall mean all of Debtor's presently owned or
subsequently acquired general intangibles or rights relating in any way to the
Additional Stock.
1.10 "LENDER" shall mean the party identified as such in the
introductory paragraph on page 1.
1.11 "LOAN AGREEMENT" shall mean this Loan and Security Agreement,
including all Exhibits hereto and all amendments and modifications to any of the
foregoing.
1.12 "LOAN" shall mean the Loan provided by Lender to Debtor under
Section 2.1 of this Loan Agreement.
1.13 "MATURITY DATE" shall mean the date on or before which Debtor must
repay all remaining principal and accrued but unpaid interest on the Loan to
Lender established in accordance with Section 2.2.
1.14 "NOTE" shall mean the Promissory Note of Debtor issued to Lender
hereunder evidencing the Loan and Debtor's obligation to repay the Loan.
<PAGE>
Loan and Security Agreement
Page 3
1.15 "OBLIGATIONS" shall mean all of Debtor's indebtedness and
liabilities to Lender, whether previously, now or subsequently owing, arising,
due or payable and however evidenced, created, incurred, acquired, or owed,
whether primary, secondary, direct, indirect, contingent, fixed or otherwise
(including obligations of performance) and arising under or based upon the Loans
or this Loan Agreement, the Note and the other Debt Instruments.
1.16 "PERFECTION INSTRUMENTS" shall mean the Financing Statements and
all of those instruments and documents as to which a filing or recordation or
other action must occur with a governmental or other entity to properly perfect
Lender's security interest in some or all of the Collateral, and "PERFECTION
INSTRUMENT" shall refer to any one of the foregoing.
1.17 "PLEDGOR" AND "PLEDGORS" shall mean the party(s) identified as
such in the introductory paragraph on page 1.
1.18 "PROCEEDS" shall mean with reference to Collateral whatever is now
or subsequently received by Debtor of any of them upon the sale, exchange,
collection or other disposition (temporary or permanent) of any item of
Collateral, whether such proceeds constitute accounts, accounts receivable,
general intangibles, instruments, securities, credits, documents, letters of
credit, deposit accounts or money.
1.19 "REORGANIZATION AGREEMENT" shall mean the Plan and Agreement of
Reorganization dated an even date herewith among Eastern, Pledgors and Lender.
ARTICLE II.
THE LOAN
2.1 GENERAL. As of the Closing, Lender agrees, subject to and on the
terms and conditions set forth in this Loan Agreement, to loan Debtor the
aggregate sum of Two Hundred Fifty Thousand Dollars ($250,000.00) (the "LOAN").
The Loan shall be evidenced by the Note secured by the Collateral. The
outstanding principal balance of Loan from time to time outstanding shall bear
interest at a fixed rate in an amount equal to seven percent (7%) per annum. The
proceeds of the Loan shall be disbursed as Debtor shall direct Lender in
writing.
2.2 REPAYMENT. The Loan shall be fully repaid by Debtor to Lender on
the earlier of (i) one (1) year from the date hereof or (ii) within thirty
(30) days following the effective date of the first S-3 Registration
Statement covering shares of Additional Stock which may hereafter be issued
to Debtor or Pledgors which have an aggregate fair market value at such
effective date equal to or greater than the principal amount of the Note. In
the event Lender fails to cause such S-3 Registration Statement to become
effective, or if no public market then exists for such shares of stock, in
either such case by or on the first anniversary date hereof, then, and in
such event, notwithstanding anything contained in the Reorganization
Agreement to the contrary, Lender shall not issue the shares of Additional
Stock. Rather, Lender shall then (i.e., one year after the date hereof) pay
Debtor $400,000 in cash less the aggregate amount of principal and interest
then due on the Loan, and the Loan shall thereupon be extinguished. If after
receipt of any payment of, or Proceeds applied to the payment of, all or any
part of the Obligations, Lender is for any reason
<PAGE>
Loan and Security Agreement
Page 4
required to surrender such payment or Proceeds to any person, because such
payment or Proceeds is invalidated, declared fraudulent, set aside,
determined to be void or voidable as a preference, or a diversion of trust
funds, or for any other reason, then the Obligations or part thereof intended
to be satisfied shall be revived and continue and this Loan Agreement shall
continue in full force as if such payment or Proceeds had not been received
by Lender and Debtor shall be liable, jointly and severally, to pay to
Lender, and hereby do jointly and severally indemnify Lender and hold Lender
harmless for the amount of such payment or Proceeds surrendered. The
provisions of this Section shall be and remain effective notwithstanding any
contrary action which may have been taken by Lender in reliance upon such
payment or Proceeds, and any such contrary action so taken shall be without
prejudice to Lender's rights under this Loan Agreement and shall be deemed to
have been conditioned upon such payment or Proceeds having become final and
irrevocable. The provisions of this Section shall survive the termination of
this Loan Agreement.
ARTICLE III.
THE COLLATERAL
3.1 COLLATERAL. For the purposes of securing all of the indebtedness
described in Section 3.2, Debtor and Pledgors hereby grant to Lender, for as
long as any Obligations remain outstanding under the Loan Agreement or the Note,
a continuing security interest in all of Debtor's right, title and interest in
and to the following:
(1) Additional Stock,
(2) General Intangibles, and
(3) Proceeds with respect to all of above.
3.2 PURPOSE OF SECURITY INTERESTS. The security interests granted in
this Article III in the Collateral hereunder are granted for the purposes of
securing the following:
3.2.1 The due and punctual payment and performance of all those
Obligations of Debtor to Lender now or subsequently existing under the Loan
and this Loan Agreement, the Note and other Debt Instruments, together with
interest, penalties and other charges as provided in the Debt Instruments,
and all increases, extensions, modifications, and renewals of any of the
foregoing. Debtor shall promptly reimburse Lender for any and all reasonable
amounts expended by Lender in accordance with the terms of this Loan
Agreement, as the same may be amended, renewed or modified in the future,
with all such amounts to be included within the Obligations secured, together
with all interest, charges and other amounts due from Debtor to Lender under
any of the foregoing.
3.2.2 The payment and performance of all indebtedness of Debtor
to Lender of every kind and character, direct or indirect, absolute or
contingent, due or to become due, now existing or in the future arising,
whether joint or several, to the extent created or arising under this Loan
Agreement.
<PAGE>
Loan and Security Agreement
Page 5
3.3 NOT A SALE. Debtor grants Lender a security interest in the
Collateral to secure Debtor's payment and performance under the Loan Agreement
in the manner and subject to the limitations provided in this Loan Agreement,
and the Collateral is not to be deemed or construed as being sold to or
purchased by Lender. Debtor are and shall remain jointly and severally,
absolutely and unconditionally liable for the performance of its Obligations
including, but not limited to, the payment of any remaining deficiency by reason
of the failure of the applicable Collateral to satisfy all Obligations due
Lender.
3.4 RELEASE OF SECURITY INTEREST. At such time as Debtor have fully
repaid all Obligations to Lender under the Loan and this Loan Agreement and the
other Debt Instruments, and the loan facilities provided under this Loan
Agreement have been terminated, Lender will release and reconvey to Debtor all
security interests granted to Lender under this Loan Agreement and other Debt
Instruments, and will terminate all associated Financing Statements and will
execute and deliver to Debtor all other documents and instruments reasonably
necessary to reconvey and release the Collateral to Debtor, such actions to be
taken promptly after receipt of written request from Debtor.
3.5 LENDER'S RIGHTS, DUTIES AND LIABILITIES. Neither Lender nor any
of its officers, directors, employees, or agents shall be liable or
responsible in any way for the safekeeping of any of the Collateral, or for
any act or failure to act with respect to the Collateral, or for any loss or
damage thereto, or for any diminution in the value thereof, or for any act of
default by any warehouseman, carrier, forwarding agency, or other person
whomsoever, all of which shall be at Debtor's sole risk, except to the extent
such loss or damage shall be the result of the gross negligence or willful
misconduct of Lender. The Obligations shall not be affected by any failure of
Lender to take any steps to perfect the security interest or to collect or
realize upon the Collateral, nor shall loss of or damage to the Collateral
release Debtor from any of the Obligations.
3.6 RETENTION OF COLLATERAL. Until such time as a security interest
granted hereby has been released in accordance with Section 3.4, Debtor and
Pledgors agree that Lender shall retain any and all certificates or other
evidences of the Additional Stock or the right to receive Additional Stock and,
in the event that Debtor or Pledgors desire to sell any shares of the Additional
Stock, all such Proceeds of any such sale shall be paid to Lender. Debtor and
Pledgor shall also enter into and deliver to and pledge with Lender instruments
of assignment duly executed in blank by such party(s) in the form reasonably
requested by Lender with respect to such shares of the Additional Stock. Debtor,
Pledgors and Lender agree to execute and deliver any additional documentation
necessary to accomplish the purpose and intent of this Section 3.6.
<PAGE>
Loan and Security Agreement
Page 6
ARTICLE IV
CLOSING
4.1 PERFECTION INSTRUMENTS. Debtor shall have executed and delivered to
Lender the Perfection Instruments, in acceptable form to Lender, which shall
have been filed with such governmental agencies and other parties as Lender
shall deem necessary to perfect Lender's security interest in the Collateral.
Lender shall have received satisfactory certificates or other acceptable
evidence from such agencies and other parties confirming Lender's security
interest in the Collateral.
4.2 CORPORATE PROCEEDINGS. Lender shall have received on or before the
Closing a copy of the record of all corporate actions taken by Eastern
authorizing the execution, delivery and performance of the Loan Agreement and
transactions contemplated thereunder and certified by the Secretary or an
Assistant Secretary of Eastern, together with such other documents as Lender may
reasonably request including, but not limited to, certified board resolutions.
4.3 OTHER ACTIONS. Debtor shall have taken such other actions and
executed and delivered to Lender such agreements and documents (including but
not limited to the actions required with respect to the Debt Instruments), as
Lender and its counsel may deem necessary or desirable to ensure that the Note,
when issued by Debtor to Lender, will be secured by valid, enforceable and first
priority security interests in the various categories of Collateral as required
and in the manner provided in Article III of this Loan Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY DEBTOR
Debtor represents and warrants to Lender as follows:
5.1 ORGANIZATION AND GOOD STANDING.
5.1.1 Debtor is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has full
power and authority to carry on its business as now conducted and as currently
proposed to be conducted.
5.1.2 Debtor's name as set forth herein is Debtor's current
and complete legal name and Debtor does not have and has not had or used any
other legal, trade name or fictitious name during the five (5) years preceding
the date of this Loan Agreement.
<PAGE>
Loan and Security Agreement
Page 7
5.2 POWER AND AUTHORIZATION.
5.2.1 Debtor has all requisite corporate power to enter into
this Loan Agreement and the other Debt Instruments, and to otherwise carry out
and perform all of its obligations under the terms of this Loan Agreement and
the other Debt Instruments. Debtor has all requisite corporate power to own and
lease the properties owned and leased by it and to conduct its business as
presently conducted and as proposed to be conducted.
5.2.2 All corporate action on the part of Debtor and its
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of this Loan Agreement, Note and the other Debt
Instruments has been duly and validly taken and is currently in full force and
effect.
5.2.3 This Loan Agreement, Note and the other Debt
Instruments and the Loan are valid and binding obligations of the Debtor,
enforceable in accordance with their respective terms, except as
enforceability thereof may be limited under general principles of equity
(regardless of whether the issue of such enforceability is considered in a
proceeding in equity or at law) or by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights.
5.2.4 The execution and delivery of this Loan Agreement and
the other Debt Instruments and the consummation of the transactions herein or
therein contemplated, do not and will not: (1) conflict with, or result in a
breach of, any of the terms, provisions or conditions of any agreement to
which any Debtor is a party, or of the Articles of Incorporation or Bylaws of
Debtor, (2) violate, conflict with or result in the breach or termination of,
or otherwise give any party the right to terminate, or constitute an event
which, after the giving of notice or the passage of time, or both, would
constitute a default under the terms of, any agreement or instrument to which
any Debtor is a party or by which it or any of its properties or assets is
bound, (3) result in the creation of any lien, charge or encumbrance upon any
properties or assets of any Debtor pursuant to the terms of any such
agreement or instrument, (4) violate any judgment, order, injunction, decree
or award against or binding upon any Debtor, or (5) violate any law or
regulation of the United States or of any jurisdiction thereof binding on any
Debtor.
5.2.5 LITIGATION, ETC. There are no actions, suits,
proceedings or investigations pending against any Debtor (or, to Debtor's
knowledge, any of Debtor's officers, directors or management employees or its
capital stock or properties) before any court or governmental agency (nor, to
the best knowledge of Debtor, is there any reasonable basis therefor or
threat thereof) which, either in any individual case or in the aggregate,
might result in any material adverse change in the business or financial
condition of Debtor or in any material impairment of the right or ability of
Debtor or any of them to carry on their business as contemplated or which
might impose any material liability on Debtor or any of them, and none which
questions the validity of this Loan Agreement or any action taken or to be
taken in connection herewith.
5.3 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. Debtor
is not in violation of any term of its Articles of Incorporation or Bylaws,
as amended and in effect as of the
<PAGE>
Loan and Security Agreement
Page 8
Closing. No Debtor is in violation in any respect of any material term or
provision of any mortgage, indebtedness, indenture, contract, agreement,
instrument, judgment or decree, order, statute, rule or regulation applicable
to it where such violation would adversely and materially affect such Debtor
or its operations or financial condition.
5.5 OWNERSHIP OF COLLATERAL. Debtor own all of the Collateral free
and clear of all mortgages, liens, security interests, charges and
encumbrances except the liens created by the Debt Instruments and no other
person or entity has any right, title or ownership interest in and to any
item of the Collateral. Debtor have rights to the use of Collateral and to
license and use all such items in the customary manner in Debtor's business,
without the need of any present or future license, consent, or other rights
being granted from any other party; further, if Lender were to acquire any
such items of Collateral upon an Event of Default by Debtor hereunder, Lender
and any assignee of Lender would be free to similarly utilize all such items
of Collateral in the same manner as Debtor, all without the need for any
present or future license, consent or other right being granted from any
third party.
5.6 FIRST PRIORITY. The security interests granted under this Loan
Agreement constitute senior or first priority security interests or liens on
all of the Collateral.
ARTICLE VI.
COVENANTS OF DEBTOR
6.1 LITIGATION AND OTHER MATERIAL EVENTS. Debtor shall deliver to
Lender, promptly after the commencement thereof, notice of all actions, suits
and proceedings against, involving or affecting any Debtor before any court or
governmental department, commission, board, bureau, agency or instrumentality.
Debtor shall additionally deliver to Lender all of the following as promptly as
possible: (1) notice of the existence of any Event of Default under the Loan,
Loan Agreement or other Debt Instruments, with specification of the nature
thereof, the period of existence and Debtor's proposed actions to correct; (2)
notice of any material adverse change in the business, assets, financial
condition or prospects, or otherwise of any Debtor and shall include Debtor's
evaluation of the importance of such development; and (3) notice of any event
materially reducing the value of any significant Collateral, including the value
to Debtor or the value to Lender, and of matters which materially affect
Lender's rights or ability to use such items of Collateral if acquired by Lender
after an Event of Default without infringing on or conflicting with the rights
of another party, and of events materially and adversely affecting the validity
or priority of Lender's security interest in any such item of Collateral.
6.2 LOCATION AND CORPORATE IDENTITY OF DEBTOR. Debtor will notify
Lender in writing prior to any change in Debtor's place of business or chief
executive office and of any proposed or actual change of any Debtor's name,
identity or corporate structure.
6.3 FINANCING STATEMENTS. At the request of Lender, Debtor will join
Lender in executing and delivering one or more financing statements or other
documents and instruments in form and substance satisfactory to Lender for
filing or recording in any state, county or other
<PAGE>
Loan and Security Agreement
Page 9
jurisdiction in which Lender or its legal counsel reasonably deems it
advisable to file so as to perfect the security interests granted under this
Loan Agreement.
6.4 TITLE TO ASSETS. Debtor agree to promptly notify Lender in writing
of any event which materially affects the value of any material portion of the
Collateral, or of the ability of Debtor or Lender to dispose of such assets or
affecting the rights or remedies of Lender in relation thereto including, but
not limited to, the levy of any legal process against the Collateral. If any
portion of the Collateral is or becomes subject to a negotiable document
including any warehouse receipt or bill of lading or chattel paper, Debtor shall
deliver all such documents immediately to Lender. As long as portion of the Loan
is outstanding, Debtor shall not grant to any person or entity any security or
other interest in the Collateral.
6.5 INDEMNITY. Debtor and Pledgors hereby jointly and severally,
indemnify, defend and hold Lender and its directors, officers, agents, employees
and counsel harmless from and against all losses, claims, damages, liabilities,
deficiencies or expenses imposed on or incurred by or asserted against any of
them, whether direct, indirect or consequential arising out of or by reason of
any litigation, investigation, claim or proceeding commenced or threatened which
arises out of or is in any way based upon the negotiation, preparation,
execution, delivery, enforcement, performance or the administration of this Loan
Agreement or any other Debt Instrument or any undertaking or proceeding related
to any of the transactions contemplated by this Loan Agreement provided,
however, that Debtor shall have no obligation under this Section with respect to
losses, claims, damages, liabilities, deficiencies or expenses arising solely as
a result of any indemnified party's gross negligence or willful misconduct. The
foregoing indemnity shall survive the payment of the Obligations and the
termination of this Loan Agreement. All of the foregoing costs and expenses
shall be part of the Obligations secured by the Collateral.
ARTICLE VII.
EVENTS OF DEFAULT
The occurrence of any of the following events or conditions shall be an
event of default (an "EVENT OF DEFAULT") and, unless the same shall have been
waived by Lender in writing or remedied by Debtor, shall, at the option of
Lender exercisable by written notice of default from Lender to Debtor, cause all
sums of principal and interest then remaining unpaid on the Note and all other
amounts payable under the Loan Agreement, Note and Debt Instruments to Lender to
become immediately due and payable without demand, presentment, protest or
further notice of any kind, all of which are hereby expressly waived by Debtor:
7.1 FAILURE TO PAY LOAN ON MATURITY DATE. The failure of Debtor to pay
fully and timely pay the Loan (including principal and all accrued interest
thereon) on the Maturity Date.
7.2 BREACH OF LOAN AGREEMENT OR OTHER DEBT INSTRUMENTS. Any other
failure of Debtor or any of them to satisfy or comply with any of the material
provisions of this Loan Agreement or of the other Debt Instruments after written
notice from Lender to Debtor specifying such failure (subject to the cure
periods contained in the applicable document).
<PAGE>
Loan and Security Agreement
Page 10
7.3 BREACH OF WARRANTY. The discovery that any representations or
warranties of Debtor made to Lender in this Loan Agreement or in any other Debt
Instrument or in any statement or certificate at any time furnished by Debtor to
Lender in writing pursuant to this Loan Agreement shall have been false or
misleading in any material respect when made or furnished.
ARTICLE VIII.
REMEDIES UPON EVENT OF DEFAULT
Upon the occurrence of an Event of Default, Lender may, at its option,
do any one or more of the following:
8.1 POWER OVER COLLATERAL. Either on its own or by means of a court
appointed receiver, exercise all rights and powers of Debtor in respect to the
Collateral or any part thereof.
8.2 PAYMENT OF CLAIMS. Without notice to or demand upon Debtor, make
such payments and do such acts as Lender may deem necessary to protect its
security interest in the Collateral including, without limitation, paying,
purchasing, contesting or compromising any encumbrance, charge or lien which is
prior to or superior to the security interest granted to Lender, and in
exercising any such powers or authority to pay all reasonable expenses incurred.
8.3 UCC REMEDIES. Exercise any and all remedies of a secured party
under the California (or other applicable state) Uniform Commercial Codes or any
other applicable law, including, without limitation, the right to recover
reasonable attorneys' fees and legal expenses incurred by Lender in the
enforcement of its rights under this Loan Agreement or in connection with any
redemption of the Collateral by Debtor.
8.4 TRADE NAMES. Use, in connection with any assembly, use or
disposition of Collateral, any trademark, trade name, trade style, copyright,
patent or technical knowledge or process which is owned or which is utilized by
Debtor in its business.
8.5 ENTRY. Enter and remain upon the premises of Debtor without any
obligation to pay rent to Debtor or others (except as otherwise required by law
or under contractual obligations to the lessor or other owner of the premises),
or any other place or places where any of the Collateral is located and kept
and: (1) remove Collateral therefrom to the premises of Lender or any agent of
Lender, for such time as Lender may desire in order to maintain, sell, collect,
or liquidate the Collateral, or (2) use such premises, together with materials,
supplies, books and records of Debtor to preserve the condition or value of the
Collateral and to prepare the Collateral for selling, liquidating or collecting.
8.6 ADDITIONAL REMEDIES. Lender may exercise any one or more remedies
hereunder or at law, successively or concurrently, and such actions shall not
operate to prevent Lender from pursuing any other or further remedy which it may
have. The repossession or retaking or sale of the Collateral pursuant to the
terms hereof shall not operate to release Debtor from full payment of any
deficiency until full payment of any such deficiency has in fact been paid
Lender in cash. Further, in connection with any public or private sale under the
applicable state version of the
<PAGE>
Loan and Security Agreement
Page 11
Uniform Commercial Code where the Collateral is located, Lender shall give
Debtor at least five (5) days prior written notice of the time and place of
any public sale of material Collateral or the time after which any private
sale or other intended disposition will occur, which notice shall be deemed a
reasonable notice of such sale or other disposition. In the event of any
public sale hereunder, Lender shall exhibit the Collateral for a reasonable
period of time not later than the day before such sale is to take place and,
if practicable, shall exhibit the Collateral at the time and place of such
sale, provided, however, that Lender shall have no obligation to exhibit any
part of the Collateral at or prior to sale if, at the time of the Event of
Default, such Collateral was in Debtor's possession or under Debtor's control
and Lender notified Debtor in writing of its demand for possession thereof as
provided herein and Debtor failed to comply with such demand within five (5)
days prior to the date set for the sale of such Collateral.
8.7 ENFORCEMENT EXPENSES. All expenses of enforcement of the Debt
Instruments and disposition of the Collateral including, without limitation,
attorneys' fees, costs of segregation, retaking, holding, preparing for sale,
selling and other expenses relating to disposition or collection of the
Collateral (incurred in taking the actions described in this Article VIII, or
otherwise in this Loan Agreement or as provided by law) shall be paid by Debtor
to Lender on demand and Lender may pay and set off as to such amounts out of the
proceeds obtained by Lender from the sale or other disposition of the
Collateral.
ARTICLE IX.
MISCELLANEOUS
9.1 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A. (IRRESPECTIVE OF ITS CHOICE OF
LAW PRINCIPLES) INCLUDING, WITHOUT LIMITATION, LAWS GOVERNING USURY AND
PERMISSIBLE RATES OF INTEREST, SHALL GOVERN THE VALIDITY OF THIS LOAN AGREEMENT,
THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE
RIGHTS AND DUTIES OF THE PARTIES HERETO.
9.2 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless
otherwise provided in, this Loan Agreement, each and all of the covenants,
terms, provisions and agreements contained herein shall be binding upon, and
inure to the benefit of, the permitted successors, and the executors, heirs,
representatives, administrators and assigns of the parties hereto. Except as
otherwise provided herein, all rights of Lender hereunder shall be assignable.
Debtor may not assign any of its interests under this Loan Agreement or under
the other Debt Instruments without the prior written consent of Lender. Any
purported assignment inconsistent with the provisions hereof shall, at the
option of Lender, be null and void.
9.3 SEVERABILITY. If any one or more provisions of this Loan Agreement
(or provisions of the other Debt Instruments), or the application thereof, shall
for any reason and to any extent be invalid and unenforceable, the remainder of
this Loan Agreement and the application of such provisions to other persons or
circumstances shall be interpreted so as to most completely effect the intent of
the parties hereto. The parties further agree to replace any such
<PAGE>
Loan and Security Agreement
Page 12
void or unenforceable provisions of this Loan Agreement (or provisions of the
other Debt Instruments) with valid and enforceable provisions which will
achieve, to the maximum extent legally possible, the economic, business and
other purposes of the void or unenforceable provisions.
9.4 ENTIRE AGREEMENT. This Loan Agreement, the Exhibits hereto, the
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersede all prior and contemporaneous agreements,
understandings, inducements or conditions, whether express or implied and
whether written or oral, between the parties with respect to the Loan hereunder.
9.5 COUNTERPARTS. This Loan Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Loan Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
9.6 LOAN EXPENSES. Each party shall pay all of its own costs and
expenses incurred with respect to the transactions contemplated by this Loan
Agreement and the Debt Instruments.
9.7 RIGHTS CUMULATIVE. Each and all of the various rights, powers and
remedies of the parties shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have at
law or in equity in the event of the breach of any of the terms of this Loan
Agreement. The exercise or partial exercise of any right, power or remedy shall
neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party.
9.8 AMENDMENTS AND WAIVERS. Any term or provision of this Loan
Agreement may be amended, and the observance of any term of this Loan Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a writing signed by the party to be
bound thereby. No waiver of any term, provision or condition of this Loan
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or be construed as, a further or continuing waiver of any such
term, provision or condition or as a waiver of any other term, provision or
condition of this Loan Agreement.
9.9 SURVIVAL. Except as otherwise provided herein, all covenants,
agreements, representations and warranties made herein shall survive the
execution and delivery of this Loan Agreement and the consummation of the
Closing hereunder, and shall terminate only upon the full payment, satisfaction
and performance by Debtor of its Obligations under this Loan Agreement and the
other Debt Instruments, unless earlier termination is provided for herein or in
another Debt Instrument, as applicable. All statements as to factual matters
contained in any certificates, Exhibits or other instruments delivered by or on
behalf of Debtor hereunder shall be deemed, for all purposes, to constitute
representations and warranties by Debtor under the terms of this Loan Agreement
and the other Debt Instruments as of the date of any such certificate or
instrument.
<PAGE>
Loan and Security Agreement
Page 13
9.10 ATTORNEYS' FEES. Should suit or arbitration be brought to enforce
or interpret any part of this Loan Agreement or other Debt Instrument, the
prevailing party shall be entitled to recover (as an element of the costs of
suit or arbitration and not as damages) reasonable attorneys' fees to be fixed
by the court (including without limitation, costs, expenses and fees on any
appeal). If any party to this Loan Agreement shall bring any action for any
relief against another, declaratory or otherwise, arising out of this Loan
Agreement, the losing party shall pay to the prevailing party a reasonable sum
for attorneys' fees incurred in bringing such suit and enforcing any judgment
granted therein, all of which shall be deemed to have accrued upon the
commencement of such action and shall be paid whether or not such action is
prosecuted to judgment. The parties agree that any judgment or order entered in
such action shall contain a specific provision providing for the recovery of
attorneys' fees and costs incurred in enforcing such judgment. For the purposes
of this Section, attorneys' fees shall include, without limitation, fees
incurred in the following: (1) postjudgment motions; (2) contempt proceedings;
(3) garnishment, levy, and Debtor and third party examinations; (4) discovery;
and (5) bankruptcy litigation.
9.11 NOTICES. Whenever any party hereto desires or is required to give
any notice, demand, or request with respect to this Loan Agreement (or under the
Note or under any other Debt Instrument), each such communication shall be in
writing and shall be deemed to have been validly served, given or delivered at
the time stated below if deposited in the United States mail, registered or
certified and return receipt requested, with proper postage prepaid, or if
delivered by Federal Express or other private messenger, courier or other
delivery service or sent by facsimile transmission by telex, telecopy, telegraph
or cable or other similar electronic medium, addressed as indicated on the
signature page hereof. If sent by telegraph, cable, telecopy and other facsimile
transmission, a conformed copy of such notice shall be sent by mail (in the
manner provided above) to the addressee. Service of any such communication made
only by mail shall be deemed complete on the date of actual delivery as
indicated by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time. Any party may change its address for such communications by
giving notice thereof to the other parties in conformity with this Section.
Nothing contained in this Section or otherwise in this Loan Agreement shall
excuse any party from giving oral telephonic notice when prompt notification is
appropriate, but any oral telephonic notice which is so given shall not satisfy
the requirement of written notice as specified in this Section. The foregoing
provisions regarding the giving of notice by any party shall be applicable to
all notices given hereunder or under any of the Note or other Debt Instrument.
9.12 CONSTRUCTION OF AGREEMENT. A reference in this Loan Agreement to
any Section shall include a reference to every Section number which begins with
the number of the Section to which reference is specifically made (E.G., a
reference to Section 4.1 shall include a reference to Sections 4.1.1 and 4.1.2).
The provisions of the other Debt Instruments and of all Exhibits hereto are
hereby incorporated in this Loan Agreement by this reference and reference to
the Loan Agreement shall be deemed to include reference to all other Debt
Instruments hereunder.
9.13 NO JOINT VENTURE. Nothing contained in this Loan Agreement shall
be deemed or construed as creating a joint venture or partnership between or
among the parties hereto. Except
<PAGE>
Loan and Security Agreement
Page 14
as expressly provided herein, no party: (1) is by virtue of this Loan
Agreement authorized as an agent, employee or legal representative of any
other party; (2) shall have the power to control the activities or operations
of any other party and the relationship among the parties hereto is, and at
all times will continue to be, that of independent contractors with respect
to each other; (3) shall have any power or authority to bind or commit any
other; or (4) shall hold itself out as having any authority over or
relationship with any other party in contravention of this Loan Agreement.
9.14 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements,
to give such further written assurances and to take such further actions, as may
be reasonably requested by any other party to better evidence and reflect the
transactions described herein and contemplated hereby, and as necessary to carry
into effect the intents and purposes of this Loan Agreement. Upon payment and
satisfaction by Debtor of all indebtedness to Lender under the Loan Agreement
and other Debt Instruments, Lender agrees to release its security interest in
the assets of Debtor which are Collateral hereunder and to cause all public
records which reflect such security interests to be corrected by appropriate
filings showing the release of Debtor's assets from the security interests of
Lender under this Loan Agreement and the other Debt Instruments.
9.15 WAIVER OF JURY TRIAL. DEBTOR AND LENDER, TO THE EXTENT THEY MAY
LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY IF ANY CLAIM,
DEMAND, ACTION, CAUSE OF ACTION OR PROCEEDING ARISING UNDER OR WITH RESPECT TO
THIS LOAN AGREEMENT TO WHICH THEY ARE PARTIES OR IN ANY WAY CONNECTED WITH, OR
RELATED TO, OR INCIDENTAL TO, THE DEALING OF THE PARTIES HERETO WITH RESPECT TO
THIS LOAN AGREEMENT TO WHICH THEY ARE A PARTY OF THE TRANSACTIONS CONTEMPLATED
HEREBY IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND IRRESPECTIVE
OF WHETHER IN CONTRACT, TORT OR OTHERWISE. DEBTOR AND LENDER, TO THE EXTENT THEY
MAY LEGALLY DO SO, HEREBY AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF
ACTION OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT
ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 9.15
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES
HERETO THE WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.
<PAGE>
Loan and Security Agreement
Page 15
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Loan Agreement as of the date stated on page one of this Loan Agreement.
<TABLE>
<S> <C>
LENDER: DEBTOR:
NHANCEMENT TECHNOLOGIES INC. EASTERN SYSTEMS TECHNOLOGY, INC.
A DELAWARE CORPORATION A CALIFORNIA CORPORATION
By: /s/ Douglas S. Zorn By: /s/ Ram V. Mani
------------------------------------------- -------------------------------------------
Douglas S. Zorn, Ram V. Mani, President
President and Chief Executive Officer
By: /s/ Ram V. Mani
-------------------------------------------
Ram V. Mani, Secretary
Telephone: (510) 744-3333 Telephone:
------------------------------- -------------------------------
Facsimile: (510) 744-3388 Facsimile:
------------------------------- -------------------------------
PLEDGORS:
/s/ Ram V. Mani
--------------------------------------------
Ram V. Mani
/s/ Srini Ramakrishnan
--------------------------------------------
Srini Ramakrishnan
</TABLE>
<PAGE>
EXHIBIT 10.52
SECURED PROMISSORY NOTE
$250,000 ISSUED AS OF THE 31ST DAY OF AUGUST 1999
FREMONT, CALIFORNIA
FOR VALUE RECEIVED, Eastern Systems Technology, Inc., a California
corporation, ("DEBTOR"), hereby promises to pay (in lawful money of the United
States of America) to the order of NHancement Technologies Inc., a Delaware
corporation ("LENDER"), at the office of Lender located at 39420 Liberty Street,
Suite 250, Fremont, California 94538, or at such other place as Lender or a
future holder hereof (Lender or such other holder being sometimes referenced
herein as ("HOLDER")) may from time to time designate in writing, the principal
amount of Two Hundred Fifty Thousand Dollars ($250,000), together with interest
on the unpaid principal balance hereof, all as specified below. The principal
balance hereof, from time to time outstanding, shall bear interest at a fixed
rate equal to seven percent (7%) per annum. This Secured Promissory Note
("NOTE") has been issued pursuant to that certain Loan and Security Agreement,
dated an even date herewith, among Debtor and Lender (the "LOAN AGREEMENT"), and
all capitalized terms used herein and not otherwise defined herein shall have
the meanings indicated in the Loan Agreement.
1. PAYMENTS OF PRINCIPAL AND INTEREST.
1.1 INTEREST AND APPLICATION OF PAYMENTS. All payments made hereon
shall be applied first to the payment of all unpaid accrued interest (at the
rate specified herein) to the date of payment and the balance, if any, shall be
applied to the payment of principal. Interest shall thereupon cease on the
principal so credited. All interest accruing at the annual percentage rates
specified herein shall be calculated on the basis of a 360 day year and actual
days elapsed and any such accrued interest which is not paid when due shall be
added to unpaid principal and shall thereafter bear interest in the same manner
as the unpaid principal balance hereof.
1.2 REPAYMENTS. Principal and all accrued and unpaid interest shall be
all due and payable on the earlier of (i) one (1) year from the date hereof or
(ii) within thirty (30) days following the effective date of the first S-3
Registration Statement covering shares of Lender's Common Stock which may
hereafter be issued to Debtor which have an aggregate fair market value at such
effective date equal to or greater than the principal amount of the Note (the
"MATURITY DATE"). In the event such stock is issued to Debtor but Lender fails
to cause such S-3 Registration Statement to become effective, or if no public
market then exists for such shares of stock, in either such case by or on the
first anniversary date hereof, Lender agrees to extinguish this Note in
accordance with the terms of the Loan Agreement.
1.3 PREPAYMENT. The indebtedness hereunder may be prepaid in whole
or in part any time (without penalty or premium and in principal amounts of
$5,000 or more), at the election of Debtor. Upon Debtor's request, Lender
will provide the then-current payoff amount for purposes of any such election
to prepay in whole the indebtedness evidenced by this Note. In all events,
except as set forth
<PAGE>
Secured Promissory Note
Page 2
in Section 1.2 above, all principal and interest hereunder shall be due and
payable not later than the Maturity Date.
2. SECURITY.
This Note is secured by and entitled to the benefits of the Loan Agreement to
which reference is hereby made for a description of the Collateral securing this
Note and the rights of Debtor and Holder with respect to such Collateral. Debtor
and Lender hereby acknowledge and agree that this Note shall be a negotiable
instrument within the meaning of Division 3 of the California Uniform Commercial
Code.
3. EVENTS OF DEFAULT AND ACCELERATION.
3.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
be deemed to be an event of default ("EVENT OF DEFAULT") hereunder and under
the Loan Agreement: (1) failure to cure any default in payment of principal
or interest due pursuant to the terms hereof or (2) the existence of an Event
of Default under the Loan Agreement.
3.2 ACCELERATION. Upon the occurrence of an Event of Default and at
the option of Holder (exercisable upon written notice to Debtor given in the
manner provider in the Loan Agreement), the entire payoff balance then
applicable (an amount equal to the sum of unpaid principal, accrued and
unpaid interest at the annual rates specified herein and any other charges
due from Debtor hereunder or under the Loan Agreement) shall become
immediately due and payable.
4. MISCELLANEOUS PROVISIONS.
4.1 ATTORNEYS' FEES. Should suit be brought to enforce, interpret or
collect any part of this Note, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees and other costs of enforcement and collection.
4.2 JURISDICTION. THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) INCLUDING, WITHOUT LIMITATION,
ANY CALIFORNIA LAWS GOVERNING USURY OR PERMISSIBLE RATES OF INTEREST. EXCEPT AS
SET FORTH BELOW, HOLDER AND DEBTOR HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY
PROVISION OF, OR TO COLLECT, THIS NOTE SHALL BE BROUGHT IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR OR
MUNICIPAL COURT IN AND FOR THE COUNTY OF ALAMEDA, CALIFORNIA, U.S.A. EXCEPT AS
SET FORTH BELOW, EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE EXCLUSIVE
IN PERSONAM JURISDICTION AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY
HEREBY SUBMITS TO THE EXCLUSIVE IN PERSONAM JURISDICTION AND VENUE OF
<PAGE>
Secured Promissory Note
Page 3
SUCH COURTS. IN ADDITION TO THE FOREGOING JURISDICTION, HOLDER, AT ITS SOLE
OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY JURISDICTION IN WHICH DEBTOR HAS A
PRINCIPAL BUSINESS OFFICE OR WHERE ANY COLLATERAL SECURING THIS NOTE IS
LOCATED.
4.3 OBLIGATION UNCONDITIONAL. Except as provided in Section 1.2, no
provision of this Note or of any other agreement shall alter, impair or render
conditional the payment obligations of Debtor, which are absolute and
unconditional, to pay the principal and interest on this Note at the place and
at the respective times herein prescribed. Except as provided in Section 1.2,
Debtor shall in all events remain absolutely and unconditionally liable for the
payment and performance of all its obligations under the Debt Instruments.
4.4 DEBTOR'S WAIVERS. Except as expressly provided to the contrary
herein, Debtor hereby waives diligence, presentment, protest, demand of payment,
notice of protest, dishonor and nonpayment, and waives the legal effect of
Holder's failure to give all notices not expressly provided for herein. Debtor
expressly agrees that, without in any way affecting the liability of Debtor
hereunder, the Holder may extend the Maturity Date or the time for payment of
any amount due hereunder, accept additional security, release any party liable
hereunder, and release any security now or hereafter securing this Note. Debtor
further waives, to the full extent permitted by law, the right to plead any and
all statutes of limitation as a defense to any demand on this Note, or on any
agreement now or hereafter securing this Note.
4.5 LOSS OR DESTRUCTION. Upon receipt of evidence reasonably
satisfactory to Debtor of the loss or mutilation of this Note, Debtor will
execute and deliver, in substitution hereof, a replacement note.
4.6 SEVERANCE. Every provision of this Note is intended to be
severable. In the event any term or provision hereof is declared to be illegal
or invalid for any reason by a court of competent jurisdiction, such illegality
or invalidity shall not affect the balance of the terms and provisions hereof,
which terms and provisions shall remain binding and enforceable. Lender and
Debtor further agree to replace any such void or unenforceable provision of this
Note with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or unenforceable
provision.
4.7 WAIVERS AND DELAYS BY HOLDER TO BE STRICTLY LIMITED. Any waiver,
express or implied, of any breach or default hereunder shall not be considered a
waiver of any subsequent or different breach or default. No delay or omission on
the part of Holder in exercising any right under this Note or under any of the
documents referenced in Section 2 shall operate as a waiver of such right or of
any other right of the Holder hereunder.
4.8 MODIFICATION. No provision of this Note may be waived, modified or
discharged other than by an express writing signed by the party against whom
enforcement of such waiver, modification or discharge is sought.
<PAGE>
Secured Promissory Note
Page 4
4.9 WAIVER OF JURY TRIAL. DEBTOR AND LENDER, TO THE EXTENT THEY MAY
LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY IF ANY
CLAIM, DEMAND, ACTION, CAUSE OF ACTION OR PROCEEDING ARISING UNDER OR WITH
RESPECT TO THIS NOTE TO WHICH THEY ARE PARTIES OR IN ANY WAY CONNECTED WITH,
OR RELATED TO, OR INCIDENTAL TO, THE DEALING OF THE PARTIES HERETO WITH
RESPECT TO THIS NOTE TO WHICH THEY ARE A PARTY OF THE TRANSACTIONS
CONTEMPLATED HEREBY IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
AND IRRESPECTIVE OF WHETHER IN CONTRACT, TORT OR OTHERWISE. DEBTOR AND
LENDER, TO THE EXTENT THEY MAY LEGALLY DO SO, HEREBY AGREE THAT ANY SUCH
CLAIM, DEMAND, ACTION, CAUSE OF ACTION OR PROCEEDING SHALL BE DECIDED BY A
COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION 4.9 WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO THE WAIVER OF ITS OR
THEIR RIGHT TO TRIAL BY JURY.
DEBTOR:
EASTERN SYSTEMS TECHNOLOGY, INC.
By: /s/ Ram V. Mani
------------------------------------
Ram V. Mani, President
By: /s/ Ram V. Mani
------------------------------------
Ram V. Mani, Secretary
<PAGE>
EXHIBIT 10.53
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
August 31, 1999, by and between NHancement Technologies Inc., a Delaware
corporation (the "Company"), and Ram V. Mani (the "Officer").
RECITAL
The Officer has been hired by the Company to serve as the Chief
Technology Officer of the Company and as the President of NHancement
Technologies Software Group, a wholly owned division of NHancement Technologies
Inc.(the "Software Group").
The Company and the Officer desire to set forth the terms and
conditions of the Officer's employment. This Agreement supersedes and replaces
all existing employment agreements between the parties, oral or written,
including the employment offer letter dated May 7, 1999.
AGREEMENT
In consideration of the mutual promises, covenants and agreements
contained in this Agreement, and intending to be legally bound, the parties
agree as follows:
1. AGREEMENT TO SERVE.
1.1 TITLE. The Company shall employ the Officer and the
Officer shall serve in the employ of the Company as Chief Technology Officer of
NHancement Technologies Inc. and President of NHancement Technologies Software
Group, a wholly owned subsidiary of the Company.
1.2 DUTIES. The Officer shall assume and discharge the
responsibilities of Chief Technology Officer of the Company and President of
NHancement Technologies Software Group, as well as such other duties and
responsibilities as may be assigned to him by the Chief Executive Officer and
the Board of Directors of the Company and as are appropriate to the offices he
holds. The Officer shall perform his duties to the best of his abilities and
shall devote most of his business time and attention to the good faith
performance of his duties. The Officer shall not engage in other businesses or
activities for compensation during the term of this Agreement to the extent such
other business or activities would constitute a conflict of interest with the
interests of the Company or would substantially interfere with the performance
of his duties hereunder. The Officer shall perform his
<PAGE>
Employment Agreement
Page 2
1.3 services to the Company at its principal offices or at
such other location as may be acceptable to the Board of Directors.
2. TERMS OF EMPLOYMENT.
2.1 BASIC TERM. The term of the Officer's employment under
this Agreement (the "Term") shall be for a period of two (2) years from the
effective date of this Agreement (the "Initial Term"), subject to the remaining
provisions of this Section 2. The Term will be extended for successive one-year
periods beginning on the first day after the final day of the Initial Term,
except in the event the Officer or the Company provides written notice to the
other at least ninety (90) days before the beginning of such one-year period, of
the intention not to extend the Term. During the Term, the same terms and
conditions contained in this Agreement (including salary as may be determined
under Section 3.1) shall remain in effect during the continuance of the
Officer's employment.
2.2 TERMINATION FOR CAUSE. The Company shall have the right
to terminate the Officer for cause and said termination shall be effected by and
upon written notification to Officer. Grounds for termination for cause shall
include: (i) the Officer's material breach of any terms of this Agreement, if
such material breach has not been substantially cured within thirty (30) days
following written notice of such breach to the Officer from the Company setting
forth with specificity the nature of the breach or, if cure cannot reasonably be
effected within such 30-day period, if the Officer does not commence to cure the
breach within such 30-day period and thereafter pursue such cure continuously
and with due diligence until cure has been fully effected; (ii) the Officer's
willful dishonesty towards, fraud upon, crime against, misrepresentation,
embezzlement, deliberate or attempted injury or bad faith action with respect
to, or deliberate or attempted injury to, the Company; (iii) the Officer's gross
negligence in the performance of, willful failure or refusal to perform, the
services required of him under this Agreement, or to carry out proper directions
by the Board of Directors of the Company with respect to the services rendered
by him under this Agreement or the manner of rendering such services, his
willful misconduct in the performance of his duties under this Agreement; (iv)
any unlawful or criminal activity of a serious nature; or (v) the Officer's
conviction for any felony crime (whether in connection with the Company's
affairs or otherwise).
2.3 TERMINATION WITHOUT CAUSE. The Company shall have the
right, upon sixty (60) days written notification to the Officer, to terminate
the Officer's employment without cause (as defined above). Except as otherwise
provided in Section 3.5, upon any termination without cause pursuant to this
Section 2.3, the Officer shall be paid all accrued salary, vested deferred
compensation (other than pension plan or profit-sharing plan benefits, which
will be paid in accordance with the provisions of the applicable plan), any
benefits then due under any plans of the Company in which the Officer is a
participant, accrued vacation pay, and any appropriate business expenses
incurred by the Officer in connection with his duties under this Agreement, all
to the effective date of termination ("Accrued Compensation"), and all severance
compensation provided for in Section 4.1.
2.4 DISABILITY. If, during the Term of this Agreement, the
Officer, in the reasonable judgment of the Board of Directors of the Company,
has failed to perform his duties under this
<PAGE>
Employment Agreement
Page 3
Agreement on account of illness or physical or mental disability, which
condition renders the Officer incapable of performing the duties of his office,
and such condition continues for a total of six months during any 12-month
(or shorter) period, the Company shall have the right to terminate the Officer's
employment upon written notification to the Officer (which may also be
considered notice not to extend the Term pursuant to Section 2.1) and payment to
the Officer of all Accrued Compensation to the date of termination, but no other
compensation, severance or reimbursement of any kind.
2.5 DEATH. In the event of the Officer's death during the
Term of this Agreement, the Officer's employment shall be deemed to have
terminated as of the last day of the month during which his death occurs, and
the Company shall pay to his estate all Accrued Compensation to the date of
termination, but no other compensation, severance or reimbursement of any kind.
2.6 TERMINATION UPON CHANGE IN CONTROL.
(a) In the event of a Termination Upon change in Control,
the Officer shall immediately be paid all Accrued Compensation and the severance
compensation provided for in Section 4.1. "Termination Upon a Change in Control"
shall mean a termination by the Company without cause, or by the Officer for
"Good Reason", of the Officer's employment with the Company following a "Change
in Control", as defined below.
(b) For the purposes of this Agreement, "Good Reason"
shall include but not be limited to , any of the following (without the
Officer's express written consent):
(i) within the first 12 months after the Change in
Control, the assignment to the Officer by the Company of duties inconsistent
with, or a substantial alteration in the nature or status of, the Officer's
responsibilities immediately prior to a Change in Control;
(ii) within the first 12 months after the Change in
Control, a reduction by the Company in the Officer's compensation or benefits as
in effect on the date of the Change in control;
(iii) any material breach by the Company of any
provision of this Agreement, if such material breach has not been cured within
thirty (30) days following written notice of such breach by the Officer to the
Company setting forth with specificity the nature of the breach or, if the cure
cannot reasonably be effected within such 30-day period, then if the Company
does not commence to cure the breach within such 30-day period and thereafter in
good faith pursue such cure; or
(iv) any failure by the Company to obtain the
assumption and performance of this Agreement by any successor (by merger,
consolidation or otherwise) or assign of the Company.
<PAGE>
Employment Agreement
Page 4
(c) For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred if :
(i) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of more than 51% of the then
outstanding voting stock of the Company; or
(ii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior to the merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into securities
of the surviving entity) at least 50% of the combined voting power of the voting
securities or at least 50% of the total value of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
2.7 VOLUNTARY TERMINATION. In the event Sections 2.2, 2.3, 2.4
and 2.6 are not applicable, and the Officer voluntarily terminates his
employment, the Company shall promptly pay all Accrued Compensation to the date
of termination, but no other compensation or reimbursement of any kind,
including, without limitation severance pay.
3. COMPENSATION.
3.1 BASE SALARY. During the Term of this Agreement, the
Company agrees to pay the Employee for his services a salary at the initial
rate of $150,000 per annum ("Base Salary") payable in equal semi-monthly
installments. The Base Salary for each year during the Term of the Agreement
shall be increased, subject to the approval of the Board of Directors, by the
greater of: (a) an amount equal to the average annual incremental increase
applicable to the Company's senior executive management or (b) an amount
equal to the annual increase in the consumer price index.
3.2 BENEFITS. The Officer shall be entitled to participate
in any of the company's benefit and deferred compensation plans as are from
time to time available to the Officers of the Company, including, but not
limited to, profit-sharing, medical, dental, health and annual physical
examination plans, life and disability insurance plans (provided, however,
that the Officer's benefits may be modified or the Officer may be denied
participation in any such plan because of a condition or restriction imposed
by law or regulation or third-party-insurer or other provider relating to
participation of officers).
3.3 BONUS. The Officer shall be entitled to receive an annual
bonus pursuant to a written bonus plan approved by the Board of Directors,
subject, however, to the Company meeting its
<PAGE>
Employment Agreement
Page 5
goals and financial performance targets for such period, where failure to meet
such goals will reduce or eliminate Officer's annual bonus.
3.4 OTHER ALLOWANCES AND VACATION. The Officer shall be
entitled to reasonable expense reimbursements upon presentation of supporting
documentation in accordance with Company policies. The Company agrees to provide
Officer with a leased vehicle for Officer's use and further agrees to make lease
and insurance payments on the vehicle in an amount not to exceed $690 per month.
Officer shall be entitled to receive relocation expenses in an amount not to
exceed $25,000, upon presentation of appropriate invoices and/or receipts. In
the event Officer's employment is terminated within the first year of the
Initial Term pursuant to Sections 2.2 or 2.7, Officer shall repay the relocation
expenses in proportion to the amount of the Initial Term that has elapsed.
Officer shall be entitled to all holidays applicable to all employees of the
Company, two weeks paid vacation per year, and such other benefits appropriate
to the office of Chief Technology Officer and President of NHancement
Technologies Software Group as the Board may deem reasonable.
3.5 PROHIBITION AGAINST CERTAIN GOLDEN PARACHUTE PAYMENTS.
Notwithstanding any other provision of this Agreement or of any other agreement,
the Officer shall not be entitled to receive the amount (or portion thereof), if
any, of compensation or severance reimbursement that (a) would be treated as a
"parachute payment" for purposes of Section 280G of the Internal Revenue Code
and (b) would subject the Officer to an excise tax on "excess parachute
payments" under Section 4999 of the Internal Revenue Code such that the Officer
would receive, on an after-tax basis, total compensation, severance and
reimbursement amounts that the Officer otherwise would have received if no
"parachute payment" had been made to the Officer.
4. SEVERANCE AND OTHER PAYMENTS.
4.1 EVERANCE COMPENSATION.
In the event the Officer's employment is terminated under Sections 2.3 or 2.6,
the parties acknowledge that the Officer will sustain actual damages, the amount
of which is indefinite, uncertain and difficult to exactly ascertain because of
the uncertainties of successfully relocating and seeking a comparable position.
In order to avoid dispute as to the amount of such damages and the mutual
expense and inconvenience such dispute would entail, the Company and the Officer
have agreed that the Company shall pay to the Officer severance compensation in
an amount equal to the Officer's Base Salary (at the rate payable at the time of
termination) for a period of six (6) months.
5. NON-COMPETITION.
5.1 NO COMPETITION. Officer agrees that, unless terminated
without Cause, he will not, anywhere in the world, without the prior written
approval of the Board of Directors, until the lapse of two (2) years after his
termination pursuant to Sections 2.1, 2.2, 2.4, 2.6 or 2.7, engage, directly or
indirectly, in a "Competing Business", as defined below, whether as a sole
proprietor, partner, corporate officer, employee, director, shareholder,
consultant, agent, independent contractor,
<PAGE>
Employment Agreeement
Page 6
trustee, or in any other manner by which Officer holds any beneficial interest
in a Competing Business, derive any income from any interest in a Competing
Business, or provide any service to a Competing Business. "Competing Business"
shall be the design, development, manufacture or marketing of products in any
line of business in which the Company is, or has in the past been, involved, or
is or has planned or considered involvement. The provisions of this paragraph
will not, however, restrict Officer from owning less than one percent (1%) of
the outstanding stock of a publicly traded corporation engaged in a Competing
Business.
5.2 NO SOLICITATION OF CUSTOMERS. Officer will not, directly
or indirectly until the lapse of two (2) years after termination pursuant to
Sections 2.1, 2.2, 2.4, 2.6 or 2.7, without the prior written approval of the
Board of Directors, call upon, cause to be called upon, solicit or assist in the
solicitation of, any customer or potential customer of the Company for the
purpose of diverting any existing or future business of such customers to a
Competing Business.
5.3 NO HIRING EMPLOYEES. Officer will not, directly or
indirectly, until the lapse of two (2) years after termination pursuant to
Sections 2.1, 2.2, 2.4, 2.6 or 2.7, without the prior written approval of the
Board of Directors, employ, engage, or seek to employ or engage, directly or
indirectly, any employee of the Company.
5.4 EQUITABLE REMEDIES. The services to be rendered by Officer
and the information disclosed to Officer prior to and during the Term of this
Agreement are of a unique and special character, and any breach of Section 5
will cause the Company immediate and irreparable injury and damage, for which
monetary relief would be inadequate or difficult to quantify. Therefor, the
Company will be entitled to, in addition to all other remedies available to it,
injunctive relief and specific performance to prevent a breach and to secure the
enforcement of all provisions of Section 5. Injunctive relief may be granted
immediately upon the commencement of any such action.
6. MISCELLANEOUS.
6.1 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the maximum extent
possible, and all other provisions of the Agreement shall be deemed valid and
enforceable to the extent possible.
6.2 WITHHOLDINGS. All compensation and benefits to the Officer
shall be reduced by all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
6.3 ARBITRATION. The parties agree that any dispute or
controversy arising out of or relating to this Agreement, Officer's employment
or the termination or cancellation of Officer's employment or this Agreement,
including limitation any claim by Officer under any federal, state or local law
or statue regarding discrimination in employment, shall be settled by
arbitration by a panel of
<PAGE>
Employment Agreement
Page 7
three (3) arbitrators in accordance with the Commercial Arbitration Rules of the
American Arbitration Association from time to time in force. The hearing on any
such arbitration shall be held in San Francisco, California. If such Commercial
Arbitration Rules and practices shall conflict with the California Rules of
Civil Procedure or any other provision of California law then in force, such
California rules and provision shall govern. Arbitration of any such dispute or
controversy shall be a condition precedent to any legal action thereon. This
submission and agreement to arbitration shall be specifically enforceable.
Within thirty (30) days of the receipt by one party of
a written notice to arbitrate delivered by the other party, each party shall
select one arbitrator by written notice to the other party. Within thirty
(30) days of the delivery of both notices, the two arbitrators will select a
third arbitrator. If the two cannot agree on such third arbitrator, the
selection of a third arbitrator will be made in accordance with the
procedures of the American Arbitration Association.
Awards shall be final and binding on all parties to
the extent and in the manner provided by California law. Each award shall
expressly entitle the prevailing party to recover such party's attorney's
fees and costs, and the award shall specifically allocate such fees and costs
between the parties. All awards may be filed by either party with the
appropriate clerk of one or more courts, state or federal, having
jurisdiction over the party against whom such an award is rendered or its
property, and a judgment entered thereon and execution issued therefor.
6.4 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
represents the entire agreement between the parties an may be amended, modified,
superseded or cancelled, and any of the terms may be waived, only by a written
instrument executed by each party, or in the case of a waiver, by the party
waiving compliance. The failure of either party to require performance of any of
the provisions shall not affect the right at a later time to enforce the same.
No waiver by any party of the breach of any provision in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such breach or of any other
term of this Agreement.
6.5 APPLICABLE LAW. This Agreement shall be construed under
and governed by the laws of the state of California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NHancement Technologies Inc. Officer
By: /s/ Douglas S. Zorn /s/ Ram V. Mani
----------------------------------- -------------------------------------
Douglas S. Zorn Ram V. Mani
President and Chief Executive Officer
<PAGE>
EXHIBIT 99.1
NHANCEMENT TECHNOLOGIES INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following unaudited pro forma combined balance sheet as of June 30, 1999
and accompanying footnotes give effect to the acquisition of software
technology from Eastern Systems Inc. effective August 31, 1999.
Historically, the software has not generated any revenues. The Company does
not expect to begin to amortize this capitalized software until such time as
revenues are generated. Furthermore, any interest expected to be earned on
the associated loan made to the sellers is immaterial. Accordingly a pro
forma statement of operations has not been prepared.
<PAGE>
NHANCEMENT TECHNOLOGIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
CONSOLIDATED
AS
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- ------------
USD $000 USD $000 USD $000
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 3,211 (2) (250) $ 2,961
Restricted cash 271 271
Accounts receivable, net 5,958 5,958
Current portion of shareholder debt 207 (2) 250 457
Inventory 1,495 1,495
Prepaid expenses and other 346 346
-------- --------
TOTAL CURRENT ASSETS $ 11,488 $ 11,488
FURNITURE AND EQUIPMENT - net 1,150 1,150
Excess of cost over net assets acquired 2,793 2,793
Long-term portion of shareholder debt 117 117
Acquired Software - (1) 1,440 1,440
Other assets 25 25
-------- --------
$ 15,573 $ 17,013
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Line of Credit $ 1,087 $ 1,087
Accounts payable 3,336 3,336
Accrued liabilities 2,117 2,117
Deferred Revenue 1,785 1,785
Income Tax Payable 47 47
Notes Payable to Stockholders 1,250 1,250
Payable to seller (1) 400 400
Capital lease obligations, current portion 99 99
-------- --------
TOTAL CURRENT LIABILITIES $ 9,721 $ 10,121
Capital lease obligations, net of current portion 70 70
-------- --------
Total Liabilities $ 9,791 $ 10,191
STOCKHOLDERS EQUITY
Preferred Stock $ 1,342 $ 1,342
Common stock 70 (1) 7 77
Additional Paid in Capital 22,950 (1) 1,033 23,983
Retained Earinings (18,377) (18,377)
Cumulative Translation Adjustment (203) (203)
-------- --------
TOTAL STOCKHOLDERS EQUITY $ 5,782 $ 6,822
-------- --------
$ 15,573 $ 17,013
-------- --------
-------- --------
</TABLE>
<PAGE>
NHANCEMENT TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
1. UNAUDITED PRO FORMA ACQUISITION ADJUSTMENTS
(1) Adjustments to capitalize the total purchase price of the acquired software
<TABLE>
<S> <C>
675,000 Common Shares at fair market value (*) $1,040,000
Payable to Seller (**) $ 400,000
Total Consideration to be paid for software $1,440,000
</TABLE>
(*) 50% of shares are subject to a lock up for one year, 50% subject to a
two-year lock up.
(**) The number of shares to be issued in the future is calculated by
dividing $400,000 by the closing bid price of the common shares as quoted on
NASDAQ on the date prior to the effectiveness of the registration statement
on Form S-3 registering these shares. Adjustment for total additional value
of stock to be issued or total amount to be paid in cash. The agreement
allows for $400,000 worth of shares to be issued upon the effectiveness of
the registration statement on Form S-3. If the S-3 registration statement is
not filed within one year from the date of acquisition, then the seller will
be paid $400,000 in cash consideration in lieu of issuing additional shares.
In this case, the actual cash payable to the seller would be net of any
outstanding balance due from the seller under the note receivable.
(2) Adjustment for the interest bearing note receivable from seller
of software. This receivable is to be repaid upon issuance of shares equal
to $400,000 upon the effective date of the S-3 registration statement. The
shares to be issued are deemed collateral for this note receivable.
