<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to ___________
COMMISSION FILE NUMBER 0-21999
-----------------------
NHANCEMENT TECHNOLOGIES INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1360852
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6663 OWENS DRIVE
PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices)
(925) 251-3200
(Issuer's telephone number)
----------------
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
As of January 31, 2000, there were 10,038,300 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission, although the
Company believes the disclosures made are adequate to make the information
presented not misleading, and, in the opinion of management, all adjustments
have been reflected which are necessary for a fair presentation of the
information shown. These unaudited financial statements should be read in
conjunction with the audited financial statements for the year ended
September 30, 1999. The results for the three months ended December 31, 1999
are not necessarily indicative of the results of operations for a full year.
2
<PAGE>
NHANCEMENT TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT
Cash and cash equivalents $2,921,000
Restricted cash 190,900
Accounts receivable, less allowance for doubtful accounts of $180,600 7,506,700
Inventory 1,719,000
Notes receivable from related parties 520,700
Prepaid expenses and other 282,300
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 13,140,600
- -------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 2,442,900
Less accumulated depreciation (1,105,100)
- -------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net 1,337,800
- -------------------------------------------------------------------------------------------------------------------
Excess of cost over net assets acquired of Voice Plus, Inc., net of accumulated amortization
of $312,500 437,500
Excess of cost over net assets acquired of Infotel, net of accumulated amortization of $302,500 2,119,700
Capitalized software 1,686,600
Other assets 66,600
- -------------------------------------------------------------------------------------------------------------------
$18,788,800
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit $1,350,400
Accounts payable 4,791,200
Accrued liabilities 2,934,600
Deferred revenue 1,907,900
Income tax payable 78,400
Capital lease obligations, current portion 76,200
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 11,138,700
DEFERRED TAX LIABILITIES 28,200
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 52,800
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 11,219,700
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.01 par value, 2,000,000 shares authorized, 17,500
shares issued and 300 shares outstanding 22,800
Common stock, $0.01 par value, 20,000,000 shares authorized, 9,288,300, shares
issued and outstanding 92,800
Additional paid-in capital 25,318,400
Accumulated deficit (17,724,700)
Cumulative translation loss (140,200)
- -------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 7,569,100
- -------------------------------------------------------------------------------------------------------------------
$18,788,800
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
NHANCEMENT TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
------------
1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET REVENUES $3,261,900 $8,740,900
Cost of sales 2,231,300 5,997,400
- -------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,030,600 2,743,500
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 2,282,100 2,197,300
Amortization of excess of cost over net assets acquired 110,500 124,800
- -------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 2,392,600 2,322,100
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (1,362,000) 421,400
OTHER INCOME (EXPENSE)
Interest income 8,400 37,200
Interest expense (65,200) (114,800)
Other 2,700 (63,400)
- -------------------------------------------------------------------------------------------------------------------
Total other income (expense) (54,100) (141,000)
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES (1,416,100) 280,400
INCOME TAX -- 37,400
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ($1,416,100) $243,000
PREFERRED DIVIDENDS (3,400) (2,400)
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS ($1,419,500) $240,600
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS) PER COMMON SHARE (NOTE 6) ($0.25) $0.03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE (NOTE 6) ($0.25) $0.03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
NHANCEMENT TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
PAR VALUE PAR VALUE PAID IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1999 11,300 $854,800 8,219,700 $82,200 $24,472,800 ($17,965,300) ($208,600) $7,235,900
Preferred Shares converted
into Common Stock (11,000) (832,000) 1,045,100 10,400 821,600 -- -- --
Dividends on preferred stock
converted to common shares -- -- 23,500 200 24,000 (2,400) -- 21,800
Comprehensive income:
Net income -- -- -- -- -- 243,000 -- 243,000
Cumulative translation gain -- -- -- -- -- -- 68,400 68,400
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 243,000 68,400 311,400
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 300 $22,800 9,288,300 $92,800 $25,318,400 ($17,724,700) ($140,200) $7,569,100
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
NHANCEMENT TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
------------------
1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ($1,416,100) $243,000
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and other amortization 96,200 100,300
Amortization of excess cost over net assets acquired, including
impairment loss 110,500 124,800
Gain on sale of fixed assets -- 1,000
Compensation related to grant of stock options and common stock 3,600 --
Other (5,300) 56,000
Changes in operating assets and liabilities:
Accounts receivable 1,815,600 (1,767,500)
Inventory (222,900) (115,000)
Prepaid expenses and other 27,500 (59,900)
Other assets 217,400 (23,100)
Income tax payable (8,500) 26,000
Accounts payable and other current liabilities (127,300) 1,573,500
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 490,700 159,100
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash (711,000) (1,000)
Proceeds on sale of fixed assets -- 17,000
Capitalized software costs -- (175,200)
Purchase of property and equipment (171,600) (236,200)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (882,600) (395,400)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing under line of credit (8,600) 810,800
Principal payments on capital leases (25,600) (24,000)
Principal payment on notes payable (669,600) --
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (703,800) 786,800
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 31,200 41,400
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,064,500) 591,900
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,677,200 2,329,100
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $612,700 $2,921,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Interest paid $84,900 $91,400
Income taxes paid $1,600 $4,500
</TABLE>
6
<PAGE>
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the quarter ended December 31, 1999, property and equipment
additions of $7,900 were financed by capital lease obligations.
In December 1999, the Company accepted cabling and wiring
improvements of $53,200 made to its leased office by a related party in
lieu of payment on a note due from this related party.
In the quarter ended December 31, 1998, property and equipment
additions of $99,300 were financed by capital lease obligations.
7
<PAGE>
1. LIQUIDITY
At December 31, 1999, the Company had working capital of $2,001,900,
an improvement of $197,500 in working capital over the September 30,
1999 quarter. The Company incurred losses from continuing operations for
the quarter ended December 31, 1998, of $1.4 million compared to net
income of $243,000 for the quarter ended December 31, 1999. The Company
believes that the changes in management, cost cutting measures and its
renewed focus on its core businesses implemented in fiscal 1999, along
with its current customer order backlog of $5.3 million has returned the
Company to profitability and positioned it for continued profitability.
However if the Company fails to maintain profitable operations, its
financial condition will be adversely effected.
To improve its liquidity and future cash flows, the Company's
management restructured its operations in early January 1999. As a
result of the restructuring and increased sales, the Company has
reported net income in each of the last four quarters. Although no
assurance can be given, management believes its cash balances as of
December 31, 1999 of $2.92 million and continued profitability will
provide sufficient cash flow for the next twelve months. However, if the
Company fails to maintain profitable operations, the Company will need
to obtain additional financing. If additional financing is necessary,
there is no assurance that the Company will be able to obtain the
necessary funds, resulting in an adverse effect on the Company's
financial condition.
2. ORGANIZATION
NHancement Technologies Inc., a Delaware corporation ("NHancement"
or the "Company"), was incorporated in October 1996 as a holding
company. The business of NHancement is conducted by its operating
company subsidiaries: NHancement Technologies North America, Inc. ("NHAN
NA", formerly Voice Plus, Inc.), Infotel Technologies Pte Ltd
("INFOTEL"), NHancement Technologies Software Group, Inc. ("NHAN SWG")
and, commencing in January 2000, NHancement Acquisition Corp.,
formerly Trimark Incorporated ("Trimark"). NHAN NA, a California
corporation headquartered in Fremont, California, is a systems
integrator and national distributor of voice processing and multimedia
messaging equipment. INFOTEL, a Singapore corporation acquired on June
22, 1998 is (i) a systems integrator of infrastructure data
communications equipment, turnkey project management services, and radar
systems; and (ii) a provider of test measuring systems. NHAN SWG, a
California corporation, was recently created upon the acquisition of
certain software assets from Eastern Systems Technology, Inc., and is
engaged in software product development. TRIMARK, a California
corporation headquartered in San Diego that designs, manufactures and
markets profile selling software products to corporate clients, was
acquired by the Company following the end of the first fiscal quarter.
Accordingly, the consolidated financial statements include the results
of operations from NHancement and its NHAN NA and Infotel subsidiaries
for both periods presented and those of NHAN SWG for the three months
ended December 31, 1999.
3. FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements as of December
31, 1999 and for the three months ended December 31, 1999 and 1998 are
unaudited. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") have been omitted.
These consolidated financial statements should be read in conjunction
with the audited financial statements and accompanying notes for the
year ended September 30, 1999 presented in the Company's latest annual
report on Form 10-KSB.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
8
<PAGE>
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
The consolidated financial statements presented herein reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial condition and results of operations for the
periods presented.
4. STOCK OPTIONS AND WARRANTS
The Company issued 50,000 warrants to an outside sales person for
services to be rendered over the next two quarters; 150,000 warrants to
James S. Gillespie (former owner of Voice Plus, Inc.) and currently a
consultant and Director of the Company in lieu of consulting fees under
his consulting agreement rendered in the past and for services to be
rendered in future periods; 175,000 warrants to outside advisors to
assist the Company with acquisitions and additional financing during the
next three quarters, and 100,000 to the President & CEO, each with an
exercise price of $3.4275 per share.
5. FINANCING ACTIVITIES
The Company's Infotel subsidiary is nearing completion of a line of
credit agreement providing for advances up to SGD3.5 million
(approximately USD2.0 million) bearing interest at the Singapore prime
rate plus 1.25%, collateralized by the assets of the subsidiary and the
guarantee of NHancement Technologies Inc. It is expected that this line
of credit agreement will be effective during the second fiscal quarter.
6. EARNINGS PER SHARE
Earnings per share were computed under the provisions of SFAS 128,
Earnings Per Share. The following is a reconciliation of the numerators
and denominators of the basic and diluted earnings per share
computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
NET LOSS - NUMERATOR 1998 1999
-------------------- ---- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) ($1,416,100) $243,000
Preferred stock dividends (3,400) (2,400)
------------------------------------------------------------------------------------------------------
Basic net income (loss) applicable to
common stock ($1,419,100) $240,600
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDENDS -- 2,400
------------------------------------------------------------------------------------------------------
Diluted net income (loss) applicable
to Common Stock ($1,419,200) $243,000
------------------------------------------------------------------------------------------------------
COMMON SHARES - DENOMINATOR
Basic weighted average common shares
outstanding 5,739,400 8,188,500
Options and warrants -- 857,500
Convertible preferred stock -- 439,300
Other -- 8,400
------------------------------------------------------------------------------------------------------
Diluted weighted average common
shares outstanding 5,739,400 9,493,800
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Options and warrants to purchase 1,359,600 shares of Common Stock
and Preferred Stock convertible into 337,110 of Common Stock were
outstanding at December 31, 1998 but were not included in the
computation of diluted loss per common share because the effect would be
antidilutive.
7. SEGMENT REPORTING
NHancement's reportable operating segments include NHancement
Technologies North America, Inc. ("NHAN NA", formerly Voice Plus, Inc.),
Infotel Technologies Pte Ltd ("Infotel") and Nhancement Technologies
Software Group, Inc. ("NHAN SWG"). NHAN NA, operating in the United
States, is a systems integrator and distributor of voice processing
equipment, which includes equipment installation, technical support and
ongoing maintenance. NHAN NA derives substantially all of its revenues
from sales in the United States. Infotel is a provider and integrator of
infrastructure communications equipment products operating in Singapore,
providing radar system integration, turnkey project management services
and test instrumentation. Infotel derives substantially all of its
revenue from sales in Asia. NHAN SWG was formed late in fiscal year 1999
to internally develop and sell integration and application software
products. NHAN SWG did not generate revenue in the quarter ended
December 31, 1999.
Financial information for these segments includes the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------------
NHAN NA INFOTEL NHAN OTHER(1) TOTAL
SWG
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales to external customers $4,942,900 $3,798,000 -- $8,740,900
Income (loss) from continuing
operations 481,800 297,400 (55,900) (480,300) $243,000
Total assets 6,917,200 7,260,600 1,719,100 2,891,900 18,788,800
-----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------------------------------
NHAN NA INFOTEL NHAN OTHER(1) TOTAL
SWG
-----------------------------------------------------------------------------------------------------------
Net Sales to external customers $1,396,900 $1,865,000 -- -- $3,261,900
Income (loss) from continuing
operations (543,200) 189,000 -- (1,061,900) (1,416,100)
Total assets 3,596,700 5,798,400 -- 1,212,600 10,607,700
-----------------------------------------------------------------------------------------------------------
(1) Other includes corporate expenses.
Management reports include goodwill from the
Infotel Acquisition in other assets.
</TABLE>
8. SUBSEQUENT EVENTS
On January 21, 2000, the Company entered into a Plan and Agreement
of Reorganization whereby the Company acquired all the outstanding
shares of Trimark, Inc., in exchange for 750,000 shares of Common Stock
of NHancement and warrants to purchase 250,000 shares of Common Stock of
NHancement. This acquisition was disclosed in a report on Form 8-K which
was filed with the Commission on February 7, 2000.
On February 4, 2000, the Company entered into a Plan and Agreement
of Reorganization whereby the Company acquired substantially all the
assets of SVG Software Services, Inc., consisting of mostly software in
exchange for 250,000 shares of the Company's Common Stock.
On February 4, 2000, the Company entered into a Stock Purchase
Agreement whereby the Company acquired all the shares of Enhancement
Technologies (India) Pte. Ltd. for $50,000 in cash.
On February 8, 2000, the Board of Directors appointed Ram V. Mani
to fill a vacancy on the Board until the next election of directors by
the Company's Stockholders.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NHancement Technologies Inc. ("NHancement" or the "Company") is a software
products company that integrates and distributes voice and data processing
equipment and telecommunications systems in the United States and Asia.
The Company's consolidated financial statements include the accounts of
the Company and three of its operating subsidiaries: NHancement Technologies
North America, Inc. ("NHAN NA" formerly Voice Plus, Inc.), Infotel
Technologies (Pte) Ltd ("Infotel") and NHancement Technologies Software
Group, Inc. ("NHAN SWG"). The consolidated financial statements contain
results of operations from NHancement and its NHAN NA and Infotel
subsidiaries for both periods presented and because NHAN SWG was formed in
August 1999, those of NHAN SWG for the three months ended December 31, 1999.
A fourth subsidiary, NHancement Acquisition Corp. (formerly, Trimark
Incorporated) is not included in the accounts of the Company as it commenced
operations after December 31, 1999.
The following contains forward-looking statements regarding future events
or the future financial performance of the Company that involve risks and
uncertainties. Certain statements included in this Form 10-QSB, including,
without limitation, statements related to anticipated cash flow sources and
uses under "Liquidity and Capital Resources" and other statements contained
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" regarding the Company's financing alternatives, financial
position, business strategy, plans and objectives of management of the
Company for future operations, and industry conditions, are forward-looking
statements. Any forward-looking statements herein are subject to certain
risks and uncertainties in the Company's business, including but not limited
to, reliance on key customers and competition in its markets, market demand,
market acceptance of the Company's software products, business strategy,
product performance, technological developments, maintenance of relationships
with key suppliers, difficulties of hiring or retaining key personnel and any
changes in current accounting rules, all of which may be beyond the control
of the Company. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth herein.
GENERAL
Management's Discussion and Analysis of Consolidated Results of Financial
Condition and Results of Operations ("MD&A") should be read in conjunction
with the consolidated financial statements included herein. Further, this
first fiscal quarterly report on Form 10-QSB should be read in conjunction
with the Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in its 1999 Annual Report on Form
10-KSB. In addition, you are urged to read this report in conjunction with
the risk factors described herein.
In this MD&A, the Company explains its results of operations and discusses
its financial condition for the three-month fiscal period ended December 31,
1999, as compared to the corresponding periods in 1998. The discussion of
financial condition includes: (1) changes in the software, voice processing,
data processing and communications industry including how the Company expects
these changes to influence future results of operations; and (2) liquidity
and capital resources, including discussions of capital financing activities
and uncertainties that could affect future results.
RESULTS OF OPERATIONS
In this section, the Company provides the components of its earnings and
explains variances within revenues and expenses for the fiscal three-month
periods ended December 31, 1999 and 1998.
11
<PAGE>
The following table shows results of operations, as a percentage of net
sales, for the three-month periods ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
NHANCEMENT TECHNOLOGIES INC. AND SUBSIDIARIES
-----------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
------------
1998 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Cost of sales 68.4 % 68.6 %
Gross profit 31.6 % 31.4 %
Selling , general and administrative expenses 70.0 % 26.6 %
Loss on impairment and amortization of excess of cost
over net assets acquired 3.4 % 1.4 %
Income/(loss) from operations (41.8)% 4.8 %
Other income (expense) (1.7)% (1.6)%
Loss from continuing operations before income taxes (43.4)% 3.2 %
Income tax expense (benefit) (0.0)% 0.4 %
Income/(loss) from continuing operations (43.4)% 2.8 %
Net income/(loss) (43.4)% 2.8 %
-----------------------------------------------------------------------------------
</TABLE>
The Company's primary focus in the three months ended December 31, 1999
was as a software products company that integrates and distributes voice
processing, data processing and communications systems. These operations were
conducted through the Company's NHAN NA, Infotel and NHAN SWG subsidiaries.
Company-wide revenue for the quarter ended December 31, 1999 increased $5.4
million or 156% to $8.7 million as compared to $3.3 million for the same
period in 1998. The increase in revenues for the three month period in 1999
was due primarily to: (i) Infotel revenues associated with test and
measurement equipment being abnormally high in the quarter ended December 31,
1999 and (ii) NHAN NA's revenues for the quarter ended December 31, 1998
being abnormally low due mainly to a lack of focus on its core business. NHAN
NA's net sales on a stand-alone basis increased 250%, from $1.4 million for
the three months ended December 31, 1998 to $4.9 million for the three months
ended December 31, 1999. The increase in NHAN NA revenues came from increased
sales within its existing customer base and from new customers. Fifty-eight
percent of NHAN NA's first quarter revenue came from its largest customer,
while 4% of the first quarter NHAN NA revenues came from customers who
purchased the Interactive Intelligence communication systems.
Revenues for the Company's Infotel subsidiary located in Singapore, on a
stand-alone basis, increased 90% from $2.0 million at December 31, 1998 to
$3.8 million for the same period in 1999. The increase in revenues occurred
within the test instrument products and project management services business
segments, due to high customer demand resulting from expansion by key
customers. Management expects revenues to return to historic levels in future
quarters. Revenues for NHAN SWG were insignificant in the quarter ended
December 31, 1999.
Backlog for the Company decreased to $5.3 million as compared to $6.4
million the quarter ended September 30, 1999. NHAN A's order backlog at
December 31, 1999 increased slightly to $2.4 million from $2.3 million and
Infotel's backlog decreased to $2.4 million from $4.1 million the quarter
ended September 30, 1999. Backlog for NHAN SWG as of December 31, 1999 was
about $0.5million. Consequently, management believes that revenues for the
second fiscal quarter will level off or decrease slightly.
12
<PAGE>
Company-wide gross margins for the three months ended December 31, 1999
remained relatively constant at 31.4% as compared to the 31.6% for same
period in 1998. NHAN NA's gross margin on a stand-alone basis increased to
35.6% from 28.2% for the quarter ended December 31, 1999 as compared to the
same period of 1998. This increase in gross margin was due to the economies
of scale associated with a significantly higher level of sales. Infotel's
gross margin on a stand-alone basis declined to 25.9% of sales for the
quarter ended December 31, 1999 versus 30.6% of sales for the quarter ended
December 31, 1998. This decline was due to (i) an exceptionally high level of
customer service revenue with correspondingly high gross margin in the
December 31, 1998 quarter and (ii) commission revenues of $0.2 million with
little or no associated cost in the quarter ended December 1998 while no such
commission revenue was recorded in the quarter ended December 31, 1999.
Infotel earns commissions when its vendors (Motorola and Rhode & Schwartz)
sell directly to end-user customers in Infotel's territory. NHAN SWG's gross
margins were insignificant during the period.
Company-wide selling, general and administrative ("SG&A") expenses as a
percentage of net sales decreased to 26.6% for the three months ended
December 31, 1999 versus 70.0% for the same period in 1998. SG&A for NHAN NA
on a stand-alone basis decreased to 23.9% for the first fiscal quarter of
1999 compared to 63.4% for the same three-month period in 1998. The decrease
in the quarter was due primarily to: (i) a substantial increase in revenues
for the three months ended December 31, 1999 versus revenues in the
corresponding period of the prior year and (ii) a decrease in salary expenses
as a percentage of revenues due to a reduction in headcount. On a stand-alone
basis, Infotel's SG&A as a percent of revenues decreased to 15.8% for the
three months ended December 31, 1999 compared to 20.9% for the three months
ended December 31, 1998. Infidel's SG&A as a percent of revenues decreased
mainly because of the significant increase in Infotel's revenues during the
first quarter. NHancement's corporate overhead costs decreased by $0.58
million for the three months ended December 31, 1999 compared to $1.06
million for the same period in the prior year due primarily to (i) a decrease
in salaries and related costs, (ii) decreased outside services as a result of
cost controls; and (iii) a decrease in relocation and severance expenses for
the former CEO which had been recorded in the quarter ended December 31, 1998.
At December 31, 1999, the Company provided a 100% reserve against its
deferred tax assets. The Company believes sufficient uncertainty exists
regarding the realizability of the deferred tax assets, such that a full
valuation allowance is required. The Company currently has approximately
$7million in federal net operating loss carryforwards. However, the majority
of these net operating losses are subject to an annual limitation of $250,000.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1999, net cash provided by
operating activities was $0.2 million. Sources of cash consisted primarily of
net income before depreciation and amortization and increases in accounts
payable, offset by increases in accounts receivable. Net cash provided by
investing and financing activities totaled $0.4 million consisting of: (i)
increased borrowings under the Company's line of credit, offset by purchases
of software, property and equipment. At December 31, 1999, the Company's
working capital was $2.0 million, an improvement of $0.2 million over the
quarter ended September 30, 1999. The Company had a cash balance of $3.1
million (including restricted cash of $191,000) at December 31, 1999. The
Company's current ratio remained at 1.2 to 1.0 at December 31, 1999 as
compared to same ratio for the previous quarter. Management believes that
available cash reserves coupled with additional available credit and improved
earnings will provide adequate funds for future operations, although no
assurance can be given that current efforts will be successful.
As of December 31, 1999, the Company's credit line allowed borrowing of
up to $1.5 million as advances against receivables The Company, through its
Infotel subsidiary, is nearing completion of a credit line with a major
Singapore bank for S$3.5 million (approximately US$2.0 million) with interest
at
13
<PAGE>
1.25% above the bank prime rate to be used for Infotel's overdraft
protection, letters of credit, letters of guarantee, foreign exchange and
revolving credit. This agreement will be guaranteed by the Company.
The Company's management estimates that it will incur less than $250,000
in capital expenditures during the next 12 months, representing mostly
company-wide business systems hardware and communication systems. The Company
anticipates that all major capital expenditures will be financed through
equipment leases and will not require significant direct outlays of cash.
Based upon its present earnings and cost reduction plans, management
believes that operating cash flow, available cash and available credit are
adequate to meet the working capital needs of the Company and its
subsidiaries during the next 12 months. Although the Company intends to issue
shares of Common Stock as its primary method of financing acquisitions, it
anticipates that additional funds will be required to successfully implement
its acquisition program. There can be no assurance that the Company will be
able to obtain either debt or equity financing if and when it is needed for
acquisition or general working capital purposes.
RISK FACTORS
The following risk factors, as well as the risks described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may cause actual results to differ materially from those in any
forward-looking statements contained in the MD&A or elsewhere in this report
or made in the future by the Company or its representatives. Such
forward-looking statements involve known risks, unknown risks and
uncertainties and other factors, which may cause the actual results,
performance or achievements expressed or implied by such forward-looking
statements to differ significantly from such forward looking statements.
RISKS ASSOCIATED WITH DELISTING OF COMMON STOCK; PENNY STOCK RULES.
- -------------------------------------------------------------------
Although the Company's Common Stock was approved for quotation on
the Nasdaq SmallCap Market System in connection with the Company's IPO in
February 1997, we cannot assure you that our Common Stock will remain
eligible for listing on the Nasdaq SmallCap Market. In this regard, until as
recently as of June 1999, the Company had failed to comply with the net
tangible assets/market capitalization/net income requirements for continued
listing on the Nasdaq SmallCap Market, as required by Nasdaq under
Marketplace Rule 4310(c)(2). This resulted in written notification from
Nasdaq in February 1999 that the Company's Common Stock would be delisted
from the Nasdaq SmallCap Market. In July 1999, following a hearing with the
Nasdaq listing qualifications panel, we received a positive determination on
our request for the continued inclusion of our Common Stock on the Nasdaq
SmallCap Market. As a result, our Common Stock has remained listed to date,
without interruption, on the Nasdaq SmallCap Market.
If our Common Stock were to become delisted from the Nasdaq SmallCap
Market, we would become subject to the SEC's "penny stock" rules. Were this
to occur, you would find it difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's Common Stock.
The "penny stock" rules under the Exchange Act impose additional sales
practice and market-making requirements on broker-dealers who sell and/or
make a market in a penny stock. For transactions covered by the penny stock
rules, a broker-dealer must make special suitability determinations for
purchasers and must have received the purchaser's written consent to the
transaction prior to sale. In addition, for any transaction involving a penny
stock, unless exempt, the rules require delivery prior to any transaction in
a penny stock of a disclosure schedule prepared by the SEC relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and
14
<PAGE>
the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market and penny stocks. Consequently, if the Company's Common Stock
were to be delisted from the Nasdaq SmallCap Market and became subject to the
rules on penny stocks, it would negatively affect the ability or willingness
of broker-dealers to sell or make a market in the Company's securities and,
therefore, would severely and adversely affect the market liquidity for, and
your ability to sell, the Company's Common Stock.
VOLATILITY OF STOCK PRICES.
- ---------------------------
The over-the-counter markets for securities such as our Common Stock
historically have experienced extreme price and volume fluctuations during
certain periods. Other factors that also may adversely affect the market
price of our Common Stock include the following:
- New product developments
- Technological and other changes in the voice-messaging and
communications industries
- Fluctuations in the financial markets
- General economic conditions
- Quarterly variations in the Company's results of operations
PRIOR LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY.
- --------------------------------------------------
Although the Company recorded net income of approximately $243,000
on revenues of $8.7 million for the quarter ended December 31, 1999, the
Company incurred a loss of $716,800 on $23.3 million in revenues for the
fiscal year ended September 30, 1999. Further, the Company sustained
significant losses for the fiscal year ended December 31, 1997, as well as
for the nine-month fiscal year ended September 30, 1998.
While we have recently returned to profitability, our financial
condition and results of operations will be adversely affected if we fail to
continue to produce positive operating results. This could also:
- Adversely affect the future value of our Common Stock
- Result in delisting of our Common Stock on the Nasdaq SmallCap
Market System
- Adversely affect our ability to obtain debt or equity financing
on acceptable terms
- Prevent us from engaging in acquisition activity
FINANCING RISKS.
- ----------------
The acquisition of complementary businesses and products is an
element of our business strategy. Our ability to engage in acquisition
activity depends on our ability to obtain debt or equity financing, neither
of which may be available or, if available, may not be on terms acceptable to
us. Our inability to obtain such financing would have a material adverse
effect on our acquisition strategy.
15
<PAGE>
Both debt and equity financing involve certain risks. Debt financing
may require us to pay significant amounts of interest and principal payments,
reducing the resources available to us to expand our existing businesses.
Equity financing may be dilutive to our stockholders' interest in the assets
and earnings of the Company. For example, of a total of 12,500 shares of
Series A Convertible Preferred Stock sold in April 1998, those shares plus
accrued dividends were converted into 1,231,180 shares of Common Stock at an
average price per share of approximately $1.04. Prior to the issuance of such
shares of Preferred Stock in April 1998, a total of approximately 4,437,000
shares of Common Stock had been outstanding. As of December 31, 1999, 17,200
shares of Preferred Stock plus accrued dividends had been converted into
about 1.7 million shares of Common Stock at an average price per share of
$1.04 resulting in a dilutive effect on the Company's existing stockholders.
At December 31, 1999, 300 shares of Preferred Stock remained outstanding. In
addition, Common Stock issued as consideration in an acquisition transaction
may be dilutive under certain circumstances to our existing stockholders.
RELIANCE UPON DISTRIBUTOR AND SUPPLIER RELATIONSHIPS; DEPENDENCE ON
- -------------------------------------------------------------------
SIGNIFICANT CUSTOMERS.
- ----------------------
Our North American operations are based upon the integration of
hardware, software, and communications and data processing equipment
manufactured by others with our internally developed software, into systems
designed to meet the needs of our customers. Although we have distributor
agreements with a number of equipment manufacturers, a major portion of our
revenues is based upon products manufactured by three companies. In this
regard, we rely to a significant extent on products manufactured (and
services provided) by Centigram Communications Corporation, products
manufactured by Baypoint Innovations, the Mitel Corporation subsidiary that
purchased the customer premises equipment ("CPE") business of Centigram, and
on products manufactured by Interactive Intelligence, Inc. ("I3"),
principally I3's enterprise information center ("EIC") product, a
next-generation communications server that merges voice and data functions
into a single computer-based system. Revenues from EIC products accounted for
approximately 10% of North American revenues for the last two quarters of the
fiscal year ended September 30, 1999 and approximately 4% of North American
revenues for the quarter ended December 31, 1999. EIC revenues are expected
to increase rapidly in future quarters. Legacy voice processing revenues
(which includes CPE product revenues), although declining in importance,
accounted for approximately 94% of our revenues for the quarter ended
December 31, 1999. Any disruption to our relationships with, or to products
or services supplied by, Centigram, Baypoint or I3 would have a significant
adverse effect on our business for an indeterminate period of time until new
supplier relationships could be established. Further, any material change in
our other distributor relationships could adversely affect the Company.
Infotel, our Singapore subsidiary, offers a wide range of
infrastructure communications equipment products. Infotel also has an
established business providing test measuring instrumentation and testing
environments, and is the regional distributor and test and repair center for
Rohde & Schwarz test instruments. Infotel's profitability depends in part on
a steady stream of revenues relating to the services performed for Rohde &
Schwarz test instruments. Since Infotel's revenues comprised approximately
41% of NHancement's total revenues for the fiscal year ended September 30,
1999, any material change in Infotel's relationship with its manufacturers,
including Rohde & Schwarz, and any interruption in the delivery of products
to Infotel by its key suppliers, would materially adversely affect
NHancement's financial condition.
We currently service approximately 1,000 customers through the
operations of our subsidiaries. The revenues from our three largest customers
accounted for approximately 32.7%, 11.9% and 10.9% of total revenues during
the fiscal quarter ended December 31, 1999. No other customers accounted for
over 5% of total revenues during the period. This concentration of revenue
results in additional risk to the Company and its operations, and any
disruption of orders from our single largest customer would have an adverse
effect on our financial condition.
16
<PAGE>
INTENSE COMPETITION.
- --------------------
The voice-processing and customer premises equipment markets are
highly competitive and competition in this industry is expected to further
intensify with the introduction of new product enhancements and new
competitors. Our domestic subsidiaries compete with a number of larger
integrated companies that provide competitive voice-processing products and
services as subsets of larger product offerings. The Company's existing and
potential competitors include many large domestic and international companies
that have better name and product recognition in the market for the Company's
products and services, a larger installed base of customers, and
substantially greater financial, marketing and technical resources than the
Company.
Our Singapore subsidiary, Infotel, competes against several large
companies in Singapore that are better capitalized. Although Infotel has in
the past managed to compete successfully against these larger companies on
the basis of its engineering and product management expertise, we cannot
assure you that this expertise will allow Infotel to compete effectively with
these larger companies in the future. Further, various large manufacturers
headquartered outside of Singapore have established their own branch offices
in Singapore and also compete with Infotel.
The software products and services markets are highly competitive
and competition in this industry is expected to further intensify with the
introduction of new products, product enhancements as well as new
competitors. Our software subsidiaries competes with a number of larger
software/middleware companies that provide competitive products and services
on a stand-alone basis and as subsets of larger product offerings. The
Company's existing and potential competitors include many large domestic and
international companies that have better name and product recognition in the
market for the Company's products and services, a larger installed base of
customers, and substantially greater financial, marketing and technical
resources than the Company.
RISKS INVOLVED IN DEVELOPING SOFTWARE PRODUCTS.
- -----------------------------------------------
There are significant risks involved in the development of software
technologies, including suitability for intended uses, economic viability and
obsolesce due to the introduction of new technologies. There are, in
addition, risks associated with product development including feasibility,
performance, cost and quality issues. In this regard, although the Company
has added personnel with software product development experience, the Company
has no prior experience with software product development or new product
rollouts. Also, there is the risk that the Company will not have sufficient
resources or be able to obtain any necessary financing to develop such
technologies. Further, there can be no assurances that a viable market will
exist for new products that are successfully developed by the Company.
RISKS IN INTEGRATING ACQUIRED COMPANIES.
- ----------------------------------------
We have in the past pursued, and plan to continue to pursue,
acquisition opportunities. Acquisitions involve a number of special risks,
including among others:
- Adverse short-term effects on our operating results
- The disruption of our ongoing business
- The risk of reduced management attention to control normal daily
operations
17
<PAGE>
- Our dependence on the retention, hiring and training of key
personnel and the potential risks of loss of such personnel
- Our potential inability to successfully integrate the personnel,
operation, technology and products of acquired companies
- Unanticipated problems or unknown legal liabilities
- Adverse tax or financial consequences
The Company has made several significant acquisitions since its
formation as a holding company in 1996. Two of these acquisitions, namely the
acquisition of NHAN NA (formerly named Voice Plus) and Advantis Network &
Systems Sdn Bhd, a Malaysian company, in the past yielded operating results
that were significantly lower than expected. In fact, the poor performance of
Advantis led to its divestiture less than one year after the company was
acquired by NHancement. Accordingly, we cannot assure you that the future
performance of our subsidiaries will be commensurate with the consideration
paid to acquire these companies. If we fail to establish the needed controls
and to manage growth effectively, our operating results, cash flows and
overall financial condition will be adversely affected.
RISKS PERTAINING TO INTERNATIONAL OPERATIONS.
- ---------------------------------------------
Infotel, our Singapore subsidiary, accounted for approximately 41%
of our revenues for the fiscal year ended September 30, 1999 and 43% of our
revenues for the quarter ended December 31, 1999. There are risks associated
with our international operations, including:
- Our dependence on members of management of Infotel and the risk
of loss of customers in the event of the departure of key
personnel
- Unexpected changes in or impositions of legislative or regulatory
requirements
- Potentially adverse taxes and adverse tax consequences
- The burdens of complying with a variety of foreign laws
- Political, social and economic instability
- Potential hostilities
- Changes in diplomatic and trade relationships
- Potential restrictions on cash transfers
- Volatility in the currency exchange rates
Any one or more of these factors could negatively affect the
performance of Infotel and result in a material adverse change in the
business, operations and financial condition of NHancement.
18
<PAGE>
RISKS INVOLVED IN CHANGES IN MANAGEMENT.
- ----------------------------------------
Management changes often have a disruptive effect on businesses and
can lead to the loss of key employees because of the uncertainty inherent in
change. In early January 1999, the President and Chief Executive Officer of
NHancement resigned his position and, later in the year, the Company's Chief
Financial Officer and the Secretary and General Counsel of NHancement left
the Company to pursue other opportunities. Douglas S. Zorn, the former Chief
Financial Officer of the Company, was promoted to President and Chief
Executive Officer to fill the vacancies created by the resignation of the
former President and Chief Executive Officer. While hiring efforts are
underway to fill the vacancies created by the departure of these and other
key employees, there is no assurance that these posts will be filled in the
near future since the job market in the greater San Francisco Bay Area is
intensely competitive. The loss of these or other key employees of the
Company could have a material adverse effect on the Company's operations.
Furthermore, the recent changes in management may not be adequate to sustain
the Company's profitability or to meet its future growth targets.
YEAR 2000 DISCLOSURE
The Company has completed the tasks required to be performed by the
Company under the plan implemented by the Company to correct internal
computer systems that could be affected by the "Year 2000" problem. The Year
2000 problem is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Software programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure
or miscalculations.
With the modifications the Company made to its software programs
(including replacements of software in some instances), the Year 2000 problem
did not result in any operational problems for the Company's domestic or
foreign computer systems. Further, the Company's internal computer systems
for North American and Asian operations were purchased from well-recognized
companies and did not suffer any operating problems. However, if the
modifications (or replacements) made by the Company were not made properly or
prove to be inadequate, the Company may incur additional costs, which could
be material to the operations of the Company.
The costs incurred to date by the Company in connection with such
modifications and replacements total approximately $605,000, spread over the
last two fiscal years.
The Company distributes products from third party voice product
equipment manufacturers in North America, Europe and Asia, some of which may
be susceptible to Year 2000 problems. During fiscal years 1998 and 1999, the
Company completed a review of the products that its domestic and foreign
subsidiaries distribute for the purpose of determining which, if any, of such
products were not capable of recognizing the year 2000. Communications were
effected with all of the manufacturers of such products to determine the
nature and extent of any Year 2000 problems. Where potential Year 2000
computer problems were identified, the manufacturers of these products stated
that the upgrades or replacements recommended by them, if implemented prior
to the year 2000, would resolve such problems. However, there can be no
assurances that these manufacturers' solutions will, in fact, completely
resolve all Year 2000 problems. Moreover, the solutions provided by some
manufacturers involved a significant upgrade cost to the end user, which
could give rise to disputes or litigation between the end user and the
manufacturer, which might also involve the Company. We also have not been
able to determine whether the legal systems of Singapore would result in more
or less litigation exposure to the Company and its subsidiaries if there were
disputes between the end user of a product installed by Infotel and the
manufacturer. While the costs of such possible disputes or litigation could
be significant, we have not received any complaints to date. We
19
<PAGE>
believe we have taken all reasonable steps to identify and correct all Year
2000 problems within our control. However, the Company may suffer business
interruptions if customers, vendors and other third parties with which we
conduct business are unsuccessful in remedying their own Year 2000 problems.
As of the date of this filing, the Company had not received any complaints
from any of its customers.
20
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the case of BOWNE OF LOS ANGELES, INC. VS. NHANCEMENT TECHNOLOGIES
INC., Cause No. B C222457 filed in the Los Angeles County Superior Court on
December 29, 1999, the plaintiff has made a claim in the amount of $33,954.57
against the Company arising out of certain printing services provided to the
Company in 1998 and 1999. The Company answered the complaint denying the
allegations on February 3, 2000. The Company is currently engaged in efforts
to settle the claim.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
WARRANT ISSUED DURING THE QUARTER ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TITLE OF AGGREGATE
CLASS OF DATE OF NHANCEMENT NUMBER OF PURCHASE FORM OF
PURCHASERS(1) SALE SECURITIES SHARES PRICE CONSIDERATION
- ------------------------------- ------------- ---------------------- ------------------ ----------------- -------------
<S> <C> <C> <C> <C> <C>
Warrants granted to Shares of
executive officer (2) 12/10/99 Common Stock 100,000 (2) (2)
Warrants granted to Shares of
consultant (3) 12/10/99 Common Stock 150,000 (3) (3)
Warrants granted to financial Shares of
consultant (4) 12/10/99 Common Stock 175,000 (4) (4)
Warrants granted to Shares of
directors (5) 12/10/99 Common Stock 150,000 (5) (5)
Warrants granted to sales Shares of
representative (6) 12/10/99 Common Stock 50,000 (6) (6)
</TABLE>
(1) The issuance of warrants to the individuals identified in the table
above were made in reliance on Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"), and /or Regulation D promulgated
thereunder.
(2) The warrants were granted to the President & Chief Executive
Officer of NHancement. The warrants are immediately exercisable and
expire one year from the date of issuance. The exercise price on the
date of issuance was equal to or greater than 100% of the fair
market value as determined on the date of issuance.
(3) The warrants were granted to a consultant (who is also a member of
the Board of Directors of NHancement) in consideration for the
forgiveness of amounts due for consulting services. The warrants are
immediately exercisable and expire one year from the date of
issuance. The exercise price on the date of issuance was equal to or
greater than 100% of the fair market value as determined on the date
of issuance.
(4) The warrants were granted to outside financial consultants. The
warrants are immediately exercisable and expire one year from the
date of issuance. The exercise price on the date of issuance was
equal to or greater than 100% of the fair market value as determined
on the date of issuance.
(5) The 50,000 warrants were granted to each of the outside directors. The
warrants are immediately exercisable and expire one year from the
date of issuance. The exercise price on the date of issuance was
equal to or greater than 100% of the fair market value as determined
on the date of issuance.
(6) The warrants were granted to an outside sales representative in
substitution for the commission earned for the sales made by the
representative. The warrants are immediately exercisable and expire
two years from the date of issuance. The exercise price on the date
of issuance was equal to or greater than 100% of the fair market
value as determined on the date of issuance.
21
<PAGE>
ITEM 5. OTHER INFORMATION
Effective February 4, 2000, the Company completed its acquisition of the
assets of SVG Software Services, Inc., a California corporation ("SVG"),
pursuant to the Plan and Agreement of Reorganization (the "Agreement"), dated
February 4, 2000, between NHancement and SVG. The parties intend that the
transaction 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.
Under the Agreement, NHancement acquired from SVG, and SVG sold to
NHancement all of the properties and assets of SVG, including all rights to
its intellectual property and business as a going concern, its goodwill and
the right to use its corporate name (collectively referred to as the
"Assets"). In consideration for Assets by SVG, NHancement issued to SVG two
hundred fifty thousand (250,000) shares of NHancement Common Stock.
NHancement has agreed to use its best effort to qualify for registration
on Form S-3, a portion (100,000 shares) the Common Stock issued to SVG as
soon as practicable upon the written request by SVG or its assignees to
effect such registration. The remaining 150,000 shares of Common Stock are
subject to lockup agreements.
Effective February 4, 2000 the Company also entered into an agreement
with certain parties affiliated with SVG to acquire all of the outstanding
shares of the Common Stock of Enhancement Technologies (India) Pte. Ltd. , a
company organized and existing under the laws of the Republic of India. The
purchase price payable for these outstanding shares is fifty thousand dollars
($50,000).
For this transaction, the sellers of the shares have agreed to use their
best effort to obtain approval from the government of the Republic of India
within thirty (30) days of the date of the agreement.
Both SVG Software Services Inc. and Enhancement Technologies (India) Pte.
Ltd., have been involved in the development and design of software products.
The acquisitions of these software properties are an important component of
the Company's strategy to become a software products and services company.
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of the Quarterly Report on Form
10-QSB
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------------ --------------------------------------------------------------
<S> <C>
2.5 Plan and Agreement of Reorganization between the Company and
SVG Software Services, Inc., a California corporation, dated
February 4, 2000.
2.6 Stock Purchase Agreement between the Company and Vijay and
Vinita Gulechha dated February 4, 2000.
4.16 Warrant dated December 10, 1999, issued to Douglas S. Zorn.
4.17 Warrant dated December 10, 1999, issued to James S.
Gillespie.
4.18 Warrant dated December 10, 1999, issued to John M. Black.
4.19 Warrant dated December 10, 1999, issued to James S.
Gillespie.
4.20 Warrant dated December 10, 1999, issued to N. Bruce Walko.
4.21 Warrant dated December 10, 1999, issued to Robert J.
Schmier.
4.22 Warrant dated December 10, 1999, issued to Diane Nowak.
10.59 Letter dated December 10, 1999, terminating the Consultancy
Agreement dated June 7, 1999 between the Company and James
S. Gillespie.
27.1 Financial data schedule
</TABLE>
(b) Reports on Form 8-K:
A report on Form 8-K was filed with the Commission on December 23, 1999
and later amended by a report on Form 8-K/A filed with the Commission on
December 29, 1999.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NHANCEMENT TECHNOLOGIES INC.
By: /s/ Douglas S. Zorn
----------------------------------------
Date: February 14, 2000 Douglas S. Zorn
President and Chief Executive Officer
and Acting Chief Financial Officer
24
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------------ -------------------------------------------------------------
<S> <C>
2.5 Plan and Agreement of Reorganization between the Company and
SVG Software Services, Inc., a California corporation, dated
February 4, 2000.
2.6 Stock Purchase Agreement between the Company and Vijay and
Vinita Gulechha dated February 4, 2000.
4.16 Warrant dated December 10, 1999, issued to Douglas S. Zorn.
4.17 Warrant dated December 10, 1999, issued to James S.
Gillespie.
4.18 Warrant dated December 10, 1999, issued to John M. Black.
4.19 Warrant dated December 10, 1999, issued to James S.
Gillespie.
4.20 Warrant dated December 10, 1999, issued to N. Bruce Walko.
4.21 Warrant dated December 10, 1999, issued to Robert J.
Schmier.
4.22 Warrant dated December 10, 1999, issued to Diane Nowak.
10.59 Letter dated December 10, 1999, terminating the Consultancy
Agreement dated June 7, 1999 between the Company and James
S. Gillespie.
27.1 Financial data schedule.
</TABLE>
25
<PAGE>
Exhibit 2.5
PLAN AND AGREEMENT OF REORGANIZATION
THIS PLAN AND AGREEMENT OF REORGANIZATION ("AGREEMENT"), dated
February 4, 2000, by and between SVG Software Services, Inc., a California
corporation ("SVG") and NHancement Technologies Inc., a Delaware corporation
("NHANCEMENT").
PLAN OF REORGANIZATION
The reorganization (the "REORGANIZATION") will comprise, in general,
the conveyance by SVG to NHancement of substantially all the assets of SVG,
the issuance by NHancement to SVG of shares of NHancement's authorized but
unissued voting common stock (the "COMMON STOCK"), the distribution by SVG
its shareholders of the shares of the Common Stock received by SVG and the
dissolution of SVG, 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 SVG, and SVG 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 SVG, including all rights to its intellectual
property 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 SVG 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, SVG 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.
2. ISSUANCE AND DELIVERY OF COMMON STOCK. In consideration of and in
exchange for the foregoing transfer, assignment and conveyance of the Assets
by SVG, NHancement shall issue and deliver to SVG at the Closing one stock
certificate registered in the name of SVG for two hundred fifty thousand
(250,000) shares of the Common Stock. NHancement shall thereafter divide
such stock certificates into certificates of such denominations and
registered in such names as SVG shall request, but under no circumstances
shall NHancement be obligated to issue certificates for fractions of a share.
3. ASSUMPTION OF LIABILITIES. NHancement shall not, by instrument or
otherwise, assume or agree to be responsible for or to perform, discharge or
indemnify SVG against any contracts, obligations or
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Plan & Agreement of Reorganization
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liabilities of SVG of any type whatsoever, whether accrued or contingent, due
or not due or incurred or entered into by SVG 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. CONDITION PRECEDENT. This Agreement shall not be effective until
approved by the Board of Directors of NHancement.
5. ASSIGNMENT OF CONTRACTS. SVG 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.
6. DISTRIBUTION OF COMMON STOCK. SVG 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 Common Stock received by it to its shareholders in
exchange for and in complete cancellation of their shares of SVG's Capital
Stock.
7. DISSOLUTION OF SVG. SVG shall wind up its affairs, pay its
outstanding obligations to third parties and dissolve as promptly as is
practicable after the Closing and SVG 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 February 4, 2000 (or
such other time and date as may be mutually agreed upon but no later than
February 15, 2000).
10. REPRESENTATIONS AND WARRANTIES OF SVG. SVG hereby represents and
warrants 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.
10.1 ORGANIZATION AND STANDING. SVG 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. SVG is not required to be
qualified as a foreign corporation in any jurisdiction in the U.S.A.;
provided, however, that SVG 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.
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10.2 RESERVED.
10.3 SUBSIDIARIES. SVG 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.
10.4 CORPORATE AUTHORITY AND AUTHORIZATION. SVG has the corporate
right and authority to assign, convey and transfer the Assets to NHancement.
All corporate action on the part of SVG, its officers and directors necessary
for the authorization, execution, delivery and performance of this Agreement
by SVG and the performance of all of SVG's obligations hereunder has been
taken. This Agreement constitutes a valid and binding obligation of SVG,
enforceable against SVG 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 the laws of general application
relating to the 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 SVG 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 SVG 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 SVG.
SVG (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. SVG 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 SVG, free
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and clear of any rights, liens or claims of others, including, without
limitation, former employers of all employees of SVG. 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 SVG did immediately prior to such transfer
and assignment.
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 business of SVG
as now conducted or has proposed to be conducted (the "SOFTWARE") and its
ownership to which SVG 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 SVG's possession and control. 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.
10.7 MANUFACTURING RIGHTS. SVG 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 SVG, no present or former
officer, director or employee of SVG 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 SVG or SVG's ability to conduct its
business. SVG has established appropriate policies and procedures to ensure
no officer, director or other employee of SVG misuses confidential
information or trade secrets of others in the course of their employment or
other relationship with SVG. SVG is not a party to any labor agreements,
employment contracts, consulting agreements or any other instruments which
limit the rights of SVG to terminate the employment or other relationship
with a particular individual at will. SVG 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 SVG.
10.8.2 SVG: (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 SVG, sought to represent any of
the employees, representatives or agents of SVG, (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
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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 SVG or any trade or business (whether or not incorporated)
which, together with SVG, would be deemed to be a "single employer" within
the meaning of such Section 4001. SVG 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. SVG is not indebted, directly or
indirectly, to any of its officers or directors 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 or directors or any of their affiliates or members of their
immediate families, are indebted to SVG or have any direct or indirect
ownership interest in any firm or corporation with which SVG is affiliated or
with which SVG has a business relationship, or any firm or corporation which
competes with SVG (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 SVG.
10.10 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. SVG
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. SVG 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 SVG, 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
SVG; and there is no such term or provision which adversely affects SVG, its
operations or financial condition as presently conducted or as contemplated
to be conducted. SVG and, to the best knowledge of SVG, 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.
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 SVG 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 SVG in excess
of Ten Thousand Dollars ($10,000), (ii) obligate SVG to share, license or
develop any product or technology, (iii) appoint distributors, dealers or
sublicensees of SVG's products, which agreements cannot be terminated on
thirty (30) days' notice or less or (iv) involve transactions or proposed
transactions between SVG and its officers, directors, affiliates or any
affiliate thereof. Copies of such agreements
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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 SVG and any of
the clients or customers of SVG, or any other person having a business
relationship with SVG, which dispute or disagreement, if resolved unfavorably
to SVG, would have a materially adverse effect on SVG's operations or
financial condition. No client or customer of SVG, or any other person
having a business relationship with SVG, has indicated that it presently
contemplates terminating its business relationship with SVG.
10.11.2 All open orders, licenses and contracts for SVG's
products and services can be fulfilled by SVG 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 SVG, after
reasonable investigation, SVG 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 SVG, 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.;
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 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 SVG. SVG 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
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licenses, permits, authorizations and franchises constitute all of the
licenses, permits, authorizations and franchises required to permit SVG to
conduct its business in the manner in which it is now being conducted, and
SVG 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 SVG or, to the best knowledge of SVG, any of
its officers, directors or employees or its properties, before any court or
governmental agency (nor, to the best knowledge of SVG, 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 SVG, or in any material impairment of the right or
ability of SVG to carry on its business as now conducted or as proposed to be
conducted or in any material liability on the part of SVG, or any change in
the current equity ownership of SVG, 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 SVG) involving the prior
employment of any of SVG's employees, their use in connection with SVG'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. SVG, its past and
present officers and directors: (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 SVG, its officers and
directors. SVG has fully complied with the provisions of the United States
Export Administration Act and all rules and regulations promulgated
thereunder.
10.16 MATERIAL LIABILITIES. SVG has no liabilities which are,
individually or in the aggregate, material to the financial condition or
operating results of SVG which have not been disclosed on Schedule 10.16.
10.17 TAXES. SVG 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 SVG's federal, state and or
local taxes is pending, and SVG has no knowledge of any proposed liability
for any tax to be imposed upon SVG for which there is not an adequate reserve
reflected in SVG's Financial Statements.
10.18 TITLE. SVG 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.
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Plan & Agreement of Reorganization
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10.19 DISCLOSURE. SVG 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 SVG 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 (defined in
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 SVG; 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 as the indemnification provisions of Section 14.7 hereof may be
limited by principles of public policy and subject to the laws of general
application relating to the 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
(including as set forth in Section 14.3.1, the consummation of a registration
on Form S-3, which, until December 29, 2000, shall require a waiver from the
Commission of NHancement's technical violation of the 1934 Act's periodic
filing requirements).
11.4 1934 ACT DOCUMENTS. NHancement has delivered to SVG a copy of
its Form 10K for the fiscal year ending September 30, 1999 and its Form 10Q
for the quarter ending December 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 and SVG contained herein
shall remain effective against their
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Plan & Agreement of Reorganization
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respective successors, heirs and assigns and shall survive the Closing.
NHancement shall indemnify and hold SVG 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. SVG shall 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 SVG.
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 Common Stock under
Section 2, SVG represents and warrants that it:
13.1 Is aware that such Common Stock is highly speculative and that
there can be no assurance as to what return, if any, there may be.
13.2 Is 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 Common Stock.
13.3 Is acquiring such Common Stock 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 Common Stock may be resold pursuant to and on the
effectiveness of the S-3 Registration Statement referred to in Section 14
below).
13.4 Except for shares of Common Stock registered under the S-3,
understands that such Common Stock has 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 SVG's
investment intent as expressed herein. In this connection, SVG understands
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, 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 Common Stock registered under the S-3
further understands that such Common Stock 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 Is aware of Rule 144 promulgated under the Act which permits
limited public resale of the Common Stock if it is acquired in a non-public
offering subject to the satisfaction of certain
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Plan & Agreement of Reorganization
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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 Common
Stock 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 Common Stock 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 Common Stock 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 SVG wishes to sell the Common Stock; and thus, they
may be precluded from selling the Common Stock 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
Common Stock; and that, although Rule 144 is not exclusive, the Securities
and Exchange Commission (the "COMMISSION") has expressed its opinion that
persons proposing to sell private placement Common Stock 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 Common Stock registered under the S-3
understand that the certificates evidencing the Common Stock 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 (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."
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.
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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 up to one hundred
thousand (100,000) shares of Common 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 SVG 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.
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 upon written request by the Holders of the Registrable Shares to
effect such registration. Notwithstanding the foregoing, SVG acknowledges
that NHancement may not utilize registration on Form S-3 until December 29,
2000 unless, prior to such time, the Commission grants NHancement a waiver of
it's failure to file a Form 8-K on a timely basis and consents to its use of
Form S-3 to effect a registration.
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
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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 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
<PAGE>
SVG Software Services, Inc. / NHancement Technologies Inc.
Plan & Agreement of Reorganization
Page 13
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 14.7.2 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 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 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, a copy of the most recent annual or quarterly report of
<PAGE>
SVG Software Services, Inc. / NHancement Technologies Inc.
Plan & Agreement of Reorganization
Page 14
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, SVG agrees 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 Common Stock that are not Registrable
Securities for a one (1) year period following the Closing and (ii) one-half
(1/2) of such shares of the Common Stock that are not Registrable Securities
for an additional one (1) year period following the first anniversary date of
the Closing. All subsequent transferees or assignees of the shares of Common
Stock must agree in writing to the provisions set forth in this Section 14 as
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 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
<PAGE>
SVG Software Services, Inc. / NHancement Technologies Inc.
Plan & Agreement of Reorganization
Page 15
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.
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 SVG: SVG Software Services, Inc.
871 E. Hamilton Avenue, Suite E
Campbell, California 95008
If to SVG with a Vaibhav Gulechchha
copy to: 3455 Homestead Road
Apt. 28
Santa Clara, CA 95051
<PAGE>
SVG Software Services, Inc. / NHancement Technologies Inc.
Plan & Agreement of Reorganization
Page 16
If to NHancement: NHancement Technologies Inc.
6663 Owens Drive
Pleasanton, California 94588
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 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.
<PAGE>
SVG Software Services, Inc. / NHancement Technologies Inc.
Plan & Agreement of Reorganization
Page 17
31. EXECUTION OF DOCUMENTS. At any time and from time to time after the
Closing, SVG 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 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.
<PAGE>
SVG Software Services, Inc. / NHancement Technologies Inc.
Plan & Agreement of Reorganization
Page 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
NHANCEMENT: SVG:
NHANCEMENT TECHNOLOGIES INC. SVG SOFTWARE SERVICES, INC.
By: /s/ DOUGLAS S. ZORN By: /s/ RAM V. MANI
------------------------------------- ---------------------------------
Douglas S. Zorn, Ram V. Mani
President and Chief Executive Officer President
<PAGE>
Exhibit 2.6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is by and among
Vijay and Vinita Gulechha, individuals (the "SELLERS") and NHancement
Technologies Inc., a Delaware corporation ("BUYER"), and is made this 4th day
of February, 2000.
A G R E E M E N T
1. SALE OF STOCK. Sellers will sell and transfer to Buyer, and Buyer
will purchase all the outstanding shares of the Common Stock of NHancement
Technologies India, a company organized and existing under the laws of the
Republic of India (the "STOCK") free and clear of all security interests,
liens, encumbrances, claims, charges, assessments and restrictions or any
other defects in title of any nature whatsoever except those set forth on the
certificate representing such Stock. The purchase price for all the
outstanding shares of Stock will be an aggregate of fifty thousand Dollars
($50,000).
2. DELIVERY OF STOCK. Concurrent herewith, Sellers shall deliver to
Buyer certificates evidencing the Stock to be transferred by Sellers to Buyer
pursuant to this Agreement. The certificates evidencing such shares of Stock
so delivered shall be properly endorsed for transfer or accompanied by duly
executed stock powers, in either case executed in blank, or in favor of
Buyer, or as Buyer shall direct, with signatures guaranteed by a national
bank, trust company or NASD member.
3. PAYMENT OF PURCHASE PRICE. Buyer shall deliver the purchase price
for the Stock purchased hereunder to Sellers by delivery of a bank check or
other check acceptable to Sellers.
4. SELLERS' REPRESENTATIONS AND WARRANTIES. Sellers represent and
warrant to Buyer:
4.1 Sellers have and will transfer to Buyer, good, valid and
marketable title to all of the Stock being sold hereunder, and there are no
security interests, liens, claims, charges, encumbrances, assessments or
restrictions or any other defects in title of any nature whatsoever on any of
such Stock except as set forth on the certificate representing the Stock.
4.2 Sellers, or the person executing this Agreement on behalf
of Sellers, has the right, power, legal capacity and authority to enter into
and perform Sellers' obligations under this Agreement.
5. 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.
<PAGE>
NHancement Technologies Inc./Vijay and Vinita Gulechha
Stock Purchase Agreement
Page 2
6. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and Agreement of the parties hereto with respect to the subject
matter hereof and supersedes 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.
7. ATTORNEY'S 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). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
8. CHOICE OF COUNSEL. Sellers acknowledge (i) that this Agreement was
prepared with his or her knowledge and consent by counsel for Buyer; (ii)
that he or she was advised by Buyer to consider seeking independent counsel
to review this Agreement on his or her behalf; (iii) that he or she had
adequate time to seek the advice of such independent counsel and to review
this Agreement; (iv) that he or she either obtained the advice of such
independent counsel or knowingly and intentionally chose not to seek such
advice; and (v) that he or she fully understands this Agreement and all of
its terms and provisions.
9. GOVERNMENT APPROVAL. Sellers covenant to use their best efforts to
obtain approval from the government of the Republic of India for the transfer
of the Stock from the Sellers to the Buyer pursuant to this Agreement within
thirty (30) days of the date of this Agreement or such time as shall be
mutually agreed upon by the parties hereto.
<PAGE>
NHancement Technologies Inc./Vijay and Vinita Gulechha
Stock Purchase Agreement
Page 3
SELLERS: BUYER:
VIJAY GULECHHA NHANCEMENT TECHNOLOGIES INC.
/s/ VIJAY GULECHHA By: /s/ DOUGLAS S. ZORN
- ------------------------------------ --------------------------
VINITA GULECHHA Its: President and CEO
-------------------------
/s/ VINITA GULECHHA
- ------------------------------------
<PAGE>
Exhibit 4.16
NHANCEMENT TECHNOLOGIES INC.
Issued as of the 10th day (1) Aggregate Price: $342,750.00
Of December,1999 (2) Initial Warrant Price: $3.4275
(3) Number of Shares Initially Subject
to Warrant: 100,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN SATISFIED.
COMMON STOCK WARRANT
This certifies that DOUGLAS S. ZORN, ("PURCHASER"), whose address for
notice is located at 6663, Owens Drive, Pleasanton, Ca 94588 or any party to
whom this Warrant is assigned in compliance with the terms hereof (Purchaser
and any such assignee being hereinafter sometimes referenced as "HOLDER"), is
entitled to subscribe for and purchase, during the period commencing at the
issue date set forth above and ending at 5:00 p.m., California, local time,
on the first (1st) anniversary of such issue date, the number of shares of
fully paid and nonassessable Common Stock ("COMMON STOCK") of NHANCEMENT
TECHNOLOGIES INC, A DELAWARE CORPORATION (the "COMPANY"), that have an
aggregate purchase price equal to the Aggregate Price as defined below. The
purchase price of each such share shall be equal to the Warrant Price, as
defined below.
ARTICLE 1
DEFINITIONS
1.1 "AGGREGATE PRICE" shall be $342,750.00
1.2 "WARRANT PRICE" shall be $3.4275, as adjusted herein.
ARTICLE 2
EXERCISE AND PAYMENT
(i) CASH EXERCISE. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
2.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or of any
portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the form of Notice of Cashless
<PAGE>
Common Stock Warrant
Page 2
Exercise attached hereto as Exhibit "B-2", in which event the Company shall
issue to Holder a number of shares of the Company's Common Stock computed using
the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price.
2.3 FAIR MARKET VALUE. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary, the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq Smallcap
Market System ("SCMS") or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the trading day prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the SCMS or
on an exchange, the per share fair market value of the Common Stock shall be
as determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne equally by the Company and the Holder. Such
appraiser shall meet the following criteria: (a) it shall not be associated
or affiliated with the Company in any fashion and shall not have previously
provided services to the Company; (b) the appraiser shall have reasonable
qualifications to appraise the value of the Common Stock; (c) it is not (and
none of its affiliates is) a promoter, director or officer of the Company or
any of its affiliates or an underwriter with respect to any of the
securities of the Company; and (d) it does not provide any advice or
opinions of the Company except as an appraiser under this section. In the
event such an appraisal is required it should be conducted under the
following procedures: the Company shall select the appraiser within ten (10)
days of receipt of written notice from the Holder that agreement cannot be
reached and the Company shall submit the name of such appraiser to Holder.
Twenty (20) days after selection of the appraiser, the Company and the
Holder shall each submit to the appraiser a single value representing such
party's contention as to the fair market value of one share of the Company's
Common Stock. Within fifteen (15) days after receipt of the submission of
the Company and the Holder, the appraiser shall select one of the two values
submitted by the parties, and such value shall be the fair market value of
one share of the Common Stock for purpose of this Warrant. The appraiser
shall have no discretion to take any action other than selection of one of
the two values submitted to the appraiser. The partes may submit to the
appraiser and one another, at the time they submit their respective single
values, such supporting documentation as they deem necessary or appropriate.
The parties shall have the opportunity seven (7) business days after receipt
of the other party's proposed valuation and supporting documentation to
provide the appraiser and each other with supplemental written information.
The appraiser may, in its discretion, hold a single six (6) hour hearing on
valuation issues. If a hearing is held, each party shall be allocated three
(3) hours. The appraiser may conduct the hearing in accordance with any
rules of procedure it deems appropriate. The value selected by the
appraiser shall be final and binding upon the parties without any further
right of appeal.
<PAGE>
Common Stock Warrant
Page 3
2.4 STOCK CERTIFICATES. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
remaining unexercised Aggregate Price shall also be issued to Holder at such
time.
2.5 AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's Common
Stock upon such expiration shall be the fair market value determined pursuant to
Section 2.3 above. To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 2.5, the Company agrees to
notify Holder within a reasonable period of time of the number of shares of the
Company's Common Stock, if any, Holder is to receive by reason of such automatic
exercise.
2.6 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof
(excluding taxes based on the income of Holder). The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved for issuance a sufficient number of shares of its Common Stock or other
securities as would be required upon the full exercise of the rights represented
by this Warrant (including conversion of all such Common Stock issuable
hereunder).
2.7 FRACTIONAL SHARES. No fractional share of Common Stock will be issued in
connection with any exercise hereof; in lieu of a fractional share upon complete
exercise hereof, Holder may purchase a whole share by delivering payment equal
to the appropriate portion of the then effective Warrant Price.
ARTICLE 3
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant of like form, tenor and effect and which
will provide that Holder shall have the right to exercise such new Warrant and
purchase upon such exercise, in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of securities, money
and property receivable upon such reclassification, change, consolidation,
merger, sale or transfer by a holder of one share of Common Stock issuable upon
exercise of this Warrant had this Warrant been exercised immediately prior to
such reclassification, change, consolidation, merger, sale or transfer. Such
new Warrant shall be as nearly equivalent in all substantive respects as
practicable to this Warrant and the adjustments provided in this Article III and
the provisions of this Section 3.1, shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
3.2 SUBDIVISION OR COMBINATION OF SHARES. If the Company shall at any
time while this Warrant remains outstanding and less than fully exercised:
(i) divide its Company Stock, the Warrant Price
<PAGE>
Common Stock Warrant
Page 4
shall be proportionately reduced; or (ii) shall combine shares of its Common
Stock, the Warrant Price shall be proportionately increased.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock (except any distribution described
in Sections 3.1 and 3.2 hereof) then the Warrant Price shall be adjusted to
that price determined by multiplying the Warrant Price then in effect by a
fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution,
and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
3.4 OTHER ACTION AFFECTING COMMON STOCK. If the Company takes any action
affecting its Common Stock after the date hereof (including dividends and
distributions), other than an action described in any of Sections 3.1 and 3.2
hereof, which would have an adverse effect upon Holder's rights hereunder, the
Warrant Price shall be adjusted downward in such manner and at such time as the
Board of Directors of the Company shall in good faith determine to be equitable
under the circumstances.
3.5 TIME OF ADJUSTMENTS TO THE WARRANT PRICE. All adjustments to the Warrant
Price and the number of shares purchasable hereunder, unless otherwise specified
herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders
to receive a distribution or dividend payable in equity securities,
provided that such division, combination, distribution or dividend
actually occurs.
3.6 NOTICE OF ADJUSTMENTS. In each case of an adjustment in the Warrant
Price and the number of shares purchasable hereunder, the Company, at its
expense, shall cause the Chief Financial Officer of the Company to compute such
adjustment and prepare a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Company shall
promptly mail a copy of each such certificate to Holder pursuant to Section 6.8
hereof.
3.7 DURATION OF ADJUSTED WARRANT PRICE. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.8 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE 4
TRANSFER, EXCHANGE AND LOSS
4.1 TRANSFER. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any partial
transfer, the Company will issue and deliver to Holder a new Warrant or Warrants
with respect to the Warrants not so transferred. Notwithstanding the foregoing,
Holder shall not be entitled to transfer a number of shares or an interest in
this Warrant representing less than five percent (5%) of the aggregate shares
initially covered by this Warrant (as presently constituted, with appropriate
<PAGE>
Common Stock Warrant
Page 5
adjustment being made in the event of stock splits, combinations,
reorganizations and the like occurring after the issue date hereof). Any
transferee shall be subject to the same restrictions on transfer with respect
to this Warrant as the Purchaser.
4.2 SECURITIES LAWS. Upon any issuance of shares of Common Stock upon
exercise of this Warrant, it shall be the Company's responsibility to comply
with the requirements of: (1) the Securities Act of 1933, as amended; (2) the
Securities Exchange Act of 1934, as amended; (3) any applicable listing
requirements of any national securities exchange; (4) any state securities
regulation or "Blue Sky" laws; and (5) requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If required
by the Company, in connection with each issuance of shares of Common Stock upon
exercise of this Warrant, the Holder will give: (i) assurances in writing,
satisfactory to the Company, that such shares are not being purchased with a
view to the distribution thereof in violation of applicable laws,
(ii) sufficient information, in writing, to enable the Company to rely on
exemptions from the registration or qualification requirements of applicable
laws, if available, with respect to such exercise, and (iii) its cooperation to
the Company in connection with such compliance.
4.3 EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of the
Aggregate Price as Holder shall designate at the time of such exchange. Each
new Warrant shall be identical in form and content to this Warrant, except for
appropriate changes in the number of shares of Common Stock covered thereby, the
percentage stated in Section 4.1 above, and any other changes which are
necessary in order to prevent the Warrant exchange from changing the respective
rights and obligations of the Company and the Holder as they existed immediately
prior to such exchange.
4.4 LOSS OR MUTILATION. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant.
ARTICLE 5
HOLDER RIGHTS
5.1 NO SHAREHOLDER RIGHTS UNTIL EXERCISE. No Holder hereof, solely by virtue
hereof, shall be entitled to any rights as a shareholder of the Company. Holder
shall have all rights of a shareholder with respect to securities purchased upon
exercise hereof at the time: (i) the cash exercise price for such securities is
delivered pursuant to Section 2.1 hereof and this Warrant is surrendered, (ii)
of delivery of notice of cashless exercise pursuant to Section 2.2 hereof and
this Warrant is surrendered, or (iii) of automatic exercise hereof (even if not
surrendered) pursuant to Section 2.5 hereof.
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNMENTAL APPROVALS. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all permits,
consents and approvals of governmental agencies and authorities and securities
acts filings under federal and state laws, which may be or become requisite in
connection with the issuance, sale, and delivery of this Warrant, and the
issuance, sale and delivery of the Common Stock or other securities or property
issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT AS
SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS
<PAGE>
Common Stock Warrant
Page 6
WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.
6.3 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Warrant, 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.
6.4 SEVERABILITY. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions 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 any such void or unenforceable provisions of this Warrant with valid
and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
6.5 DEFAULT, AMENDMENT AND WAIVERS. This Warrant may be amended upon the
written consent of the Company and the holders in the aggregate of the right to
purchase a majority of the number of unexercised shares covered by the Warrant
initially issued by the Company pursuant to the Consulting Agreement. 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 any succeeding breach or default. The failure
to cure any breach of any term of this Warrant within ten (10) days of written
notice thereof shall constitute an event of default under this Warrant.
6.6 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.
6.7 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any part
of this Warrant, 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). The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.
6.8 NOTICES. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, 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, return receipt
requested, addressed as follows:
Company: NHancement Technologies Inc.
39420 Liberty Street
Suite 250
Fremont, California 94538
Attn: Douglas S. Zorn
Holder: Douglas S. Zorn
6663, Owens Drive,
Pleasanton
Ca 94588
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 three (3) business 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.
<PAGE>
Common Stock Warrant
Page 7
6.9 TIME. Time is of the essence of this Warrant.
6.10 CONSTRUCTION OF AGREEMENT. A reference in this Warrant to any
Section shall include a reference to every Section the number of which begins
with the number of the Section to which reference is specifically made (E.G., a
reference to Section 3 shall include a reference to Sections 3.5 and 3.7). The
titles and headings herein are for reference purposes only and shall not in any
manner affect the interpretation of this Warrant.
6.11 NO ENDORSEMENT. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
6.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
6.13 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
Warrant.
NHancement Technologies Inc., a Delaware corporation
By: /s/ DOUGLAS S. ZORN
-----------------------------------------------
Douglas S. Zorn, Chief Executive Officer
<PAGE>
Common Stock Warrant
Page 8
EXHIBIT B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
DATE: __________________________
_________________________ Aggregate Price of Warrant
_________________________ Before Exercise: $_______________
_________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $_______________
Warrant Price: $___________ per share
Number of Shares of Common Stock to be
Issued Under this Notice: ____________
Remainder Aggregate
Price (if any) After Issuance: $______
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of NHancement
Technologies, Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full under
the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to
"_______________________", __________________________________. To the extent
the foregoing exercise is for less than the full Aggregate Price, a
Replacement Warrant representing the remainder of the Aggregate Price and
otherwise of like form, tenor and effect should be delivered to Holder along
with the share certificates evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
----------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond
to the name of the Holder on the Warrant.
<PAGE>
Common Stock Warrant
Page 9
EXHIBIT B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[DATE]
___________________________ Aggregate Price of Warrant
___________________________ Before Exercise: $_______________
___________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $_______________
Warrant Price: $__________ per share
Number of Shares of Common Stock to be
Issued Under this Notice:____________
Remainder Aggregate
Price (if any) After Issuance: $_____
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT", hereby irrevocably exercises such Warrant for,
and purchases thereunder, shares of the Common Stock of _NHancement
Technologies Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which, by reference to Section 2.3,
requires the use of the current per share fair market value of the Company's
Common Stock. The current fair market value of one share of the Company's
Common Stock shall be determined in the manner provided in Section 2.3, which
amount has been determined or agreed to by Holder and the Company to be
$ , which figure is acceptable to Holder for calculations of the number of
shares of Common Stock issuable pursuant to this Notice of Exercise
[SPECIFY ANY ALTERNATIVE ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR
APPLICABLE]. Holder requests that the certificates for the purchased shares
of Common Stock be issued in the name of and delivered to
"___________________________", ______________________. To the extent the
foregoing exercise is for less than the full Aggregate Price of the Warrant,
a replacement Warrant representing the remainder of the Aggregate Price (and
otherwise of like form, tenor and effect) shall be delivered to Holder along
with the share certificate evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
-------------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Exhibit 4.17
NHANCEMENT TECHNOLOGIES INC.
Issued as of the 10th day (1) Aggregate Price: $514,125.00
of December, 1999 (2) Initial Warrant Price: $3.4275
(3) Number of Shares Initially
Subject to Warrant: 150,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN SATISFIED.
COMMON STOCK WARRANT
(IMMEDIATELY EXERCISABLE)
This certifies that James S. Gillespie, ("PURCHASER"), whose address for
notice is located 198, Country Club Drive #35, Incline Village, NV 89451, or
any party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"HOLDER"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m.,
California, local time, on the first (1st) anniversary of such issue date, the
number of shares of fully paid and nonassessable Common Stock ("COMMON STOCK")
of NHANCEMENT TECHNOLOGIES INC, A DELAWARE CORPORATION (the "COMPANY"), that
have an aggregate purchase price equal to the Aggregate Price as defined below.
The purchase price of each such share shall be equal to the Warrant Price, as
defined below.
ARTICLE 1
DEFINITIONS
1.1 "AGGREGATE PRICE" shall be $514,215.00.
1.2 "WARRANT PRICE" shall be $3.4275, as adjusted herein.
ARTICLE 2
EXERCISE AND PAYMENT
2.1 CASH EXERCISE. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "A-1", and by the payment to the
<PAGE>
Common Stock Warrant
Page 2
Company, by cash or by certified, cashier's or other check acceptable to the
Company, of an amount equal to the aggregate Warrant Price of the shares
being purchased.
2.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or of any
portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the form of Notice of Cashless
Exercise attached hereto as Exhibit"A-2", in which event the Company shall
issue to Holder a number of shares of the Company's Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price.
2.3 FAIR MARKET VALUE. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary, the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq Smallcap
Market System ("SCMS") or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the trading day prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the SCMS or
on an exchange, the per share fair market value of the Common Stock shall be
as determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne equally by the Company and the Holder. Such
appraiser shall meet the following criteria: (a) it shall not be associated
or affiliated with the Company in any fashion and shall not have previously
provided services to the Company; (b) the appraiser shall have reasonable
qualifications to appraise the value of the Common Stock; (c) it is not (and
none of its affiliates is) a promoter, director or officer of the Company or
any of its affiliates or an underwriter with respect to any of the
securities of the Company; and (d) it does not provide any advice or
opinions of the Company except as an appraiser under this section. In the
event such an appraisal is required it should be conducted under the
following procedures: the Company shall select the appraiser within ten (10)
days of receipt of written notice from the Holder that agreement cannot be
reached and the Company shall submit the name of such appraiser to Holder.
Twenty (20) days after selection of the appraiser, the Company and the
Holder shall each submit to the appraiser a single value representing such
party's contention as to the fair market value of one share of the Company's
Common Stock. Within fifteen (15) days after receipt of the submission of
the Company and the Holder, the appraiser shall select one of the two values
submitted by the parties, and such value shall be the fair market value of
one share of the Common Stock for purpose of this Warrant. The appraiser
shall have no discretion to take any action other than selection of one of
the two values submitted to the appraiser. The partes may submit to the
appraiser and one another, at the time they submit their respective single
values, such supporting documentation as they deem necessary or appropriate.
The parties shall have the opportunity seven (7) business
<PAGE>
Common Stock Warrant
Page 3
days after receipt of the other party's proposed valuation and supporting
documentation to provide the appraiser and each other with supplemental
written information. The appraiser may, in its discretion, hold a single
six (6) hour hearing on valuation issues. If a hearing is held, each party
shall be allocated three (3) hours. The appraiser may conduct the hearing
in accordance with any rules of procedure it deems appropriate. The value
selected by the appraiser shall be final and binding upon the parties
without any further right of appeal.
2.4 STOCK CERTIFICATES. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant (including conversion of
all such Common Stock issuable hereunder).
2.7 FRACTIONAL SHARES. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE 3
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon
<PAGE>
Common Stock Warrant
Page 4
exercise of this Warrant, the kind and amount of securities, money and
property receivable upon such reclassification, change, consolidation,
merger, sale or transfer by a holder of one share of Common Stock issuable
upon exercise of this Warrant had this Warrant been exercised immediately
prior to such reclassification, change, consolidation, merger, sale or
transfer. Such new Warrant shall be as nearly equivalent in all substantive
respects as practicable to this Warrant and the adjustments provided in this
Article III and the provisions of this Section 3.1, shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales and
transfers.
3.2 SUBDIVISION OR COMBINATION OF SHARES. If the Company shall at any
time while this Warrant remains outstanding and less than fully exercised:
(i) divide its Company Stock, the Warrant Price shall be proportionately
reduced; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock (except any distribution described
in Sections 3.1 and 3.2 hereof) then the Warrant Price shall be adjusted to
that price determined by multiplying the Warrant Price then in effect by a
fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution,
and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
3.4 OTHER ACTION AFFECTING COMMON STOCK. If the Company takes any action
affecting its Common Stock after the date hereof (including dividends and
distributions), other than an action described in any of Sections 3.1 and 3.2
hereof, which would have an adverse effect upon Holder's rights hereunder,
the Warrant Price shall be adjusted downward in such manner and at such time
as the Board of Directors of the Company shall in good faith determine to be
equitable under the circumstances.
3.5 TIME OF ADJUSTMENTS TO THE WARRANT PRICE. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders
to receive a distribution or dividend payable in equity securities,
provided that such division, combination, distribution or dividend
actually occurs.
3.6 NOTICE OF ADJUSTMENTS. In each case of an adjustment in the Warrant
Price and the number of shares purchasable hereunder, the Company, at its
expense, shall cause the Chief Financial Officer of the Company to compute
such adjustment and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based. The Company
shall promptly mail a copy of each such certificate to Holder pursuant to
Section 6.8 hereof.
3.7 DURATION OF ADJUSTED WARRANT PRICE. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.8 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be
<PAGE>
Common Stock Warrant
Page 5
adjusted to the nearest whole share, to the number obtained by dividing the
Aggregate Price by the Warrant Price as adjusted.
<PAGE>
Common Stock Warrant
Page 6
ARTICLE 4
TRANSFER, EXCHANGE AND LOSS
4.1 TRANSFER. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Any transferee shall be subject to the same restrictions on
transfer with respect to this Warrant as the Purchaser.
4.2 SECURITIES LAWS. Upon any issuance of shares of Common Stock upon
exercise of this Warrant, it shall be the Company's responsibility to comply
with the requirements of: (1) the Securities Act of 1933, as amended; (2)
the Securities Exchange Act of 1934, as amended; (3) any applicable listing
requirements of any national securities exchange; (4) any state securities
regulation or "Blue Sky" laws; and (5) requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If
required by the Company, in connection with each issuance of shares of Common
Stock upon exercise of this Warrant, the Holder will give: (i) assurances in
writing, satisfactory to the Company, that such shares are not being
purchased with a view to the distribution thereof in violation of applicable
laws, (ii) sufficient information, in writing, to enable the Company to rely
on exemptions from the registration or qualification requirements of
applicable laws, if available, with respect to such exercise, and (iii) its
cooperation to the Company in connection with such compliance.
4.3 EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the percentage stated in Section 4.1 above, and any other
changes which are necessary in order to prevent the Warrant exchange from
changing the respective rights and obligations of the Company and the Holder
as they existed immediately prior to such exchange.
4.4 LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of, and the loss, theft, destruction or
mutilation of, this Warrant and (in the case of loss, theft, or destruction)
of indemnity satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
ARTICLE 5
HOLDER RIGHTS
5.1 NO SHAREHOLDER RIGHTS UNTIL EXERCISE. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof at the time: (i) the cash exercise
price for such securities is delivered pursuant to Section 2.1 hereof and
this Warrant is surrendered, (ii) of delivery of notice of cashless exercise
pursuant to Section 2.2 hereof and this Warrant is surrendered, or (iii) of
automatic exercise hereof (even if not surrendered) pursuant to Section 2.5
hereof.
<PAGE>
Common Stock Warrant
Page 7
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNMENTAL APPROVALS. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this
Warrant, and the issuance, sale and delivery of the Common Stock or other
securities or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.
6.3 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Warrant, 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.
6.4 SEVERABILITY. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions 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 any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 DEFAULT, AMENDMENT AND WAIVERS. This Warrant may be amended upon the
written consent of the Company and the holders in the aggregate of the right
to purchase a majority of the number of unexercised shares covered by the
Warrant initially issued by the Company pursuant to the Consulting Agreement.
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 any succeeding breach or
default. The failure to cure any breach of any term of this Warrant within
ten (10) days of written notice thereof shall constitute an event of default
under this Warrant.
6.6 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.
6.7 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Warrant, 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). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 NOTICES. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, 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, return receipt requested, addressed as follows:
<PAGE>
Common Stock Warrant
Page 8
Company: NHancement Technologies Inc.
39420 Liberty Street
Suite 250
Fremont, California 94538
Attn: Douglas S. Zorn
Holder: James S. Gillespie
198 Country Club Drive #35
Incline Village, Nevada 89451
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 three (3) business 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.
6.9 TIME. Time is of the essence of this Warrant.
6.10 CONSTRUCTION OF AGREEMENT. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (E.G., a
reference to Section 3 shall include a reference to Sections 3.5 and 3.7).
The titles and headings herein are for reference purposes only and shall not
in any manner affect the interpretation of this Warrant.
6.11 NO ENDORSEMENT. Holder understands that no federal or state
securities administrator has made any finding or determination relating to
the fairness of investment in the Company or purchase of the Common Stock
hereunder and that no federal or state securities administrator has
recommended or endorsed the offering of securities by the Company hereunder.
6.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 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 Warrant.
NHancement Technologies Inc., a Delaware
corporation
By: /s/ DOUGLAS S. ZORN
------------------------------------------
Douglas S. Zorn, Chief Executive Officer
<PAGE>
Common Stock Warrant
Page 9
EXHIBIT A-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
DATE: ___________________
_________________________ Aggregate Price of Warrant
_________________________ Before Exercise: $_______________
_________________________ Aggregate Price
Being Exercised: $_______________
Attention: Chief Financial Officer
Warrant Price: $____________ per share
Number of Shares of Common Stock to be Issued
Under this Notice: ___________________
Remainder Aggregate
Price (if any) After Issuance:$_____________
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of NHancement
Technologies, Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full under
the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to "
", . To the extent the
foregoing exercise is for less than the full Aggregate Price, a Replacement
Warrant representing the remainder of the Aggregate Price and otherwise of
like form, tenor and effect should be delivered to Holder along with the
share certificates evidencing the Common Stock issued in response to this
Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Common Stock Warrant
Page 10
EXHIBIT A-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[DATE]
___________________________ Aggregate Price of Warrant
___________________________ Before Exercise: $_______________
___________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $_______________
Warrant Price: $__________ per share
Number of Shares of Common Stock to be
Issued Under this Notice: ___________
Remainder Aggregate
Price (if any) After Issuance: $______
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT", hereby irrevocably exercises such Warrant for,
and purchases thereunder, shares of the Common Stock of _NHancement
Technologies Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which, by reference to Section 2.3,
requires the use of the current per share fair market value of the Company's
Common Stock. The current fair market value of one share of the Company's
Common Stock shall be determined in the manner provided in Section 2.3, which
amount has been determined or agreed to by Holder and the Company to be $
, which figure is acceptable to Holder for calculations of the number of
shares of Common Stock issuable pursuant to this Notice of Exercise
[SPECIFY ANY ALTERNATIVE ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR
APPLICABLE]. Holder requests that the certificates for the purchased shares
of Common Stock be issued in the name of and delivered to
"___________________________", . To
the extent the foregoing exercise is for less than the full Aggregate Price
of the Warrant, a replacement Warrant representing the remainder of the
Aggregate Price (and otherwise of like form, tenor and effect) shall be
delivered to Holder along with the share certificate evidencing the Common
Stock issued in response to this Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Exhibit 4.18
NHANCEMENT TECHNOLOGIES INC.
Issued as of the 10th day (1) Aggregate Price: $599,812.50
Of December,1999 (2) Initial Warrant Price: $3.4275
(3) Number of Shares Initially Subject
to Warrant: 175,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS BEEN,
AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND COMPLIANCE
WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID REGISTRATION IS NOT
REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT APPLICABLE STATE SECURITIES LAWS
HAVE BEEN SATISFIED.
COMMON STOCK WARRANT
This certifies that JOHN M BLACK, ("PURCHASER"), whose address for notice
is located at 20 Exchange Place, 49th floor, New York, New York 10005, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"HOLDER"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m.,
California, local time, on the first (1st) anniversary of such issue date, the
number of shares of fully paid and nonassessable Common Stock ("COMMON STOCK")
of NHANCEMENT TECHNOLOGIES INC, A DELAWARE CORPORATION (the "COMPANY"), that
have an aggregate purchase price equal to the Aggregate Price as defined below.
The purchase price of each such share shall be equal to the Warrant Price, as
defined below.
ARTICLE 1
DEFINITIONS
1.1 "AGGREGATE PRICE" shall be $599,812.50
1.2 "WARRANT PRICE" shall be $3.4275, as adjusted herein.
ARTICLE 2
EXERCISE AND PAYMENT
(i) CASH EXERCISE. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash or
by certified, cashier's or other check acceptable to the Company, of an amount
equal to the aggregate Warrant Price of the shares being purchased.
2.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or of any
portion thereof remaining unexercised) by surrender of this
<PAGE>
Common Stock Warrant
Page 2
Warrant at the principal office of the Company together with the form of
Notice of Cashless Exercise attached hereto as Exhibit "B-2", in which event
the Company shall issue to Holder a number of shares of the Company's Common
Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price.
2.3 FAIR MARKET VALUE. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary, the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq Smallcap
Market System ("SCMS") or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the trading day prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the SCMS or
on an exchange, the per share fair market value of the Common Stock shall be
as determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne equally by the Company and the Holder. Such
appraiser shall meet the following criteria: (a) it shall not be associated
or affiliated with the Company in any fashion and shall not have previously
provided services to the Company; (b) the appraiser shall have reasonable
qualifications to appraise the value of the Common Stock; (c) it is not (and
none of its affiliates is) a promoter, director or officer of the Company or
any of its affiliates or an underwriter with respect to any of the
securities of the Company; and (d) it does not provide any advice or
opinions of the Company except as an appraiser under this section. In the
event such an appraisal is required it should be conducted under the
following procedures: the Company shall select the appraiser within ten (10)
days of receipt of written notice from the Holder that agreement cannot be
reached and the Company shall submit the name of such appraiser to Holder.
Twenty (20) days after selection of the appraiser, the Company and the
Holder shall each submit to the appraiser a single value representing such
party's contention as to the fair market value of one share of the Company's
Common Stock. Within fifteen (15) days after receipt of the submission of
the Company and the Holder, the appraiser shall select one of the two values
submitted by the parties, and such value shall be the fair market value of
one share of the Common Stock for purpose of this Warrant. The appraiser
shall have no discretion to take any action other than selection of one of
the two values submitted to the appraiser. The partes may submit to the
appraiser and one another, at the time they submit their respective single
values, such supporting documentation as they deem necessary or appropriate.
The parties shall have the opportunity seven (7) business days after receipt
of the other party's proposed valuation and supporting documentation to
provide the appraiser and each other with supplemental written information.
The appraiser may, in its discretion, hold a single six (6) hour hearing on
valuation issues. If a hearing is held, each party shall be allocated three
(3) hours. The appraiser may conduct the hearing in accordance with any
rules of procedure it deems appropriate. The value selected by the
appraiser shall be final and binding upon the parties without any further
right of appeal.
<PAGE>
Common Stock Warrant
Page 3
2.4 STOCK CERTIFICATES. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
remaining unexercised Aggregate Price shall also be issued to Holder at such
time.
2.5 AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's Common
Stock upon such expiration shall be the fair market value determined pursuant to
Section 2.3 above. To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 2.5, the Company agrees to
notify Holder within a reasonable period of time of the number of shares of the
Company's Common Stock, if any, Holder is to receive by reason of such automatic
exercise.
2.6 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof
(excluding taxes based on the income of Holder). The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved for issuance a sufficient number of shares of its Common Stock or other
securities as would be required upon the full exercise of the rights represented
by this Warrant (including conversion of all such Common Stock issuable
hereunder).
2.7 FRACTIONAL SHARES. No fractional share of Common Stock will be issued in
connection with any exercise hereof; in lieu of a fractional share upon complete
exercise hereof, Holder may purchase a whole share by delivering payment equal
to the appropriate portion of the then effective Warrant Price.
ARTICLE 3
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant of like form, tenor and effect and which
will provide that Holder shall have the right to exercise such new Warrant and
purchase upon such exercise, in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of securities, money
and property receivable upon such reclassification, change, consolidation,
merger, sale or transfer by a holder of one share of Common Stock issuable upon
exercise of this Warrant had this Warrant been exercised immediately prior to
such reclassification, change, consolidation, merger, sale or transfer. Such
new Warrant shall be as nearly equivalent in all substantive respects as
practicable to this Warrant and the adjustments provided in this Article III and
the provisions of this Section 3.1, shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
3.2 SUBDIVISION OR COMBINATION OF SHARES. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i) divide
its Company Stock, the Warrant Price
<PAGE>
Common Stock Warrant
Page 4
shall be proportionately reduced; or (ii) shall combine shares of its Common
Stock, the Warrant Price shall be proportionately increased.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock (except any distribution described in
Sections 3.1 and 3.2 hereof) then the Warrant Price shall be adjusted to that
price determined by multiplying the Warrant Price then in effect by a fraction,
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
3.4 OTHER ACTION AFFECTING COMMON STOCK. If the Company takes any action
affecting its Common Stock after the date hereof (including dividends and
distributions), other than an action described in any of Sections 3.1 and 3.2
hereof, which would have an adverse effect upon Holder's rights hereunder, the
Warrant Price shall be adjusted downward in such manner and at such time as the
Board of Directors of the Company shall in good faith determine to be equitable
under the circumstances.
3.5 TIME OF ADJUSTMENTS TO THE WARRANT PRICE. All adjustments to the Warrant
Price and the number of shares purchasable hereunder, unless otherwise specified
herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in equity securities, provided
that such division, combination, distribution or dividend actually occurs.
3.6 NOTICE OF ADJUSTMENTS. In each case of an adjustment in the Warrant
Price and the number of shares purchasable hereunder, the Company, at its
expense, shall cause the Chief Financial Officer of the Company to compute such
adjustment and prepare a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Company shall
promptly mail a copy of each such certificate to Holder pursuant to Section 6.8
hereof.
3.7 DURATION OF ADJUSTED WARRANT PRICE. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.8 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE 4
TRANSFER, EXCHANGE AND LOSS
4.1 TRANSFER. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any partial
transfer, the Company will issue and deliver to Holder a new Warrant or Warrants
with respect to the Warrants not so transferred. Notwithstanding the foregoing,
Holder shall not be entitled to transfer a number of shares or an interest in
this Warrant representing less than five percent (5%) of the aggregate shares
initially covered by this Warrant (as presently constituted, with appropriate
<PAGE>
Common Stock Warrant
Page 5
adjustment being made in the event of stock splits, combinations,
reorganizations and the like occurring after the issue date hereof). Any
transferee shall be subject to the same restrictions on transfer with respect
to this Warrant as the Purchaser.
4.2 SECURITIES LAWS. Upon any issuance of shares of Common Stock upon
exercise of this Warrant, it shall be the Company's responsibility to comply
with the requirements of: (1) the Securities Act of 1933, as amended; (2)
the Securities Exchange Act of 1934, as amended; (3) any applicable listing
requirements of any national securities exchange; (4) any state securities
regulation or "Blue Sky" laws; and (5) requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If
required by the Company, in connection with each issuance of shares of Common
Stock upon exercise of this Warrant, the Holder will give: (i) assurances in
writing, satisfactory to the Company, that such shares are not being
purchased with a view to the distribution thereof in violation of applicable
laws, (ii) sufficient information, in writing, to enable the Company to rely
on exemptions from the registration or qualification requirements of
applicable laws, if available, with respect to such exercise, and (iii) its
cooperation to the Company in connection with such compliance.
4.3 EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the percentage stated in Section 4.1 above, and any other
changes which are necessary in order to prevent the Warrant exchange from
changing the respective rights and obligations of the Company and the Holder
as they existed immediately prior to such exchange.
4.4 LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of, and the loss, theft, destruction or
mutilation of, this Warrant and (in the case of loss, theft, or destruction)
of indemnity satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
ARTICLE 5
HOLDER RIGHTS
5.1 NO SHAREHOLDER RIGHTS UNTIL EXERCISE. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof at the time: (i) the cash exercise
price for such securities is delivered pursuant to Section 2.1 hereof and
this Warrant is surrendered, (ii) of delivery of notice of cashless exercise
pursuant to Section 2.2 hereof and this Warrant is surrendered, or (iii) of
automatic exercise hereof (even if not surrendered) pursuant to Section 2.5
hereof.
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNMENTAL APPROVALS. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this
Warrant, and the issuance, sale and delivery of the Common Stock or other
securities or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS
<PAGE>
Common Stock Warrant
Page 6
WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.
6.3 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Warrant, 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.
6.4 SEVERABILITY. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions 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 any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 DEFAULT, AMENDMENT AND WAIVERS. This Warrant may be amended upon the
written consent of the Company and the holders in the aggregate of the right
to purchase a majority of the number of unexercised shares covered by the
Warrant initially issued by the Company pursuant to the Consulting Agreement.
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 any succeeding breach or
default. The failure to cure any breach of any term of this Warrant within
ten (10) days of written notice thereof shall constitute an event of default
under this Warrant.
6.6 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.
6.7 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Warrant, 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). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 NOTICES. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, 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, return receipt requested, addressed as follows:
Company: NHancement Technologies Inc.
39420 Liberty Street
Suite 250
Fremont, California 94538
Attn: Douglas S. Zorn
Holder: John M. Black
Wall Street Tower
20 Exchange Place, 49th floor
New York, New York 10005
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 three (3) business 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.
<PAGE>
Common Stock Warrant
Page 7
6.9 TIME. Time is of the essence of this Warrant.
6.10 CONSTRUCTION OF AGREEMENT. A reference in this Warrant to any
Section shall include a reference to every Section the number of which begins
with the number of the Section to which reference is specifically made (E.G., a
reference to Section 3 shall include a reference to Sections 3.5 and 3.7). The
titles and headings herein are for reference purposes only and shall not in any
manner affect the interpretation of this Warrant.
6.11 NO ENDORSEMENT. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
6.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
6.13 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
Warrant.
NHancement Technologies Inc., a Delaware corporation
By: /s/ DOUGLAS S. ZORN
-------------------------------------------
Douglas S. Zorn, Chief Executive Officer
<PAGE>
Common Stock Warrant
Page 8
EXHIBIT B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
DATE: __________________________
_________________________ Aggregate Price of Warrant
_________________________ Before Exercise: $______________
_________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $______________
Warrant Price: $__________ per share
Number of Shares of Common Stock to be
Issued Under this Notice:___________
Remainder Aggregate
Price (if any) After Issuance: $_____
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of NHancement
Technologies, Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full under
the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to
"_______________________", __________________________________. To the extent
the foregoing exercise is for less than the full Aggregate Price, a
Replacement Warrant representing the remainder of the Aggregate Price and
otherwise of like form, tenor and effect should be delivered to Holder along
with the share certificates evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Common Stock Warrant
Page 9
EXHIBIT B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[DATE]
___________________________ Aggregate Price of Warrant
___________________________ Before Exercise: $__________
___________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $__________
Warrant Price: $_________ per share
Number of Shares of Common Stock to be
Issued Under this Notice:____________
Remainder Aggregate
Price (if any) After Issuance: $____
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT", hereby irrevocably exercises such Warrant for,
and purchases thereunder, shares of the Common Stock of _NHancement
Technologies Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which, by reference to Section 2.3,
requires the use of the current per share fair market value of the Company's
Common Stock. The current fair market value of one share of the Company's
Common Stock shall be determined in the manner provided in Section 2.3, which
amount has been determined or agreed to by Holder and the Company to be $
, which figure is acceptable to Holder for calculations of the number of
shares of Common Stock issuable pursuant to this Notice of Exercise
[SPECIFY ANY ALTERNATIVE ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR
APPLICABLE]. Holder requests that the certificates for the purchased shares
of Common Stock be issued in the name of and delivered to
"___________________________", ______________________. To the extent the
foregoing exercise is for less than the full Aggregate Price of the Warrant,
a replacement Warrant representing the remainder of the Aggregate Price (and
otherwise of like form, tenor and effect) shall be delivered to Holder along
with the share certificate evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond
to the name of the Holder on the Warrant.
<PAGE>
Exhibit 4.19
NHANCEMENT TECHNOLOGIES INC.
Issued as of the 10TH. Day (1) Aggregate Price: $171,375.00
of December, 1999 (2) Initial Warrant Price: $3.4275
(3) Number of Shares Initially
Subject to Warrant: 50,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN SATISFIED.
COMMON STOCK WARRANT
(IMMEDIATELY EXERCISABLE)
This certifies that James S. Gillespie, ("PURCHASER"), whose address for
notice is located 198, Country Club Drive #35, Incline Village, NV 89451, or
any party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"HOLDER"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m.,
California, local time, on the first (1st) anniversary of such issue date, the
number of shares of fully paid and nonassessable Common Stock ("COMMON STOCK")
of NHANCEMENT TECHNOLOGIES INC, A DELAWARE CORPORATION (the "COMPANY"), that
have an aggregate purchase price equal to the Aggregate Price as defined below.
The purchase price of each such share shall be equal to the Warrant Price, as
defined below.
ARTICLE 1
DEFINITIONS
1.1 "AGGREGATE PRICE" shall be $171,375.00.
1.2 "WARRANT PRICE" shall be $3.4275, as adjusted herein.
ARTICLE 2
EXERCISE AND PAYMENT
2.1 CASH EXERCISE. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "A-1", and by the payment to the
<PAGE>
Common Stock Warrant
Page 2
Company, by cash or by certified, cashier's or other check acceptable to the
Company, of an amount equal to the aggregate Warrant Price of the shares
being purchased.
2.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or of any
portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the form of Notice of Cashless
Exercise attached hereto as Exhibit"A-2", in which event the Company shall
issue to Holder a number of shares of the Company's Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price.
2.3 FAIR MARKET VALUE. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary, the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq Smallcap
Market System ("SCMS") or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the trading day prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the SCMS or
on an exchange, the per share fair market value of the Common Stock shall be
as determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne equally by the Company and the Holder. Such
appraiser shall meet the following criteria: (a) it shall not be associated
or affiliated with the Company in any fashion and shall not have previously
provided services to the Company; (b) the appraiser shall have reasonable
qualifications to appraise the value of the Common Stock; (c) it is not (and
none of its affiliates is) a promoter, director or officer of the Company or
any of its affiliates or an underwriter with respect to any of the
securities of the Company; and (d) it does not provide any advice or
opinions of the Company except as an appraiser under this section. In the
event such an appraisal is required it should be conducted under the
following procedures: the Company shall select the appraiser within ten (10)
days of receipt of written notice from the Holder that agreement cannot be
reached and the Company shall submit the name of such appraiser to Holder.
Twenty (20) days after selection of the appraiser, the Company and the
Holder shall each submit to the appraiser a single value representing such
party's contention as to the fair market value of one share of the Company's
Common Stock. Within fifteen (15) days after receipt of the submission of
the Company and the Holder, the appraiser shall select one of the two values
submitted by the parties, and such value shall be the fair market value of
one share of the Common Stock for purpose of this Warrant. The appraiser
shall have no discretion to take any action other than selection of one of
the two values submitted to the appraiser. The partes may submit to the
appraiser and one another, at the time they submit their respective single
values, such supporting documentation as they deem necessary or appropriate.
The parties shall have the opportunity seven (7) business
<PAGE>
Common Stock Warrant
Page 3
days after receipt of the other party's proposed valuation and supporting
documentation to provide the appraiser and each other with supplemental
written information. The appraiser may, in its discretion, hold a single
six (6) hour hearing on valuation issues. If a hearing is held, each
party shall be allocated three (3) hours. The appraiser may conduct the
hearing in accordance with any rules of procedure it deems appropriate.
The value selected by the appraiser shall be final and binding upon the
parties without any further right of appeal.
2.4 STOCK CERTIFICATES. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
remaining unexercised Aggregate Price shall also be issued to Holder at such
time.
2.5 AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's Common
Stock upon such expiration shall be the fair market value determined pursuant to
Section 2.3 above. To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 2.5, the Company agrees to
notify Holder within a reasonable period of time of the number of shares of the
Company's Common Stock, if any, Holder is to receive by reason of such automatic
exercise.
2.6 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof
(excluding taxes based on the income of Holder). The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved for issuance a sufficient number of shares of its Common Stock or other
securities as would be required upon the full exercise of the rights represented
by this Warrant (including conversion of all such Common Stock issuable
hereunder).
2.7 FRACTIONAL SHARES. No fractional share of Common Stock will be issued in
connection with any exercise hereof; in lieu of a fractional share upon complete
exercise hereof, Holder may purchase a whole share by delivering payment equal
to the appropriate portion of the then effective Warrant Price.
ARTICLE 3
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant of like form, tenor and effect and which
will provide that Holder shall have the right to exercise such new Warrant and
purchase upon such exercise, in lieu of each share of Common Stock theretofore
issuable upon
<PAGE>
Common Stock Warrant
Page 4
exercise of this Warrant, the kind and amount of securities, money and
property receivable upon such reclassification, change, consolidation,
merger, sale or transfer by a holder of one share of Common Stock issuable
upon exercise of this Warrant had this Warrant been exercised immediately
prior to such reclassification, change, consolidation, merger, sale or
transfer. Such new Warrant shall be as nearly equivalent in all substantive
respects as practicable to this Warrant and the adjustments provided in this
Article III and the provisions of this Section 3.1, shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales and
transfers.
3.2 SUBDIVISION OR COMBINATION OF SHARES. If the Company shall at any
time while this Warrant remains outstanding and less than fully exercised:
(i) divide its Company Stock, the Warrant Price shall be proportionately
reduced; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock (except any distribution described
in Sections 3.1 and 3.2 hereof) then the Warrant Price shall be adjusted to
that price determined by multiplying the Warrant Price then in effect by a
fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution,
and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
3.4 OTHER ACTION AFFECTING COMMON STOCK. If the Company takes any action
affecting its Common Stock after the date hereof (including dividends and
distributions), other than an action described in any of Sections 3.1 and 3.2
hereof, which would have an adverse effect upon Holder's rights hereunder,
the Warrant Price shall be adjusted downward in such manner and at such time
as the Board of Directors of the Company shall in good faith determine to be
equitable under the circumstances.
3.5 TIME OF ADJUSTMENTS TO THE WARRANT PRICE. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in equity securities, provided
that such division, combination, distribution or dividend actually occurs.
3.6 NOTICE OF ADJUSTMENTS. In each case of an adjustment in the Warrant
Price and the number of shares purchasable hereunder, the Company, at its
expense, shall cause the Chief Financial Officer of the Company to compute such
adjustment and prepare a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Company shall
promptly mail a copy of each such certificate to Holder pursuant to Section 6.8
hereof.
3.7 DURATION OF ADJUSTED WARRANT PRICE. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.8 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be
<PAGE>
Common Stock Warrant
Page 5
adjusted to the nearest whole share, to the number obtained by dividing the
Aggregate Price by the Warrant Price as adjusted.
<PAGE>
Common Stock Warrant
Page 6
ARTICLE 4
TRANSFER, EXCHANGE AND LOSS
4.1 TRANSFER. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any partial
transfer, the Company will issue and deliver to Holder a new Warrant or Warrants
with respect to the Warrants not so transferred. Notwithstanding the foregoing,
Holder shall not be entitled to transfer a number of shares or an interest in
this Warrant representing less than five percent (5%) of the aggregate shares
initially covered by this Warrant (as presently constituted, with appropriate
adjustment being made in the event of stock splits, combinations,
reorganizations and the like occurring after the issue date hereof). Any
transferee shall be subject to the same restrictions on transfer with respect to
this Warrant as the Purchaser.
4.2 SECURITIES LAWS. Upon any issuance of shares of Common Stock upon
exercise of this Warrant, it shall be the Company's responsibility to comply
with the requirements of: (1) the Securities Act of 1933, as amended; (2)
the Securities Exchange Act of 1934, as amended; (3) any applicable listing
requirements of any national securities exchange; (4) any state securities
regulation or "Blue Sky" laws; and (5) requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If
required by the Company, in connection with each issuance of shares of Common
Stock upon exercise of this Warrant, the Holder will give: (i) assurances in
writing, satisfactory to the Company, that such shares are not being
purchased with a view to the distribution thereof in violation of applicable
laws, (ii) sufficient information, in writing, to enable the Company to rely
on exemptions from the registration or qualification requirements of
applicable laws, if available, with respect to such exercise, and (iii) its
cooperation to the Company in connection with such compliance.
4.3 EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the percentage stated in Section 4.1 above, and any other
changes which are necessary in order to prevent the Warrant exchange from
changing the respective rights and obligations of the Company and the Holder
as they existed immediately prior to such exchange.
4.4 LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of, and the loss, theft, destruction or
mutilation of, this Warrant and (in the case of loss, theft, or destruction)
of indemnity satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
ARTICLE 5
HOLDER RIGHTS
5.1 NO SHAREHOLDER RIGHTS UNTIL EXERCISE. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof at the time: (i) the cash exercise
price for such securities is delivered pursuant to Section 2.1 hereof and
this Warrant is surrendered, (ii) of delivery of notice of cashless exercise
pursuant to Section 2.2 hereof and this Warrant is surrendered, or (iii) of
automatic exercise hereof (even if not surrendered) pursuant to Section 2.5
hereof.
<PAGE>
Common Stock Warrant
Page 7
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNMENTAL APPROVALS. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this
Warrant, and the issuance, sale and delivery of the Common Stock or other
securities or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.
6.3 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Warrant, 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.
6.4 SEVERABILITY. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions 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 any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 DEFAULT, AMENDMENT AND WAIVERS. This Warrant may be amended upon the
written consent of the Company and the holders in the aggregate of the right
to purchase a majority of the number of unexercised shares covered by the
Warrant initially issued by the Company pursuant to the Consulting Agreement.
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 any succeeding breach or
default. The failure to cure any breach of any term of this Warrant within
ten (10) days of written notice thereof shall constitute an event of default
under this Warrant.
6.6 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.
6.7 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Warrant, 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). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 NOTICES. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, 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, return receipt requested, addressed as follows:
<PAGE>
Common Stock Warrant
Page 8
Company: NHancement Technologies Inc.
39420 Liberty Street
Suite 250
Fremont, California 94538
Attn: Douglas S. Zorn
Holder: James S. Gillespie
198 Country Club Drive #35
Incline Village, Nevada 89451
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 three (3) business 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.
6.9 TIME. Time is of the essence of this Warrant.
6.10 CONSTRUCTION OF AGREEMENT. A reference in this Warrant to any
Section shall include a reference to every Section the number of which begins
with the number of the Section to which reference is specifically made (E.G., a
reference to Section 3 shall include a reference to Sections 3.5 and 3.7). The
titles and headings herein are for reference purposes only and shall not in any
manner affect the interpretation of this Warrant.
6.11 NO ENDORSEMENT. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
6.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
6.13 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
Warrant.
NHancement Technologies Inc., a Delaware corporation
By: /s/ DOUGLAS S. ZORN
----------------------------------------
Douglas S. Zorn, Chief Executive Officer
<PAGE>
Common Stock Warrant
Page 9
EXHIBIT A-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
DATE: ____________________
_________________________ Aggregate Price of Warrant
_________________________ Before Exercise: $______________
_________________________ Aggregate Price
Being Exercised: $______________
Attention: Chief Financial Officer
Warrant Price: $___________ per share
Number of Shares of Common Stock to be Issued
Under this Notice:_______________
Remainder Aggregate
Price (if any) After Issuance:$____________
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of NHancement
Technologies, Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full under
the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to "
", . To the extent the
foregoing exercise is for less than the full Aggregate Price, a Replacement
Warrant representing the remainder of the Aggregate Price and otherwise of
like form, tenor and effect should be delivered to Holder along with the
share certificates evidencing the Common Stock issued in response to this
Notice of Exercise.
By:
-------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Common Stock Warrant
Page 10
EXHIBIT A-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[DATE]
___________________________ Aggregate Price of Warrant
___________________________ Before Exercise: $___________________
___________________________ Aggregate Price
Attention: Chief Financial Being Exercised: $___________________
Officer
Warrant Price: $_______ per share
Number of Shares of Common Stock to be
Issued Under this Notice:________________
Remainder Aggregate
Price (if any) After Issuance: $__________
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT", hereby irrevocably exercises such Warrant for,
and purchases thereunder, shares of the Common Stock of _NHancement
Technologies Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which, by reference to Section 2.3,
requires the use of the current per share fair market value of the Company's
Common Stock. The current fair market value of one share of the Company's
Common Stock shall be determined in the manner provided in Section 2.3, which
amount has been determined or agreed to by Holder and the Company to be
$ , which figure is acceptable to Holder for calculations of the
number of shares of Common Stock issuable pursuant to this Notice of Exercise
[SPECIFY ANY ALTERNATIVE ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR
APPLICABLE]. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to "___________________",.
To the extent the foregoing exercise is for less than the full Aggregate Price
of the Warrant, a replacement Warrant representing the remainder of the
Aggregate Price (and otherwise of like form, tenor and effect) shall be
delivered to Holder along with the share certificate evidencing the Common
Stock issued in response to this Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Exhibit 4.20
NHANCEMENT TECHNOLOGIES INC.
Issued as of the 10th day (1) Aggregate Price: $171,375.00
Of December,1999 (2) Initial Warrant Price: $3.4275
(3) Number of Shares Initially Subject
to Warrant: 50,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN SATISFIED.
COMMON STOCK WARRANT
This certifies that N. BRUCE WALKO, ("PURCHASER"), whose address for
notice is located at 5107 Timberview Terrace, Orlando, FL. 32818 or any party
to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"HOLDER"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m.,
California, local time, on the first (1st) anniversary of such issue date,
the number of shares of fully paid and nonassessable Common Stock ("COMMON
STOCK") of NHANCEMENT TECHNOLOGIES INC, A DELAWARE CORPORATION (the
"COMPANY"), that have an aggregate purchase price equal to the Aggregate
Price as defined below. The purchase price of each such share shall be equal
to the Warrant Price, as defined below.
ARTICLE 1
DEFINITIONS
1.1 "AGGREGATE PRICE" shall be $171,375.00
1.2 "WARRANT PRICE" shall be $3.4275, as adjusted herein.
ARTICLE 2
EXERCISE AND PAYMENT
(i) CASH EXERCISE. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
2.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or of any
portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the form of Notice of Cashless
<PAGE>
Common Stock Warrant
Page 2
Exercise attached hereto as Exhibit "B-2", in which event the Company shall
issue to Holder a number of shares of the Company's Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price.
2.3 FAIR MARKET VALUE. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary, the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq Smallcap
Market System ("SCMS") or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the trading day prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the SCMS or
on an exchange, the per share fair market value of the Common Stock shall be
as determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne equally by the Company and the Holder. Such
appraiser shall meet the following criteria: (a) it shall not be associated
or affiliated with the Company in any fashion and shall not have previously
provided services to the Company; (b) the appraiser shall have reasonable
qualifications to appraise the value of the Common Stock; (c) it is not (and
none of its affiliates is) a promoter, director or officer of the Company or
any of its affiliates or an underwriter with respect to any of the
securities of the Company; and (d) it does not provide any advice or
opinions of the Company except as an appraiser under this section. In the
event such an appraisal is required it should be conducted under the
following procedures: the Company shall select the appraiser within ten (10)
days of receipt of written notice from the Holder that agreement cannot be
reached and the Company shall submit the name of such appraiser to Holder.
Twenty (20) days after selection of the appraiser, the Company and the
Holder shall each submit to the appraiser a single value representing such
party's contention as to the fair market value of one share of the Company's
Common Stock. Within fifteen (15) days after receipt of the submission of
the Company and the Holder, the appraiser shall select one of the two values
submitted by the parties, and such value shall be the fair market value of
one share of the Common Stock for purpose of this Warrant. The appraiser
shall have no discretion to take any action other than selection of one of
the two values submitted to the appraiser. The partes may submit to the
appraiser and one another, at the time they submit their respective single
values, such supporting documentation as they deem necessary or appropriate.
The parties shall have the opportunity seven (7) business days after receipt
of the other party's proposed valuation and supporting documentation to
provide the appraiser and each other with supplemental written information.
The appraiser may, in its discretion, hold a single six (6) hour hearing on
valuation issues. If a hearing is held, each party shall be allocated three
(3) hours. The appraiser may conduct the hearing in accordance with any
rules of procedure it deems appropriate. The value selected by the
appraiser shall be final and binding upon the parties without any further
right of appeal.
<PAGE>
Common Stock Warrant
Page 3
2.4 STOCK CERTIFICATES. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant (including conversion of
all such Common Stock issuable hereunder).
2.7 FRACTIONAL SHARES. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE 3
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
equivalent in all substantive respects as practicable to this Warrant and the
adjustments provided in this Article III and the provisions of this Section
3.1, shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.2 SUBDIVISION OR COMBINATION OF SHARES. If the Company shall at any
time while this Warrant remains outstanding and less than fully exercised:
(i) divide its Company Stock, the Warrant Price
<PAGE>
Common Stock Warrant
Page 4
shall be proportionately reduced; or (ii) shall combine shares of its Common
Stock, the Warrant Price shall be proportionately increased.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock (except any distribution described
in Sections 3.1 and 3.2 hereof) then the Warrant Price shall be adjusted to
that price determined by multiplying the Warrant Price then in effect by a
fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution,
and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
3.4 OTHER ACTION AFFECTING COMMON STOCK. If the Company takes any
action affecting its Common Stock after the date hereof (including dividends
and distributions), other than an action described in any of Sections 3.1 and
3.2 hereof, which would have an adverse effect upon Holder's rights
hereunder, the Warrant Price shall be adjusted downward in such manner and at
such time as the Board of Directors of the Company shall in good faith
determine to be equitable under the circumstances.
3.5 TIME OF ADJUSTMENTS TO THE WARRANT PRICE. All adjustments to the Warrant
Price and the number of shares purchasable hereunder, unless otherwise specified
herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in equity securities, provided
that such division, combination, distribution or dividend actually occurs.
3.6 NOTICE OF ADJUSTMENTS. In each case of an adjustment in the Warrant
Price and the number of shares purchasable hereunder, the Company, at its
expense, shall cause the Chief Financial Officer of the Company to compute such
adjustment and prepare a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Company shall
promptly mail a copy of each such certificate to Holder pursuant to Section 6.8
hereof.
3.7 DURATION OF ADJUSTED WARRANT PRICE. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.8 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE 4
TRANSFER, EXCHANGE AND LOSS
4.1 TRANSFER. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any partial
transfer, the Company will issue and deliver to Holder a new Warrant or Warrants
with respect to the Warrants not so transferred. Notwithstanding the foregoing,
Holder shall not be entitled to transfer a number of shares or an interest in
this Warrant representing less than five percent (5%) of the aggregate shares
initially covered by this Warrant (as presently constituted, with appropriate
<PAGE>
Common Stock Warrant
Page 5
adjustment being made in the event of stock splits, combinations,
reorganizations and the like occurring after the issue date hereof). Any
transferee shall be subject to the same restrictions on transfer with respect
to this Warrant as the Purchaser.
4.2 SECURITIES LAWS. Upon any issuance of shares of Common Stock upon
exercise of this Warrant, it shall be the Company's responsibility to comply
with the requirements of: (1) the Securities Act of 1933, as amended; (2)
the Securities Exchange Act of 1934, as amended; (3) any applicable listing
requirements of any national securities exchange; (4) any state securities
regulation or "Blue Sky" laws; and (5) requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If
required by the Company, in connection with each issuance of shares of Common
Stock upon exercise of this Warrant, the Holder will give: (i) assurances in
writing, satisfactory to the Company, that such shares are not being
purchased with a view to the distribution thereof in violation of applicable
laws, (ii) sufficient information, in writing, to enable the Company to rely
on exemptions from the registration or qualification requirements of
applicable laws, if available, with respect to such exercise, and (iii) its
cooperation to the Company in connection with such compliance.
4.3 EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the percentage stated in Section 4.1 above, and any other
changes which are necessary in order to prevent the Warrant exchange from
changing the respective rights and obligations of the Company and the Holder
as they existed immediately prior to such exchange.
4.4 LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of, and the loss, theft, destruction or
mutilation of, this Warrant and (in the case of loss, theft, or destruction)
of indemnity satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
ARTICLE 5
HOLDER RIGHTS
5.1 NO SHAREHOLDER RIGHTS UNTIL EXERCISE. No Holder hereof, solely by virtue
hereof, shall be entitled to any rights as a shareholder of the Company. Holder
shall have all rights of a shareholder with respect to securities purchased upon
exercise hereof at the time: (i) the cash exercise price for such securities is
delivered pursuant to Section 2.1 hereof and this Warrant is surrendered, (ii)
of delivery of notice of cashless exercise pursuant to Section 2.2 hereof and
this Warrant is surrendered, or (iii) of automatic exercise hereof (even if not
surrendered) pursuant to Section 2.5 hereof.
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNMENTAL APPROVALS. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all permits,
consents and approvals of governmental agencies and authorities and securities
acts filings under federal and state laws, which may be or become requisite in
connection with the issuance, sale, and delivery of this Warrant, and the
issuance, sale and delivery of the Common Stock or other securities or property
issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT AS
SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS
<PAGE>
Common Stock Warrant
Page 6
WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.
6.3 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Warrant, 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.
6.4 SEVERABILITY. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions 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 any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 DEFAULT, AMENDMENT AND WAIVERS. This Warrant may be amended upon the
written consent of the Company and the holders in the aggregate of the right
to purchase a majority of the number of unexercised shares covered by the
Warrant initially issued by the Company pursuant to the Consulting Agreement.
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 any succeeding breach or
default. The failure to cure any breach of any term of this Warrant within
ten (10) days of written notice thereof shall constitute an event of default
under this Warrant.
6.6 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.
6.7 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Warrant, 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). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 NOTICES. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, 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, return receipt requested, addressed as follows:
Company: NHancement Technologies Inc.
39420 Liberty Street
Suite 250
Fremont, California 94538
Attn: Douglas S. Zorn
Holder: N. Bruce Walko
5107 Timberview Terrace
Orlando, FL. 32818.
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 three (3) business 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.
<PAGE>
Common Stock Warrant
Page 7
6.9 TIME. Time is of the essence of this Warrant.
6.10 CONSTRUCTION OF AGREEMENT. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (E.G., a
reference to Section 3 shall include a reference to Sections 3.5 and 3.7).
The titles and headings herein are for reference purposes only and shall not
in any manner affect the interpretation of this Warrant.
6.11 NO ENDORSEMENT. Holder understands that no federal or state
securities administrator has made any finding or determination relating to
the fairness of investment in the Company or purchase of the Common Stock
hereunder and that no federal or state securities administrator has
recommended or endorsed the offering of securities by the Company hereunder.
6.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 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 Warrant.
NHancement Technologies Inc., a Delaware corporation
By: /s/ DOUGLAS S. ZORN
--------------------------------------------
Douglas S. Zorn, Chief Executive Officer
<PAGE>
Common Stock Warrant
Page 8
EXHIBIT B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
DATE:
--------------------------
_________________________ Aggregate Price of Warrant
_________________________ Before Exercise: $______________
_________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $______________
Warrant Price: $_________ per share
Number of Shares of Common Stock to
be Issued Under this Notice: _______
Remainder Aggregate
Price (if any) After Issuance: $____
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of NHancement
Technologies, Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full under
the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to
"_______________________", __________________________________. To the extent
the foregoing exercise is for less than the full Aggregate Price, a
Replacement Warrant representing the remainder of the Aggregate Price and
otherwise of like form, tenor and effect should be delivered to Holder along
with the share certificates evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
--------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond
to the name of the Holder on the Warrant.
<PAGE>
Common Stock Warrant
Page 9
EXHIBIT B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[DATE]
___________________________ Aggregate Price of Warrant
___________________________ Before Exercise: $_______________
___________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $_______________
Warrant Price: $___________ per share
Number of Shares of Common Stock to
be Issued Under this Notice: ________
Remainder Aggregate
Price (if any) After Issuance: $_____
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT", hereby irrevocably exercises such Warrant for,
and purchases thereunder, shares of the Common Stock of _NHancement
Technologies Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which, by reference to Section 2.3,
requires the use of the current per share fair market value of the Company's
Common Stock. The current fair market value of one share of the Company's
Common Stock shall be determined in the manner provided in Section 2.3, which
amount has been determined or agreed to by Holder and the Company to be $
, which figure is acceptable to Holder for calculations of the number of
shares of Common Stock issuable pursuant to this Notice of Exercise
[SPECIFY ANY ALTERNATIVE ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR
APPLICABLE]. Holder requests that the certificates for the purchased shares
of Common Stock be issued in the name of and delivered to
"___________________________", ______________________. To the extent the
foregoing exercise is for less than the full Aggregate Price of the Warrant,
a replacement Warrant representing the remainder of the Aggregate Price (and
otherwise of like form, tenor and effect) shall be delivered to Holder along
with the share certificate evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
--------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Exhibit 4.21
NHANCEMENT TECHNOLOGIES INC.
Issued as of the 10th day (1) Aggregate Price: $171,375.00
Of December,1999 (2) Initial Warrant Price: $3.4275
(3) Number of Shares Initially Subject
to Warrant: 50,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS BEEN,
AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND COMPLIANCE
WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID REGISTRATION IS NOT
REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT APPLICABLE STATE SECURITIES LAWS
HAVE BEEN SATISFIED.
COMMON STOCK WARRANT
This certifies that ROBERT L. SCHMIER, ("PURCHASER"), whose address for
notice is located at 7777, Glades Road, Suite 310, Boca Raton FL 33434-4195 or
any party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"HOLDER"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m.,
California, local time, on the first (1st) anniversary of such issue date, the
number of shares of fully paid and nonassessable Common Stock ("COMMON STOCK")
of NHANCEMENT TECHNOLOGIES INC, A DELAWARE CORPORATION (the "COMPANY"), that
have an aggregate purchase price equal to the Aggregate Price as defined below.
The purchase price of each such share shall be equal to the Warrant Price, as
defined below.
ARTICLE 1
DEFINITIONS
1.1 "AGGREGATE PRICE" shall be $171,375
1.2 "WARRANT PRICE" shall be $3.4275 as adjusted herein.
ARTICLE 2
EXERCISE AND PAYMENT
(i) CASH EXERCISE. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash or
by certified, cashier's or other check acceptable to the Company, of an amount
equal to the aggregate Warrant Price of the shares being purchased.
2.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or of any
portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the form of Notice of Cashless
<PAGE>
Common Stock Warrant
Page 2
Exercise attached hereto as Exhibit "B-2", in which event the Company shall
issue to Holder a number of shares of the Company's Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price.
2.3 FAIR MARKET VALUE. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary, the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq Smallcap
Market System ("SCMS") or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the trading day prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the SCMS or
on an exchange, the per share fair market value of the Common Stock shall be
as determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne equally by the Company and the Holder. Such
appraiser shall meet the following criteria: (a) it shall not be associated
or affiliated with the Company in any fashion and shall not have previously
provided services to the Company; (b) the appraiser shall have reasonable
qualifications to appraise the value of the Common Stock; (c) it is not (and
none of its affiliates is) a promoter, director or officer of the Company or
any of its affiliates or an underwriter with respect to any of the
securities of the Company; and (d) it does not provide any advice or
opinions of the Company except as an appraiser under this section. In the
event such an appraisal is required it should be conducted under the
following procedures: the Company shall select the appraiser within ten (10)
days of receipt of written notice from the Holder that agreement cannot be
reached and the Company shall submit the name of such appraiser to Holder.
Twenty (20) days after selection of the appraiser, the Company and the
Holder shall each submit to the appraiser a single value representing such
party's contention as to the fair market value of one share of the Company's
Common Stock. Within fifteen (15) days after receipt of the submission of
the Company and the Holder, the appraiser shall select one of the two values
submitted by the parties, and such value shall be the fair market value of
one share of the Common Stock for purpose of this Warrant. The appraiser
shall have no discretion to take any action other than selection of one of
the two values submitted to the appraiser. The partes may submit to the
appraiser and one another, at the time they submit their respective single
values, such supporting documentation as they deem necessary or appropriate.
The parties shall have the opportunity seven (7) business days after receipt
of the other party's proposed valuation and supporting documentation to
provide the appraiser and each other with supplemental written information.
The appraiser may, in its discretion, hold a single six (6) hour hearing on
valuation issues. If a hearing is held, each party shall be allocated three
(3) hours. The appraiser may conduct the hearing in accordance with any
rules of procedure it deems appropriate. The value selected by the
appraiser shall be final and binding upon the parties without any further
right of appeal.
<PAGE>
Common Stock Warrant
Page 3
2.4 STOCK CERTIFICATES. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
remaining unexercised Aggregate Price shall also be issued to Holder at such
time.
2.5 AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's Common
Stock upon such expiration shall be the fair market value determined pursuant to
Section 2.3 above. To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 2.5, the Company agrees to
notify Holder within a reasonable period of time of the number of shares of the
Company's Common Stock, if any, Holder is to receive by reason of such automatic
exercise.
2.6 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof
(excluding taxes based on the income of Holder). The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved for issuance a sufficient number of shares of its Common Stock or other
securities as would be required upon the full exercise of the rights represented
by this Warrant (including conversion of all such Common Stock issuable
hereunder).
2.7 FRACTIONAL SHARES. No fractional share of Common Stock will be issued in
connection with any exercise hereof; in lieu of a fractional share upon complete
exercise hereof, Holder may purchase a whole share by delivering payment equal
to the appropriate portion of the then effective Warrant Price.
ARTICLE 3
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant of like form, tenor and effect and which
will provide that Holder shall have the right to exercise such new Warrant and
purchase upon such exercise, in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of securities, money
and property receivable upon such reclassification, change, consolidation,
merger, sale or transfer by a holder of one share of Common Stock issuable upon
exercise of this Warrant had this Warrant been exercised immediately prior to
such reclassification, change, consolidation, merger, sale or transfer. Such
new Warrant shall be as nearly equivalent in all substantive respects as
practicable to this Warrant and the adjustments provided in this Article III and
the provisions of this Section 3.1, shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
3.2 SUBDIVISION OR COMBINATION OF SHARES. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i) divide
its Company Stock, the Warrant Price
<PAGE>
Common Stock Warrant
Page 4
shall be proportionately reduced; or (ii) shall combine shares of its Common
Stock, the Warrant Price shall be proportionately increased.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock (except any distribution described
in Sections 3.1 and 3.2 hereof) then the Warrant Price shall be adjusted to
that price determined by multiplying the Warrant Price then in effect by a
fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution,
and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
3.4 OTHER ACTION AFFECTING COMMON STOCK. If the Company takes any action
affecting its Common Stock after the date hereof (including dividends and
distributions), other than an action described in any of Sections 3.1 and 3.2
hereof, which would have an adverse effect upon Holder's rights hereunder,
the Warrant Price shall be adjusted downward in such manner and at such time
as the Board of Directors of the Company shall in good faith determine to be
equitable under the circumstances.
3.5 TIME OF ADJUSTMENTS TO THE WARRANT PRICE. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in equity securities, provided
that such division, combination, distribution or dividend actually occurs.
3.6 NOTICE OF ADJUSTMENTS. In each case of an adjustment in the Warrant
Price and the number of shares purchasable hereunder, the Company, at its
expense, shall cause the Chief Financial Officer of the Company to compute such
adjustment and prepare a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Company shall
promptly mail a copy of each such certificate to Holder pursuant to Section 6.8
hereof.
3.7 DURATION OF ADJUSTED WARRANT PRICE. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.8 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE 4
TRANSFER, EXCHANGE AND LOSS
4.1 TRANSFER. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any partial
transfer, the Company will issue and deliver to Holder a new Warrant or Warrants
with respect to the Warrants not so transferred. Notwithstanding the foregoing,
Holder shall not be entitled to transfer a number of shares or an interest in
this Warrant representing less than five percent (5%) of the aggregate shares
initially covered by this Warrant (as presently constituted, with appropriate
<PAGE>
Common Stock Warrant
Page 5
adjustment being made in the event of stock splits, combinations,
reorganizations and the like occurring after the issue date hereof). Any
transferee shall be subject to the same restrictions on transfer with respect
to this Warrant as the Purchaser.
4.2 SECURITIES LAWS. Upon any issuance of shares of Common Stock upon
exercise of this Warrant, it shall be the Company's responsibility to comply
with the requirements of: (1) the Securities Act of 1933, as amended; (2)
the Securities Exchange Act of 1934, as amended; (3) any applicable listing
requirements of any national securities exchange; (4) any state securities
regulation or "Blue Sky" laws; and (5) requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If
required by the Company, in connection with each issuance of shares of Common
Stock upon exercise of this Warrant, the Holder will give: (i) assurances in
writing, satisfactory to the Company, that such shares are not being
purchased with a view to the distribution thereof in violation of applicable
laws, (ii) sufficient information, in writing, to enable the Company to rely
on exemptions from the registration or qualification requirements of
applicable laws, if available, with respect to such exercise, and (iii) its
cooperation to the Company in connection with such compliance.
4.3 EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the percentage stated in Section 4.1 above, and any other
changes which are necessary in order to prevent the Warrant exchange from
changing the respective rights and obligations of the Company and the Holder
as they existed immediately prior to such exchange.
4.4 LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of, and the loss, theft, destruction or
mutilation of, this Warrant and (in the case of loss, theft, or destruction)
of indemnity satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
ARTICLE 5
HOLDER RIGHTS
5.1 NO SHAREHOLDER RIGHTS UNTIL EXERCISE. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof at the time: (i) the cash exercise
price for such securities is delivered pursuant to Section 2.1 hereof and
this Warrant is surrendered, (ii) of delivery of notice of cashless exercise
pursuant to Section 2.2 hereof and this Warrant is surrendered, or (iii) of
automatic exercise hereof (even if not surrendered) pursuant to Section 2.5
hereof.
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNMENTAL APPROVALS. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all permits,
consents and approvals of governmental agencies and authorities and securities
acts filings under federal and state laws, which may be or become requisite in
connection with the issuance, sale, and delivery of this Warrant, and the
issuance, sale and delivery of the Common Stock or other securities or property
issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT AS
SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS
<PAGE>
Common Stock Warrant
Page 6
WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.
6.3 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Warrant, 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.
6.4 SEVERABILITY. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions 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 any such void or unenforceable provisions of this Warrant with valid
and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
6.5 DEFAULT, AMENDMENT AND WAIVERS. This Warrant may be amended upon the
written consent of the Company and the holders in the aggregate of the right to
purchase a majority of the number of unexercised shares covered by the Warrant
initially issued by the Company pursuant to the Consulting Agreement. 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 any succeeding breach or default. The failure
to cure any breach of any term of this Warrant within ten (10) days of written
notice thereof shall constitute an event of default under this Warrant.
6.6 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.
6.7 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any part
of this Warrant, 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). The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.
6.8 NOTICES. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, 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, return receipt
requested, addressed as follows:
Company: NHancement Technologies Inc.
39420 Liberty Street
Suite 250
Fremont, California 94538
Attn: Douglas S. Zorn
Holder: Robert L. Schmier
7777, Glades Road, Suite 310
Boca Raton, FL 33434-4195.
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 three (3) business 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.
<PAGE>
Common Stock Warrant
Page 7
6.9 TIME. Time is of the essence of this Warrant.
6.10 CONSTRUCTION OF AGREEMENT. A reference in this Warrant to any
Section shall include a reference to every Section the number of which begins
with the number of the Section to which reference is specifically made (E.G., a
reference to Section 3 shall include a reference to Sections 3.5 and 3.7). The
titles and headings herein are for reference purposes only and shall not in any
manner affect the interpretation of this Warrant.
6.11 NO ENDORSEMENT. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
6.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
6.13 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
Warrant.
NHancement Technologies Inc., a Delaware corporation
By: /s/ DOUGLAS S. ZORN
-----------------------------------------
Douglas S. Zorn, Chief Executive Officer
<PAGE>
Common Stock Warrant
Page 8
EXHIBIT B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
DATE: __________________________
_________________________ Aggregate Price of Warrant
_________________________ Before Exercise: $______________
_________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $______________
Warrant Price: $_________ per share
Number of Shares of Common Stock to be
Issued Under this Notice:___________
Remainder Aggregate
Price (if any) After Issuance: $____
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of NHancement
Technologies, Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $___________, thereby leaving a remainder Aggregate
Price (if any) equal to $________. Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $____________. Such check is payment in full under
the Warrant for ________________ shares of Common Stock based upon the
Warrant Price of $____________ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to
"_______________________", __________________________________. To the extent
the foregoing exercise is for less than the full Aggregate Price, a
Replacement Warrant representing the remainder of the Aggregate Price and
otherwise of like form, tenor and effect should be delivered to Holder along
with the share certificates evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Common Stock Warrant
Page 9
EXHIBIT B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[DATE]
___________________________ Aggregate Price of Warrant
___________________________ Before Exercise: $________________
___________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $________________
Warrant Price: $_____ per share
Number of Shares of Common Stock to be
Issued Under this Notice: ___________
Remainder Aggregate
Price (if any) After Issuance: $_____
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT", hereby irrevocably exercises such Warrant for,
and purchases thereunder, shares of the Common Stock of _NHancement
Technologies Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $____________, thereby leaving a remainder Aggregate
Price (if any) equal to $_______. Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which, by reference to Section 2.3,
requires the use of the current per share fair market value of the Company's
Common Stock. The current fair market value of one share of the Company's
Common Stock shall be determined in the manner provided in Section 2.3, which
amount has been determined or agreed to by Holder and the Company to be
$__________, which figure is acceptable to Holder for calculations of the number
of shares of Common Stock issuable pursuant to this Notice of Exercise
[SPECIFY ANY ALTERNATIVE ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR
APPLICABLE]. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to
"___________________________", ______________________. To the extent the
foregoing exercise is for less than the full Aggregate Price of the Warrant,
a replacement Warrant representing the remainder of the Aggregate Price (and
otherwise of like form, tenor and effect) shall be delivered to Holder along
with the share certificate evidencing the Common Stock issued in response to
this Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder on the Warrant.
<PAGE>
Exhibit 4.22
NHANCEMENT TECHNOLOGIES INC.
Issued as of the 10TH DAY (1) Aggregate Price: $171,375.00
of December, 1999 (2) Initial Warrant Price: $3.4275
(3) Number of Shares Initially
Subject to Warrant: 50,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS BEEN,
AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND COMPLIANCE
WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID REGISTRATION IS NOT
REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT APPLICABLE STATE SECURITIES LAWS
HAVE BEEN SATISFIED.
COMMON STOCK WARRANT
(IMMEDIATELY EXERCISABLE)
This certifies that Diane E. Nowak, ("PURCHASER"), whose address for
notice is located at 12401 North 76th Street, Scottsdale, Arizona 85260, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"HOLDER"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m.,
California, local time, on the second (2nd) anniversary of such issue date, the
number of shares of fully paid and nonassessable Common Stock ("COMMON STOCK")
of NHANCEMENT TECHNOLOGIES INC, A DELAWARE CORPORATION (the "COMPANY"), that
have an aggregate purchase price equal to the Aggregate Price as defined below.
The purchase price of each such share shall be equal to the Warrant Price, as
defined below.
ARTICLE 1
DEFINITIONS
1.1 "AGGREGATE PRICE" shall be $171,375.00
1.2 "WARRANT PRICE" shall be $3.4275, as adjusted herein.
ARTICLE 2
EXERCISE AND PAYMENT
2.1 CASH EXERCISE. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form
<PAGE>
Common Stock Warrant
Page 2
of Notice of Cash Exercise attached hereto as Exhibit "A-1", and by the
payment to the Company, by cash or by certified, cashier's or other check
acceptable to the Company, of an amount equal to the aggregate Warrant Price
of the shares being purchased.
2.2 NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or of any
portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the form of Notice of Cashless
Exercise attached hereto as Exhibit"A-2", in which event the Company shall issue
to Holder a number of shares of the Company's Common Stock computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price.
2.3 FAIR MARKET VALUE. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary, the last reported sale
price of the Common Stock or the closing price quoted on the Nasdaq Smallcap
Market System ("SCMS") or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the trading day prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the SCMS or
on an exchange, the per share fair market value of the Common Stock shall be
as determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne equally by the Company and the Holder. Such
appraiser shall meet the following criteria: (a) it shall not be associated
or affiliated with the Company in any fashion and shall not have previously
provided services to the Company; (b) the appraiser shall have reasonable
qualifications to appraise the value of the Common Stock; (c) it is not (and
none of its affiliates is) a promoter, director or officer of the Company or
any of its affiliates or an underwriter with respect to any of the
securities of the Company; and (d) it does not provide any advice or
opinions of the Company except as an appraiser under this section. In the
event such an appraisal is required it should be conducted under the
following procedures: the Company shall select the appraiser within ten (10)
days of receipt of written notice from the Holder that agreement cannot be
reached and the Company shall submit the name of such appraiser to Holder.
Twenty (20) days after selection of the appraiser, the Company and the
Holder shall each submit to the appraiser a single value representing such
party's contention as to the fair market value of one share of the Company's
Common Stock. Within fifteen (15) days after receipt of the submission of
the Company and the Holder, the appraiser shall select one of the two values
submitted by the parties, and such value shall be the fair market value of
one share of the Common Stock for purpose of this Warrant. The appraiser
shall have no discretion to take any action other than selection of one of
the two values submitted to the appraiser. The partes may submit to the
appraiser and one another, at the time they submit their respective single
values, such supporting documentation as they
<PAGE>
Common Stock Warrant
Page 3
deem necessary or appropriate. The parties shall have the opportunity seven
(7) business days after receipt of the other party's proposed valuation and
supporting documentation to provide the appraiser and each other with
supplemental written information. The appraiser may, in its discretion,
hold a single six (6) hour hearing on valuation issues. If a hearing is
held, each party shall be allocated three (3) hours. The appraiser may
conduct the hearing in accordance with any rules of procedure it deems
appropriate. The value selected by the appraiser shall be final and
binding upon the parties without any further right of appeal.
2.4 STOCK CERTIFICATES. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant (including conversion of
all such Common Stock issuable hereunder).
2.7 FRACTIONAL SHARES. No fractional share of Common Stock will be issued in
connection with any exercise hereof; in lieu of a fractional share upon complete
exercise hereof, Holder may purchase a whole share by delivering payment equal
to the appropriate portion of the then effective Warrant Price.
ARTICLE 3
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant of like form, tenor and effect and which
will provide that Holder shall have the right to exercise such new Warrant and
<PAGE>
Common Stock Warrant
Page 4
purchase upon such exercise, in lieu of each share of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
securities, money and property receivable upon such reclassification, change,
consolidation, merger, sale or transfer by a holder of one share of Common
Stock issuable upon exercise of this Warrant had this Warrant been exercised
immediately prior to such reclassification, change, consolidation, merger,
sale or transfer. Such new Warrant shall be as nearly equivalent in all
substantive respects as practicable to this Warrant and the adjustments
provided in this Article III and the provisions of this Section 3.1, shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, sales and transfers.
3.2 SUBDIVISION OR COMBINATION OF SHARES. If the Company shall at any
time while this Warrant remains outstanding and less than fully exercised:
(i) divide its Company Stock, the Warrant Price shall be proportionately
reduced; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock (except any distribution described in
Sections 3.1 and 3.2 hereof) then the Warrant Price shall be adjusted to that
price determined by multiplying the Warrant Price then in effect by a fraction,
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
3.4 OTHER ACTION AFFECTING COMMON STOCK. If the Company takes any action
affecting its Common Stock after the date hereof (including dividends and
distributions), other than an action described in any of Sections 3.1 and 3.2
hereof, which would have an adverse effect upon Holder's rights hereunder, the
Warrant Price shall be adjusted downward in such manner and at such time as the
Board of Directors of the Company shall in good faith determine to be equitable
under the circumstances.
3.5 TIME OF ADJUSTMENTS TO THE WARRANT PRICE. All adjustments to the Warrant
Price and the number of shares purchasable hereunder, unless otherwise specified
herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders
to receive a distribution or dividend payable in equity securities,
provided that such division, combination, distribution or dividend
actually occurs.
3.6 NOTICE OF ADJUSTMENTS. In each case of an adjustment in the Warrant
Price and the number of shares purchasable hereunder, the Company, at its
expense, shall cause the Chief Financial Officer of the Company to compute such
adjustment and prepare a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Company shall
promptly mail a copy of each such certificate to Holder pursuant to Section 6.8
hereof.
3.7 DURATION OF ADJUSTED WARRANT PRICE. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.8 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be
<PAGE>
Common Stock Warrant
Page 5
adjusted to the nearest whole share, to the number obtained by dividing the
Aggregate Price by the Warrant Price as adjusted.
<PAGE>
Common Stock Warrant
Page 6
ARTICLE 4
TRANSFER, EXCHANGE AND LOSS
4.1 TRANSFER. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any partial
transfer, the Company will issue and deliver to Holder a new Warrant or Warrants
with respect to the Warrants not so transferred. Notwithstanding the foregoing,
Holder shall not be entitled to transfer a number of shares or an interest in
this Warrant representing less than five percent (5%) of the aggregate shares
initially covered by this Warrant (as presently constituted, with appropriate
adjustment being made in the event of stock splits, combinations,
reorganizations and the like occurring after the issue date hereof). Any
transferee shall be subject to the same restrictions on transfer with respect to
this Warrant as the Purchaser.
4.2 SECURITIES LAWS. Upon any issuance of shares of Common Stock upon
exercise of this Warrant, it shall be the Company's responsibility to comply
with the requirements of: (1) the Securities Act of 1933, as amended; (2) the
Securities Exchange Act of 1934, as amended; (3) any applicable listing
requirements of any national securities exchange; (4) any state securities
regulation or "Blue Sky" laws; and (5) requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If required
by the Company, in connection with each issuance of shares of Common Stock upon
exercise of this Warrant, the Holder will give: (i) assurances in writing,
satisfactory to the Company, that such shares are not being purchased with a
view to the distribution thereof in violation of applicable laws,
(ii) sufficient information, in writing, to enable the Company to rely on
exemptions from the registration or qualification requirements of applicable
laws, if available, with respect to such exercise, and (iii) its cooperation to
the Company in connection with such compliance.
4.3 EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of the
Aggregate Price as Holder shall designate at the time of such exchange. Each
new Warrant shall be identical in form and content to this Warrant, except for
appropriate changes in the number of shares of Common Stock covered thereby, the
percentage stated in Section 4.1 above, and any other changes which are
necessary in order to prevent the Warrant exchange from changing the respective
rights and obligations of the Company and the Holder as they existed immediately
prior to such exchange.
4.4 LOSS OR MUTILATION. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant.
ARTICLE 5
HOLDER RIGHTS
5.1 NO SHAREHOLDER RIGHTS UNTIL EXERCISE. No Holder hereof, solely by virtue
hereof, shall be entitled to any rights as a shareholder of the Company. Holder
shall have all rights of a shareholder with respect to securities purchased upon
exercise hereof at the time: (i) the cash exercise price for such securities is
delivered pursuant to Section 2.1 hereof and this Warrant is surrendered, (ii)
of delivery of notice of cashless exercise pursuant to Section 2.2 hereof and
this Warrant is surrendered, or (iii) of automatic exercise hereof (even if not
surrendered) pursuant to Section 2.5 hereof.
<PAGE>
Common Stock Warrant
Page 7
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNMENTAL APPROVALS. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all permits,
consents and approvals of governmental agencies and authorities and securities
acts filings under federal and state laws, which may be or become requisite in
connection with the issuance, sale, and delivery of this Warrant, and the
issuance, sale and delivery of the Common Stock or other securities or property
issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT AS
SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS
WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT
OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.
6.3 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Warrant, 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.
6.4 SEVERABILITY. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions 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 any such void or unenforceable provisions of this Warrant with valid
and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
6.5 DEFAULT, AMENDMENT AND WAIVERS. This Warrant may be amended upon the
written consent of the Company and the holders in the aggregate of the right to
purchase a majority of the number of unexercised shares covered by the Warrant
initially issued by the Company pursuant to the Consulting Agreement. 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 any succeeding breach or default. The failure
to cure any breach of any term of this Warrant within ten (10) days of written
notice thereof shall constitute an event of default under this Warrant.
6.6 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.
6.7 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any part
of this Warrant, 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). The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.
6.8 NOTICES. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, 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, return receipt
requested, addressed as follows:
<PAGE>
Common Stock Warrant
Page 8
Company: NHancement Technologies Inc.
39420 Liberty Street
Suite 250
Fremont, California 94538
Attn: Douglas S. Zorn
Holder: Diane E. Nowak
12401 N. 76th Street
Scottsdale, Arizona 85260
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 three (3) business 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.
6.9 TIME. Time is of the essence of this Warrant.
6.10 CONSTRUCTION OF AGREEMENT. A reference in this Warrant to any
Section shall include a reference to every Section the number of which begins
with the number of the Section to which reference is specifically made (E.G., a
reference to Section 3 shall include a reference to Sections 3.5 and 3.7). The
titles and headings herein are for reference purposes only and shall not in any
manner affect the interpretation of this Warrant.
6.11 NO ENDORSEMENT. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
6.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
6.13 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
Warrant.
NHancement Technologies Inc., a Delaware corporation
By: /s/ DOUGLAS S. ZORN
------------------------------------------
Douglas S. Zorn, Chief Executive Officer
<PAGE>
Common Stock Warrant
Page 9
EXHIBIT A-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
DATE:____________________
_________________________ Aggregate Price of Warrant
_________________________ Before Exercise: $______________
_________________________ Aggregate Price
Being Exercised: $______________
Attention: Chief Financial Officer
Warrant Price: $___________ per share
Number of Shares of Common Stock to be Issued
Under this Notice: ___________________
Remainder Aggregate
Price (if any) After Issuance: $___________
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of NHancement
Technologies, Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full under
the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to "____________________
_________________",_________________________________. To the extent the
foregoing exercise is for less than the full Aggregate Price, a Replacement
Warrant representing the remainder of the Aggregate Price and otherwise of
like form, tenor and effect should be delivered to Holder along with the
share certificates evidencing the Common Stock issued in response to this
Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond
to the name of the Holder on the Warrant.
<PAGE>
Common Stock Warrant
Page 10
Exhibit A-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[DATE]
___________________________ Aggregate Price of Warrant
___________________________ Before Exercise: $___________________
___________________________ Aggregate Price
Attention: Chief Financial Officer Being Exercised: $___________________
Warrant Price: $__________ per share
Number of Shares of Common Stock to be
Issued Under this Notice: _______________
Remainder Aggregate
Price (if any) After Issuance: $________
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant
delivered herewith ("WARRANT", hereby irrevocably exercises such Warrant for,
and purchases thereunder, shares of the Common Stock of _NHancement
Technologies Inc., a Delaware corporation, as provided below. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
given in the Warrant. The portion of the Aggregate Price (as defined in the
Warrant) to be applied toward the purchase of Common Stock pursuant to this
Notice of Exercise is $ , thereby leaving a remainder Aggregate
Price (if any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which, by reference to Section 2.3,
requires the use of the current per share fair market value of the Company's
Common Stock. The current fair market value of one share of the Company's
Common Stock shall be determined in the manner provided in Section 2.3, which
amount has been determined or agreed to by Holder and the Company to be $
, which figure is acceptable to Holder for calculations of the number of
shares of Common Stock issuable pursuant to this Notice of Exercise
[SPECIFY ANY ALTERNATIVE ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR
APPLICABLE]. Holder requests that the certificates for the purchased shares
of Common Stock be issued in the name of and delivered to
"___________________________", ___________________________. To
the extent the foregoing exercise is for less than the full Aggregate Price
of the Warrant, a replacement Warrant representing the remainder of the
Aggregate Price (and otherwise of like form, tenor and effect) shall be
delivered to Holder along with the share certificate evidencing the Common
Stock issued in response to this Notice of Exercise.
By:
---------------------------
[NAME]
NOTE
The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant.
<PAGE>
Exhibit 10.59
December 10, 1999
Mr. James Gillespie
198, Country Club Drive #35
Incline Village, NV 89451
RE: MODIFICATION OF CONSULTANCY AGREEMENT MADE ON JUNE 7,1999.
Dear James,
This letter is confirmation of our agreement concerning the further
modification of your Consulting Agreement as amended on June 7, 1999 and
forgiveness of all unpaid monies due under this Agreement. In consideration
for this forgiveness, the company hereby grants you warrants to purchase
150,000 shares of Common Stock at a per share price of $3.4275 for a one (1)
year period from the date of this letter.
We take this opportunity to express our sincere gratitude for your guidance
and services to the Company.
Sincerely, Accepted and Agreed To:
/s/ Douglas S. Zorn /s/ James S. Gillespie
- ------------------- ----------------------
Douglas S. Zorn James Gillespie
President and CEO December 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,112
<SECURITIES> 0
<RECEIVABLES> 7,688
<ALLOWANCES> 181
<INVENTORY> 1,719
<CURRENT-ASSETS> 13,141
<PP&E> 2,443
<DEPRECIATION> 1,105
<TOTAL-ASSETS> 18,789
<CURRENT-LIABILITIES> 11,139
<BONDS> 0
0
23
<COMMON> 93
<OTHER-SE> 7,453
<TOTAL-LIABILITY-AND-EQUITY> 18,789
<SALES> 8,741
<TOTAL-REVENUES> 8,741
<CGS> 5,997
<TOTAL-COSTS> 5,997
<OTHER-EXPENSES> 63
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> 280
<INCOME-TAX> 37
<INCOME-CONTINUING> 243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
