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EXHIBIT 4.24
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
NHANCEMENT TECHNOLOGIES INC.
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT dated as of May 19, 2000 (the
"Agreement"), between the Investors signatory hereto (each an "Investor" and
together the "Investors"), and NHancement Technologies Inc., a corporation
organized and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate $5,800,000 principal amount of
Convertible Debentures; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
of 1933, as amended (the "Securities Act") and/or Regulation D ("Regulation D")
and the other rules and regulations promulgated thereunder, and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in securities to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "CAPITAL SHARES" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
Section 1.3. "CLOSING" shall mean the closing of the purchase and sale of the
Convertible Debentures pursuant to Section 2.1.
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Section 1.4. "CLOSING DATE" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.5. "COMMON STOCK" shall mean the Company's common stock, $0.01 par
value per share.
Section 1.6. "CONVERSION SHARES" shall mean the shares of Common Stock issuable
upon conversion of the Convertible Debenture.
Section 1.7. "CONVERTIBLE DEBENTURE(S)" shall mean the $5,800,000 principal
amount of 8% Convertible Debentures due May 30, 2001, in the form of Exhibit A
hereto.
Section 1.8. "DAMAGES" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.9. "EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "ESCROW AGENT" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "ESCROW AGREEMENT" shall mean the Escrow Agreement in
substantially the form of Exhibit C hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and wregulations promulgated thereunder.
Section 1.13. "LEGEND" shall mean the legend set forth in Section 9.1.
Section 1.14. "MARKET PRICE" on any given date shall mean the closing bid price
on the Principal Market (as reported by Bloomberg L.P.) of the Common Stock on
the Trading Day for which the Market Price is to be determined.
Section 1.15. "MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Escrow Agreement in any material respect.
Section 1.16. "OUTSTANDING" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
PROVIDED, HOWEVER, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
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Section 1.17. "PERSON" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.18. "PRINCIPAL MARKET" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market or the NASDAQ Small-Cap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume.
Section 1.19. "PURCHASE PRICE" shall mean the principal amount of the
Convertible Debenture.
Section 1.20. "REGISTRABLE SECURITIES" shall mean the Conversion Shares until
(i) the Registration Statement has been declared effective by the SEC, and all
Conversion Shares have been disposed of pursuant to the Registration Statement,
(ii) all Conversion Shares have been sold under circumstances under which all of
the applicable conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") are met, (iii) all Conversion Shares have
been otherwise transferred to holders who may trade such shares without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
Section 1.21. "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investor as of the Closing
Date in the form annexed hereto as Exhibit B.
Section 1.22. "REGISTRATION STATEMENT" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.23. "REGULATION D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange Commission.
Section 1.25. "SEC DOCUMENTS" means the Company's Form 10-KSB for the year ended
September 30, 1999, the Proxy Statement for the fiscal year ended December 30,
1998 and any 1934 Act filings since that date.
Section 1.26. "SECTION 4(2)" AND "SECTION 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
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Section 1.27. "SECURITIES ACT" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.28. "SHARES" shall have the meaning set forth in Section 1.16.
Section 1.29. "TRADING DAY" shall mean any day during which the Principal Market
shall be open for business.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
Section 2.1. INVESTMENT.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors, severally and not jointly, agree to
purchase Convertible Debentures with an aggregate principal amount of $5,800,000
in accordance with the commitments set forth on the signature pages hereto, at
the Purchase Price on the Closing Date as follows:
(i) Upon execution and delivery of this Agreement, each Investor
shall deliver to the Escrow Agent immediately available funds in
their proportionate amount of the Purchase Price as set forth on
the signature pages hereto, and the Company shall deliver the
Convertible Debenture certificates to the Escrow Agent, in each
case to be held by the Escrow Agent pursuant to the Escrow
Agreement.
(ii) Upon satisfaction of the conditions set forth in Section 2.1(b),
the Closing ("Closing") shall occur at the offices of the Escrow
Agent at which the Escrow Agent (x) shall release the
Convertible Debentures to the Investors and (y) shall release
the Purchase Price (after all fees have been paid as set forth
in the Escrow Agreement), pursuant to the terms of the Escrow
Agreement.
(b) The Closing is subject to the satisfaction or waiver by the party to be
benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the Investors, of
this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately available
funds in the amount of the Purchase Price of the Convertible
Debentures purchased at the Closing, as more fully set forth in
the Escrow Agreement;
(iii) all representations and warranties of the Investors contained
herein shall remain true and correct as of the Closing Date (as
a condition to the Company's obligations);
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(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date (as
a condition to the Investors' obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Convertible
Debentures, or shall have the availability of exemptions
therefrom;
(vi) the sale and issuance of the Convertible Debentures hereunder,
and the proposed issuance by the Company to the Investors of the
Common Stock underlying the Convertible Debentures upon the
conversion thereof shall be legally permitted by all laws and
regulations to which the Investors and the Company are subject
and there shall be no ruling, judgment or writ of any court
prohibiting the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible Debenture
certificates to the Escrow Agent;
(viii)delivery to the Escrow Agent of an opinion of Broad and Cassel,
counsel to the Company, in the form of Exhibit D hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions to
Transfer Agent in the form attached hereto as Exhibit E; and
delivery to the Escrow Agent of the Registration Rights
Agreement.
Section 2.2. LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that
the sum payable pursuant to the Registration Rights Agreement for late
registration and the sum payable pursuant to the Convertible Debentures for late
delivery of Common Stock certificates shall constitute liquidated damages and
not penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amount specified in such provisions bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor in connection with the failure of the
Company to timely cause the registration of the Registrable Securities or to
deliver stock certificates upon any conversion, and (c) the parties are
sophisticated businesses and have been represented by sophisticated and able
legal and financial counsel and negotiated this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. INTENT. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Convertible Debenture or any Conversion
Shares to or through any person or entity; provided,
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however, that by making the representations herein, the Investor does not agree
to hold such securities for any minimum or other specific term and reserves the
right to dispose of the Conversion Shares at any time in accordance with federal
and state securities laws applicable to such disposition.
Section 3.2. SOPHISTICATED INVESTOR. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Convertible Debenture and the
underlying Common Stock. The Investor has been represented by counsel of its
choice. The Investor acknowledges that an investment in the Convertible
Debenture and the underlying Common Stock is speculative and involves a high
degree of risk.
Section 3.3. AUTHORITY. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. NOT AN AFFILIATE. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. ABSENCE OF CONFLICTS. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
Section 3.6. DISCLOSURE; ACCESS TO INFORMATION. The Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by the Investor.
Section 3.7. MANNER OF SALE. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as set forth
on the SEC Documents or on the Disclosure Schedule prepared by the Company and
attached hereto:
Section 4.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity. The Company is duly qualified and is in good standing as
a foreign corporation to do business in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
Section 4.2. AUTHORITY. (i) The Company has the requisite corporate power and
corporate authority to conduct its business as now conducted, to enter into and
perform its obligations under this Agreement, the Registration Rights Agreement,
the Escrow Agreement, and to issue the Convertible Debentures and the Conversion
Shares pursuant to their respective terms, (ii) the execution, issuance and
delivery of this Agreement, the Registration Rights Agreement, the Escrow
Agreement and the Convertible Debentures by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, and (iii) this
Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Convertible Debentures have been duly executed and delivered by the Company and
at the Closing shall constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application. The
Company has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the conversion of the Convertible
Debentures. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Conversion Shares. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Debentures in accordance with this Agreement and
the Convertible Debentures is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"). The Company shall
not seek judicial relief from its obligations hereunder except pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. Section 362 in respect of the conversion of the
Convertible Debentures. The Company agrees, without cost or expense to the
Investors, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. Section 362.
Section 4.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, $0.01 par value per share, of
which 10,717,600 shares are issued and outstanding as of April 30, 2000, and
2,000,000 shares of convertible preferred stock,
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of which none are issued and outstanding as of April 30, 2000, there are no
outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and have
been issued pursuant to valid exemptions from registration under the Securities
Act and all applicable state "blue sky" laws.
Section 4.4. COMMON STOCK. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC DOCUMENTS. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
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Section 4.6. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Convertible Debentures and the Conversion Shares will not require registration
under the Securities Act and/or any applicable state securities law. When
validly converted in accordance with the terms of the Convertible Debentures,
the Conversion Shares will be duly and validly issued, fully paid, and
non-assessable. Neither the sales of the Convertible Debentures or the
Conversion Shares pursuant to, nor the Company's performance of its obligations
under, this Agreement, the Registration Rights Agreement, the Escrow Agreement
or the Convertible Debentures will (i) result in the creation or imposition by
the Company of any liens, charges, claims or other encumbrances upon the
Convertible Debentures or the Conversion Shares or, except as contemplated
herein, any of the assets of the Company, or (ii) entitle the holders of
Outstanding Capital Shares to preemptive or other rights to subscribe for or
acquire the Capital Shares or other securities of the Company. The Convertible
Debentures and the Conversion Shares, shall not subject the Investors to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Debentures, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Convertible Debentures or the Conversion Shares, under the
Securities Act.
Section 4.8. NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
interest upon the Convertible Debentures and the Conversion Shares, do not and
will not (i) result in a violation of the Company's Certificate of Incorporation
or By-Laws or (ii) conflict with, or constitute a material default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under any Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Convertible Debentures or
the Warrants in accordance with the terms hereof (other than any SEC or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto); provided
that, for purposes of the representation made in this sentence,
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the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investors herein.
Section 4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company. No material
supplier has given notice, oral or written, that it intends to cease or reduce
the volume of its business with the Company from historical levels.
Section 4.10. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31, 1999,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under any applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in writing to the Investors.
Section 4.11. NO INTEGRATED OFFERING. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options or in connection with certain acquisitions,
or pursuant to its discussion with the Investors in connection with the
transactions contemplated hereby, the Company has not issued, offered or sold
the Convertible Debentures or any shares of Common Stock (including for this
purpose any securities of the same or a similar class as the Convertible
Debentures or Common Stock, or any securities convertible into a exchangeable or
exercisable for the Convertible Debentures or Common Stock or any such other
securities) within the six-month period next preceding the date hereof, and the
Company shall not permit any of its directors, officers or affiliates directly
or indirectly to take, any action (including, without limitation, any offering
or sale to any Person of the Convertible Debentures or shares of Common Stock),
so as to make unavailable the exemption from Securities Act registration being
relied upon by the Company for the offer and sale to Investors of the
Convertible Debentures (and the Conversion Shares) as contemplated by this
Agreement.
Section 4.12. LITIGATION AND OTHER PROCEEDINGS. There are no lawsuits or
proceedings pending or, to the knowledge of the Company, threatened, against the
Company or any subsidiary, nor has the Company received any written or oral
notice of any such action, suit, proceeding or investigation, which could
reasonably be expected to have a Material Adverse Effect. No judgment, order,
writ, injunction or decree or award has been issued by or, to the knowledge of
the Company, requested of any court, arbitrator or governmental agency which
could result in a Material Adverse Effect.
Section 4.13. NO MISLEADING OR UNTRUE COMMUNICATION. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debentures in connection with
the transaction contemplated by this Agreement, have not made, at any time, any
oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14. MATERIAL NON-PUBLIC INFORMATION. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected
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to have a material effect on the price of the Common Stock or (ii) according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company prior to the date hereof but which has not been so disclosed.
Section 4.15. INSURANCE. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. TAX MATTERS.
(a) The Company and each subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate and have been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1999, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to Section 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any adjustments
pursuant to Section 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
(c) The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the
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Company under (A) Treas. Reg. Section 1.1502-6 (or comparable provisions of
state, local or foreign law), (B) as a transferee or successor, (C) by contract
or indemnity or (D) otherwise. The Company is not a party to any tax sharing
agreement. The Company has not made any payments, is not obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under Section 280G of the Internal Revenue
Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.17. PROPERTY. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property and buildings held under lease by the Company as tenant are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made of such
property and buildings by the Company. The Company's present facilities are
adequate for the Company's reasonably foreseeable needs.
Section 4.18. INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, neither the Company
nor any of its subsidiaries is infringing upon or in conflict with any right of
any other person with respect to any Intangibles. No adverse claims have been
asserted by any person to the ownership or use of any Intangibles and the
Company has no knowledge of any basis for such claim.
Section 4.19. INTERNAL CONTROLS AND PROCEDURES. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets
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is compared with existing assets at regular intervals; (iii) access to the
Company's consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. PAYMENTS AND CONTRIBUTIONS. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. RELATED PARTY TRANSACTIONS. The Company is not a party to any
agreement or transaction with any of its officers, directors, greater than 5%
shareholders or any Affiliate (as defined in SEC Rule 405) of any of said
persons that would require disclosure under Item 404 of Regulation S-K that is
not disclosed in the SEC Documents.
Section 4.22. PERMITS AND LICENSES. The Company holds all necessary permits and
licenses to conduct its business as presently conducted. All of such permits and
licenses are in full force and effect and the Company is not in material
violation of any thereof.
Section 4.23. NO MISREPRESENTATION. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. COMPLIANCE WITH LAW. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. NO SHORT SALES. Prior to the Effective Date and during the term
hereof, neither the Investor or any of its affiliates will be in a net short
position with regard to the Common Stock in any accounts directly or indirectly
controlled by the Investor.
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ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Conversion Shares pursuant to any conversion
of the Convertible Debentures.
Section 6.3. LISTING OF COMMON STOCK. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Conversion Shares on the Principal
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Conversion Shares, and will take such other action as is necessary or
desirable in the opinion of the Investors to cause the Conversion Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action to continue the listing and trading of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
Section 6.4. EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Investors have
disposed of all of their Registrable Securities.
Section 6.5. LEGENDS. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX. Notwithstanding the
fact that the Transfer Agent is entitled to rely on an opinion from the
Investor's counsel and even if the Transfer Agent receives an opinion from the
Investor's counsel, if the Transfer Agent requires an opinion of counsel from
the Company's counsel pursuant to the Instructions to Transfer Agent attached
hereto as EXHIBIT F to issue new certificates as set forth above, and Company's
counsel fails to deliver such
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opinion within five (5) days from such a request, then the Company will pay the
applicable Investor (pro rated on a daily basis), as liquidated damages for such
failure and not as a penalty, ten percent (10%) of the market value of shares of
Common Stock purchased from the Company (including the Exchange Shares which
would be issuable upon conversion of the Convertible Debenture on any date of
determination) and surrendered by the Investor to the Transfer Agent for each
week until such opinion is provided.
Section 6.6. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 6.7. CONSOLIDATION; MERGER. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement
and the Convertible Debentures.
Section 6.8. ISSUANCE OF CONVERTIBLE DEBENTURES. The sale of the Convertible
Debentures and the issuance of the Conversion Shares upon conversion of the
Convertible Debentures shall be made in accordance with the provisions and
requirements of Section 4(2), 4(6) or Regulation D and any applicable state
securities law. The Company shall make any necessary SEC and "blue sky" filings
as may be required to be made by the Company in connection with the sale of the
Securities to the Investors, and shall provide a copy thereof to the Investors
promptly after such filing.
Section 6.9. LIMITATION ON FUTURE FINANCING. The Company agrees that it will not
enter into any sale of its securities or any Capital Shares Equivalents at a
discount to the then-current bid price until the earlier of (i) 180 days after
the effective date of the Registration Statement and (ii) three (3) years from
the date hereof. The foregoing shall not prevent or limit the Company from
engaging in any sale of securities (i) pursuant to the exercise of options
granted or to be granted under an employee benefit plan, (ii) pursuant to any
compensatory plan for a full-time employee or key consultant, (iii) in
connection with a strategic partnership or other business transaction, the
principal purpose of which is not simply to raise money, (iv) pursuant to an
equity line of credit agreement arranged through Grady, Hatch & Company or (v)
in a registered public offering by the Company which is underwritten by one or
more established investment banks.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. SURVIVAL. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in
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each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the Closing and the consummation of
the transactions contemplated hereby. In the event of a breach or violation of
any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement, irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Date, unless such party had actual
knowledge of such breach or violation prior to the Closing Date.
Section 7.2. INDEMNITY. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), except that, as to actions by
the Investors directly against the Company, the Company shall be liable to the
Investors only if either the Debenture has not been satisfied or the Investor
holds any of the Conversion Shares at the time any action is brought, in each
case promptly as incurred by the Investor Indemnitees and to the extent arising
out of or in connection with:
(i) any material misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any material respect any
of its material covenants, agreements, undertakings or obligations set
forth in this Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of them or
their respective Affiliates, by any stockholder of the Company who is not
an Affiliate of an Investor, with respect to any of the transactions
contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with any
misrepresentation, omission of fact, or breach of any of the Investor's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Investor pursuant to this Agreement.
Section 7.3. NOTICE. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim,
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proceeding or other action in respect of which indemnification is being sought
(each, a "Claim"), the Indemnified Party promptly shall notify the party from
whom indemnification pursuant to Section 7.2 is being sought (the "Indemnifying
Party") of the commencement thereof; but the omission to so notify the
Indemnifying Party shall not relieve it from any liability that it otherwise may
have to the Indemnified Party, except to the extent that the Indemnifying Party
is actually prejudiced by such omission or delay. In connection with any Claim
as to which both the Indemnifying Party and the Indemnified Party are parties,
the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party reasonably shall have concluded that
representation of the Indemnified Party and the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or (z)
the Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. DIRECT CLAIMS. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW
Section 8.1. DUE DILIGENCE REVIEW. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who
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may or may not be affiliated with the Investors and who are reasonably
acceptable to the Company), any underwriter participating in any disposition of
the Registrable Securities on behalf of the Investors pursuant to the
Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, Nasdaq or other filing, all proposed filings
with the SEC, and all other corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) From and after the filing of the Registration Statement, the Company
shall not disclose material non-public information to the Investors, advisors to
or representatives of the Investors unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. Other than disclosure of any comment letters received from the SEC staff
with respect to the Registration Statement, the Company may, as a condition to
disclosing any non-public information hereunder, require the Investors' advisors
and representatives to enter into a confidentiality agreement in form and
content reasonably satisfactory to the Company and the Investors.
(b) The Company will promptly notify the advisors and representatives of
the Investors and, if any, underwriters, of any event or the existence of any
circumstance of which it becomes aware, constituting material information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement, would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
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"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED
IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. TRANSFER AGENT INSTRUCTIONS. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit E hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. INVESTORS' COMPLIANCE. Nothing in this Article shall affect in
any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. GOVERNING LAW/ARBITRATION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such
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jurisdiction shall govern such issue. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available, and the prevailing party in such injunctive action shall be
entitled to its reasonable attorneys' fees in connection therewith.
ARTICLE XI
ASSIGNMENT
Section 11.1. ASSIGNMENT. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Convertible Debentures purchased or acquired by any Investor hereunder with
respect to the Convertible Debentures held by such person, and (b) upon the
prior written consent of the Company, which consent shall not unreasonably be
withheld or delayed, each Investor's interest in this Agreement may be assigned
at any time, in whole or in part, to any other person or entity (including any
Affiliate of the Investor) who agrees to make the representations and warranties
contained in Article III and who agrees to be bound by the terms of this
Agreement.
ARTICLE XII
NOTICES
Section 12.1. NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours
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where such notice is to be received) or (b) on the first business day following
the date of sending by reputable courier service, fully prepaid, addressed to
such address, or (c) upon actual receipt of such mailing, if mailed. The
addresses for such communications shall be:
If to the Company: NHancement Technologies Inc.
6663 Owens Drive
Pleasanton, CA 94588
Attention: Douglas Zorn
Telephone: 925-251-3200
Facsimile: 925-251-3203
with a copy to (shall not constitute Leonard H. Bloom, Esq.
Broad and Cassel
201 South Biscayne Blvd. Suite 3000
Miami, Florida 33131
Telephone: 305-373-9400
Facsimile: 305-995-6428
if to the Investors: As set forth on the signature pages
hereto
with a copy to: Robert Charron, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. COUNTERPARTS/ FACSIMILE/ AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
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Section 13.2. ENTIRE AGREEMENT. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Escrow Agreement, and the Registration Rights Agreement, set
forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
Section 13.3. SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. NUMBER AND GENDER. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares and (ii) in the case of any such loss, theft or destruction of
such certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form to the Company or as may be required by the Company's
Transfer Agent or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.8. FEES AND EXPENSES. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
Epstein Becker & Green, P.C., counsel to the Investors, in an amount equal to
$15,000, all as set forth in the Escrow Agreement.
Section 13.9. BROKERAGE. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party except for
Grady, Hatch & Company, whose fee shall be paid by the Company. The Company on
the one hand, and the Investors, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have
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been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby.
Section 13.10. PUBLICITY. The Company agrees that it will not issue any press
release or other public announcement, except as required by law, of the
transactions contemplated by this Agreement without the prior consent of the
Investors, which shall not be unreasonably withheld nor delayed by more than two
(2) Trading Days from their receipt of such proposed release. No release shall
name the Investors without their express consent.
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IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as this
__ day of May, 2000.
NHANCEMENT TECHNOLOGIES, INC.
By: _____________________________
Douglas S. Zorn, President
INVESTORS:
Address: c/o Utra Finance
Grossmunster Platz 26 AMRO INTERNATIONAL, S.A.
Zurich CH 8022
Switzerland
By: _____________________________
Fax: 011-411-262-5515 H.U. Bachofen, Director
Total Purchase Price:
CELESTE TRUST REG
Address: c/o Trevisa-Trevland-Anstalt
Landstrasse 8
Furstentums 9496 By: _____________________________
Balzers, Liechtenstein Thomas Hackl, Authorized Signatory
Fax: 011-431-534-532-895
Total Purchase Price:
ESQUIRE TRADE & FINANCE INC.
Address:
P.O. Box 2154
Baar, CH-6342 Switzerland By: _____________________________
Fax: 011-411-760-1031 Roland Winiger
Total Purchase Price: $ Authorized Signatory
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[NHAN PURCHASE AGREEMENT-DEBENTURE]
Address: _________________________________
1421 E. Wayzata Blvd. Suite 219 Edward B. Silberman
Watzata, MN 55391-1939
Total Purchase Price:
$50,000
Address: _________________________________
30050 MN World Trade Center Allen Jacobson
30 E. 7th Street
Saint Paul, MN 55101-4914
Total Purchase Price:
$100,000
Address: _________________________________
55 Shaw Road Wayne Saker
Chestnut Hill, MA 02147
Total Purchase Price:
$100,000
Address: _________________________________
175 Sheridan Road Lucian T. Baldwin
Winnetka, IL 60093
Total Purchase Price:
$500,000
Address: _________________________________
113 35th Place, Unit B Bartlett Hackley
Manhattan Beach, CA 90266-3322
Total Purchase Price:
$100,000
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