<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER , 1996
REGISTRATION NO. 333-
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
NHANCEMENT TECHNOLOGIES INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 84-1360852
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
1746 COLE BOULEVARD, SUITE 265 DOUGLAS S. ZORN
GOLDEN, COLORADO 80401 SECRETARY
(303) 271-0505 1746 COLE BOULEVARD, SUITE 265
(Address and telephone number of GOLDEN, COLORADO 80401
principal executive offices) (303) 271-0505
(Name, address and telephone number
of agent for service)
</TABLE>
------------------------
Copies to:
<TABLE>
<S> <C>
LESTER R. WOODWARD, ESQ. KEVIN A. CUDNEY, ESQ.
LAURA B. GILL, ESQ. BETH J. MEIERS, ESQ.
DAVIS, GRAHAM & STUBBS LLP DORSEY & WHITNEY LLP
370 SEVENTEENTH STREET, SUITE 4700 370 SEVENTEENTH STREET, SUITE 4400
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 892-9400 (303) 629-3400
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
PROPOSED MAXIMUM
DOLLAR AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share............................ 2,645,000 shares $4.50 $11,902,500 $3,607
================================================================================================
</TABLE>
(1) Includes 345,000 shares that the Underwriters have the option to purchase
from the Company solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED , 1996
PRELIMINARY PROSPECTUS
2,300,000 SHARES
NHANCEMENT LOGO
NHANCEMENT TECHNOLOGIES INC.
COMMON STOCK
------------------------
Of the 2,300,000 shares of Common Stock, $.01 par value (the "Common
Stock"), offered hereby (the "Shares"), 1,700,000 shares are being sold by
NHancement Technologies, Inc., a Delaware corporation (the "Company"), and
600,000 shares are being sold by a stockholder of the Company (the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Stockholder.
Prior to this offering ("Offering"), there has been no public market for
the Common Stock, and there can be no assurance that such a market will develop
after the completion of this Offering or that, if developed, it will be
sustained. It is anticipated that the initial public offering price of the
Common Stock will be between $3.50 and $4.50 per share (the "Offering Price").
See "Underwriting" for a discussion of the factors that will be considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on The Nasdaq SmallCap Market ("Nasdaq SmallCap")
under the symbol " ."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS," LOCATED AT PAGES 7 THROUGH
13, AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
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==============================================================================================================
UNDERWRITING PROCEEDS PROCEEDS
PRICE TO DISCOUNTS AND TO THE TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(1) STOCKHOLDER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
==============================================================================================================
</TABLE>
(1) Does not include additional consideration to be received by the
Representatives of the Underwriters in the form of a nonaccountable expense
allowance. The Company also has agreed to sell to the Representatives
warrants to purchase 230,000 shares of Common Stock, exercisable at a price
per share equal to 120% of the Offering Price (the "Underwriter Warrants").
In addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other compensation
payable to the Representatives.
(2) Before deducting expenses of this Offering estimated at $350,000 payable by
the Company, including the non-accountable expense allowance payable to the
Representatives in an amount equal to three percent (3%) of the gross
proceeds realized in this Offering or approximately $ ($
if the Underwriters' Over-Allotment Option is exercised in full).
(3) The Company has granted the Underwriters an option, exercisable within 30
days after the date hereof, to purchase up to 345,000 additional shares of
Common Stock upon the same terms and conditions as set forth above, solely
to cover over-allotments, if any (the "Over-Allotment Option.") If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
The Shares offered hereby are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve their right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of share certificates will be made at the
offices of Chatfield Dean & Co., Denver, Colorado on or about December , 1996.
CHATFIELD DEAN & CO.
The date of this Prospectus is , 1996.
<PAGE> 3
The Company has two federally registered trademarks: Performance Factors(R)
and FACTOR 1000.(R)
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE COMMON STOCK BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH COMMON STOCK MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS"
WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT, (2) BANKS, SAVINGS
AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE
CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED
BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS
(WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE
ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3)
ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER THAN A CORPORATION,
PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF PURCHASING THE
SECURITIES OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF
THE SECURITIES OFFERED HEREBY, (4) ANY NATURAL PERSON WHO (A) HAS INCOME OF
$65,000 AND A NET WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH
CASE, EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), OR (5) ANY
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED UNDER RULE 144A OF THE SECURITIES
ACT.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus, including the information set forth under "Risk Factors" and in the
financial statements (including the notes thereto). All information concerning
the Company assumes and has been adjusted to reflect the consummation of the
transactions described under "The Company." See "The Company." Except where
otherwise indicated, all information in this Prospectus assumes (A) the
conversion in accordance with the terms of certain outstanding promissory notes
into the number of shares of Common Stock equal to the aggregate outstanding
principal amount thereof divided by the Offering Price upon the consummation of
this Offering, (B) exercise of outstanding options to purchase Common Stock,
exercisable in 60 days, and (C) no exercise of the Over-Allotment Option and the
Underwriter Warrants. See "Capitalization."
THE COMPANY
The Company is a leading voice processing systems integrator, which also
offers a proprietary computerized testing system that measures human
sensorimotor skills to determine an individual's performance readiness or
fitness to perform. The Company will combine the businesses of Voice Plus, Inc.
("VPI"), a national provider of voice processing systems, which furnishes
businesses with advanced multimedia and voice processing solutions based on
integrating voice processing systems with various PBXs and computers, and
BioFactors, Inc. ("BFI"), a development stage company, which offers the FACTOR
1000(R) system, a proprietary computerized impairment testing system. VPI and
BFI both provide stand-alone and local area network ("LAN") based systems
utilizing the Intel computer platform. VPI derives its revenues from the sale
and installation of various communications systems products such as voice
messaging, facsimile messaging, voice response systems and electronic messaging.
VPI also generates revenues from recurring fees from annual maintenance service
contracts. BFI derives its revenues from recurring annual usage fees for its
FACTOR 1000(R) system and from sublicensing other uses of the technology.
The Company was incorporated to pursue an emerging business opportunity
created by the continuing changes in telecommunications and an increased
corporate emphasis on workplace productivity and security. The Company will
combine the proven marketing, distribution and service capabilities of VPI with
the experienced product and business development skills of BFI management. The
Company also intends to expand into the security business and has agreed to
acquire a security systems and services provider, C.C. & Associates ("CCA"). The
Company will continue to pursue aggressively strategic acquisitions following
this Offering.
The Company intends to leverage its position as a leading provider of voice
processing systems to become a diversified provider of a full range of
productivity and security enhancement products and services. The specific
elements of the Company's strategy to achieve this objective are as follows:
- Capitalize and expand on VPI's existing sales and support infrastructure
and systems integration capabilities to market VPI's existing products
and the FACTOR 1000(R) system;
- Exploit a growing trend towards unified networks by providing various
solution-based stand-alone and LAN systems and applications;
- Expand sales of the FACTOR 1000(R) system by customizing the FACTOR
1000(R) system to meet the needs of specific industries such as
transportation, manufacturing and the military;
- Exploit the need for worldwide wide area network ("WAN") capabilities to
meet the growing demands from business globalization;
- Acquire complementary businesses and products; and
- License FACTOR 1000(R) technology for use in other areas.
NHancement Technologies Inc., a Delaware corporation, was incorporated in
October 1996 to succeed to the business of BFI. See "The Company." Unless the
context otherwise requires, references herein to the "Company" refer to the
Company and its subsidiaries. The Company's principal executive offices are
located at 1746 Cole Boulevard, Suite 265, Golden, Colorado 80401, and its
telephone number is 303-271-0505.
1
<PAGE> 5
THIS OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company................... 1,700,000 shares
By the Selling Stockholder....... 600,000 shares
Total............................ 2,300,000 shares
Common Stock to be Outstanding
after this Offering(1)........... 4,154,425 shares
Use of Proceeds.................... The Company intends to use the net proceeds it receives
from this Offering for repayment of indebtedness and
accrued interest of BFI of approximately $2.0 million,
for product and market development costs for the FACTOR
1000(R) system of approximately $500,000, for payment of
accrued management salaries of $54,000, for payment of a
consulting fee of $40,000 and for general corporate
purposes, including acquisitions. See "Use of Proceeds."
Nasdaq SmallCap Symbol.............
</TABLE>
- ---------------
(1) Includes (i) 1,612,500 shares of Common Stock issued in connection with the
acquisition by the Company of VPI (the "VPI Acquisition") and CCA (the "CCA
Merger"), 600,000 shares of which are being sold in this Offering; and (ii)
229,125 shares of Common Stock, based on an assumed Offering Price of $4.00
per share, issuable upon the consummation of this Offering pursuant to the
terms of BFI's previously completed bridge financings. See
"Business -- Recent Financings."
2
<PAGE> 6
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain historical and pro forma combined
financial data of the Company. The summary financial data is derived from the
financial statements of NHancement Technologies Inc. (formerly BFI), VPI and
CCA. The data should be read in conjunction with the Historical Financial
Statements and Notes to Financial Statements and other financial information
included in this Prospectus.
SUMMARY PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(4)
-------------------------- PRO FORMA(3) COMBINED
BFI VPI(1) CCA(2) COMBINED AS ADJUSTED
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ 392 $3,900 $394 $ 4,686 $4,686
Gross margin............................. 320 1,456 139 1,915 1,915
Operating income (loss).................. (707) 302 4 (749) (774)
Other income (expense)................... (365) 11 -- (354) 2
Income (loss) before taxes............... (1,072) 313 4 (1,103) (772)
Net income (loss)........................ (1,072) 229 -- (1,103) (772)
</TABLE>
SUMMARY PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(4)
-------------------------- PRO FORMA(3) COMBINED
BFI VPI(1) CCA(2) COMBINED AS ADJUSTED
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ 451 $7,259 $1,076 $ 8,786 $8,786
Gross margin............................. 264 3,069 512 3,845 3,845
Operating income (loss).................. (620) 286 123 (526) (576)
Other income (expense)................... (519) 30 1 (488) 6
Income (loss) before taxes............... (1,139) 316 124 (1,014) (570)
Net income (loss)........................ (1,139) 172 77 (1,014) (570)
</TABLE>
SUMMARY PRO FORMA COMBINED BALANCE SHEET DATA
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(6)
-------------------------- PRO FORMA(5) COMBINED
BFI VPI CCA(2) COMBINED AS ADJUSTED
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ 225 $1,064 $100 $ 389 $ 4,555
Working capital.......................... (2,977) 247 97 (2,633) 4,003
Excess of cost over net assets
acquired............................... -- -- -- 5,157 5,157
Total assets............................. 742 4,425 259 11,084 15,249
Long-term debt, less current portion..... -- -- -- 1,500 1,500
Total liabilities........................ 3,676 3,902 120 9,199 6,728
Stockholders' equity (deficit)........... (2,934) 523 139 1,885 8,521
</TABLE>
3
<PAGE> 7
NOTES TO THE SUMMARY HISTORICAL AND
PRO FORMA COMBINED FINANCIAL DATA
(1) Since January 1, 1996, VPI has operated as a Subchapter S corporation under
the Internal Revenue Code of 1986, as amended (the "Code"). Upon the
consummation of the VPI Acquisition, the Company will file its federal
income tax returns as a consolidated group. The pro forma income taxes and
net income of VPI for the six months ended June 30, 1996, assuming C
corporation status and an effective tax rate of 40%, are as follows:
<TABLE>
<S> <C>
Historical income before income taxes............................. $312,000
Pro forma income taxes............................................ 125,000
--------
Pro forma net income.............................................. $187,000
========
</TABLE>
(2) CCA has a September 30 fiscal year end.
(3) The primary differences between the pro forma combined and historical
results of operations for the year ended December 31, 1995 and the six
months ended June 30, 1996 reflect adjustments associated with the VPI
Acquisition and the CCA Merger, including: (i) compensation expense
resulting from the re-negotiation of employment agreements with key
executives; (ii) amortization of the excess of cost over net assets acquired
in connection with VPI Acquisition; (iii) depreciation expense corresponding
to the estimated increase in estimated current fair value associated with
VPI's fixed assets; and (iv) adjustment of the income tax provision, on a
combined basis, due to the offsetting of current income of both VPI and CCA
with the losses of BFI.
(4) The primary differences between the pro forma combined as adjusted and pro
forma combined results of operations for the year ended December 31, 1995
and the six months ended June 30, 1996 reflect adjustments associated with
financing activities, including: (i) expenses related to premiums for
directors and officers insurance; and (ii) adjustments to eliminate period
interest associated with bridge financing. See "Business -- Recent
Financings" for the terms of such bridge financing.
(5) The primary differences between the pro forma combined and historical
balance sheet data as of June 30, 1996 reflect adjustments associated with
the VPI Acquisition and the CCA Merger, including: (i) increase in estimated
current fair value associated with VPI's inventory; (ii) increase in
estimated current fair value of VPI's fixed assets; (iii) excess of cost
over net assets acquired in connection with the VPI Acquisition; (iv)
payment of a dividend declared by VPI and payable to the sole shareholder of
VPI; (v) the long-term notes associated with the VPI Acquisition; and (vi)
adjustments to equity as a consequence of the VPI Acquisition and the CCA
Merger.
(6) The primary differences between the pro forma combined as adjusted and pro
forma combined balance sheet data as of June 30, 1996 reflect adjustments
associated with financing activities, including: (i) net proceeds from this
Offering and corresponding adjustments to Common Stock and retained
earnings; (ii) repayment of bridge debt and certain other debts and accrued
interest of the Company; (iii) proceeds and related costs from bridge debt
issued prior to this Offering; and (iv) conversion of certain notes and
associated accrued interest into equity at the Offering Price. See
"Business -- Recent Financings."
4
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk relating to the Company, the industries in which the Company
operates and the securities markets, particularly the markets for securities of
smaller issuers. Prospective purchasers of Common Stock should consider
carefully the information set forth below, as well as the other information in
this Prospectus, in determining whether to purchase the shares of Common Stock
offered hereby. In addition, certain information included in this Prospectus is
forward-looking. Such forward-looking information involves significant risks and
uncertainties that could cause actual future results to differ significantly
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks and uncertainties include, but are not limited to,
those discussed below.
ABSENCE OF OPERATING HISTORY OF THE COMBINED COMPANIES
To date, each of BFI, VPI and CCA (the "Combined Companies") has been
operating independently, and there can be no assurance that the Combined
Companies will be successfully integrated on an economic basis. There can be no
assurance that management of the Combined Companies will be able to oversee the
Combined Companies successfully and implement their operating and growth
strategies effectively. Results of operations may fluctuate significantly from
quarter to quarter and will depend upon numerous factors, including acceptance
of the Company's products and services in the marketplace. No assurances can be
given that future losses will not occur. There can be no assurance that the
combination of BFI and VPI into the Company will overcome the factors that
caused BFI operating losses in the past. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
"Management."
RISK FACTORS RELATED TO VOICE PROCESSING BUSINESS
VPI's Strategic Relationship with Centigram Communications Corporation.
VPI's business is based upon the integration of hardware and software and
telecommunications and data processing equipment manufactured by others into
integrated systems designed to meet the needs of its customers. Although VPI has
distributor agreements with a number of equipment manufacturers, approximately
90% of its revenue is based upon products manufactured by Centigram
Communications Corporation ("Centigram"). Any termination or adverse change in
the Company's distributor relationship with Centigram would have a material
adverse impact upon the Company's voice processing business. In addition, the
Company depends upon Centigram to offer products that are competitive with
products offered by other manufacturers as to technological advancement,
reliability and price. If Centigram's competitors should surpass Centigram in
any of these qualities, the Company may be required to establish alternative
strategic relationships. Any such development would adversely affect the
Company's business for an indeterminate period of time until new supplier
relationships could be established.
Reliance upon VPI's Distributor Relationships. VPI has distributor
agreements with a number of equipment manufacturers in addition to Centigram. In
accordance with the terms of the distributor agreements, a manufacturer may
discontinue the distributor relationship because of factors related to a
particular distributor or because of a manufacturer's decision to change its
method of distributing its products to all or parts of its markets. In making
such a change, a manufacturer of key products sold by a distributor may
effectively become a direct competitor of its former distributor. Moreover, a
manufacturer may reduce its dealer discounts, eliminate exclusive distribution
rights, reduce the manufacturer's support of a distributor or otherwise affect
the competitive environment in which the distributor sells the manufacturer's
products. Any material change in its distributor relationships with its key
suppliers or any interruption of the delivery of equipment to the Company by any
of its key suppliers would have a material adverse effect upon the Company. See
"Business -- Suppliers."
Competition in VPI's Voice Processing Business. VPI competes with a number
of larger integrated companies that provide competitive voice processing
products and services as subsets of larger product offerings, including all the
former regional Bell operating companies and major PBX equipment manufacturers,
such as Fujitsu Limited and Lucent Technologies Inc. ("Lucent"), formerly a
division of AT&T. These
5
<PAGE> 9
integrated public company competitors are substantially larger and may encroach
on the Company's voice processing equipment and service market. Additionally, in
the customer premise equipment markets, VPI competes with two types of equipment
companies: (i) interconnects (PBX providers), including Lucent, Northern Telecom
Limited, Fujitsu Limited and NEC Corporation, and (ii) independent voice
processing manufacturers, such as Octel Communications Corporation, Digital
Sound Corp., Active Voice Corp., Applied Voice Technology, Inc., Glenayre
Technologies, Inc. and Comverse Technology, Inc. Glenayre Technologies, Inc. and
Comverse Technology, Inc., among others, also compete with the Company in the
service provider market. Many of the Company's competitors in the voice
processing field have better name recognition in the market, a larger installed
base of customers and greater financial, marketing and technical resources than
the Company. See "Business -- Competition."
RISK FACTORS RELATED TO IMPAIRMENT TESTING BUSINESS
History of Operating Losses; Qualification of Auditors' Opinion. BFI has
experienced $8.2 million in operating losses since its inception. As of June 30,
1996, BFI had a stockholders' deficit of approximately $3.0 million. The
Company's independent auditors have included an explanatory paragraph in their
report on BFI's financial statements at December 31, 1995, which states that BFI
has suffered recurring losses from operations and has a net stockholders'
deficit, which raise substantial doubt about its ability to continue as a going
concern. See "Independent Auditors' Report" and Notes to Financial Statements
for NHancement Technologies Inc., formerly BFI.
Unknown Market Acceptance of the FACTOR 1000(R) System. The Company's
business success will depend in part upon its ability to market, manufacture and
license the FACTOR 1000(R) system. The market for the system is not established,
and it is unknown whether demand for the system will meet the Company's
expectations. The FACTOR 1000(R) impairment testing system has been subjected to
commercial trials for less than three years and is in use at only five
commercial locations for beta testing. Also, BFI has had limited success in
licensing the system. Although management believes that at least $500,000 is
needed for product and market development of the FACTOR 1000(R) system, there
can be no assurance that the Company's cash outlays and development efforts will
result in market acceptance of the system. Development of the FACTOR 1000(R)
system could require significantly more funds than the Company anticipates. In
addition, there can be no assurance that the Company's plan to rely upon VPI's
experienced sales force to increase sales of the FACTOR 1000(R) system will be
successful, as VPI has no experience in selling the FACTOR 1000(R) system.
Although VPI's sales force may be successful in increasing sales of the FACTOR
1000(R) system, there can be no assurance that such sales will generate profits
for the Company. If the VPI sales force is not successful in increasing sales of
the FACTOR 1000(R) system, the Company would have to recruit, hire and train a
new sales force. The Company may not have sufficient capitalization to complete
product and market development of the system. See "Business."
Employee Challenges to Implementation of FACTOR 1000(R) Impairment Testing.
Labor unions generally have resisted any form of employee testing. BFI has
experienced labor union resistance to the FACTOR 1000(R) system. In several
instances, labor unions have prevented implementation of the FACTOR 1000(R)
system. Similar resistance from other employee groups also may arise. In
addition, while the FACTOR 1000(R) impairment testing system has not met with
legal challenge to date, there can be no assurance that use of the FACTOR
1000(R) system will not be legally challenged or that future legal decisions
will not restrict or prohibit an employer's use of the FACTOR 1000(R) system. If
the use of the FACTOR 1000(R) system were legally restricted or prohibited, the
Company would be materially adversely affected. See "Business -- Legal
Proceedings and Product Liability Insurance."
License for Critical Tracking Task/Test Software. Critical Tracking
Task/Test ("CTT") software, a critical component of the FACTOR 1000(R)
technology, is licensed exclusively from Systems Technology, Inc. ("STI"). CTT
software, a measure of human sensorimotor skills, is protected under patents and
copyrights held by STI. The Company's right to market the FACTOR 1000(R) system
is totally dependent on maintenance of its CTT software license and relies on
STI for product validation and modification. Although the Company is currently
in compliance with the payment and other terms of its license agreement with
STI, the Company has been delinquent in its payments and certain reporting
obligations to STI in the past. The failure to pay
6
<PAGE> 10
future royalty payments or otherwise to perform its obligations under the
license agreement, including failure to market the product, could result in loss
of the license from STI, which would have a material adverse effect upon the
Company.
The Company intends to protect vigorously the CTT software and the FACTOR
1000(R) technology against infringement or misappropriation by others. There can
be no assurance, however, that steps taken by the Company will prevent
misappropriation of its intellectual property or that competitors will not
develop products similar to the FACTOR 1000(R) system. Protection of the CTT
software owned by STI requires the active participation of STI in such efforts.
There can be no assurance that STI will cooperate with the Company regarding
such matters. Further, the enforcement of proprietary rights of the Company
through litigation could result in costs to the Company that could have a
material adverse effect on its financial condition. In addition, although the
Company believes that the CTT software and the FACTOR 1000(R) technology do not
infringe on the proprietary rights of third parties, there can be no assurance
that infringement or invalidity claims will not be asserted against the Company
in the future. An adverse determination in or the costs of defending litigation
based on such claims would have a material adverse effect on the Company's
business and financial condition. See "Business -- Intellectual Property."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
Financing Risks. Although the acquisition of complementary businesses and
products is an element of the Company's business strategy, none of the proceeds
of this Offering will be reserved specifically for the funding of future
acquisitions. If a cash payment in excess of available working capital is
required to make an acquisition, the Company will need to obtain additional debt
or equity financing. Debt financing may require the Company to pay significant
amounts as interest and principal payments, thus reducing the resources
available to expand its existing businesses. Equity financing may be dilutive to
the Company's existing stockholders' interest in the assets or earnings of the
Company. 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 acquisitions or
that, if available, such financing will be available on terms the Company deems
acceptable. The inability of the Company to obtain such financing would likely
have a material adverse effect on the Company's acquisition strategy. Further,
the refusal of potential acquisition candidates to accept Common Stock as
consideration also could require the Company to reduce or curtail its
acquisition strategy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources" and
"Business -- Strategy."
Risks in Integrating Acquired Companies. Acquisitions may involve a number
of special risks, including adverse short-term effects on the Company's
operating results, diversion of management's attention from the operations of
the Company, dependence on retention, hiring and training of key personnel,
risks associated with unanticipated problems or legal liabilities and
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's operations and financial performance.
Successfully integrating the operations of additional companies into those of
the Company will require the cooperative efforts of the managers and employees
of the respective business entities, including the integration of the owners or
managers of smaller companies into roles that require them to report to
supervisors. Significant costs and management time may be required to integrate
management control systems. Furthermore, to manage its growth effectively, the
Company must continue to improve its operational, financial and management
controls and information systems, to accurately forecast sales demand, to
control its overhead and to manage its marketing programs. There can be no
assurance of accomplishing these results without encountering substantial costs,
delays or other problems. If management fails to establish the needed controls
and to manage the expected growth effectively, the Company's operating results
and financial condition would be adversely affected. See "Business -- Strategy."
Risk that Consideration for Combined Companies Exceeds Asset Value. The
valuations of each of BFI, VPI and CCA for purposes of their combination were
established through arm's length negotiations between representatives of the
Combined Companies, without the benefit of independent valuations or appraisals.
The consideration to be received by the shareholders of each of the Combined
Companies is based primarily on their values as going concerns, and not on the
net asset value of the assets acquired. Accordingly, valuations of
7
<PAGE> 11
the Combined Companies derived solely from an appraisal of the tangible net
assets acquired would have been lower than the consideration to be paid by the
Company. No assurance can be given that the future performance of the Combined
Companies will be commensurate with the consideration paid or the price of the
Common Stock offered hereby. See "Business."
DEPENDENCE UPON KEY PERSONNEL
The Company believes its success will depend to a significant extent on the
efforts and abilities of certain of its senior management, in particular, those
of Esmond T. Goei, Chairman of the Company's Board of Directors and Chief
Executive Officer, Douglas S. Zorn, Executive Vice President, Chief Operating
Officer and Chief Financial Officer, James S. Gillespie, Vice President of Sales
and President of VPI, and Diane E. Nowak, Vice President of Sales, Western
Region, of VPI, and Bradley J. Eickman, Director of Operations of VPI. The
Company has entered into three-year employment agreements with each of Messrs.
Goei, Zorn and Gillespie. VPI has entered into one-year employment agreements
with Ms. Nowak and Mr. Eickman. The Company has purchased a key man insurance
policy in the amount of $1 million on the life of Mr. Goei, which names the
Company as the sole beneficiary. The Company intends to purchase additional key
man insurance policies on other key employees. There can be no assurance that
the Company will be able to obtain key man insurance policies on such
individuals at an acceptable cost. The loss of the services of any of these
persons would have a material adverse effect on the Company. See
"Management -- Directors, Executive Officers and Significant Employees."
PRODUCT LIABILITY EXPOSURE; LITIGATION RISK; LIMITED INSURANCE
BFI's impairment testing business exposes it to potential litigation by
employees of companies using FACTOR 1000(R) testing, if the employee's
employment relationship is affected thereby, and claims by third parties who may
be indirectly affected by the Company's services or products. Product and
service liability insurance is expensive, to the extent it is available at all.
BFI currently maintains general liability insurance in the amount of $1.0
million per policy year, which the Company intends to increase to $5.0 million
per policy year in connection with the VPI Acquisition. There can be no
assurance, however, that the Company will be able to obtain such insurance on
acceptable terms, that the Company will be able to secure increased coverage if
needed or that any insurance policy will provide adequate protection against
successful claims. A successful claim brought against the Company in excess of
the Company's insurance coverage could have a material adverse effect upon the
Company. See "Business -- Legal Proceedings and Product Liability Insurance."
GOVERNMENTAL REGULATIONS
Under the Federal Fair Credit Reporting Act, as amended ("FCRA"), CCA is
classified as a consumer reporting agency and is subject to regulation under
FCRA and must comply with all consumer credit disclosure requirements and
protocols of FCRA. Additionally, several states have enacted statutes similar to
FCRA, and at least four states require companies engaged in the background
checking and investigative business to be licensed in order to conduct business
in those states. Many states also regulate the type of information that can be
made available to the public and impose conditions on the release of such
information. In addition, privacy and consumer-rights advocates and federal
regulators have become increasingly concerned with the use of personal
information, particularly credit reports. Attempts have been made, and likely
will continue to be made, by these groups to adopt new or more stringent federal
and state regulations on the use of personal information. See
"Business -- Governmental Regulations."
The Telecommunications Act of 1996 eliminated government mandated barriers
between local and long distance calling, cable television, broadcasting and
wireless service. Consequently, local telephone companies, the traditional long
distance carriers and cable television companies may now provide both local
telephone and long distance service, as well as television programming. Such
increased competition likely will change the infrastructure for implementing
communications applications, such as voice and electronic messaging. Such
changes could have an adverse impact on VPI's voice processing business. See
"Business -- Governmental Regulations."
8
<PAGE> 12
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock offered hereby. Application has been made to have the Common Stock
approved for quotation on Nasdaq SmallCap. However, there can be no assurance
that, following this Offering, an active trading market for the Common Stock
will develop or be sustained or that the market price of the Common Stock will
not decline below the Offering Price. The Offering Price will be determined
solely by negotiations between the Company and the Representatives and will not
necessarily reflect the market price of the Common Stock after this Offering.
See "Underwriting" for a discussion of the factors considered in determining the
Offering Price. The market price of the Common Stock could be subject to
significant fluctuations in response to, and may be adversely affected by,
variations in quarterly operating results, changes in earnings estimates by
analysts, developments in the telecommunications industry, adverse earnings or
other financial announcements of the Company's customers and general stock
market conditions, as well as other factors. In addition, the stock market has
experienced extreme price and volume fluctuations from time to time that have,
in certain circumstances, borne no meaningful relationship to performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
POSSIBLE VOLATILITY OF STOCK PRICES; PENNY STOCK RULES
The over-the-counter markets for securities such as the Common Stock
historically have experienced extreme price and volume fluctuations during
certain periods. These broad market fluctuations and other factors, such as new
product developments and trends in the Company's industry and the investment
markets generally, as well as economic conditions and quarterly variation in the
Company's results of operations, may adversely affect the market price of the
Common Stock. Although the Common Stock is anticipated to be approved for
quotation on Nasdaq SmallCap, there can be no assurance that it will remain
eligible to be included on Nasdaq SmallCap. In the event that shares of the
Common Stock were no longer eligible for quotation on Nasdaq SmallCap, the
Common Stock could become subject to rules adopted by the Securities and
Exchange Commission ("SEC") regulating broker-dealer practices in connection
with transactions in "penny stocks." If the Common Stock became subject to the
penny stock rules, many brokers may be unwilling to engage in transactions in
the Common Stock because of the added disclosure requirements, thereby making it
more difficult for purchasers of Common Stock in this Offering to dispose of
their securities.
SECONDARY TRADING MARKET
Assuming the Company's acceptance for trading on Nasdaq SmallCap, each
Representative may from time to time following the completion of this Offering
act as a market-maker and otherwise effect transactions in the Common Stock of
the Company. The Representatives are not legally obligated by law or by contract
to continue such trading, which may be discontinued at any time. Any such
cessation could have a material adverse effect upon the price and liquidity of
the Common Stock of the Company. The Representatives are subject to the
supervision of various governmental and self regulatory organizations as well as
certain capital requirements. Such regulatory authorities periodically
investigate and audit the activities of broker dealers, such as the
Representatives. In the event either of the Representatives is required to
curtail or cease operations as a result of administrative actions instituted by
the regulatory authorities or because of lack of capital, the price and
liquidity of the Common Stock may be affected by the reduced participation or
complete absence of such Representative from the market.
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
Based on the unaudited pro forma net tangible book value of the Company at
June 30, 1996, and assuming an Offering Price of $4.00 per share, investors in
this Offering will suffer an immediate and substantial dilution of their
investment of approximately $3.19 in pro forma net tangible book value per share
of the Common Stock. See "Dilution."
9
<PAGE> 13
SHARES ELIGIBLE FOR FUTURE SALE
The market price for the Common Stock could be adversely affected by the
availability of shares of Common Stock for sale or actual sales of substantial
amounts of Common Stock by existing or future stockholders. Upon completion of
this Offering, the 2,300,000 shares of Common Stock sold in this Offering will
be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), by persons other than
"affiliates" of the Company. The remaining 1,854,425 shares of Common Stock will
be "restricted securities" within the meaning of Rule 144 under the Securities
Act ("Rule 144") and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including the
exemption contained in Rule 144. The holders of 520,087 shares of Common Stock
possess registration rights with respect to such shares. The Company's Chairman
of the Board and Chief Executive Officer and affiliates and other key officers
and directors have agreed, with respect to 50% of the shares of Common Stock
held by them, for a period of 18 months from the date of this Prospectus, and
with respect to the remaining 50% of the shares of Common Stock held by them,
for a period of 24 months from the date of this Prospectus, they will not
publicly offer, sell, contract to sell or otherwise publicly dispose of any
shares of Common Stock directly or indirectly owned by them without the prior
written consent of Chatfield Dean & Co., one of the Representatives of the
Underwriters. Following the expiration of such lock-up agreements, 1,334,338
shares of Common Stock will become available for resale in the public market,
subject to the volume limitations, holding periods and other restrictions of
Rule 144. Additionally, as of September 30, 1996, 976,500 shares of Common Stock
have been reserved for issuance under the Company's Incentive Stock Plan,
634,375 shares of which were subject to outstanding options as of that date. See
"Management." The Company also has agreed, in connection with this Offering, to
grant warrants to the Underwriters to purchase 230,000 shares of Common Stock at
an exercise price equal to 120% of the Offering Price, together with certain
registration rights relating to such shares. Future sales of shares of Common
Stock, or the perception that such sales could occur, could have an adverse
effect on the market price of the Common Stock. If the Over-Allotment Option is
exercised in full, there will be outstanding an additional 345,000 shares of
Common Stock, all of which will be freely tradeable without restriction or
further registration. See "Shares Eligible for Future Sale," "Underwriting" and
"Description of Capital Stock."
PRO FORMA FINANCIAL STATEMENTS
This Prospectus contains certain historical and pro forma financial
statements. The pro forma financial statements reflect the Company's best
estimate of the impact of the VPI Acquisition and the subsequent CCA Merger on
the historical financial statements. Since those transactions have not closed,
the actual impact of those transactions on the Company's future financial
statements could be materially different than presented.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
certain provisions of the Delaware General Corporation Law may make it difficult
to change control of the Company. See "Description of Capital Stock -- Certain
Certificate of Incorporation, Bylaw and Statutory Provisions Affecting
Stockholders." For example, the Company's Certificate of Incorporation permits
the Board of Directors, without stockholder approval, to issue one or more
classes or series of preferred stock having the number of shares, designations,
relative voting rights, dividend rates, liquidation and other powers, rights,
preferences and limitations that the Board of Directors establishes. The
issuance of preferred stock, while providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Common Stock.
Employment agreements with the Company's Chief Executive Officer and Chief
Operating Officer provide for substantial severance pay in the event of a
"Change of Control" of the Company as such term is defined in such agreements.
See "Description of Capital Stock -- Certain Certificate of Incorporation, Bylaw
and Statutory Provisions Affecting Stockholders" and "Management -- Employment
Agreements."
10
<PAGE> 14
INDEMNIFICATION OF DIRECTORS AND OFFICERS BY THE COMPANY; LIMITATIONS ON
LIABILITY
The Company's Certificate of Incorporation limits the liability of
directors of the Company for monetary damages for breaches of directors'
fiduciary duty of care. In addition, the Delaware General Corporation Law and
the Company's Certificate of Incorporation contain provisions for
indemnification of officers and directors of the Company. The Company's
Certificate of Incorporation requires the Company to indemnify such persons to
the full extent permitted by Delaware law. Each officer and director will be
indemnified in any proceeding alleging breaches of fiduciary duty to the Company
and similar wrongful conduct if he acted in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Company. Indemnification would cover expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement. See "Description of Capital
Stock -- Certain Certificate of Incorporation, Bylaw and Statutory Provisions
Affecting Stockholders."
The Company's Bylaws also provide that the Board of Directors may cause the
Company to purchase and maintain insurance on behalf of any present or past
director, officer, employee, fiduciary, or agent of the Company insuring against
any liability asserted against such person arising out of such person's
position, whether or not the Company would have the power to indemnify such
person. The Company intends to obtain directors' and officers' liability
insurance, providing $2 million of coverage.
The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with this Offering. See "Underwriting."
HOLDING COMPANY STRUCTURE
The Company is a holding company, and its assets consist of its investments
in its subsidiaries, namely VPI, BFI and, upon consummation of the CCA Merger,
CCA. The Company's rights, and, therefore, the extent to which holders of Common
Stock will be able to participate in the distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization, will be subject
to prior claims of the subsidiary's creditors, including trade creditors, except
to the extent that the Company may itself be a creditor with recognized claims
against such subsidiary (in which case the claims of the Company would still be
subject to the prior claims of any secured creditor of such subsidiary and of
any holder of indebtedness of such subsidiary that is senior to that held by the
Company).
NO DIVIDENDS
The Company currently intends to retain earnings, if any, for use in the
business. Accordingly, the Company does not anticipate paying any dividends to
stockholders in the foreseeable future. See "Dividend Policy."
USE OF PROCEEDS
The Company intends to use approximately $2.0 million or approximately
34.6% of the net proceeds from this Offering to repay outstanding indebtedness
and accrued interest. See "Use of Proceeds."
11
<PAGE> 15
THE COMPANY
NHancement Technologies Inc., a Delaware corporation (the "Company"), was
incorporated in October 1996 as a holding company and successor to the business
of BioFactors, Inc., a Delaware corporation ("BFI"), the developer and marketer
of the FACTOR 1000(R) system. Effective on the consummation of this Offering,
BFI will merge with a subsidiary of the Company to become a wholly owned
subsidiary of the Company (the "BFI Merger"). Also upon the consummation of this
Offering, the Company will acquire VPI, a systems integrator and national
distributor of voice processing equipment, pursuant to a transaction whereby VPI
will merge with a subsidiary of the Company to become a wholly owned subsidiary
of the Company (the "VPI Acquisition"). The business of the Company will be
conducted by the operating company subsidiaries BFI and VPI. Reference in this
Prospectus to "the Company" refers to the combined operations of BFI and VPI on
a going-forward basis.
The Company's principal executive offices are located at 1746 Cole
Boulevard, Suite 265, Golden, Colorado 80401, and its telephone number is
303-271-0505.
USE OF PROCEEDS
The net proceeds to the Company from this Offering, after deducting
underwriting discounts and commissions and a nonaccountable expense allowance
payable to the Representatives and other offering expenses payable by the
Company, are estimated to be $5,770,000 ($7,053,400 if the Underwriters' over-
allotment option is exercised in full). The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholder. The Company
presently intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
EXERCISE OF
OVER-ALLOTMENT OPTION
-------------------------
PERCENTAGE PERCENTAGE
APPROXIMATE OF NET APPROXIMATE OF NET
APPLICATION OF NET PROCEEDS AMOUNT PROCEEDS AMOUNT PROCEEDS
---------------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Repayment of notes(1)................... $ 1,995,500 34.6% $ 1,995,500 28.3%
Expenditures for product and market
development of the FACTOR 1000(R)
system................................ 500,000 8.7 500,000 7.1
Payment of deferred salaries for certain
executives(2)......................... 54,000 0.9 54,000 0.7
Payment of consulting fee to Chatfield
Dean & Co. ........................... 40,000 0.7 40,000 0.6
Working capital......................... 3,180,500 55.1 4,463,900 63.3
----------- -------- ----------- --------
Total......................... $ 5,770,000 100.0% $ 7,053,400 100.0%
=========== ======== =========== ========
</TABLE>
- ---------------
(1) Includes repayment of certain principal and interest amounts due in
connection with recent bridge financings. See "Business -- Recent
Financings." Also includes (i) the repayment of approximately $486,571 in
principal and accrued interest on certain notes held by Burton Kanter, a
Director of BFI and a nominee for Director of the Company, and notes held by
a former director of BFI, and (ii) the repayment of approximately $43,888 in
principal and accrued interest on loans made in April 1995 to the Company
from Douglas Zorn, Executive Vice President, Chief Financial and Operating
Officer and a Director of the Company, Mr. Kanter and a former director in
the respective principal amounts of $17,500, $10,000 and $10,000. See
"Certain Transactions."
(2) Represents a portion of salaries deferred by Messrs. Goei and Zorn during
1996.
The net proceeds from this Offering after repayment of indebtedness and
accrued interest will be used to develop and expand further the Company's
existing products, to add complementary products and businesses and for general
corporate purposes. The Company plans to use stock to effect acquisitions of
companies with complementary products and businesses; however, management may
elect to use cash and/or debt for this purpose, if appropriate. No portion of
the net proceeds has been allocated for any specific acquisition, and no
12
<PAGE> 16
acquisition has been identified or is pending or in negotiation as of the date
of this Prospectus, other than the CCA Merger. No assurance can be given that
any future acquisition will be consummated or, if consummated, that any
acquisition would prove advantageous to the Company. See "Risk Factors -- Risks
Related to the Company's Acquisition Strategy" and "Business -- Strategy."
The Company anticipates that the net proceeds from this Offering, together
with cash flow from operations, will sustain the Company's current and proposed
operations for at least 12 months following the date of this Prospectus. Any
additional net proceeds realized from the exercise of the Over-Allotment Option
will be added to the Company's working capital. Pending use, net proceeds will
be invested in short-term, investment grade, interest-bearing securities or
certificates of deposit. See "Risk Factors -- Risks Related to the Company's
Acquisition Strategy," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources," and
"Business -- Strategy."
DIVIDEND POLICY
BFI has not paid dividends on its Common Stock since its inception. VPI in
the past has made distributions to its shareholders. The Company currently
intends to retain earnings, if any, for use in the business. Accordingly, the
Company does not anticipate paying any dividends to its stockholders in the
foreseeable future. See "Risk Factors -- No Dividends."
13
<PAGE> 17
CAPITALIZATION
The following table sets forth, as of June 30, 1996: (i) the actual
capitalization of BFI, on a historical basis, and (ii) the pro forma
capitalization of BFI, VPI and CCA, combined and as adjusted to give effect to
the sale of 1,700,000 shares of Common Stock by the Company in this Offering, at
an assumed Offering Price of $4.00 per share (after deducting estimated
underwriting discounts and commissions and a nonaccountable expense allowance
payable to the Representatives and other offering expenses payable by the
Company). This table should be read in conjunction with the historical financial
statements of BFI, VPI and CCA and pro forma combined financial data included
elsewhere in this Prospectus. See "Unaudited Pro Forma Combined Financial
Statements," "Notes to Unaudited Pro Forma Combined Financial Statements,"
historical financial statements and related notes.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------
----------------------- AS ADJUSTED
BFI VPI CCA COMBINED FOR OFFERING
------- ---- ---- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Short-term debt and current portion of long-term
debt(1)........................................ $ 2,137 $ -- $ 20 $ 2,157 $ 39
Long-term debt, excluding current portion........ 2 -- -- 1,502 1,502
Stockholders' equity (deficit):
Common stock, $0.01 par value, 10,000,000
shares authorized, 2,225,300 shares
outstanding pro forma combined and 4,154,425
shares outstanding pro forma as
adjusted)(2)(3)............................. 6 22 3 25 45
Additional paid-in capital..................... 5,314 -- -- 9,978 16,595
Retained earnings (deficit).................... (8,254) 501 136 (8,118) (8,118)
------- ---- ---- ------- --------
Total stockholders' equity (deficit)... (2,934) 523 139 1,885 8,522
------- ---- ---- ------- --------
Total capitalization................... $ (795) $523 $159 $ 5,544 $ 10,063
======= ==== ==== ======= ========
</TABLE>
- ---------------
(1) Includes capital lease obligations.
(2) Excludes 1,481,559 shares potentially issuable as follows: 634,375 shares of
Common Stock issuable upon the exercise of stock options granted under the
NHancement Technologies Inc. Equity Incentive Plan; 7,184 shares of Common
Stock issuable pursuant to the exercise of certain warrants at exercise
prices ranging from $25.88 to $188.80 per share; 610,000 shares issuable
upon the exercise of certain warrants at an exercise price per share of 120%
of the Offering Price; and 230,000 shares of Common Stock issuable upon
exercise of the Underwriter Warrants. See "Management -- Stock Option Plan,"
"Business -- Recent Financings" and "Underwriting."
(3) Includes approximately 100 holders of record.
14
<PAGE> 18
DILUTION
The aggregate net tangible book value of BFI, VPI and CCA at June 30, 1996
was ($2,271,500). The pro forma net tangible book value of the Company at June
30, 1996 would have been ($3,271,500) or ($1.47) per share after giving effect
to the VPI Acquisition and the CCA Merger. "Pro forma net tangible book value
per share" is the pro forma tangible net worth (total pro forma tangible assets
less total liabilities) of the Company, divided by the number of shares of
Common Stock outstanding after giving effect to the CCA Merger. After giving
effect to the sale of Common Stock offered hereby (after deducting underwriting
discounts and commissions and a nonaccountable expense allowance payable to the
Representatives and estimated offering expenses), the pro forma net tangible
book value of the Company at June 30, 1996 would have been $3,365,000 or $0.81
per share, representing an immediate increase in pro forma net tangible book
value of $2.28 per share to existing stockholders and an immediate dilution of
$3.19 per share to the investors purchasing shares of Common Stock in this
Offering ("New Investors").
The following table illustrates this dilution to New Investors on a per
share basis:
<TABLE>
<S> <C> <C>
Initial public offering price per share of Common Stock............... $4.00
Net pro forma tangible book value per share of Common Stock before
this Offering.................................................... (1.47)
Increase attributable to the sale of shares of Common Stock offered
hereby........................................................... 2.28
-----
Pro forma net tangible book value per share of Common Stock after this
Offering............................................................ 0.81
-----
Dilution to New Investors............................................. $3.19
=====
</TABLE>
The following table sets forth, at the date of this Prospectus, the number
of shares of Common Stock acquired from the Company, the total consideration to
the Company and the average price per share paid by existing stockholders after
giving effect to the transactions described under "The Company" and the purchase
of Common Stock in this Offering by the New Investors:
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 2,454,425 59.1% $2,778,800(1) 29.0% $1.13
New Investors....................... 1,700,000 40.9 6,800,000 71.0 4.00
--------- ------ ---------- ------ -----
Total............................. 4,154,425 100.0% $9,578,800 100.0% $2.31
========= ===== ========== ===== =====
</TABLE>
- ---------------
(1) Includes the total consideration paid by the existing shareholders of BFI,
VPI and CCA of $1,862,300, plus $916,500 of debt and accrued interest, all
of which converts into shares of the Company's Common Stock at the
consummation of this Offering and at a conversion price equal to the
Offering Price. See "Business -- Recent Financings."
The foregoing analysis assumes no exercise of outstanding options,
outstanding warrants or the Underwriter Warrants. In the event any of the
foregoing is exercised, the percentage ownership of the New Investors will be
reduced.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the
individual historical financial statements of NHancement Technologies Inc.
(formerly BFI), VPI and CCA, the Unaudited Pro Forma Combined Financial
Statements and the related notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
NHancement Technologies Inc. (the "Company") was formed in 1996 as a
holding company and, simultaneously with the closing of this Offering, BFI and
VPI will become wholly owned subsidiaries of NHancement Technologies Inc. The
VPI Acquisition will be accounted for as a purchase, and the BFI Merger will be
accounted for in a manner similar to a pooling-of-interests. Further, as soon as
practicable after the consummation of this Offering, the Company intends to
acquire CCA in a transaction that will be accounted for as a
pooling-of-interests. Prior to these business combinations, each of BFI and VPI
has been operating as a separate independent entity. As such, historical results
may not be comparable to or indicative of future performance. For all periods
presented, the Historical Financial Statement data include the accounts of BFI,
VPI and CCA without giving effect to the business combinations or this Offering.
The pro forma financial data give effect to the business combinations and this
Offering, and, accordingly, the assets and liabilities of BFI and CCA are
reflected at their historical amounts, with VPI presented at estimated current
fair values.
Since January 1, 1996, VPI has operated as a Subchapter S corporation under
the Code. Upon consummation of the VPI Acquisition, the Company will file as a
consolidated group for federal income tax purposes. For purposes of the
Unaudited Pro Forma Combined Statements of Operations included in this
Prospectus, pro forma federal and state income taxes have been provided as if
VPI had filed C corporation tax returns. An adjustment was made to eliminate the
provision for income taxes due to the application of the net losses of BFI on a
consolidated basis. See "Notes to Unaudited Pro Forma Combined Financial
Statements."
EFFECTS OF THE COMPANY'S ACQUISITION STRATEGY ON FUTURE RESULTS OF OPERATIONS
Management believes that the VPI Acquisition has the potential to enable
the Company to leverage VPI's established and profitable marketing and
distribution capability to cost effectively market current and future compatible
products. The costs associated with establishing such marketing and distribution
capabilities internally would be more costly in terms of funds and time.
Management believes that the CCA Merger will allow the Company to enter the
security market and to use this acquired expertise to pursue future acquisitions
in the security area. Since BFI's inception, BFI has been developing the FACTOR
1000(R) system, an impairment testing product that can be licensed for an annual
fee, resulting in recurring revenues. Management believes that the VPI
Acquisition and the CCA Merger create opportunities to reduce costs by (i)
consolidating physical operating facilities, (ii) eliminating redundant
headcount and cross-training personnel, (iii) consolidating administrative
functions such as accounting, MIS and administration, (iv) cross marketing
products among the various customers of each entity, and (v) leveraging the
increased size of the Company to create economies of scale and to receive
discounts from volume purchases. Although the Company expects to reduce costs
and, correspondingly, to increase profits, there can be no assurance that the
Company will be successful in substantially reducing costs or that such
reduction of costs, if achieved, would result in overall profitability in the
future.
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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 and Six
Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................................... 125.5 41.4 94.0 18.3
Gross margin............................................... (25.5) 58.6 6.0 81.7
Research, selling and administrative expenses.............. 482.2 196.1 608.9 262.0
Operating loss................................... (507.7) (137.5) (602.9) (180.3)
Other expense.............................................. (22.8) (115.2) (254.5) (93.1)
Loss before income taxes................................... (530.5) (252.7) (857.4) (273.4)
Income taxes............................................... 0.0 0.0 0.0 0.0
Net loss................................................... (530.5) (252.7) (857.4) (273.4)
</TABLE>
BFI is a development stage company focused on employee impairment testing
systems. BFI's net sales and gross margins in all of 1994 and most of 1995 were
attributed to early "beta" type customer installations of the FACTOR 1000(R)
system, with significant negative gross margins and high engineering and
customer installation costs. The increased revenue for 1995 of $450,000
(compared to $375,000 in 1994) was primarily due to receipt of $300,000 as
partial payment of a $1 million licensing fee for BFI's technology for sports
related applications in late 1995 and customer renewals of the FACTOR 1000(R)
impairment testing system. A BFI strategy is to license its products on a usage
basis, as opposed to one-time sales of systems, resulting in recurring revenues
as customers renew each year. Secondarily, the Company intends to continue to
seek licensees in various specialty market segments, similar to the Company's
sports license agreement. Such agreement resulted in a $1.0 million initial fee,
of which $350,000 was recognized during the six-month period ended June 30,
1996, plus an on-going royalty of 8.5% of revenues generated from the license.
As a result of the receipt of such $350,000 payment, BFI's gross margin for the
six months ended June 30, 1996 increased to 81.7%. Revenues in 1996 continue to
come from customer renewals and licensing fees. The first significant revenues
from the commercial release of the FACTOR 1000(R) system are expected in 1997.
Research, selling, and administrative ("RS&A") expenses as a percentage of
net sales were high during 1994, 1995 and 1996 for the following reasons: (i)
during all of 1994, BFI was in development of the FACTOR 1000(R) system and had
insignificant revenues from early stage customers; (ii) for most of 1995, BFI
continued development of the FACTOR 1000(R) system, working closely with a few
beta customers as the product was made commercially viable, while several of
BFI's early stage customers committed to continue to use the FACTOR 1000(R)
system in a commercial mode; (iii) as development costs significantly decreased
during late 1995 and early 1996, most of the operating costs were expended in
finding complementary businesses to acquire that would provide a viable
marketing channel for the FACTOR 1000(R) system; and (iv) during 1996,
significant expenditures were made in connection with unconsummated mergers and
indirect expenditures were made in connection with the VPI Acquisition and the
CCA Merger and to prepare for this Offering. Management believes that at least
$500,000 is needed for initial product and market development costs for the
FACTOR 1000(R) system.
Other expense increased from $85,400 in 1994 to $519,200 in 1995, primarily
due to interest and original issue discounts associated with bridge financings,
which financings will be repaid or converted upon consummation of this Offering.
Other expense continues to remain at a significant level ($364,800 during the
first six months of 1996) for the reasons discussed above. BFI will have no debt
after the application of funds from this Offering, except for the $1.5 million
in promissory notes payable in connection with the VPI Acquisition. See "Certain
Transactions."
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<PAGE> 21
VOICE PLUS, INC.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ----------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................................... 62.7 57.7 62.1 62.7
Gross margin........................................... 37.3 42.3 37.9 37.3
Selling and administrative expenses.................... 33.4 38.3 31.6 29.6
Operating income............................. 3.9 4.0 6.3 7.7
Other income........................................... 0.3 0.4 0.2 0.3
Income before income taxes............................. 4.2 4.4 6.5 8.0
Income taxes........................................... (2.0) (2.0) (2.9) (2.1)
Net income............................................. 2.2 2.4 3.6 5.9
</TABLE>
VPI is an integrator and distributor of voice processing and
telecommunications systems for businesses. VPI net sales increased 9% from $6.7
million in 1994 to $7.3 million in 1995 and has remained level for the first six
months of 1996 at $3.9 million. The increase between 1994 and 1995 was primarily
due to the sale of larger voice processing systems. Although revenues remained
constant for the first six months of 1995 and 1996, management expects VPI's
annual revenues to increase for 1996 as compared to 1995, consistent with
prior-years' growth rates. Revenue recognition in the first half of 1996 has
been delayed due to problems with a new voice processing system introduced by a
major supplier. During the second half of 1996, VPI expects to obtain customer
acceptances on installed systems that encountered initial problems that were
resolved subsequently by the manufacturer.
Gross margin increased 22.7% from $2.5 million in 1994 to $3.1 million in
1995 and has remained level for the first six months of 1996 at $1.5 million.
Gross margin as a percentage of net sales increased from 37.3% in 1994 to 42.3%
in 1995. Gross margin for the first six months of 1996 was 37.3%, slightly below
the first half of 1995 at 37.9%. The increase in gross margin from 1994 to 1995
was primarily due to a single sale and installation in the second half of 1995
of one extraordinarily large voice response system with an unusually high gross
margin. The overall gross margin trend for VPI sales, excluding extraordinary
sales, is declining at a very slow rate as a result of industry competition.
Management expects this trend to continue. A major objective of the Company's
business combination strategy is to take advantage of VPI's established
distribution strength by providing VPI with complementary higher gross margin
products, such as the FACTOR 1000(R) system, that are either internally
developed or acquired in future business combinations.
Selling and administrative ("S&A") expenses increased 24% from $2.2 million
in 1994 to $2.8 million in 1995 and has remained level for the first six months
of 1996 at $1.2 million. S&A as a percentage of net sales increased from 33.4%
in 1994 to 38.3% in 1995 and has remained level for the first six months of 1996
at about 30% of net sales. The increase from 1994 to 1995 was attributable to
startup costs associated with the addition of several new marketing and sales
persons in 1995 in anticipation of increased sales in 1996. Although new sales
persons normally do not produce significant sales revenues for almost six
months, normal production from established individual sales persons is over $1.0
million annually.
The effective income tax rate of 46% in 1995 was slightly lower than the
1994 effective tax rate of 47%. These rates are different from the federal
statutory income tax rate principally due to state income taxes. The effective
income tax rate for the first six months of 1996 of 27% reflects the change to
the Subchapter S corporation status, effective January 1, 1996, and the
write-off of a deferred tax asset that is not expected to be realized.
Slight increases in other income, both from 1994 to 1995 and from the first
half of 1995, compared to the first half of 1996, occurred, primarily due to
interest on higher cash balances invested in interest bearing bank accounts
during the later periods. VPI had no debt during the reporting periods.
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<PAGE> 22
C.C. & ASSOCIATES
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- -----------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................... 55.5 52.4 40.2 60.0
Gross margin......................................... 44.5 47.6 59.8 40.0
Selling and administrative expenses.................. 57.7 36.1 38.2 37.2
Operating income (loss).................... (13.2) 11.5 21.6 2.8
Other income (expense)............................... 0.7 0.0 (0.4) (0.1)
Income (loss) before income taxes.................... (12.5) 11.5 21.2 2.7
Income taxes......................................... 1.5 (4.4) (8.0) (1.1)
Net income (loss).................................... (11.0) 7.1 13.2 1.6
</TABLE>
CCA is a workplace security business that performs investigations and
designs and implements security systems. CCA has a September 30 fiscal year end.
CCA net sales increased 186% from $375,700 in 1994 to $1.1 million in 1995 and
increased by 12.5% the first nine months of 1996, as compared to the first nine
months of 1995, from $500,000 to $562,000. The increase between 1994 and 1995
was primarily due to a single large customer in the second half of 1995. The
revenue increase for the first nine months of 1996, as compared to the first
nine months of 1995, was not dependent on a single large customer sale, as was
the case in 1995, but rather was derived from the sale of a number of products
to a diverse group of clients.
Gross margin increased over 200% from $167,300 in 1994 to $511,800 in
fiscal 1995, but has declined for the first nine months of 1996, as compared to
the first nine months of 1995, from $299,000 to $225,000, as there was no such
single large customer in the first nine months of 1996. Gross margin as a
percentage of net sales remained fairly constant at about 50% during fiscal 1994
and fiscal 1995. Gross margin as a percentage of revenue is expected to reach
the 50% range for the 1996 fiscal year.
S&A expenses increased 78.9% from $217,000 in 1994 to $388,400 in 1995, as
compensation and related costs and other administrative costs increased due to
the significant increase in business. S&A has increased slightly from $191,000
for the first nine months of 1995 to $209,000 for the first nine months of 1996.
S&A as a percentage of net sales decreased from 57.7% in 1994 to 36.1% in 1995
and has remained level for the first nine months of 1996 at about 38% of net
sales. The decrease from 1994 to 1995 was attributable to a significant increase
in sales while S&A expense remained constant.
LIQUIDITY AND CAPITAL RESOURCES
June 30, 1996 Compared to December 31, 1995
BIOFACTORS, INC.
During the first six months of 1996, net cash used in the operating
activities of BFI was $500,000, and net cash provided by investing and financing
activities totaled $550,000, resulting in a net increase in cash of about
$50,000 during the period. BFI's working capital at June 30, 1996 was a negative
$3.0 million. The working capital ratio decreased from 0.38 at December 31, 1995
to 0.19 at June 30, 1996, primarily due to the increased bridge debt financing
and one-time costs associated with the VPI Acquisition, the CCA Merger, other
abandoned acquisitions and this Offering.
As of June 30, 1996, BFI had outstanding debt of approximately $2.1
million, without giving effect to the application of net proceeds from this
Offering to repay certain outstanding debts. BFI has financed its working
capital requirements during the last two years through various bridge financings
totaling approximately $2.2 million, including a $500,000 bridge loan closed
November 5, 1996. The Company intends to utilize the net proceeds of this
Offering to repay approximately $2.0 million of outstanding debt and interest
accrued at rates between 10% and 12% per annum, to finance approximately
$500,000 of product and market development costs for the FACTOR 1000(R) system
and for general corporate purposes. See "Use of Proceeds."
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<PAGE> 23
BFI management estimates that it will incur minimal capital expenditures
during the 12 months following this Offering. It is anticipated that all capital
expenditures will be financed through fixed asset leases and will not require
significant direct outlays of cash.
Based upon its present plans, management believes that operating cash flow,
available cash and available credit resources, together with the net proceeds of
this Offering, will be adequate to make the repayments of indebtedness described
herein, to meet the working capital cash needs of the Company and to meet
anticipated capital needs 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 implement
successfully its acquisition program, and will use various methods to finance
acquisitions, including the payment of cash, for this purpose.
VOICE PLUS, INC.
During the first six months of 1996, net cash provided by operating
activities of VPI was approximately $1.0 million, of which $218,000 was used to
pay dividends to VPI's sole shareholder for the payment of taxes and $50,000 was
used to repurchase shares of common stock of VPI as treasury shares. In
addition, prior to the Offering, VPI intends to declare a dividend to its sole
shareholder and bonuses to its key employees in an aggregate amount of $1.25
million. The dividend portion will be in an amount not to exceed $1 million.
Cash used in investing activities was $125,000, all of which consisted of
additions to property and equipment. VPI had no debt during these periods.
VPI's working capital at June 30, 1996 was $250,000. The working capital
ratio decreased from 1.2 at December 31, 1995 to 1.1 at June 30, 1996, primarily
due to increases in deferred revenues and accounts payable recorded in the first
half of 1996. Deferred revenues and accounts payable increased as a result of
initial problems with a new product release from a key supplier, which delayed
customers' acceptance and payment for the products installed. The manufacturer
has substantially corrected the product problems.
Accounts receivable increased approximately 54% during the first six months
of 1996, while average days outstanding during the first half of 1996 increased
to 82 days as compared to 58 for 1995, due to customer acceptance problems in
1996. Customer acceptance problems also caused inventory turnover to average
approximately 43 days during the first half of 1996, as compared to
approximately 26 days during 1995.
VPI estimates that it will incur minimal capital expenditures during the 12
months following this Offering. It is anticipated that most capital expenditures
will be acquired via fixed asset leases and will not require significant direct
outlays of cash.
C.C. & ASSOCIATES
During the first nine months of 1996, net cash provided by the operating
activities of CCA was $88,000, and net cash used in investing and financing
activities was nominal in amount, resulting in a net increase in cash of $88,000
and a net decrease in working capital of $2,000. CCA's working capital at June
30, 1996 was $97,000 and its working capital ratio increased from 1.4 at
September 30, 1995 to 1.8 at June 30, 1996, primarily due to a net decrease in
accounts receivable, accounts payable and accrued expenses. Accounts receivable
decreased approximately 68% for the first nine months of 1996 due to the
collection in 1996 of a large single customer receivable recorded in 1995.
CCA estimates that it will incur minimal capital expenditures during the 12
months following this Offering. It is anticipated that most capital expenditures
will be financed through fixed asset leases and will not require significant
direct outlays of cash.
ACCOUNTING STANDARDS
The Company was not significantly affected by its adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This statement is
effective for the Company's year ending December 31, 1996.
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<PAGE> 24
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," established financial accounting and reporting
standards for stock-based employee compensation plans and certain other
transactions involving the issuance of stock. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The Company is in the process of analyzing the impact of this statement and
anticipates adopting the provisions of the statement for the year ended December
31, 1996.
SEASONALITY AND INFLATION
The Company's net sales typically show no significant seasonal variations,
although net sales may be affected in the future by overall hiring trends and
the concentration of vacations of key employees of client companies during the
summer months.
The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.
BUSINESS
GENERAL
The Company is a leading voice processing systems integrator, which also
offers a proprietary computerized testing system that measures human
sensorimotor skills to determine an individual's performance readiness or
fitness to perform. The Company will combine the businesses of VPI, a national
provider of voice processing systems, which furnishes businesses with advanced
multimedia and voice processing solutions based on integrating voice processing
systems with various PBXs and computers, and BFI, a development stage company,
which offers the FACTOR 1000(R) system, a proprietary computerized impairment
testing system. VPI and BFI both provide stand-alone and LAN based systems
utilizing the Intel computer platform. VPI derives its revenues from the sale
and installation of various communications systems products such as voice
messaging, facsimile messaging, voice response systems and electronic messaging.
VPI also generates revenues from recurring fees from annual maintenance service
contracts. BFI derives its revenues from recurring annual usage fees for its
FACTOR 1000(R) system and from licensing the system.
The Company was incorporated in October 1996 to pursue an emerging business
opportunity created by the continuing changes in telecommunications and an
increased corporate emphasis on workplace productivity and security. The Company
will combine the proven marketing, distribution and service capabilities of VPI
with the experienced product and business development skills of BFI management.
The Company has agreed to acquire CCA, a security systems and services provider,
and will continue to pursue aggressively strategic acquisitions following this
Offering.
STRATEGY
The Company intends to leverage its position as a leading provider of voice
processing systems to become a diversified provider of a full range of
productivity and security enhancement products and services. The specific
elements of the Company's strategy to achieve this objective are as follows:
Capitalize and expand on VPI's existing sales and support infrastructure and
systems integration capabilities to market VPI's existing products and the
FACTOR 1000(R) system
The Company's strategy is to fully utilize the combined management,
product development, systems integration and national marketing and
distribution capabilities of BFI and VPI. Initially, the Company will
address productivity from the standpoint of enhancing communications
capability, increasing workers' productivity and reducing workplace
injuries. The Company also will focus on cross-marketing the FACTOR 1000(R)
system through the VPI sales force and expanding the installed base of the
FACTOR 1000(R) system. The Company believes that, by utilizing VPI's sales
force and installed base of
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<PAGE> 25
over 1,000 client organizations, the Company will be positioned better to
exploit the full potential of the FACTOR 1000(R) product as an impairment
testing tool and a strategic corporate communications tool for reaching the
bluecollar workforce. BFI will utilize VPI's national sales and support
infrastructure to conduct FACTOR 1000(R) risk management seminars and
on-site product demonstrations, which management believes will expand
market awareness and shorten the time from product introduction to revenue
recognition. VPI has national sales and marketing presences in major
markets geared to sell telecommunications products and services across the
US, including the San Francisco Bay Area, Seattle, Chicago, Boston, New
York, Phoenix and Dallas.
Exploit a growing trend towards unified networks by providing various
solution-based stand-alone and LAN systems and applications
The Company believes that, when implementing any new system or
technology, businesses seek to maximize the use of current resources and
facilities. As a result, previously disparate electronic systems are being
integrated to operate on a unified network. For example, networked
electronic security systems that provide access control and monitoring
within a premise or over a wide geographic area were developed following
the demand by corporations that the installation of new security systems
utilize existing communications networks. Further, the continuing trend
towards outsourcing of services in an environment of increased
technological complexities requires vendors to be highly skilled in
integrating telephony technology with LAN and WAN systems. The Company's
goal is to provide integrated productivity and security systems that
achieve these goals. Management believes that VPI's voice processing
integration capabilities, BFI's proprietary FACTOR 1000(R) impairment
testing system and potential worker communications capability, together
with the security products and services the Company anticipates providing,
will offer solutions to meet productivity and security needs of
corporations.
Expand sales of the FACTOR 1000(R) system by customizing the FACTOR 1000(R)
system to meet the needs of specific industries such as transportation,
manufacturing and the military
The Company intends to customize the testing device and graphical user
interface ("GUI") of the FACTOR 1000(R) system to incorporate the specific
job characteristics of certain industries (e.g. a testing device configured
as a steering wheel for truck drivers and multiple interfaces for
manufacturing operations). In addition to expanding the sales of the FACTOR
1000(R) system in the transportation and manufacturing industries, the
Company intends to explore the potential for FACTOR 1000(R) system
applications in the military. The ability to deploy troops quickly and
effectively is a function of effective training, measured in terms of
personnel fitness to perform or undergo training, which can be monitored
through the use of the FACTOR 1000(R) system.
Exploit the need for worldwide WAN capabilities to meet the growing demands
from business globalization
The Company has targeted the need for integrated global security
systems and organizations and telecommunications systems integration
capabilities. With multiple synchronized manufacturing sites across
continents, operations increasingly are in real time and, security and
communications must be conducted in real time. The Company intends to
provide communications and security products and services on a global basis
by exploiting, among other things, management contacts in Singapore,
Indonesia, Hong Kong, Malaysia and Taiwan.
Acquire complementary businesses and products
The Company seeks to acquire additional businesses that will expand
its geographic coverage or provide complementary products and services in
the areas of productivity and security. In particular, the Company intends
to expand its product portfolio while maximizing its organizational
strength and expertise in marketing and systems integration. The first
planned acquisition is the CCA Merger. CCA is a provider of security
systems and services. The Company believes that productivity and security
must be addressed together, as methods for increasing productivity that do
not address the corresponding potential
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<PAGE> 26
for increased liability and asset loss will result in reduced benefits. The
Company intends to acquire companies that provide geographical extensions
for CCA in the area of private investigations and specialized personnel
protection. The Company has commenced searching for additional acquisition
candidates, including those that provide WAN security systems. See "Risk
Factors -- Risks Related to the Company's Acquisition Strategy."
License FACTOR 1000(R) technology for use in other areas
The Company has licensed its proprietary FACTOR 1000(R) technology for
use by professional sports teams in baseball, basketball and hockey and
intends to pursue other licensing arrangements in areas unrelated to the
Company's core business, such as physical therapy. The Company believes
that licensing will increase public awareness of the FACTOR 1000(R)
technology as a noninvasive tool for measuring sensorimotor skills and
detecting fatigue and other impairment in the workplace and in other
environments.
THE COMPANY'S BUSINESSES
The Company's current and planned businesses include voice processing and
multimedia messaging, impairment testing, background checking and workplace
surveillance.
Voice Processing and Multimedia Messaging
Voice messaging systems, at a minimum, perform the functions of the
telephone operator directing incoming calls and recording messages.
Increasingly, these systems have evolved to provide more complex functions, such
as voice processing or interactive voice response, which enable users to conduct
self-inquiry of electronic databases. These innovations have resulted from the
need to increase productivity. Voice processing enables a corporation to
increase productivity by enhancing corporate communications.
Electronic messaging systems are now commonly accepted and widely used in
offices throughout the U.S. The growth of electronic mail or "e-mail" has
transcended private corporate networks and crossed public boundaries connecting
users worldwide through a communications medium commonly referred to as the
"World Wide Web." Despite these advances in corporate communications, the
factory worker is still largely excluded. Management believes that the use of
the FACTOR 1000(R) system for impairment testing provides the basis to extend
e-mail and voice messaging to the blue-collar worker.
Impairment Testing
Management believes that corporations are seeking to increase human
productivity, and that to do so, corporations must provide both physical
integrity in performance capability and physical protection. The Company
provides systems that can be used to enhance productivity by identifying and
preventing impaired individuals from performing quality or safety sensitive
tasks, thereby increasing the quality of work performed, reducing errors,
avoiding accidents and enhancing workplace security. The Company has developed
the FACTOR 1000(R) system for routinely screening employees for fitness-for-work
prior to the performance of their jobs. The FACTOR 1000(R) system is a hand-eye
coordination measurement system that runs on an IBM(R) compatible personal
computer platform. The test is performed by the employee, without supervision,
and is administered in less than one minute. See "Risk Factors -- Risks Related
to Impairment Testing Business -- Unknown Market Acceptance of the FACTOR
1000(R) System."
Background Checking and Workplace Surveillance
The Company intends to enter the background checking and workplace
surveillance business through the CCA Merger. Background checking is a
management tool used by organizations to avoid making inappropriate hiring
decisions and wasting resources on unproductive training. Background checking
and workplace surveillance are becoming more common due to increased workplace
violence, greater company liability for employee actions and increased concern
for workplace security and theft deterrence. CCA provides investigative
services, such as background checking and records verification services, and
conducts surveillance and sting operations to deter theft. CCA investigates
unaccountable losses of material or equipment, in
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<PAGE> 27
particular, in high technology companies where there has been increasing theft
of electronic components such as computer memories and microprocessors. CCA also
customizes and resells closed circuit television ("CCTV") monitoring equipment.
Pursuant to a letter of intent entered into in October 1996, the Company
will acquire all of the outstanding stock of CCA and CCA will become a wholly
owned subsidiary of the Company in exchange for the issuance of 300,000 shares
of Common Stock (based on an assumed Offering Price of $4.00 per share) to the
sole stockholder of CCA.
MARKETING
VPI has an established marketing and distribution infrastructure for its
voice processing and electronic messaging products, which will be extended to
include the FACTOR 1000(R) system and other new products. VPI has marketing
personnel, a technical assistance center (customer service representatives,
system engineers and senior level field technicians) and a nationwide network of
service-support dealers to provide its customers with personalized attention,
flexibility, responsiveness and accountability. VPI markets its products and
services primarily through focused telemarketing and calls to prospective
customers in specific emerging growth markets (including the paging and cellular
operator markets), participation in trade shows, acquisition of data bases and
inclusion of its products and services on bidders' lists. VPI maintains a strict
sales and marketing discipline that focuses on pre-sale analysis of its
customers' needs and the rate of return potential of specific sales
opportunities to determine whether they justify the investment of time and
effort of its sales and marketing organization. Typically, VPI will only pursue
sales opportunities over $100,000 where the value added by VPI's products and
services provides significant benefits for the customer. VPI also participates
in competitive bidding for government agency work. In evaluating a prospective
sales situation, VPI also considers the lead time to revenue, the complexities
of the customer's requirements and its ability to satisfy the customer and
provide it with the necessary support. VPI's customers currently include Western
Wireless, Sysco Foods, Hitachi Data Systems, Santa Clara County and Alameda
County, California.
VPI currently sells and supports voice processing systems throughout the
U.S. and its territories. VPI has sales and/or support offices in the San
Francisco Bay Area, Seattle, Chicago, Boston, New York, Phoenix and Dallas and
intends to expand into Denver, St. Louis, Salt Lake City, Atlanta and other
markets. BFI conducts its sales and support services from Denver.
PRODUCTS AND SERVICES
Voice Processing and Electronic Messaging
The Company is a systems integrator and national distributor of voice
processing equipment from several manufacturers, which equipment enables users
to access and interact with a broad range of information in a variety of formats
(including voice, text, data and facsimile) from a variety of terminals
(including touch-tone telephones and personal computers). Applications such as
voice messaging, fax store-and-forward, and interactive voice response are
integrated on the Company's communications server, which is based on
industry-standard hardware and software.
The Company offers a broad range of products that supports a number of
enterprise applications such as voice messaging, text messaging, LAN messaging
and interactive voice response or self-inquiry systems.
Telephone Answering. This application is an early evolution of voice
messaging systems whereby messages are recorded when a telephone is either
busy or left unanswered.
Voice Messaging. Voice messaging is the first true communications
application that generally is offered by most voice processing equipment
vendors, including Centigram, Octel Communications Corporation, and
Comverse Technology, Inc. Instead of merely recording a message, the
application enables a user to send, receive, store and forward voice
messages, on or off the system, while control is effected via the keypad of
a touchtone telephone. In some cases, such as with Centigram's One View(TM)
product, a user can access and generate voice messages via a computer. Most
vendors also offer the capability of message notification and other more
advance features such as "message receipt" whereby a
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sender of a voice message on the system can obtain verification that a
message was received and the time of such receipt. Each vendor tends to
have different user protocols and keypad definitions that determine the
ease of use of the system.
Automated Attendant. This application is an early adaptation for
messaging systems whereby the system answers an incoming call and allows
callers to direct their calls to various telephone extensions without human
operator intervention.
Paging. Voice processing systems today generally have incorporated a
paging capability. A page is triggered upon receipt and storage of a voice
message. The person paged can complete the communications process by
retrieving the voice message via a touchtone telephone.
Audiotext. An early application of voice processing systems is
audiotext, which provides callers access to recorded voice announcements
such as weather reports and stock quotes.
Facsimile Messaging. A number of manufacturers have added facsimile
capabilities to their voice processing systems. Some have added the
capability through external peripherals, while others, such as Centigram,
have integrated the feature directly, providing a multimedia capability
that allows mixing of voice and facsimile messaging. The ease of use and
functionality of the facsimile features, such as the ability to broadcast
or forward a facsimile, differ from manufacturer to manufacturer.
Voice Response. Self-inquiry systems became popular with familiar use
of automated teller machines ("ATM"), which allow customers to make routine
inquiry of their account balances and conduct certain transactions. Voice
response systems provide telephone access to electronic databases to enable
users to obtain information, as well as supply information to the system,
via a voice recording or commands via the telephone keypad.
Electronic Messaging. Electronic messaging has grown from simple text
messaging to include delivery of graphic information. E-mail now has
greater geographic coverage effected through private networks (both LANs
and WANs) and public networks such as the World Wide Web.
LAN Integration and Networking. The need for group interaction has
propelled the growth of LAN electronic messaging and the need for localized
group voice messaging through the desktop computer, whereby voice and text
messaging are integrated and available for access simultaneously. Certain
manufacturers, such as Centigram and CallWare Technologies, Inc., have
combined such access capability through the LAN. Networking capability is
an important manufacturer differentiator in terms of connectivity and voice
quality. Electronic messages, which are stored and transmitted in digital
format, preserve the integrity of the information transmitted no matter the
frequency of storing and forwarding of the message. Voice messages, like
facsimiles, undergo severe information degradation depending on the mode of
transmission and storage. A facsimile that undergoes multiple scanning
deteriorates in legibility as each scan reduces the quality of image
capture. Similarly, voice messages that undergo multiple analog to digital
("A/D") and then digital to analog ("D/A") conversions may become
unintelligible. Networking that converts a voice message digitally only one
time at the time of storage, such as the technology Centigram employs,
provides high quality transmission.
Services. The Company offers comprehensive service and support,
including project coordination, system engineering and integration,
application development, implementation, technical training, and on-going
service and support services. The Company supports its customers with
certified technicians, maintains a large spare parts inventory and attempts
to resolve problems accurately and expeditiously. The Company offers a
variety of maintenance programs that can be customized to address the
diverse needs of its customers, including (i) a comprehensive maintenance
program, offering service 24 hours per day, seven days a week; (ii) a
standard maintenance program, offering service and support during principal
periods of maintenance; and (iii) a parts and telephone maintenance
program, providing support for more technically advanced customers.
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The Company is a value-added reseller of voice processing equipment from
several manufacturers, including Centigram, Digital Speech Systems, Inc., Octel
Communications Corporation and Active Voice Corp.
The FACTOR 1000(R) System
Impairment Testing. The Company's FACTOR 1000(R) impairment testing system
is based upon the CTT technology, a product of research conducted by STI for the
U.S. military in the late 1950's on pilot control of unstable aircraft. Since
such time, the CTT technology has become the accepted standard for assessing
human sensorimotor performance. Continuing studies performed in the 1970's,
1980's and 1990's used CTT technology as the yardstick to assess the effects on
performance caused by drugs, alcohol, fatigue and stress. In 1988, CTT
technology was licensed exclusively to BFI. Under the terms of such license, STI
is allowed to use the CTT technology for research purposes, but routine use of
the technology would require STI to pay license fees to BFI. See
"-- Intellectual Property."
BFI has invested several million dollars and staff-years to commercialize
the CTT technology as the FACTOR 1000(R) system. In the FACTOR 1000(R) system,
the CTT technology has been enhanced significantly to (i) operate seamlessly on
networked computer systems to afford placement of tracking stations at key
customer defined locations throughout the workplace; (ii) provide
security-controlled, versatile, user-friendly management reports, and (iii)
detect non-compliant employee performance. BFI began beta testing on the FACTOR
1000(R) system in 1990 and began limited marketing in January 1994 to companies
with employees in safety sensitive jobs, particularly vehicle and machinery
operators in the trucking, manufacturing, paramedic, school bus and ski
industries. The system is currently in regular use by several companies,
including Shawmut Mills, Durango Ski Corporation and R.F. White Company,
Inc. -- Unocal Distributor.
Future Applications. The Company believes that the design and underlying
technology of the FACTOR 1000(R) system provides a basis for expanding use of
the FACTOR 1000(R) system for applications beyond impairment testing in the
industrial environment. Management believes that the FACTOR 1000(R) system
terminals could be utilized as limited communications devices to send electronic
messages to workers as they log on at the terminal. The FACTOR 1000(R) system
also could be integrated into an overall security system in high security
facilities such as nuclear power plants and military missile bases. The
self-referencing design of the FACTOR 1000(R) system that compares an
individual's performance to his or her own baseline performance may be usable to
identify that individual, providing another level of security screening. The
Company also believes that the FACTOR 1000(R) system potentially could be
integrated into commercial vehicles as interlock devices, disallowing operation
of the vehicle unless the driver successfully completes an impairment test.
Security Services and Systems
CCA provides investigative services, such as background checking and
records verification services, and conducts surveillance and sting operations to
deter theft. CCA investigates unaccountable losses of material or equipment, in
particular, in high technology companies where there has been increasing theft
of electronic components such as computer memories and microprocessors. CCA has
five investigators and recently has expanded its program for addressing violence
in the workplace by establishing a workplace violence unit concentrating on gang
activities and psychological evaluations and counseling.
CCA sells customized closed circuit television ("CCTV") monitoring
equipment manufactured by third parties. Such customized systems are designed to
incorporate the variability of the customer's circumstances, such as type of
premise, coverage area, camera resolution required and recording capability.
Evolved from basic television technology, CCTV components are standardized.
Interfaces tend to be standard video and audio interfaces, as commonly found on
VCRs and camcorders, and peripheral components tend to be no more than remote TV
cameras connected to a switch bank with multiple viewing monitors. Simple remote
controls include the ability to pan and zoom a specific area and enable voice
communications through microphones and speakers at the TV camera site.
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The Company anticipates expanding its offering of security products to
supplement the CCTV systems provided by CCA to include access control systems.
Access control is substantially more complex, given the multitude of peripherals
that have to be interconnected and controlled such as electronic door locks,
electronic and magnetic card readers, biometrics scanners such as fingerprint
verification systems, CCTV subsystems, electronic turnstiles and alarms. Beyond
the need for physical interconnection of these peripherals, additional
complexity comes from designing an effective integrated system that is able to
reconcile false alarms, provide for human error, power supply interruptions,
segregation of various access, stratification of access privileges and the
administration thereof.
COMPETITION
Voice Processing
The voice processing market is one of the fastest growing segments of the
telecommunications industry. The Company believes this highly competitive
industry will intensify with the introduction of new product enhancements and
new competitors. The Company competes with various companies in different
markets, including Customer Premise Equipment ("CPE") and Service Providers. The
Company competes on the basis of its quality of service. The Company believes
that its familiarity with the PBX equipment manufactured by Lucent, Northern
Telecom Limited, Fujitsu Limited, NEC Corporation and other manufacturers
enables the Company to offer better system integration.
VPI believes that its attention to customer service, as well as to the
customer's technical requirements, has resulted in success in competing and
winning sales bids against its much larger competitors. VPI provides detailed
information and support to its customers beginning with the point of sale and
extensive implementation through training and continuing through ongoing service
and support. Depending on the terms of the maintenance contract purchased, the
Company provides assistance for its customers up to 24 hours per day, 365 days a
year. The Company provides extensive training for its employees in products,
installation, system design and support in order to assist customers in
selecting the right equipment and to provide the quality of service that is
demanded. VPI's technical capabilities and expertise are enhanced by its
experienced technical personnel. VPI's junior field technicians generally have
at least two years of field experience with the particular equipment being
installed, and senior technicians have about eight years of field experience.
This level of experience is significantly more than that offered by many of
VPI's larger competitors and is often a deciding factor in a customer's purchase
decision. VPI believes it has a very loyal customer base founded on satisfaction
with its service capabilities and active account management.
Customer Premise Equipment. In the customer premise equipment markets, VPI
competes with two types of companies: interconnects (PBX providers), including
Lucent, Northern Telecom Limited, Fujitsu Limited and NEC Corporation, and
independent voice processing manufacturers, such as Octel Communications
Corporation, Glenayre Technologies, Inc., Digital Sound Corp., Active Voice
Corp. and Applied Voice Technology, Inc.
PBX providers sell voice processing equipment as an integrated solution
with their own PBXs. These providers may have a competitive advantage with
customers purchasing a voice processing system at the same time they are
purchasing a new PBX, and, in many situations, the Company is competing with an
organization offering the same product platform. The Company believes its
competitive strengths are its development and delivery of customer applications,
its implementation process and its service and support performance. The Company
also believes its ability to deliver enhanced applications, such as integration
with computer networks, facsimile and voice response systems applications,
differentiates its products and services.
VPI is the only national distributor that focuses solely on voice
processing systems integration and has developed a strong national capability in
meeting and supporting its customers' varying voice processing needs. Other
distributors that focus solely on voice processing do not have a national
organization. VPI's national competitors are generally the manufacturers of
voice processing equipment. Such manufacturers are concerned primarily with the
sale of their own equipment and generally do not promote other manufacturers'
equipment that may better satisfy the needs of their customers.
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The Company expects that new or enhanced products will be offered by its
principal existing competitors and new competitors. In addition, the Company
believes that computer software vendors, such as Novell, Inc., Lotus Development
Corp. and Microsoft Corporation, will continue to develop enhanced messaging and
networking software with voice and data information processing applications.
Service Providers. The Company provides products to various service
providers, including cellular communications operators and long-distance
resellers. Competitors include several independent voice processing
manufacturers such as Boston Technology Inc., Octel Communications Corporation,
Centigram, Comverse Technology, Inc., Digital Sound Corp., and Glenayre
Technologies, Inc. The further deregulation of the telecommunications industry
resulting from the Telecommunications Act of 1996 has provided opportunities for
increased competition in the local telephone market. The Company believes that
this market will require extensive integration of equipment supplied by various
vendors and, as such, would benefit from the Company's independence and
integration skills. See "-- Governmental Regulations."
Impairment Testing.
The FACTOR 1000(R) system is a noninvasive test for impairment that
operates without supervision, takes less than one minute to administer and
report results, and can be installed in an industrial environment with minimal
disruption. No direct competition for the FACTOR 1000(R) system exists. The
other current impairment testing technologies -- biochemical, neurological and
methods of performance testing other than the FACTOR 1000(R) system -- lack the
extensive, broadscale scientific validation conducted over the last thirty years
on the CTT technology, the critical component of the FACTOR 1000(R) system.
Biochemical or drug testing is not a true impairment test in that it can only
identify the presence of specific levels of predefined substances. Additionally,
biochemical testing is a relatively time intensive and invasive method to manage
risk. Neurological testing is expensive and time intensive due to the
requirement of skilled technicians to evaluate results, and is therefore not an
efficient method to evaluate impairment. Performance testing for impairment
includes sensorimotor testing, used in the FACTOR 1000(R) system, and cognitive
testing. Cognitive testing in the industrial environment is time consuming (test
administration can take from five to 45 minutes) and lacks the level of
scientific validity obtainable from other impairment testing methods. In
summary, the Company believes that other impairment testing methods are not as
practical for the commercial environment as is the FACTOR 1000(R) system.
The FACTOR 1000(R) system's testing advantages also include extensive
scientific validation, its ease and speed of administration in an industrial
environment and the fact that it does not compromise the privacy of the test
subject. The test is self-administered in less than one minute and designated
supervisors and managers have immediate access to a variety of reporting options
to assist them in identifying and managing potential safety risks. To ensure
success, policy consulting, procedural guidelines, operations documentation,
implementation planning, on-site training, trend analyses reporting and ongoing
support is provided to all customers of the FACTOR 1000(R) system. The FACTOR
1000(R) system is available both as a stand-alone system or networked in a LAN.
Security Systems and Services
The Company believes that the private investigation segment historically
has been fragmented, because the work force is primarily from local law
enforcement agencies. Consequently, competition tends to be small and localized.
The Company also believes that the current fragmentation and historical
infrastructure of the business is particularly suited to the Company's
acquisition strategy.
The Company believes that although there are over 2,500 security equipment
manufacturers and distributors, the number specializing in computerized access
control is limited. Further, few companies have demonstrated an effective
capability to network a geographically dispersed system, let alone integrate
such systems into existing telecommunications networks such as LANs and WANs.
The Company believes that its expertise in integrating complex voice processing
systems and PBXs will enable it to incorporate and integrate access control
security systems with the telecommunications networks that it addresses through
VPI. Also, the electronic access control market is one of the fastest-growing
segments in the security industry, and the
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Company intends to participate in the market through acquisitions. Although CCA
generates minimal revenues from this segment at this time, the Company intends
to combine VPI's distribution capabilities with CCA's familiarity in the
business to increase sales in the future. The Company believes that few
manufacturers have established strong brand recognition. Accordingly, equipment
selection tends to be influenced by familiarity with the particular distributor
at the local level, as in the case of CCA.
SUPPLIERS
VPI's voice processing equipment sales revenues historically have been
derived primarily from the sale and servicing of equipment supplied by
Centigram. See "-- Marketing." VPI occasionally utilizes other equipment to
satisfy specific client needs and is not restricted from selling equipment made
by other manufacturers.
Pursuant to the Authorized U.S. Distributor Agreement, dated as of April
16, 1996, between Centigram and VPI, VPI is an independent distributor of
Centigram products in the U.S., Puerto Rico and Canada and may expand this
territory into international locations with the written authorization of
Centigram. Under the Distributor Agreement, VPI must purchase a certain number
of products each quarter. During each of the nine years that this distributor
relationship has existed, VPI has exceeded its quotas by significant amounts.
The Distributor Agreement expires on December 31, 1997, but is renewable
automatically for successive two-year terms until cancelled by either party upon
90 days' notice. The Distributor Agreement may be terminated for cause in the
event (i) VPI defaults in the payment of any amount due Centigram, and such
default continues unremedied for a period of 60 days after written notice of
default; (ii) VPI breaches certain provisions of the Distributor Agreement
concerning proprietary rights; (iii) VPI is acquired by a business entity that
provides product or services in direct competition with Centigram's products,
and in Centigram's judgment, such acquisition represents a conflict of interest;
(iv) VPI fails to perform any obligation under the Distributor Agreement and
such failure continues for a period of 20 days after written notice; (v) VPI
fails to purchase any Centigram assigned quota for a period of two consecutive
quarters; or (vi) VPI sells a Centigram product outside VPI's designated
territory. In addition, the Distributor Agreement terminates automatically if
VPI becomes insolvent, makes an assignment for the benefit of its creditors or
if bankruptcy proceedings are commenced by, for or against VPI. Any controversy
or claim related to the Distributor Agreement must be submitted to final and
binding arbitration to be held in San Jose, California, according to the rules
of the American Arbitration Association.
INTELLECTUAL PROPERTY
CTT, a measure of sensorimotor skills, is a critical component of the
FACTOR 1000(R) system. BFI has an exclusive worldwide license to use the CTT
technology under the terms of a license agreement between BFI and STI, dated
November 24, 1988, as amended by Addendum to License Agreement, dated May 19,
1994 (as amended, the "CTT License"). The CTT License had an initial term of
five years and provides for three additional five-year extensions upon notice
given by BFI to STI. On November 18, 1993, BFI gave the first such notice of
extension. The CTT License requires BFI to make quarterly royalty payments to
STI of 8.5% of revenues directly related to CTT impairment testing of employees.
The CTT License permits BFI to sublicense the CTT technology; BFI currently is
negotiating the sublicense royalty payable to STI, which will include some
minimum payment. Under the CTT License, the CTT technology is escrowed and the
escrow agent is instructed that, in the event STI is acquired, merged or its
principal assets acquired, the CTT technology will be delivered to BFI unless
the successor-in-interest agrees in writing to be bound by all obligations
undertaken by STI pursuant to the CTT License. The CTT License provides that STI
may use the FACTOR 1000(R) technology for research purposes, but any routine use
would require payment of fees to BFI. If either party fails to fulfill its
obligations under the CTT License, the other party may terminate the CTT License
by giving 60 days' written notice of termination, and the CTT License will be
terminated unless such obligations are fulfilled during such 60-day period. In
addition, in the event of any adjudication of bankruptcy, appointment of a
receiver, assignment for the benefit of creditors or levy of execution directly
involving BFI, STI may terminate the CTT License by giving five days' written
notice. Finally, any dispute relating to the interpretation or performance of
the CTT License must be resolved at the request of either party through
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binding arbitration to be conducted in Los Angeles, California under the rules
of the American Arbitration Association.
The Company is totally dependent on maintenance of its CTT license to
market the FACTOR 1000(R) system, and is dependent on STI for product validation
and expert witness testimony of STI's principals regarding aerospace and vehicle
performance dynamics and stability and human operator dynamic response. See
"Risk Factors -- Risks Related to Impairment Testing Business -- License for
Critical Tracking Task/Test Software."
In August, 1995, the Company entered into a sublicense agreement with
SportsTrac, Inc. (f/k/a Bogart Associates International, Inc.) ("SportsTrac"),
to license sports-related applications of the FACTOR 1000(R) system during the
term of the CTT License (expiring November 24, 2008 if all options to extend are
exercised) at an initial price of $1,000,000 and an on-going royalty equal to
8 1/2% of cash receipts from the sale or license of products or services
containing the licensed technology, but not including any revenues from
installation, maintenance, consulting, hardware sales or any other revenues not
directly or indirectly related to such technology. SportsTrac was granted an
exclusive, world-wide license to reproduce, manufacture, use and market the
licensed technology solely for sports-related and sports entertainment
applications. The Company intends to explore other opportunities for
sublicensing its technologies in businesses that the Company does not intend to
pursue.
The Company also has two federally registered trademarks: Performance
Factors(R) and FACTOR 1000(R).
GOVERNMENTAL REGULATIONS
CCA is a "consumer reporting agency" subject to regulation under FCRA and
must comply with all consumer credit disclosure requirements and protocols of
the FCRA. Additionally, several states have enacted statutes similar to the
FCRA, and at least four states require companies engaged in the background
checking and investigative business to be licensed in order to conduct business
in those states. Many states also regulate the type of information that can be
made available to the public and impose conditions on the release of such
information. In addition, privacy and consumer-rights advocates and federal
regulators have become increasingly concerned with the use of personal
information, particularly credit reports. Attempts have been made and likely
will continue to be made by these groups to adopt new or more stringent federal
and state regulations on the use of personal information. See "Risk
Factors -- Governmental Regulations."
The Telecommunications Act of 1996 eliminated government mandated barriers
between local and long distance calling, cable television, broadcasting and
wireless service. Consequently, local telephone companies, the traditional long
distance carriers and cable television companies may now enter any of these
markets to provide both local telephone and long distance service, as well as
television programming. Such increased competition likely will change the
infrastructure for implementing communications applications, such as voice and
electronic messaging. See "Risk Factors -- Governmental Regulations."
RECENT FINANCINGS
On December 1, 1994, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $750,000 principal amount of secured promissory notes
(the "December 1994 Notes"), secured by all of the assets of BFI, bearing
interest at the rate of 12% per annum due and payable on April 1, 1997; and (ii)
shares of BFI Common Stock, which are exchangeable for 112,500 restricted shares
of Common Stock. Such shares of Common Stock are entitled to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
Upon consummation of this Offering, all of the outstanding principal and accrued
interest will be converted into Common Stock at a conversion price equal to the
Offering Price, the security interest will be released, and the Company will
issue warrants to purchase an aggregate of 37,500 shares of Common Stock at an
exercise price of 120% of the Offering Price. The proceeds from the December
1994 Notes were used for general corporate purposes.
On December 1, 1995, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $350,000 principal amount of promissory notes (the
"December 1995 Notes"), bearing interest from the
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date of issuance until due and payable on March 31, 1997 at a rate of 10% per
annum, and thereafter at 18% per annum, and (ii) shares of BFI Common Stock,
which are exchangeable for 78,750 restricted shares of Common Stock. Such shares
of Common Stock are entitled to certain registration rights. See "Description of
Capital Stock -- Registration Rights." At the time the notes were issued, the
notes were secured by the pledge of a promissory note of Sports Trac, payable to
BFI. Subsequently, the Sports Trac Note was paid in full and the security
interest securing the December 1995 Notes was terminated. Upon consummation of
this Offering, the outstanding principal amount will be repaid and all accrued
interest will be converted into Common Stock at a conversion price equal to the
Offering Price, and the Company will issue warrants to purchase an aggregate of
26,250 shares of Common Stock at an exercise price of 120% of the Offering
Price. The proceeds from the December 1995 Notes were used for general corporate
purposes.
On February 1, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $315,000 principal amount of unsecured promissory
notes (the "February 1996 Notes"), bearing interest from the date of issuance
until due and payable on March 31, 1997 at a rate of 10% per annum, and
thereafter at 18% per annum, and (ii) shares of BFI Common Stock, which are
exchangeable for 70,875 restricted shares of Common Stock. Such shares of Common
Stock are entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid and all accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
and the Company will issue warrants to purchase an aggregate of 23,625 shares of
Common Stock at an exercise price of 120% of the Offering Price. The proceeds
from the February 1996 Notes were used for general corporate purposes.
On May 17, 1996, BFI closed a bridge financing, pursuant to which it issued
an aggregate of (i) $300,000 principal amount of unsecured promissory notes (the
"May 1996 Notes"), bearing interest at a rate of 10% per annum, due and payable
on March 31, 1997, and (ii) shares of BFI Common Stock, which are exchangeable
for 67,500 restricted shares of Common Stock. Such shares of Common Stock are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid and all accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
and the Company will issue warrants to purchase an aggregate of 22,500 shares of
Common Stock at an exercise price of 120% of the Offering Price. See
"Description of Capital Stock -- Registration Rights." The proceeds from the
sale of the May 1996 Notes were used for general corporate purposes.
On November 5, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $500,000 principal amount of unsecured promissory
notes (the "November 1996 Notes"), bearing interest at 10% per annum, due and
payable on the earlier of (a) March 31, 1997, or (b) the consummation of this
Offering, and (ii) warrants exercisable to purchase 500,000 restricted shares of
Common Stock at an initial exercise price of 120% of the Offering Price. The
shares of Common Stock issued upon exercise of the warrants are entitled to
certain registration rights. See "Description of Capital Stock -- Registration
Rights." The proceeds from the November 1996 Notes were used to purchase
director and officer liability insurance and to pay legal, accounting and other
fees in connection with this Offering.
The Company intends to use a portion of the proceeds of this Offering to
repay $350,000 of the principal amount of the December 1995 Notes, $315,000 of
the principal amount of the February 1996 Notes, $300,000 of the principal
amount of the May 1996 Notes, and $500,000 of the principal amount and
approximately $8,300 of accrued interest on the November 1996 Notes. See "Use of
Proceeds."
LEGAL PROCEEDINGS AND PRODUCT LIABILITY INSURANCE
BFI's impairment testing business exposes it to potential litigation by
employees of companies using the FACTOR 1000(R) system if the employee's
employment relationship is affected thereby, and claims by third parties who may
be indirectly affected by the Company's services or products. Product and
service liability insurance is expensive, to the extent it is available at all.
BFI currently maintains general liability insurance in the amount of $1.0
million per policy year, which the Company intends to increase to $5.0 million
per policy year in connection with the VPI Acquisition. See "Risk
Factors -- Product Liability Exposure; Litigation Risk; Limited Insurance."
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EMPLOYEES
As of October 31, 1996, BFI employed seven employees and VPI employed 39
employees, all on a full-time basis. Upon consummation of the BFI Merger, the
VPI Acquisition and CCA Merger, the Company will employ a total of 55 employees,
all on a full-time basis. No employee is covered by a collective bargaining
agreement, and management believes that its relations with its employees are
good.
FACILITIES
The Company's corporate offices will occupy approximately 3,260 square feet
of office space in Golden, Colorado currently leased by BFI. This facility is
leased pursuant to a lease agreement expiring December 31, 1998. Rent payments
total $4,071 each month. The Company believes its facilities are adequate for
its current level of operations.
VPI leases office space at various locations under five short-term leases
ranging from month-to-month to one-year terms and totaling approximately 10,635
square feet. Total office rental expense for all such offices is approximately
$17,750 on a monthly basis. The Company believes that leased office space at
market rates is readily available at all such locations.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information concerning persons (i)
who are officers, directors and key employees of the Company and its
subsidiaries and (ii) who will become directors of the Company prior to
consummation of this Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -----------------------------------------------
<S> <C> <C>
Esmond T. Goei................ 45 Chairman, President, Chief Executive Officer
and Director
Douglas S. Zorn............... 47 Executive Vice President, Secretary, Chief
Operating and Financial Officer, Treasurer and
Director
Linda K. Wackwitz............. 46 Vice President, General Counsel and Assistant
Secretary
James S. Gillespie............ 44 Vice President Sales and Director; President of
Voice Plus, Inc.
Diane E. Nowak................ 34 Vice President of Sales, Western Region, of
Voice Plus, Inc.
Bradley J. Eickman............ 31 Director of Operations of Voice Plus, Inc.
William Brehm................. 52 Director Nominee
Burton W. Kanter.............. 66 Director Nominee
Gary L. Nemetz................ 44 Director Nominee
Richard H. Williams........... 53 Director Nominee
</TABLE>
Directors are elected at the annual meeting of stockholders or may be
appointed by the Board of Directors and hold office until a successor is elected
and qualified or the Director resigns. The executive officers are appointed by
the Board of Directors. The following is a brief summary of the recent
background of each director, executive officer and significant employee of the
Company.
Esmond T. Goei. Mr. Goei has served as Chairman of the Board, President and
Chief Executive Officer of the Company since its incorporation in October 1996.
Mr. Goei has served as Chairman of the Board, President and Chief Executive
Officer of BFI from December 1993. Mr. Goei is also a General Partner of
32
<PAGE> 36
Transition Ventures I, L.P., a venture capital fund which he co-founded in
October 1992. Mr. Goei also was the co-founder of Transtech Venture Management
Pte. Ltd., an international venture capital management firm established in 1986
and co-founder of Transpac Capital Management Pte. Ltd. in 1989, of which he was
CEO for North American operations until 1992. Mr. Goei currently serves as a
director and Vice Chairman of YES! Entertainment Corp., an electronics toy
company of which he was a co-founding investor in 1992 and which is listed on
The Nasdaq National Market ("Nasdaq NMS"). From 1988 to 1995, Mr. Goei was a
director of CliniCom, Inc., a patient care information systems company listed on
Nasdaq MMS which was sold in 1995 to HBO & Company. From 1987 to March 1995, Mr.
Goei was a director of Centigram Communications Corporation, a voice messaging
equipment company listed on Nasdaq NMS and VPI's largest supplier of voice
processing equipment. Mr. Goei was also Chairman of the Board of Centigram for
six years. From 1988 to 1994, Mr. Goei also was a director of TranSwitch Corp.,
a telecommunications semiconductor systems company listed on Nasdaq NMS.
Douglas S. Zorn. Mr. Zorn has served as Executive Vice President, Secretary
and Treasurer and Chief Operating Officer of the Company since its incorporation
in October 1996. Mr. Zorn has served as Executive Vice President, Secretary and
Treasurer and Chief Operating Officer of BFI since December 1993. From 1991
until he joined BFI, Mr. Zorn was Chief Financial Officer of Monterey
Telecommunications Corporation, an OEM wireless switch manufacturer for
Motorola, Inc. From 1983 to 1991, he was employed by Centigram Communications
Corporation, a voice messaging equipment company where he last served as Vice
President of Finance and Administration. Prior to joining Centigram, Mr. Zorn
held various positions with Gould, Inc., including Operation Controller of the
Biomation Division, a manufacturer of sophisticated logic test instruments. Mr.
Zorn is a licensed certified public accountant.
Linda K. Wackwitz. Ms. Wackwitz has served as Vice President, General
Counsel and Assistant Secretary of the Company since its incorporation in
October 1996 and has held the same positions with BFI since February 1996. From
1989 until she joined the Company, Ms. Wackwitz was a corporate and securities
attorney with Davis, Graham & Stubbs LLP, a Denver, Colorado law firm.
James S. Gillespie. Mr. Gillespie has been Vice President of Sales and a
Director of the Company since its incorporation in 1996 and continues as
President of VPI. Mr. Gillespie was the founder of VPI and has served as
President and Chief Executive Officer since VPI's incorporation in 1986. Mr.
Gillespie was with Centigram from 1983 to 1986, during which time he held a
number of positions, with his final position being the Director of National
Sales.
Diane E. Nowak. Ms. Nowak has served as Vice President of Sales, Western
Region, for VPI since July 1993. Ms. Nowak joined VPI in 1989 and has served as
Senior Sales Executive (May 1990 to July 1991) and as Director of Major Accounts
(July 1991 to July 1993). Ms. Nowak served as a director of VPI from November
1995 to September 1996.
Bradley J. Eickman. Mr. Eickman has served as Director of Operations for
VPI since November 1995. Prior to that time, Mr. Eickman served as Sales Manager
(January 1994 to November 1995), Manager of Procurement and Quality Assurance
(May 1992 to January 1994), Service Manager (July 1991 to May 1992) and Customer
Support Manager (April 1990 to July 1991). Mr. Eickman served as a director of
VPI from November 1995 to September 1996.
William Brehm. Mr. Brehm will become a Director of the Company prior to
consummation of this Offering. Mr. Brehm served from 1994 to June 1995 and has
served from October 1995 to present as a director of BFI. From 1989 to 1995, Mr.
Brehm was the Chief Executive Officer, and from 1988 to 1989, Mr. Brehm was
President, of CliniCom, Inc. From 1985 to 1987, he was President of Baxter
Intermediate Systems Division, a healthcare information systems company. From
1984 to 1985, he was Executive Vice President and Chief Operating Officer of
Health Information Systems, Inc., a healthcare information systems company.
Burton W. Kanter. Mr. Kanter will become a Director of the Company prior to
the consummation of this Offering. Mr. Kanter has served as a director of BFI
from its incorporation. Mr. Kanter has been of counsel with Neal, Gerber and
Eisenberg, a Chicago, Illinois law firm, since 1986 and a member of the faculty
of the University of Chicago Law School since 1991. He is a Director of numerous
entities, including the following
33
<PAGE> 37
public companies: Healthcare COMPARE Corp., Scientific Measurement Systems,
Inc., Powercell Inc., Logic Devices Inc., Channel America T.V., Inc. and Walnut
Financial Services, Inc. He is also the Chairman of Walnut Capital Corp., a
wholly owned subsidiary of Walnut Financial Services, Inc. and a registered
Small Business Investment Company engaged in venture capital investments.
Gary L. Nemetz. Mr. Nemetz will become a Director of the Company prior to
the consummation of this Offering. Mr. Nemetz has been a director of BFI since
April 1996. In March 1995, Mr. Nemetz was a director of the Company. Mr. Nemetz
served as a consultant to BFI from March 1995 to April 1996. Since 1984, Mr.
Nemetz has served as President of Admiral Capital Corp., a private investment
management firm. He is a general partner of Transition Capital Management
Company and Transition Ventures I, L.P., a venture capital fund. Since 1984, Mr.
Nemetz also has conducted a management consulting business and law practice
through G.L. Nemetz, a Professional Corporation. Mr. Nemetz is a Certified
Public Accountant (inactive status). Since 1995, Mr. Nemetz has served as a
director of YES! Entertainment Corp., listed on Nasdaq NMS.
Richard H. Williams. Mr. Williams will become a Director of the Company
prior to the consummation of this Offering. Mr. Williams has been a director of
BFI since 1995. Mr. Williams is a technology investor and entrepreneur. From
February 1996 through August 1996, he was a Senior Vice President of Informix
Corp. Mr. Williams was President and Chief Executive Officer of Illustra
Information Technology, Inc., from December 1993 until its acquisition by
Informix in February 1996. From 1991 to 1992, Mr. Williams was an Executive Vice
President of Novell, Inc., in charge of worldwide sales. From 1987 until its
acquisition by Novell, he was President and Chief Executive Officer of Digital
Research, Inc. For 22 years prior to joining Digital Research, Mr. Williams was
employed by IBM Corporation, where his last positions were Vice President of the
Data Systems Division and Vice President of the General Products Division.
BOARD COMMITTEES
Upon completion of this Offering, the Board will have two standing
committees, the Compensation Committee and the Audit Committee. The Compensation
Committee will be responsible for reviewing the compensation of executives of
the Company and recommending changes to the Board. The Compensation Committee
will be composed of .
The Audit Committee will be responsible for meeting periodically with
representatives of the Company's independent certified public accountants to
review the general scope of audit coverage, including consideration of the
Company's accounting practices and procedures and systems of internal controls,
and to report to the Board with respect thereto. The Audit Committee also will
recommend to the Board the appointment of the Company's independent auditors.
The Audit Committee will be composed of .
34
<PAGE> 38
EXECUTIVE COMPENSATION
The following table, and the accompanying explanatory footnotes, include
annual and long-term compensation information for services rendered in all
capacities during the fiscal years ended December 31, 1994 and 1995, by (i) the
Company's Chief Executive Officer and (ii) the other most highly compensated
executive officer of the Company at December 31, 1995, and an additional
individual not serving as executive officer of the Company at December 31, 1995,
who received compensation of at least $100,000 during fiscal year ended December
31, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND POSITION YEAR SALARY($)(1) BONUS($) ($) OPTIONS
- -------------------------------------- ---- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Esmond T. Goei(2)..................... 1995 $108,000 $ 25,000 4,200 168,750
Chairman of the Board, 1994 108,000 0 4,200 --
President and Chief Executive
Officer
Douglas S. Zorn(2).................... 1995 90,000 25,000 4,200 140,625
Executive Vice President, 1994 90,000 0 4,200 --
Secretary, Chief Operating Officer
and Chief Financial Officer
James S. Gillespie(3)................. 1995 300,000 550,000 15,226 --
Vice President of Sales and 1994 142,750 550,000 53,684 --
President of VPI
</TABLE>
- ---------------
(1) Data reflects compensation by BFI. In 1995, the Company and Messrs. Goei and
Zorn orally agreed that future cash salary payments would be suspended until
BFI had obtained sufficient funding to pursue a public offering of its
securities. During the period of suspension, from April through December,
Messrs. Goei and Zorn continued to pursue their respective duties in the
interest of BFI. BFI compensated Mr. Goei and Mr. Zorn for their respective
past salaries by issuing to each of them 87,475 shares of fully paid,
nonassessable shares of BFI Common Stock with a fair market value of $0.67
per share.
(2) Messrs. Goei and Zorn joined BFI in December 1993.
(3) Data reflect compensation paid by VPI.
STOCK OPTION PLAN
Effective upon consummation of the BFI Merger, all outstanding options to
purchase shares of BFI Common Stock will be exchanged for options to purchase an
aggregate of 534,375 shares of Common Stock of the Company at a price per share
equal to 80% of the Offering Price pursuant to the NHancement Technologies Inc.
Equity Incentive Plan (the "Plan"). Additionally, the Company has authorized the
issuance to certain VPI employees, upon consummation of the VPI Acquisition, of
options to purchase an aggregate of 100,000 shares of Common Stock of the
Company at fair market value on the date of grant pursuant to the Plan. Under
the Plan, 976,500 shares of Common Stock have been reserved for issuance upon
exercise of options and other stock rights granted to employees, officers,
directors and consultants of the Company and any subsidiary of the Company. The
Plan is administered by (i) the Compensation Committee of the Board of Directors
with respect to grants to officers and directors of the Company and (ii) by the
Employee Committee consisting of the Company's Chief Executive Officer with
respect to all others (together, the Compensation Committee and the Employee
Committee are referred to as the "Committee"). The Committee has full authority
to administer the Plan, including the individuals to whom the grants are made,
the exercise or purchase prices, the number of shares and vesting schedules.
35
<PAGE> 39
Under the Plan, incentive stock options ("ISOs"), as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), may be granted to
employees of the Company, and nonqualified stock options ("NSOs"), stock
purchase rights, restricted stock awards and supplemental bonuses may be
granted. ISOs granted under the Plan must have an exercise price of not less
than 100% of the fair market value of the Common Stock on the date of grant and
are exercisable for periods of up to 10 years from the date of grant (or, in the
case of ISOs granted to holders of more than 10% of the voting power of the
Company, have an exercise price equal to 110% of the fair market value,
exercisable for a period of five years). NSOs may be granted at less than fair
market value at the discretion of the Committee and are exercisable for periods
of up to 10 years from the date of grant. The exercise price of options may be
paid in cash, or when approved by the Committee at the time of grant, by
cancellation of indebtedness.
Upon the occurrence of certain events, including a merger, liquidation or
sale of substantially all of the assets of the Company, at its discretion, the
Committee can prescribe terms and conditions for exercise of, or modifications
of, stock options and other stock rights granted under the Plan, including
complete acceleration of the dates of exercise or repurchase.
STOCK OPTION INFORMATION
The following table sets forth certain information concerning grants of
stock options to the Named Executive Officers during the year ended December 31,
1995.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(1) YEAR(2) PER SHARE(3) DATE
- ----------------------------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C>
Esmond T. Goei..................... 168,750 43.2% $ 3.20 11/02/2005
Douglas S. Zorn.................... 140,625 36.0% $ 3.20 11/02/2005
</TABLE>
- ---------------
(1) The options are incentive stock options with vesting as follows: one-third
of the shares vest immediately upon grant, and the remaining vest 1/24th per
month over the next 24 months.
(2) Based on an aggregate of 390,936 options granted to employees in 1995,
including options granted to the Named Executive Officers.
(3) The exercise price is equal to 100% of the fair market value of the Common
Stock on the date of grant.
DIRECTORS' COMPENSATION
Directors who are also employees of the Company are not separately
compensated for serving on the Board of Directors. Non-employee Directors
receive a fee of $1,000 per board meeting requiring personal attendance and a
fee of $250 per telephonic Board meeting and committee meeting not part of,
immediately preceding or following, a scheduled Board meeting and also are
reimbursed for reasonable travel-related expenses for attendance at meetings.
Pursuant to an Agreement dated October 16, 1995, Burton Kanter, a
non-employee director, received $2,000 per month from October 1995 to June 1996
for his services as a director of BFI. In November 1995, Mr. Kanter received an
NSO to purchase shares of BFI Common Stock, which is currently fully vested and
will be exchanged for an NSO to purchase 42,188 shares of the Company's Common
Stock, exercisable at a price per share equal to 80% of the Offering Price. In
June 1996, Mr. Kanter also received shares of BFI Common Stock, which will be
exchanged for 18,750 shares of the Company's Common Stock upon consummation of
the BFI Merger. See "Certain Transactions."
In connection with his election to the Board in December 1995, Mr. Williams
received an NSO to purchase shares of BFI Common Stock, which will be exchanged
for an NSO to purchase 16,875 shares of the
36
<PAGE> 40
Company's Common Stock, exercisable at a price per share equal to 80% of the
Offering Price. The option will vest 50% immediately and 50% one year from the
date of such exchange.
Additionally, the Company intends to grant to each of Messrs. Nemetz and
Brehm NSOs to purchase 16,875 shares of Common Stock at a price per share equal
to the fair market value on the date of grant, 50% percent of which will vest
one year from the date of grant and 50% percent of which will vest on the second
anniversary of the date of grant.
EMPLOYMENT AGREEMENTS
The Company has three-year agreements with each of Esmond T. Goei, as
Chairman of the Board of Directors, President and Chief Executive Officer of the
Company, and Douglas S. Zorn, as Executive Vice President, Chief Operating
Officer, Chief Financial Officer, Treasurer and Secretary of the Company. Each
officer's current base salary is $135,000 per year, which may be adjusted from
time to time by mutual agreement between each such officer and the Board of
Directors. The agreements provide for an annual bonus to be paid to each officer
pursuant to a written bonus plan to be approved by the Board of Directors. The
agreements provide that each officer is entitled to reasonable expense
reimbursements, four weeks paid vacation per year and participation in any of
the Company's benefit and deferred compensation plans. Each of the officers also
receives a $500 monthly car allowance. On the annual anniversary date of each
agreement, the period of employment is extended automatically for one year
unless the officer is notified in writing. The agreements also provide for
payments in the event of termination prior to the end of the term, as follows:
if the officer is terminated without cause, then base salary will be paid for
the greater of two years or the balance of the term plus a bonus for each such
year equal to the average bonus for the two preceding years; if the officer is
terminated upon a change of control, then compensation equal to two times the
sum of the base salary plus average bonus will be paid for one year. In the
event of termination (except termination without cause), the officer is subject
to a two-year non-competition agreement.
The Company has a three-year employment agreement with James Gillespie,
Vice President of Sales of the Company and President of VPI. Mr. Gillespie's
agreement provides for a base salary of $150,000, annual sales commissions
targeted to be approximately $200,000 and an annual bonus pursuant to a written
bonus plan to be approved by the Board of Directors. The agreement provides that
Mr. Gillespie is entitled to reasonable expense reimbursements, participation in
any of the Company's benefit and deferred compensation plans, use of a company
car or a monthly car allowance and annual paid vacation, consistent with the
arrangements provided to the Company's senior management. Additionally, the
agreement contains provisions for assignment of inventions and confidentiality
and, in the event of termination, covenants not to compete, to solicit customers
or to hire employees for two years. The agreement also provides that in the
event of termination without cause or a material breach by the Company, Mr.
Gillespie will receive his base salary and 50% of sales commissions for the
duration of the term of the agreement and, in the event of a material breach by
the Company, the two promissory notes issued in consideration for VPI will be
accelerated and immediately become due and payable. See "Certain Transactions."
VPI has one-year employment agreements with each of Diane E. Nowak, Vice
President of Sales, Western Region, of VPI, and Bradley J. Eickman, Director of
Operations for VPI. Each of these employment agreements provides for a base
salary of $65,000, sales commissions payable pursuant to an annual sales manager
compensation plan and performance-based bonus payments. Both agreements also
provide for reasonable expense reimbursements, participation in any of VPI's
benefit plans, use of a car leased by VPI and annual paid vacation.
Additionally, the agreements contain provisions for assignment of inventions and
confidentiality and, in the event of termination, covenants not to compete, to
solicit customers or to hire employees for two years. The Company has authorized
(i) the grant, to Ms. Nowak and Mr. Eickman, upon the consummation of the VPI
Acquisition, of ISOs to purchase 50,000 and 35,000 shares of Common Stock,
respectively, at a price per share equal to the fair market value on the date of
grant, 50% of which will vest 18 months from the date of grant and 50% of which
will vest on the second anniversary of the date of grant; and (ii) the payment
to Ms. Nowak and Mr. Eickman of signing and retention bonuses in the amounts of
$100,000 and $50,000, respectively, payable 50% upon the consummation of the VPI
Acquisition and 50% six-months thereafter.
37
<PAGE> 41
CERTAIN TRANSACTIONS
In December 1994, BFI entered into a Secured Note and Warrant Purchase
Agreement (as subsequently amended) with each of Messrs. Goei, Zorn, Kanter and
Williams for the purchase and sale of BFI's secured promissory notes in the
principal amounts (including amounts purchased through entities under their
direction and control, see "Principal Stockholders") of (i) $30,363, $27,500,
$25,000 and $25,000, respectively, out of an aggregate original principal amount
of $750,000, and (ii) 0.2 shares of BFI Common Stock for each $1.00 of such
portion of the original principal amount of the notes. The notes are secured by
all of the assets of BFI and mature on April 1, 1997. Upon consummation of this
Offering, all of the outstanding principal and accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
the security interest will be released, and the Company will issue warrants to
purchase 1,518, 1,375, 1,250 and 1,250 shares of Common Stock at an exercise
price of 120% of the Offering Price to Messrs. Goei, Zorn, Kanter and Williams,
respectively.
In April 1995, BFI accepted unsecured loans from Messrs. Kanter and Zorn,
in the principal amounts of $10,000 and $17,500, respectively, at a rate of
interest of 12% per annum (the "Directors' Loans"). The Directors' Loans will be
repaid upon the consummation of this Offering.
In August 1995, BFI entered into a sublicense agreement with SportsTrac, to
license sports-related applications of the FACTOR 1000(@) system during the term
of the CTT License (expiring November 24, 2008 if all options to extend are
exercised) at an initial price of $1,000,000 and an on-going royalty equal to 8
1/2% of cash receipts from the sale or license of products or services
containing the licensed technology, but not including any revenues from
installation, maintenance, consulting, hardware sales or any other revenues not
directly or indirectly related to such technology. SportsTrac was granted an
exclusive, world-wide license to reproduce, manufacture, use and market the
licensed technology solely for sports-related and sports entertainment
applications. SportsTrac agreed to issue warrants to purchase its common stock
to BFI (all of which subsequently were transferred) and granted to BFI the right
to invest in SportsTrac and the right to designate one member of its board of
directors. Mr. Kanter is a principal shareholder of SportsTrac, through holdings
of entities under his control and direction.
In October 1995, BFI entered into an agreement, subsequently amended July
16, 1996, with Mr. Kanter, a holder of BFI's unsecured notes (the "October 1995
Notes") in the aggregate principal amount of $54,850 (represented by five notes
issued between January 29, 1992 and November 1, 1992). Mr. Kanter agreed (i) to
extend the maturity date of the October 1995 Notes and payment of accrued
interest thereon until the earlier of December 31, 1996 or receipt by the
Company of the proceeds of this Offering, (ii) to waive the current default on
the October 1995 Notes (in return for recomputation of interest on the October
1995 Notes on an annually compounded basis from the date each of the October
1995 Notes was issued), and (iii) to subject all Common Stock and Common Stock
equivalents held by Mr. Kanter or his affiliates to a lockup agreement whereby
50% of such shares are locked-up for a period of 18 months following this
Offering and the remaining 50% for an additional six months. In return for such
agreements and his past and continuing participation on BFI's Board of
Directors, BFI (i) executed and delivered to Mr. Kanter a stock option to
purchase 75,000 shares of BFI Common Stock, which will be exchanged for an
option to purchase 42,188 shares of the Company's Common Stock, with an exercise
price per share equal to 80% of the Offering Price; (ii) transferred to Mr.
Kanter and another former director all of BFI's rights to invest in SportsTrac,
Inc.; (iii) transferred to him one-half of BFI's 7 1/2% warrants in SportsTrac;
and (iv) agreed to pay him a fee of $2,000 per month, plus reasonable expenses,
in connection with his duties as Director. Mr. Kanter subsequently agreed to
forego his $2,000 per month Director fees and to be compensated the same as
other non-employee Directors. See "Management -- Directors' Compensation."
In June 1996, BFI issued 18,750 shares of Common Stock to Mr. Kanter as
consideration for his special services as a director during 1995, paid out of
compensation otherwise owing to Messrs. Goei and Zorn, in accordance with an
agreement dated July 16, 1996 by and among BFI and Messrs. Goei, Zorn, Kanter
and a former director of BFI.
Upon consummation of the VPI Acquisition, the Company will acquire all of
the capital stock of VPI from Mr. Gillespie for total consideration valued at
approximately $6,180,000, consisting of: $1,500,000 in two
38
<PAGE> 42
long-term notes in the principal amounts of $1,000,000 and $500,000,
respectively, bearing interest at the medium-term United States Treasury Bill
rate declared at the close of business on the maturity date or earlier payment
date and maturing on the three-year anniversary of the date of issuance but
payable earlier, dependent upon the future earnings of VPI, with fifty percent
(50%) of VPI's pre-tax profits to be applied to pay principal and accrued
interest on the $1,000,000 note quarterly, and $62,500 of principal and accrued
interest to be paid on the $500,000 note in any quarter in which VPI is
profitable, beginning 45 days after the close of the quarter in which this
Offering is consummated; $2,400,000 in shares of Common Stock to be sold in this
Offering and $2,280,000 in shares of Common Stock (712,500 shares based on an
assumed Offering Price of $4.00 per share). In the event of a material breach by
the Company of the employment agreement with Mr. Gillespie, the two promissory
notes will be accelerated and immediately become due and payable. See
"Management -- Employment Agreements." All such restricted shares will be
subject to a lock-up agreement in favor of the Representative for 18 months
following the consummation of this Offering with respect to 50% of the shares
and 24 months following the consummation of this Offering with respect to the
remaining 50% of the shares. Additionally, the Company has agreed to register
150,000 shares of Common Stock issued as consideration for VPI, one year after
the consummation of this Offering subject to satisfaction by VPI of certain 1997
performance criteria. See "Description of Capital Stock -- Registration Rights."
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<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of October 31, 1996, after giving effect to the BFI
Merger, the VPI Acquisition and the CCA Merger, by (a) each person known to the
Company to own beneficially more than 5% of the Common Stock, (b) each of the
Company's directors, director nominees and Named Executive Officers, (c) all
executive officers, directors and director nominees as a group and (d) each
stockholder selling Shares in this Offering.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY PRE-OFFERING SHARES BENEFICIALLY POST-OFFERING
OWNED PRE- PERCENTAGE SOLD IN THE OWNED %
NAMES AND ADDRESSES OFFERING OWNERSHIP(1) OFFERING POST-OFFERING OWNERSHIP(1)
- ---------------------------------- ---------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
James Gillespie................... -- -- 600,000 712,500 17.1%
198 Country Club Drive
Incline Village, Nevada 89451
Kent Cossey....................... -- -- -- 300,000 7.2
838 Minnesota Avenue
San Jose, California 95,125
Esmond T. Goei.................... 161,551(2) 8.4 -- 161,551 3.8
c/o NHancement Technologies Inc.
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Douglas S. Zorn................... 148,704(3) 7.7 -- 148,704 3.5
c/o NHancement Technologies Inc.
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Burton Kanter..................... 78,151(4) 4.1 -- 78,151 1.9
c/o Walnut Capital Corp. Two North
LaSalle Street, 22nd Floor
Chicago, Illinois 60602
Gary L. Nemetz.................... 45,175(5) 2.4 -- 45,175 1.1
c/o Admiral Capital Corporation
2420 Sand Hill Road, Suite 101
Menlo Park, California 94025
Richard H. Williams............... 23,810(6) 1.3 -- 23,810 *
P.O. Box 4281
721 Champagne Road
Incline Village, Nevada 89450
William H. Brehm.................. 14,447 * -- 14,447 *
11400 Queensway
Theodore, Alabama 36582
Directors and Executive Officers
as a group (8 persons).......... 508,638(7) 48.6% 600,000 1,521,138 34.9%
</TABLE>
- ---------------
* Less than 1%
(1) Includes (i) shares of Common Stock issued in connection with the VPI
Acquisition and the CCA Merger, (ii) shares of Common Stock issuable upon
the conversion of all accrued interest through December 15, 1996 on the
December 1995 Notes, the February 1996 Notes and the May 1996 Notes, and
(iii) shares of Common Stock issuable upon conversion of principal and all
accrued interest through November 30, 1996 on the December 1994 Notes; all
such shares of Common Stock are issuable upon the consummation of this
Offering, except the shares to be issued upon consummation of the CCA
Merger.
40
<PAGE> 44
(2) Includes 56,250 options that are presently exercisable or that will become
exercisable within 60 days.
(3) Includes 46,875 options that are presently exercisable or that will become
exercisable within 60 days.
(4) Includes 1,157 shares beneficially owned by Antigua International Trust Ltd.
as Trustee for Three B Burton Trust (the "Trust") with respect to which Mr.
Burton has voting and investment power and 16,057 shares and 42,188 options
that are presently exercisable or that will become exercisable within 60
days, by Walnut Capital Corp. (of which Mr. Kanter is the Chairman and
President); excludes 1,175 warrants that are presently exercisable at $25.88
per share. Walnut Capital Corp.'s address is the same as Mr. Kanter's, and
the Trust's address is c/o Swiss American Bank, Trustee, Attn: John Greaves,
St. John's Antigua Burton Trust, Redcliffe St., P.O. Box 1302, St. John's,
Antigua, West Indies.
(5) Includes 45,175 shares beneficially owned by Admiral Capital Corporation as
to which Mr. Nemetz has sole voting and investment power.
(6) Includes 8,438 options that are presently exercisable or that will become
exercisable within 60 days.
(7) Includes 185,625 vested option shares and excludes 1,175 warrants that
presently are exercisable.
41
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
The Certificate of Incorporation of the Company provides that the Company
has the authority to issue up to 20,000,000 shares of Common Stock, $0.01 par
value per share, and up to 2,000,000 shares of preferred stock, $0.01 par value
per share ("Preferred Stock").
COMMON STOCK
Prior to this Offering and after giving effect to the BFI Merger, the VPI
Acquisition and the CCA Merger, there were 2,454,425 shares of Common Stock
issued and outstanding. The Company's Certificate of Incorporation provides that
holders of Common Stock are entitled to one vote for each share on all matters
submitted to a vote of stockholders. The Certificate of Incorporation does not
provide for cumulative voting. Accordingly, holders of a majority of the shares
of Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election if they choose to do so.
The holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of legally available
funds, provided that no dividend may be paid on shares of Common Stock until all
declared but unpaid dividends payable with respect to any outstanding Preferred
Stock have been paid.
Holders of Common Stock have no preemptive, subscription or redemption
rights. All outstanding shares of Common Stock are, and the Common Stock offered
hereby, upon issuance and sale, will be, fully paid and non-assessable. Upon the
liquidation, dissolution or winding up of the Company, after payment of all
debts and liabilities and after payment of the liquidation preferences of all
shares of Preferred Stock then outstanding, the holders of the Common Stock are
entitled to share ratably in all assets that are legally available for
distribution.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Company is authorized to
issue "blank check" preferred stock, which may be issued from time to time upon
authorization by the Company's Board of Directors, without further approval of
the stockholders. While providing flexibility in connection with possible
acquisitions and other corporate purposes such an issuance could, among other
things, adversely affect the voting power of the holders of Common Stock and,
under certain circumstances, make it more difficult for a third party to gain
control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Common Stock.
WARRANTS
Concurrently with the consummation of this Offering, the Company will issue
warrants to purchase an aggregate of 110,000 shares of Common Stock to holders
of the December 1994 Notes, the December 1995 Notes, the February 1996 Notes and
the May 1996 Notes (collectively, the "Bridge Notes") (the "Bridge Warrants"),
at an initial exercise price of 120% of the Offering Price per share (subject to
adjustment upon certain events), exercisable during the 36-month period
commencing one year from the effective date of the registration statement of
which this Prospectus is a part (the "Effective Date").
The Company has assumed BFI's outstanding warrants issued in connection
with the November 1996 Notes (the "November Warrants"), exercisable to purchase
an aggregate of 500,000 shares of Common Stock at an initial exercise price per
share of 120% of the Offering Price (subject to adjustment upon certain events)
during the 36-month period commencing one year from the Effective Date. The
Company also has assumed outstanding warrants issued in July 1990 (the "Old
Warrants"), exercisable to purchase 514 shares of Common Stock at an exercise
price of $188.80 per share, and outstanding BFI warrants to purchase 6,670
shares of Common Stock at an exercise price of $25.88 per share.
Neither the Bridge Warrants, the November Warrants nor the Old Warrants
confer upon the holders of such warrants any voting or other rights of a
stockholder of the Company. Shares of Common Stock issuable
42
<PAGE> 46
upon exercise of the Bridge Warrants, the November Warrants and the Old Warrants
are subject to restrictions on transferability.
The Company has agreed to sell to the Underwriters for a purchase price of
$100, warrants to purchase ten percent of the shares sold in this Offering at
120% of the Offering Price (the "Underwriter Warrants"). See "Underwriting."
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly-held
Delaware corporation from engaging, under certain circumstances, in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless either (i) prior to the date at which the person becomes an
interested stockholder the Board of Directors approves such transaction or
business combination, (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
such transaction or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). An "interested stockholder" is a
person who, together with affiliates and associates, owns (or at any time within
the prior three years did own) 15% or more of the corporation's voting stock.
Section 203 defines a "business combination" to include, without limitation,
mergers, consolidations, stock sales and asset-based transactions and other
transactions resulting in a financial benefit to the interested stockholder.
The Company's Certificate of Incorporation includes a provision which gives
the Board of Directors the authority to issue series of Preferred Stock with
such voting rights and other provisions as the Board of Directors may determine
and which may be deemed to have a potential anti-takeover effect in that it
could be used to delay or prevent a change of control of the Company.
Additionally, the Company is contemplating adopting certain other provisions in
its Certificate of Incorporation and its Bylaws which may have the effect of
delaying or preventing a change in control of the Company, including (i) a
prohibition on the taking of stockholder action by written consent in lieu of a
meeting, (ii) the requirement that a special stockholders' meeting may only be
called by the Chairman of the Board, the Chief Executive Officer, the President
or at the direction of the majority of the Board of Directors, (iii)
authorization for the Board of Directors to consider factors other than the
monetary interests of stockholders relating to certain proposed business
transactions; (iv) the requirement that an affirmative vote of at least 80% of
the voting power of the Company is required to amend certain provisions of the
Certificate of Incorporation; and (v) an advance notice procedure for
stockholders to make nominations for candidates for election as directors.
The Company has included in its Certificate of Incorporation and in its
Bylaws provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the General Corporation Law of Delaware and (ii) indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Company's Bylaws, Certificate of Incorporation or the
Underwriting Agreement, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. will be the Transfer Agent and
Registrar for the Common Stock.
43
<PAGE> 47
REGISTRATION RIGHTS
Common Stock
BFI has granted registration rights to holders of BFI Common Stock issued
upon the November 1995 conversion of its Series A Preferred Stock (the
"Registrable Securities") pursuant to an agreement dated June 1, 1994. The
Registrable Securities are entitled to the following rights for a period of time
ending on the three-year anniversary of this Offering: (i) unlimited "piggyback"
registration rights, subject to underwriter cutbacks, with respect to any
registration of equity securities (excluding a registration on a Registration
Statement on Form S-8 or Form S-4 or comparable registration statement, or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered);
(ii) the right of a majority of the holders thereof to demand a registration,
provided that the shares to be registered have an anticipated aggregate offering
price of at least $3,000,000; and (iii) the right of a holder thereof to demand
a registration on Form S-3, provided that Form S-3 is available, the shares to
be registered have an authorized aggregate offering price of at least
$1,000,000, and two registrations on Form S-3 have not already been effected for
the holders of the Registrable Securities. Prior to the consummation of this
Offering, BFI intends to ask the holders of the Registrable Securities to
terminate this agreement and to enter into the Coordinated Rights Agreement
described below.
The Company has assumed the obligations of BFI pursuant to a coordinated
registration rights agreement (the "Coordinated Rights Agreement") to holders of
BFI Common Stock issued in connection with, or issuable upon conversion of all
or part of, the Bridge Notes and the November 1996 Notes. See "Business Recent
Financings." The Coordinated Rights Agreement provides for a maximum of two
registrations on Form S-3 pursuant to a demand by the holders of 40% of all of
the shares registrable under the agreement to register all or part of their
shares, or a demand by one or more holders to register shares with a reasonably
anticipated aggregate market value of at least $1,000,000, provided that Form
S-3 is available, during the 24-month period commencing one year after the
completion of this Offering.
In connection with the VPI Acquisition, the Company has entered into a
registration rights agreement covering the shares of Common Stock issued as
consideration in the VPI Acquisition. The agreement provides for one demand
registration on Form S-3 (provided Form S-3 is available) for the period of time
ending on the 36-month anniversary of the Effective Date, subject to an
agreement not to sell or otherwise dispose of the shares for the period
commencing on the date of such agreement and ending 18 months after the
Effective Date with respect to 50% of the shares and 24 months after the
Effective Date with respect to all such shares. Additionally, the Company has
agreed to register 150,000 shares of Common Stock issued as consideration for
VPI, one year after the completion of this Offering, subject to satisfaction by
VPI of certain 1997 performance criteria.
Warrants
The shares of Common Stock issuable upon exercise of the Bridge Warrants
and the November Warrants are entitled to the rights granted in the Coordinated
Rights Agreement.
A majority of the holders of the Underwriter Warrants or the underlying
shares of Common Stock issuable upon exercise of the Underwriter Warrants (the
"Warrant Stock"), or both, may at any time within the period commencing 12
months after the Effective Date and ending four years thereafter, demand one
time only that the Company register the Underwriter Warrants or Warrant Stock
and bear the costs of registration, except for the Underwriters' counsel fees
and sales commissions. Additionally, if the Company, at any time during the
period commencing 12 months after the Effective Date and ending four years after
the Effective Date, registers any primary or secondary offering on a
registration statement to be filed with the Securities and Exchange Commission,
the Underwriters will have the right to register all but not less than 20% of
the Warrant Stock (subject to underwriter cutback), without cost to the
Underwriters except for its counsel fees and commissions.
44
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
The market price for the Common Stock could be adversely affected by the
availability of shares of Common Stock for sale or actual sales of substantial
amounts of Common Stock by existing or future stockholders. Upon completion of
this Offering, the 2,300,000 shares of Common Stock sold in this Offering will
be freely tradeable without restriction or further registration under the
Securities Act, by persons other than "affiliates" of the Company. The remaining
1,854,425 shares of Common Stock will be "restricted securities" within the
meaning of Rule 144 under the Securities Act ("Rule 144") and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption contained in Rule 144. The
holders of 520,087 shares of Common Stock possess registration rights with
respect to such shares. The Company's Chairman of the Board and Chief Executive
Officer and affiliates and other key officers and directors have agreed that,
with respect to 50% of the shares of Common Stock held by them, for a period of
18 months from the date of this Prospectus, and with respect to the remaining
50% of the shares of Common Stock held by them for a period of 24 months from
the date of this Prospectus, they will not publicly offer, sell, contract to
sell or otherwise publicly dispose of any such shares directly or indirectly
owned by them without the prior written consent of Chatfield Dean & Co., one of
the Representatives of the Underwriters. Following the expiration of such
lock-up agreements, 1,334,338 shares of Common Stock will become available for
resale in the public market, subject to the volume limitations, holding periods
and other restrictions of Rule 144. Additionally, as of September 30, 1996,
976,500 shares of Common Stock have been reserved for issuance under the Plan,
634,375 shares of which were subject to outstanding options as of that date. See
"Management." The Company has also has agreed, in connection with this Offering,
agreed to grant warrants to the Underwriters to purchase 230,000 shares of
Common Stock at an exercise price equal to 120% of the Offering Price, together
with certain registration rights relating to such shares. See "Underwriting" and
"Description of Capital Stock."
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Chatfield
Dean & Co. and (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling Stockholder
an aggregate of 2,300,000 shares of Common Stock (with the number of shares of
Common Stock that each Underwriter has agreed to purchase set forth opposite its
name) at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of such shares
if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Chatfield Dean & Co...............................................................
---------
Total................................................................... 2,300,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters initially propose to offer Common Stock to the public on
the terms set forth on the cover page of this
45
<PAGE> 49
Prospectus. The Underwriters may allow to selected dealers a concession of not
more than $ per share; and the Underwriters may allow, and such dealers
may reallow, a concession of not more than $ per share to certain other
dealers. After this Offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part. The Representatives have advised
the Company that they intend to make a market in the Common Stock after the
consummation of this Offering.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase a maximum of
345,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial 2,300,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with this Offering.
The Company's Chairman of the Board and Chief Executive Officer and
affiliates and other key officers and directors have agreed, subject to certain
limited exceptions, not to publicly sell or offer to sell or otherwise publicly
dispose of any shares of Common Stock currently held by them, any right to
acquire any shares of Common Stock or any securities exercisable for or
convertible into any shares of Common Stock for a period of 18 months after the
date of this Prospectus without the prior written consent of Chatfield Dean &
Co. Chatfield Dean & Co. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Company has agreed to sell to the Underwriters for a purchase price of
$100.00, warrants to purchase ten percent of the Shares at 120% of the Offering
Price. The total number of shares of Common Stock that may be purchased on the
exercise of the Underwriter Warrants will be equal to 10% of the number of
shares sold in this Offering, excluding Shares sold as part of the
over-allotment option. The Underwriter's Warrants will be nonexercisable and
nontransferable for a period of 12 months following the Effective Date and will
thereafter be exercisable during the next succeeding four-year period.
The Company has a financial consulting agreement with Chatfield Dean
pursuant to which Chatfield Dean will provide the Company with services,
including advising the Company in connection with possible acquisitions,
shareholder relations (including the preparation of the annual report),
long-term financial planning, corporate reorganization, expansion and capital
structure and other financial assistance. The term of the consulting agreement
is one year commencing at the completion of this Offering. The agreement states
that Chatfield Dean will be paid a consulting fee of $65,000, $25,000 of which
was paid upon execution of the agreement. The remaining $40,000 will be paid by
the Company upon consummation of this Offering. See "Use of Proceeds."
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the Offering Price will be determined through negotiations
among the Company and the Representatives. Among the factors considered in such
negotiations will be the history of, and prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, the
Company's past and present operations and financial performance, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the securities markets at the time of this Offering and the
market prices of publicly traded common stocks of comparable companies in recent
periods.
46
<PAGE> 50
LEGAL MATTERS
The due authorization, valid issuance and non-assessability of the Shares
offered hereby will be passed upon for the Company by the law firm of Davis,
Graham & Stubbs LLP, Denver, Colorado. Certain legal matters will be passed on
for the Underwriters by Dorsey & Whitney LLP, Denver, Colorado.
EXPERTS
The financial statements of NHancement Technologies Inc., formerly BFI, and
VPI included in this Prospectus and in the Registration Statement have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the periods set forth in their reports appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of said firm as experts in auditing and
accounting. The report of NHancement Technologies Inc. contains an explanatory
paragraph regarding the Company's ability to continue as a going concern. The
financial statements of CCA included in this Prospectus and in the Registration
Statement have been audited by Meredith, Cardozo & Lanz LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 (the "Registration
Statement") pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, with respect to the Shares being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Statements
contained in this Prospectus as to the contents of any contract or any other
document are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified by such reference. The
Registration Statement may be inspected and copied at the offices of the
Commission at Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C.
20549; and its regional offices located at Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661, and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material, or any
portion thereof, may be obtained from the Public Reference Section of the
Commission, Judiciary Place, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains information
regarding registrants' electronic filings with the Commission. The address of
the Commission's Web site is http://www.sec.gov.
The Company does not presently file reports and other financial information
with the Commission. However, following completion of this Offering, the Company
expects to make such filings and intends to furnish its stockholders with annual
reports containing audited financial statements examined and reported upon by
its independent certified public accountants and such interim reports, in each
case, as it may determine to furnish or as may be required by law.
47
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA:
NHANCEMENT TECHNOLOGIES INC. (FORMERLY BIOFACTORS, INC.), VOICE PLUS, INC. AND C.C.
& ASSOCIATES:
Unaudited Pro Forma Combined Balance Sheets as of June 30, 1996................. F-3.
Unaudited Pro Forma Combined Statement of Operations for the six months ended
June 30, 1996.................................................................. F-4.
Unaudited Pro Forma Combined Statement of Operations for the year ended December
31, 1995....................................................................... F-5.
Unaudited Pro Forma Combined Statement of Operations for the year ended December
31, 1994....................................................................... F-6.
Notes to Unaudited Pro Forma Combined Financial Statements...................... F-7.
HISTORICAL:
NHANCEMENT TECHNOLOGIES INC. (FORMERLY BIOFACTORS, INC.):
Report of BDO Seidman, LLP...................................................... F-10.
Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)............ F-11.
Statements of Operations for the years ended December 31, 1994 and December 31,
1995, for the period from inception (January 5, 1988) to December 31, 1995, and
for the six months ended June 30, 1995 and June 30, 1996 (unaudited) and for
the period from inception to June 30, 1996 (unaudited)......................... F-12.
Statements of Stockholders' Deficit for the period from inception (January 5,
1988) to December 31, 1995, and for the six months ended June 30, 1996
(unaudited).................................................................... F-13.
Statements of Cash Flows for the years ended December 31, 1994 and December 31,
1995, for the period from inception (January 5, 1988) to December 31, 1995, and
for the six months ended June 30, 1995 and June 30, 1996 (unaudited) and for
the period from inception to June 30, 1996 (unaudited)......................... F-14.
Summary of Accounting Policies.................................................. F-16.
Notes to Financial Statements................................................... F-19.
VOICE PLUS, INC.:
Report of BDO Seidman, LLP...................................................... F-27.
Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)............ F-28.
Statements of Operations for the years ended December 31, 1994 and December 31,
1995 and the six months ended June 30, 1995 and June 30, 1996 (unaudited)...... F-29.
Statements of Stockholders' Equity for the years ended December 31, 1994 and
December 31, 1995 and the six months ended June 30, 1996 (unaudited)........... F-30.
Statements of Cash Flows for the years ended December 31, 1994 and December 31,
1995 and the six months ended June 30, 1995 and June 30, 1996 (unaudited)...... F-31.
Summary of Accounting Policies.................................................. F-32.
Notes to Financial Statements................................................... F-34.
C.C. & ASSOCIATES:
Report of Meredith, Cardozo and Lanz LLP........................................ F-38.
Balance Sheets as of September 30, 1995 and June 30, 1996 (unaudited)........... F-39.
Statements of Operations for the years ended September 30, 1994 and September
30, 1995 and the nine months ended June 30, 1995 and June 30, 1996
(unaudited).................................................................... F-40.
Statements of Stockholders' Equity for the years ended September 30, 1994 and
September 30, 1995 and the nine months ended June 30, 1996 (unaudited)......... F-41.
Statements of Cash Flows for the years ended September 30, 1994 and September
30, 1995 and the nine months ended June 30, 1995 and June 30, 1996
(unaudited).................................................................... F-42.
Summary of Accounting Policies.................................................. F-43.
Notes to Financial Statements................................................... F-44.
</TABLE>
F-1
<PAGE> 52
NHANCEMENT TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements and
accompanying footnotes give effect (i) to the acquisition, simultaneous with the
consummation of this Offering, of VPI by the Company, successor to BFI,
accounted for as a purchase with the assets acquired and the liabilities assumed
recorded at estimated fair values and, (ii) in a separate transaction expected
to occur sometime after this Offering, the CCA Merger, accounted for as a
pooling of interest.
The accompanying pro forma combined financial statements as of June 30,
1996 and for the six months ended June 30, 1996 and for the year ended December
31,1995 illustrate the effect on the Company's financial position and results of
operations of the VPI Acquisition and CCA Merger and, separately, the receipt
and application of the net proceeds of this Offering. The accompanying unaudited
pro forma balance sheet gives effect to the VPI Acquisition and the CCA Merger,
as if they occurred as of June 30, 1996, and is based on the historical balance
sheets of BFI, VPI and CCA as of that date included elsewhere herein. The pro
forma combined statements of operations for the six months ended June 30, 1996
and for the year ended December 31, 1995 are based on the historical statements
of operations for those periods of BFI, VPI and CCA presented elsewhere in this
Prospectus, except for CCA, whose 1995 results of operations are based on its
historical year end of September 30, 1995 and whose historical results of
operations for the six months ended June 30, 1996 are not presented elsewhere
herein. These pro forma combined statements of operations assume the VPI
Acquisition and the CCA Merger took place on January 1, 1995.
The pro forma combined statement of operations for the year ended December
31, 1994 illustrate the effect of the CCA Merger on the results of operations of
the Company as if the CCA Merger occurred January 1, 1994.
The pro forma combined financial statements are not intended to be
indicative of what the financial position or results of operations would have
been had such transactions occurred at the beginning of the periods presented or
to project the Company's results of operations or financial position in or for
any future period. The pro forma financial statements are based on management's
current estimate of the allocation of the purchase price for VPI. Actual
allocations may differ.
The accompanying unaudited pro forma combined financial statements should
be read in connection with the historical financial statements of BFI, VPI and
CCA included elsewhere in this Prospectus.
F-2
<PAGE> 53
NHANCEMENT TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------------------
------------------------- MERGER COMBINED FINANCING COMBINED
BFI VPI CCA ADJUSTMENTS COMPANIES ADJUSTMENTS AS ADJUSTED
------- ------ ---- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 225 $1,064 $100 (1,000)(a) $ 389 $ 450(f) $ 4,555
5,770(g)
(1,487)(h)
(567)(i)
Accounts receivable, net............. 367 2,189 113 2,670 2,670
Inventories, net..................... 14 853 -- $ 1,000(a) 1,867 1,866
Prepaid expenses and other
current assets.................... 91 43 4 138 138
------- ------ ---- ------- -------
Total current assets......... 697 4,149 217 5,064 9,229
Property and equipment, net............ 45 254 42 500(a) 841 841
Excess of cost over net assets
acquired............................. -- -- -- 5,157(a) 5,157 5,157
Other assets........................... -- 22 -- 22 22
------- ------ ---- ------- -------
TOTAL ASSETS........................... 742 4,425 259 11,084 15,249
======= ====== ==== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt...................... 2,133 -- 20 2,153 500(f) 35
(2,238)(h)
(380)(i)
Accounts payable..................... 328 1,591 18 1,938 1,938
(167)(h)
Accrued expenses..................... 823 436 29 1,288 (187)(i) 935
Deferred revenues.................... 386 1,863 -- 2,250 2,250
Income Taxes payable................. -- -- 37 37 37
Deferred income taxes................ -- 12 16 28 28
Current portion of obligations under
capital leases.................... 4 -- -- 4 4
------- ------ ---- ------- -------
Total current liabilities.... 3,674 3,902 120 7,697 5,226
Long-term debt......................... -- -- -- 1,500(a) 1,500 1,500
Obligations under capital leases....... 2 -- -- 2 2
STOCKHOLDERS' EQUITY
Common Stock......................... 6 22 3 (6)(a) 25 17(g) 44
2(h)
Additional paid-in capital........... 5,314 -- -- 4,664(a) 9,978 (50)(f) 16,595
5,753(g)
914(h)
Retained (deficit) earnings.......... (8,254) 501 136 (501)(a) (8,118) (8,118)
Total stockholders' equity
(deficit).................. (2,934) 523 139 1,885 8,521
------- ------ ---- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................... $ 742 $4,425 $259 $11,084 $15,249
======= ====== ==== ======== =======
</TABLE>
F-3
<PAGE> 54
NHANCEMENT TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------------------
------------------------- MERGER COMBINED FINANCING COMBINED
BFI VPI CCA ADJUSTMENTS COMPANIES ADJUSTMENTS AS ADJUSTED
------- ------ ---- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $ 392 $3,900 $394 $ 4,686 $ 4,686
Cost of goods sold..................... 72 2,444 255 2,771 2,771
------- ------ ---- ------- ------
Gross margin................. 320 1,456 139 1,915 1,915
Research and development, selling and
administrative expenses.............. 1,027 1,154 135 258 (b) 2,664 25 (j) 2,689
------- ------ ---- ------- ------
55 (c)
36 (d)
Income (loss) from operations.......... (707) 302 4 (749) (774)
Interest expense, net and other
expenses (income).................... 365 (11) -- 354 (356)(k) (2)
------- ------ ---- ------- ------
Income loss before provision for
(benefit for) income taxes........... (1,072) 313 4 (1,103) (772)
Provision for income taxes............. 0 84 4 (88)(e) -- --
------- ------ ---- ------- ------
Net income (loss)...................... $(1,072) $ 229 $ -- $(1,103) $ (772)
======= ====== ==== ======= ======
Net income (loss) applicable to common
stockholders......................... $(1,103) $ (772)
Weighted average shares outstanding.... 2,314,615 (l) 3,057,365 (l)
Income (loss) per share applicable to
common stockholders.................. $ (0.48) $(0.25)
</TABLE>
F-4
<PAGE> 55
NHANCEMENT TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------------------
--------------------------- MERGER COMBINED FINANCING COMBINED
BFI VPI CCA ADJUSTMENTS COMPANIES ADJUSTMENTS AS ADJUSTED
------- ------ ------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 451 $7,259 $1,076 $ 8,786 $ 8,786
Cost of goods sold................... 187 4,190 564 4,941 4,941
------- ------ ------ ---------- ----------
Gross margin............... 264 3,069 512 3,845 3,845
Research and development, selling and
administrative expenses............ 884 2,783 389 516(a) 4,371 50(d) 4,421
------- ------ ------ ---------- ----------
(201)(b)
Income (loss) from operations........ (620) 286 123 (526) (576)
Interest expense, net and other
expenses (income).................. 519 (30) (1) 488 (494)(e) (6)
------- ------ ------ ----------
Income (loss) before provision for
(benefit for) income taxes......... (1,139) 316 124 (1,014) (570)
Provision for income taxes........... -- 145 47 (192)(c) -- --
------- ------ ------ ---------- ----------
Net income (loss).................... $(1,139) $ 172 $ 77 $ (1,014) $ (570)
======= ====== ====== ========== ==========
Net loss applicable to common
stockholders....................... $ (1,014) $ (570)
Weighted average shares
outstanding........................ 2,314,615(f) 2,754,640(f)
Loss per share applicable to common
stockholders....................... $ (0.44) $ (0.21)
</TABLE>
F-5
<PAGE> 56
NHANCEMENT TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------- PROFORMA
BFI CCA(1) COMBINED
------- ---- -------
<S> <C> <C> <C>
Net sales........................................................ $ 374 $376 $ 749
Cost of goods sold............................................... 469 208 677
------- ---- -------
--- --- ---
Gross margin (loss)............................................ (95) 167 72
Research and development, selling and administrative expenses.... 1,802 217 2,019
------- ---- -------
--- --- ---
Loss from operations............................................. (1,897) (50) (1,947)
Interest expense, net and other expenses (income)................ 86 (3) 83
------- ---- -------
--- --- ---
Loss before benefit for income taxes............................. (1,983) (47) (2,030)
Benefit for income taxes......................................... -- (6) (6)
------- ---- -------
--- --- ---
Net loss......................................................... $(1,983) $(41) $(2,024)
======= ==== =======
</TABLE>
- ---------------
(1) CCA's fiscal year end is September 30th.
F-6
<PAGE> 57
NHANCEMENT TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
1. UNAUDITED PRO FORMA MERGER ADJUSTMENTS
(a) Adjustments (i) to record the dividend payable to the shareholder of
Voice Plus, Inc. ("VPI") from the available cash of VPI, and (ii) to reflect the
purchase price paid for VPI as follows:
<TABLE>
<CAPTION>
VPI(1)
------------
<S> <C>
CONSIDERATION
Common Stock -- selling shares(2).................................... $ 2,400,000
Long-term notes...................................................... $ 1,500,000
Common Stock(2)...................................................... $ 2,280,000
-----------
Total consideration.......................................... $ 6,180,000
-----------
CALCULATION OF GOODWILL:
Net assets acquired(3)............................................... $ 2,023,300
Dividend prior to Merger............................................. $ (1,000,000)
-----------
Subtotal............................................................. $ 1,023,300
Excess of cost over net assets acquired.............................. $ 5,156,700
===========
</TABLE>
- ---------------
(1) accounted for as a purchase with the assets acquired and liabilities
assumed recorded at estimated fair values.
(2) 712,500 shares subject to lock-up agreements and 600,000 shares to be
sold in this Offering by VPI shareholder.
(3) net assets of $523,300 and an increase of estimated fair value of (i)
inventories of $1,000,000 and (ii) fixed assets of $500,000.
And (iii) subsequent to this Offering, to record the statutory merger of C.C. &
Associates ("CCA") as a pooling-of-interests for 300,000 shares of NHancement
Technologies Inc. Common Stock.
(b) Adjustment to reflect the recording of estimated goodwill amortization
resulting from the acquisition of VPI for the first six months of 1996, based on
a ten-year amortization period.
(c) Adjustment to reflect the increase in the corporate overhead of the
newly formed public company resulting from the renegotiation of the employment
agreement of the key management employees of VPI and CCA.
(d) Adjustment to reflect the depreciation expense for the first six months
of 1996 resulting from the recording of certain fixed assets of VPI at estimated
fair values.
(e) Adjustment to record the income tax effect of the pro forma operating
adjustments and the pro forma tax provisions for VPI, which was organized as a
Subchapter S corporation effective January 1, 1996 and CCA, a C corporation. The
provision for income taxes on the unaudited combined financial statements has
been eliminated due to application of the losses of BFI on a consolidated
reporting basis.
2. UNAUDITED PRO FORMA OFFERING AND USE OF PROCEEDS ADJUSTMENTS
(f) Adjustment to record the proceeds and costs associated with a bridge
debt financing closed by the Company subsequent to the date of the pro forma
financial statements presented herein.
(g) Adjustment to reflect the sale of 2,300,000 shares of Common Stock to
the public, of which 600,000 shares are selling shares with proceeds going to
the shareholder of VPI, at an assumed Offering Price of $4.00 per share, net of
expenses and underwriting discount.
F-7
<PAGE> 58
NHANCEMENT TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Adjustment to reflect the (i) repayment from the proceeds of this
Offering of outstanding notes totaling $1.5 million, and (ii) the conversion of
outstanding notes of $750,000 and accrued interest of $166,500 into 229,125
shares of Common Stock at an assumed Offering Price of $4.00 per share.
(i) Adjustment to reflect repayment of unsecured notes and accrued interest
thereon to certain shareholders.
(j) Adjustment to reflect the effect of the recording Officers' and
Directors' insurance expense for the first six months of 1996.
(k) Adjustment to reflect the reduction of interest expenses resulting from
the retirement of debt through the application of a portion of the net proceeds
of this Offering.
(l) The weighted average shares outstanding is based on the estimated
number of shares of common stock and common stock equivalents of the BFI, VPI
and CCA outstanding during the period, calculated as follows:
<TABLE>
<S> <C> <C>
Shares outstanding at December 31, 1995....................... 93,225
Cheap stock:
Shares issued to note holders and management in 1996........ 519,575
Shares of common stock equivalents related to stock
options.................................................. 534,375
Less shares which could have been repurchased from
exercise................................................. (445,060) 608,890
--------
Shares issued to VPI, including 600,000 selling shares........ 1,312,500
Shares issued to CCA.......................................... 300,000
---------
Total for combined companies........................ 2,314,615
Shares issued in the offering to effect conversion and
repayment of indebtedness................................... 742,750
---------
Total for combined companies, as adjusted for debt conversion
and repayment from the proceeds of this Offering............ 3,057,365
=========
</TABLE>
F-8
<PAGE> 59
NHANCEMENT TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. UNAUDITED PRO FORMA MERGER ADJUSTMENTS
(a) Adjustment to reflect recording of estimated goodwill amortization for
1995 resulting from the acquisition of VPI, based on a ten-year amortization
period.
(b) Adjustment to reflect the decrease in the corporate overhead of the
newly formed public company resulting from the renegotiation of the employment
agreements of the key management employees of VPI and CCA. Adjustment is based
on signed employment agreements that will become effective upon completion of
this Offering.
(c) Adjustment to record the income tax effect of the pro forma operating
adjustments and the pro forma tax provisions for VPI and CCA. The provision for
income taxes on the unaudited combined financial statements has been eliminated
due to application of the losses of BFI on a consolidated reporting basis.
2. UNAUDITED PRO FORMA OFFERING AND USE OF PROCEEDS ADJUSTMENTS
(d) Adjustment to reflect the effect of the recording Officers' and
Directors' insurance expense for 1995.
(e) Adjustment to reflect the reduction of interest expense resulting from
the retirement of debt through the application of a portion of the net proceeds
of this Offering.
(f) The weighted average shares outstanding is based on the estimated
number of shares of common stock and common stock equivalents of the BFI, VPI
and CCA outstanding during the period, calculated as follows:
<TABLE>
<S> <C> <C>
Shares outstanding prior to this Offering................... 93,225
Cheap stock:
Shares issued to note holders and management in 1996...... 519,575
Shares of common stock equivalents related to stock
options................................................ 534,375
Less shares which could have been repurchased from
exercise............................................... (445,060) 608,890
---------
Shares issued to VPI, including 600,000 selling shares...... 1,312,500
Shares issued to CCA........................................ 300,000
---------
Total for combined companies...................... 2,314,615
Shares issued in the offering to effect conversion and
repayment of indebtedness................................. 440,025
---------
Total for combined companies, as adjusted for debt
conversion and repayment from the proceeds of this
Offering.................................................. 2,754,640
=========
</TABLE>
F-9
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and the Stockholders of
NHancement Technologies Inc.
We have audited the accompanying balance sheet of NHancement Technologies
Inc. (formerly BioFactors, Inc., a development stage company) as of December 31,
1995 and the related statements of operations, stockholders' deficit, and cash
flows for the years ended December 31, 1994, 1995 and for the period from
inception (January 5, 1988) to December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NHancement Technologies Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the years ended December 31, 1994, 1995 and for the period from inception
(January 5, 1988) to December 31, 1995 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company is a development stage company with significant losses
to date and significant stockholders' deficit as of December 31, 1995. Further,
the Company has a significant amount of notes and loans, which per their current
terms, are due to be repaid in early 1997. These items and the additional
factors discussed in Note 1 to the financial statements raise a substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans with regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
BDO Seidman, LLP
San Francisco, California
April 19, 1996, except for Notes 10 and 11
which are as of November 5, 1996
F-10
<PAGE> 61
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current
Cash (Note 8)................................................... $ 170,500 $ 225,300
Accounts receivable, net of allowance for doubtful accounts of
$10,000 and $15,000.......................................... 15,000 17,000
Note receivable, related party (Note 2)......................... 700,000 350,000
Inventory....................................................... 13,900 13,900
Prepaid expenses and other...................................... 31,600 29,300
Prepaid debt issuance costs..................................... -- 61,600
----------- -----------
Total current assets.................................... 931,000 697,100
----------- -----------
Furniture and equipment........................................... 124,200 128,700
Less accumulated depreciation..................................... 65,600 83,300
----------- -----------
Furniture and equipment, net...................................... 58,600 45,400
----------- -----------
$ 989,600 $ 742,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current
Accounts payable................................................ $ 344,900 $ 327,700
Accrued liabilities............................................. 113,700 117,100
Accrued legal fees.............................................. 34,000 144,500
Payroll related liabilities..................................... 87,100 186,000
Deferred compensation to officers and stockholders (Note 7)..... 110,000 --
Deferred revenue (Note 2)....................................... 724,700 386,600
Accrued interest................................................ 267,000 375,900
Current portion of long-term debt (Notes 3 and 7)............... 742,400 2,136,800
----------- -----------
Total current liabilities......................................... 2,423,800 3,674,600
Long-term debt, net of current portion (Notes 3 and 7)............ 774,200 1,500
----------- -----------
Total liabilities................................................. 3,198,000 3,676,100
----------- -----------
Commitments and contingencies (Note 6)
Stockholders' deficit (Notes 4 and 5)
Preferred stock, $0.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding............................. -- --
Common stock, $0.01 par value, 10,000,000 shares authorized,
93,200 and 612,900 shares issued and outstanding at December
31, 1995 and June 30, 1996................................... 1,000 6,100
Additional paid-in capital...................................... 4,972,600 5,313,900
Deficit accumulated during development stage.................... (7,182,000) (8,253,600)
----------- -----------
Total stockholders' deficit....................................... (2,208,400) (2,933,600)
----------- -----------
$ 989,600 $ 742,500
=========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-11
<PAGE> 62
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION INCEPTION
(JANUARY 5, SIX MONTHS (JANUARY 5,
YEARS ENDED DECEMBER 31, 1988) TO ENDED JUNE 30, 1988) TO
------------------------- DECEMBER 31, ------------------------- JUNE 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Sales, including $300,000 and
$350,000 from the sale of
sublicense in 1995 and 1996
(Notes 2 and 8)............ $ 373,700 $ 450,700 $ 1,471,600 $ 125,900 $ 391,900 $ 1,863,500
Cost of sales................ 469,100 186,400 1,571,200 118,300 71,800 1,643,000
----------- ----------- ----------- ----------- ----------- -----------
Gross profit (loss).......... (95,400) 264,300 (99,600) 7,600 320,100 220,500
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses
Research and development... 326,600 214,500 2,157,200 156,700 47,800 2,205,000
Selling, marketing and
administrative (Notes 3
and 7).................. 1,475,300 669,500 4,326,500 609,900 979,100 5,305,600
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses..... 1,801,900 884,000 6,483,700 766,600 1,026,900 7,510,600
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations......... (1,897,300) (619,700) (6,583,300) (759,000) (706,800) (7,290,100)
----------- ----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest income............ -- -- 22,800 -- -- 22,800
Interest expense........... (85,400) (519,200) (704,900) (320,400) (362,800) (1,067,700)
Other...................... -- -- 83,400 -- (2,000) 81,400
----------- ----------- ----------- ----------- ----------- -----------
Total other income
(expense)........ (85,400) (519,200) (598,700) (320,400) (364,800) (963,500)
----------- ----------- ----------- ----------- ----------- -----------
Net loss........... $(1,982,700) $(1,138,900) $(7,182,000) $(1,079,400) $(1,071,600) $(8,253,600)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-12
<PAGE> 63
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CONVERTIBLE COMMON STOCK
PREFERRED STOCK PAR VALUE ADDITIONAL
--------------------- ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ----------- ------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, inception (January 5, 1988).......... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock for cash ($6.40 and
$188.61 per share) in January and June 1989,
respectively................................ -- -- 100 -- 5,000 -- 5,000
Issuance of PFI Series A Preferred stock for
cash ($188.61 per share) in June 1989....... 2,500 475,100 -- -- -- -- 475,100
Issuance of PFI Series A Preferred stock
($188.61 per share) for cash and conversion
of $280,000 of debt in May 1990............. 2,800 520,900 -- -- -- -- 520,900
Issuance of PFI Series B Preferred stock for
cash ($282.92 per share) in September
1990........................................ 3,900 1,100,000 -- -- -- -- 1,100,000
Issuance of PFI Series C Preferred stock
($377.19 per share) for cash and conversion
of $339,000 in debt in December 1991........ 1,600 600,000 -- -- -- -- 600,000
Net loss (inception to December 31, 1991)..... -- -- -- -- -- (2,923,300) (2,923,300)
------- ----------- ------- ------ ----------- ----------- -----------
Balance, December 31, 1991.................... 10,800 2,696,000 100 -- 5,000 (2,923,300) (222,300)
Net loss...................................... -- -- -- -- -- (393,400) (393,400)
------- ----------- ------- ------ ----------- ----------- -----------
Balance, December 31, 1992.................... 10,800 2,696,000 100 -- 5,000 (3,316,700) (615,700)
Issuance of PFI Series D Preferred stock for
cash ($25.92 per share) in October 1993, net
of offering costs of $25,000................ 15,400 375,000 -- -- -- -- 375,000
Net loss...................................... -- -- -- -- -- (743,700) (743,700)
------- ----------- ------- ------ ----------- ----------- -----------
Balance, December 31, 1993.................... 26,200 3,071,000 100 -- 5,000 (4,060,400) (984,400)
Issuance of PFI Series D Preferred stock in
conversion of debt ($25.92 per share) in
March 1994.................................. 27,500 712,800 -- -- -- -- 712,800
Issuance of PFI Series D Preferred stock for
cash ($25.92 per share) in April 1994....... 400 12,500 -- -- -- -- 12,500
Issuance of PFI Common stock upon conversion
of debt and exercise of options............. -- -- 2,300 -- 58,700 -- 58,700
Issuance of BioFactors Series A Preferred
stock upon conversion of PFI Common stock
($25.92 per share) in May 1994.............. 2,300 58,700 (2,300) -- (58,700) -- --
Issuance of BioFactors Series A Preferred
stock for cash ($96.00 per share) in August
1994, net of offering costs of $97,500...... 9,800 836,300 -- -- -- -- 836,300
Issuance of warrants with notes payable in
November and December 1994.................. -- -- -- -- 158,000 -- 158,000
Compensation related to grant of stock options
in November 1994............................ -- -- -- -- 7,200 -- 7,200
Net loss...................................... -- -- -- -- -- (1,982,700) (1,982,700)
------- ----------- ------- ------ ----------- ----------- -----------
Balance, December 31, 1994.................... 66,200 4,691,300 100 -- 170,200 (6,043,100) (1,181,600)
Conversion of Series A Preferred to Common.... (66,200) (4,691,300) 66,200 700 4,690,600 -- --
Issuance of Common stock in February 1995..... -- -- 300 -- -- -- --
Issuance of Common stock upon exercise of
options in March 1995....................... -- -- 400 -- 2,600 -- 2,600
Issuance of warrants with notes payable in
January through June 1995................... -- -- -- -- 92,000 -- 92,000
Issuance of Common stock with notes payable in
December 1995............................... -- -- 26,200 300 17,200 -- 17,500
Net loss...................................... -- -- -- -- -- (1,138,900) (1,138,900)
------- ----------- ------- ------ ----------- ----------- -----------
Balance, December 31, 1995.................... -- -- 93,200 1,000 4,972,600 (7,182,000) (2,208,400)
Issuance of Common stock with notes payable in
January through June 1996 (unaudited)....... -- -- 303,400 3,000 199,300 -- 202,300
Issuance of Common stock in lieu of salaries
and outside service fees in June 1996
(unaudited)................................. -- -- 216,300 2,100 142,000 -- 144,100
Net loss (unaudited).......................... -- -- -- -- -- (1,071,600) (1,071,600)
------- ----------- ------- ------ ----------- ----------- -----------
Balance, June 30, 1996 (unaudited)............ -- $ -- 612,900 $6,100 $5,313,900 $(8,253,600) $(2,933,600)
======= =========== ======= ====== =========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-13
<PAGE> 64
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION INCEPTION
(JANUARY 5, SIX MONTHS (JANUARY 5,
YEARS ENDED DECEMBER 31, 1988) TO ENDED JUNE 30, 1988) TO
-------------------------- DECEMBER 31, -------------------------- JUNE 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss........................ $(1,982,700) $(1,138,900) $(7,182,000) $(1,079,400) $(1,071,600) $(8,253,600)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation.................... 21,700 35,200 99,500 16,700 17,800 117,300
Amortization of deferred
revenue....................... -- 24,700 24,700 21,400 (338,100) (313,400)
Amortization of discount and
debt issue costs on notes
payable....................... 26,300 241,200 267,500 223,700 202,300 469,800
Compensation related to grant of
stock options and common
stock......................... 7,300 -- 7,300 2,500 34,100 41,400
Changes in assets and
liabilities:
Accounts receivable........... (45,700) 35,700 (15,000) 22,400 (2,100) (17,100)
Note receivable, related
party....................... -- -- -- -- 350,000 350,000
Inventory..................... (5,100) (2,900) (14,000) (9,800) -- (14,000)
Prepaid expenses and other.... (15,300) (7,600) (31,600) 11,400 2,300 (29,300)
Accounts payable and other
current liabilities......... 443,800 294,100 1,031,200 361,700 304,500 1,335,700
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities...................... (1,549,700) (518,500) (5,812,400) (429,400) (500,800) (6,313,200)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from investing
activities
Purchases of furniture and
equipment..................... (55,600) (27,700) (165,300) (13,000) (4,500) (169,800)
Proceeds from the sale of
furniture and equipment....... -- -- 14,200 -- -- 14,200
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities...................... (55,600) (27,700) (151,100) (13,000) (4,500) (155,600)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities
Bank overdraft.................. -- -- -- 6,000 -- --
Prepaid debt issuance costs..... -- -- -- -- (61,600) (61,600)
Proceeds from sale of preferred
stock......................... 946,300 -- 3,423,300 -- -- 3,423,300
Preferred and common stock
issuance costs................ (97,500) -- (122,500) -- -- (122,500)
Proceeds from sale of common
stock......................... -- 2,500 7,500 -- -- 7,500
Proceeds from long-term
convertible debt.............. 375,300 -- 1,399,300 -- -- 1,399,300
Proceeds from bank line of
credit........................ -- -- 45,000 -- -- 45,000
Principal payments on bank line
of credit..................... -- -- (45,000) -- -- (45,000)
Proceeds from long-term debt.... 429,600 623,500 1,615,000 315,000 665,000 2,280,000
Repayment of long-term debt..... (40,000) (29,300) (170,900) (3,400) (43,300) (214,200)
Other........................... (12,900) (4,800) (17,700) -- -- (17,700)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities...................... 1,600,800 591,900 6,134,000 317,600 560,100 6,694,100
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash... (4,500) 45,700 170,500 (124,800) 54,800 225,300
Cash, beginning of period......... 129,300 124,800 -- 124,800 170,500 --
----------- ----------- ----------- ----------- ----------- -----------
Cash, end of period............... $ 124,800 $ 170,500 $ 170,500 $ -- $ 225,300 $ 225,300
=========== =========== =========== =========== =========== ===========
Supplemental data:
Interest paid..................... $ -- $ 2,800 $ 4,000 $ -- $ 1,700 $ 5,700
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-14
<PAGE> 65
DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During 1994, property and equipment totaling $15,800 were acquired with
capital leases; accrued liabilities of $44,400 were added to principal on the
bridge financing notes payable; and the Company converted $780,300 notes payable
to Preferred Stock.
In 1995, the Company received $700,000 of notes receivable as partial
proceeds from the sublicense agreement, and the related revenue was deferred as
of December 31, 1995 (see Note 2); accrued interest of $21,300 was added to the
principal of the note payable to a vendor (see Note 3); and 66,200 shares,
adjusted for the 3-for-4 merger exchange and the 1-for-24 reverse stock split,
of the Company Series A Preferred Stock were converted to 66,200 shares of
Common Stock (see Note 4).
In 1996, the Company issued 178,800 shares of its Common Stock to three
officers in lieu of cash compensation. The aggregate value of these shares
totaled $119,200, of which $110,000 was for payment of deferred compensation
accrued in 1994. See Note 7.
F-15
<PAGE> 66
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION
NHancement Technologies Inc., a Delaware corporation (NHancement), was
incorporated in October 1996 as a holding company and successor to the business
of BioFactors, Inc.(BFI), a Delaware corporation. Concurrently with the
consummation of a proposed initial public offering (IPO) of the Company's common
stock, which is expected to be in December 1996, BFI will merge with a
subsidiary of NHancement whereupon BFI will be the surviving corporation and a
wholly owned subsidiary of NHancement (BFI Merger). NHancement and its wholly
owned subsidiary, BFI, are collectively referred to as "the Company" unless
otherwise indicated by context. Also, concurrently with the consummation of the
proposed IPO, the Company will acquire Voice Plus, Inc. (VPI), a California
corporation, a systems integrator and national distributor of voice processing
equipment, pursuant to a transaction whereby VPI will merge with a subsidiary of
the Company whereupon VPI will be the surviving corporation and a wholly owned
subsidiary of the Company (VPI Merger). The business of the Company will be
conducted by the operating company subsidiaries BFI and VPI. See Note 11.
BFI was incorporated in April 1994 and is a successor corporation to
Performance Factors, Inc. (PFI), a California corporation, formed on January 5,
1988. In May 1994, pursuant to an Agreement and Plan of Merger (PFI Merger
Agreement), PFI was merged with and into BFI, and BFI was the surviving
corporation and continued the business of PFI. Accordingly, the accompanying
financial statements include the accounts of PFI and BFI since the inception of
the California corporation. Further, all per share amounts have been reflected
as if converted to BFI Common Stock, based on the conversion formulas outlined
in the PFI Merger Agreement and giving effect to a 1-for-24 reverse stock split
effected in November 1995.
In addition, all share amounts have been retroactively restated to give
effect to a 3-for-4 exchange ratio in connection with the BFI Merger, except the
stock option plan data which has not been restated. See Note 5.
BUSINESS
The Company is a provider of productivity and security enhancement products
and systems. To date, the Company has principally focused on the development for
commercial implementation of a proprietary computerized testing system, FACTOR
1000(R), which measures human sensorimotor skills to determine an individual's
performance readiness or fitness to perform, the development of supporting
programs, raising capital, personnel recruitment and market analysis.
The Company's core technology, the Critical Tracking Task (CTT) software is
exclusively licensed from Systems Technology Inc. (STI) in Hawthorne,
California. CTT is a critical component of the FACTOR 1000(R) system and is
protected under patents and copyrights held by STI. The Company is totally
dependent on maintenance of its CTT license to market the FACTOR 1000(R) system,
and is dependent on STI for product validation and expert witness testimony of
STI's principals regarding aerospace and vehicle performance dynamics and
stability, and human operator dynamic response. The license agreement with STI
is effective through November 2008 and grants the Company the right to issue
sublicenses during the term of the agreement (Note 2).
BASIS OF PRESENTATION
The financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development Stage Enterprises," which requires development stage
enterprises to employ the same accounting principles as operating companies.
The accompanying balance sheet as of June 30, 1996 and the statements of
operations and cash flows for each of the six months ended June 30, 1995 and
1996 have not been audited. However, in the opinion of
F-16
<PAGE> 67
management, they include all adjustments necessary for a fair presentation of
the financial position and the results of operations for the periods presented.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of results to be expected for any future period.
REVENUE RECOGNITION
Revenue is currently derived from two principal sources, direct sales and
third party sales into the commercial marketplace. The Company's only current
product is the FACTOR 1000(R) system used in commercial applications to test
"fitness for work" in safety sensitive jobs. The Company recognizes revenue on
the sale of a FACTOR 1000(R) system when the system has been installed and the
Company's related contractual training and support obligations are substantially
complete.
The Company recognizes other revenue based on the sublicense of the FACTOR
1000(R) system for the measurement and enhancement of on-field athletic
performance (Note 2). The Company bills customers in accordance with the terms
of the individual contracts. Billings in advance of the recognition of revenue
are recorded as deferred revenue in the accompanying financial statements.
INVENTORY
Inventory consists primarily of component parts, raw materials and finished
goods and is valued at the lower of cost (first-in, first-out basis) or market.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the respective
assets, generally three to five years. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or their
estimated useful life. Maintenance and repairs are expensed as incurred and
improvements are capitalized.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income tax assets and liabilities are recognized
based on the temporary differences between the financial statement and income
tax bases of assets, liabilities and carryforwards using enacted tax rates.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose the
estimated fair values for its financial instruments for
F-17
<PAGE> 68
which it is practicable to estimate their values. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
Note receivable, related party -- Due to the related party nature and
terms of the note receivable from related party, the Company cannot
estimate the fair value of such instrument.
Long-term debt -- The aggregate carrying value of $1,516,600,
including the current portion, approximates the fair value because of the
short-term maturities of these instruments.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. This statement had no effect on the
1996 interim financial statements, and management does not believe that it will
have a material impact on the Company's financial statements for the year ended
December 31, 1996.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," established financial accounting and reporting
standards for stock-based employee compensation plans and certain other
transactions involving the issuance of stock. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The Company is in the process of analyzing the impact of this statement and
anticipates adopting the provisions of the statement for the year ended December
31, 1996.
F-18
<PAGE> 69
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. DEVELOPMENT STAGE RISKS
The Company is in the development stage and has not generated significant
revenue or income from operations. The Company has developed its technology and
is currently engaged in establishing its market. Commercial acceptance of the
Company's product will have to occur in the marketplace before the Company can
attain successful operations.
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company as of June 30, 1996 has incurred recurring losses
totaling $8,253,600 since inception, has a working capital deficit of $2,977,500
and a stockholders' deficit of $2,933,600. Further, the Company has a
significant amount of notes and loans, which per their current terms, are due to
be repaid in early 1997. Presently, the Company is attempting to raise capital
through a proposed public offering; however, there can be no assurance that the
Company will be successful in obtaining any additional financing through this
offering or any other source or that financing will be available on acceptable
terms. The Company's current business strategy is also dependent upon completing
various proposed business acquisitions (see Note 11). If the Company is unable
to raise additional funds when needed, and ultimately attain successful
operations, it may be unable to support its projected growth, business
acquisitions and may be required to defer for a period of time, or indefinitely,
its current business plans.
These factors raise a substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. NOTE RECEIVABLE, RELATED PARTY
In August 1995, the Company entered into a sublicense agreement (the
Agreement) with a company, whose chief executive officer is a minority
stockholder of the Company. Also, one of the directors of this company is an
affiliate of a director of the Company. The Agreement provides for the
exclusive, world-wide sublicense of sports and on-field-athletic-performance
related uses of the FACTOR 1000(R) system, through November 2008. As
consideration for the sublicense, the Company received $300,000 in cash and a
$700,000 non-interest bearing note payable in two equal installments in March
1996 and July 1996. The Company has recognized $300,000 in revenue during 1995
and $350,000 for the six months ended June 30, 1996. The balance of $350,000 was
included in deferred revenue at June 30, 1996. In addition, the Company is
entitled to royalties at 8.5% of cash receipts from the sale of products or
services containing the licensed technology.
F-19
<PAGE> 70
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
---------- ----------
<S> <C> <C>
Notes payable related to bridge financing secured by all
assets of BFI, no monthly installments, stated interest at
12%, effective interest at 21%, maturity date at April 1,
1997, as amended(1)........................................ $ 750,000 $ 750,000
Notes payable related to bridge financing, secured by a
promissory note from a sublicensee, no monthly
installments, stated interest at 10%, effective interest at
21%, maturity date at March 31, 1997, as amended(2)(7)..... 300,000 350,000
Notes payable related to bridge financing, unsecured, no
monthly installments, stated interest at 10%, effective
interest at 25%, maturity date at March 31, 1997, as
amended(3)(7).............................................. -- 315,000
Notes payable related to bridge financing, unsecured, no
monthly installments, stated interest at 10%, effective
interest at 30%, maturity date at March 31, 1997, as
amended(4)(7).............................................. -- 300,000
Notes payable to stockholders, unsecured, no monthly
installments, interest ranging from 10% to prime plus 2%
(10.5% and 10.25% at December 31, 1995 and June 30, 1996),
unsecured, maturity dates at earlier of various dates
during 1996 or closing date of proposed public
offering(5)................................................ 321,500 321,500
Note payable to a vendor for unpaid royalties under licensing
agreement, unsecured, monthly installments of $7,500
through August 1996, interest at prime plus 3% (11.5% and
11.25% at December 31, 1995 and June 30, 1996)............. 62,700 20,400
Other, including $38,000 to former BFI officer(6)............ 82,400 81,400
---------- ----------
1,516,600 2,138,300
Less current portion......................................... 742,400 2,136,800
---------- ----------
$ 774,200 $ 1,500
========= =========
</TABLE>
The aggregate principal maturities of long-term debt as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
------------------------------------------------------------------------- ----------
<S> <C>
1996................................................................... $ 742,400
1997................................................................... 774,200
----------
$1,516,600
==========
</TABLE>
- ---------------
(1) In December 1994, BFI entered into a Secured Note and Warrant Purchase
Agreement (the Agreement) with the Purchasers named therein. BFI authorized
the issuance of secured promissory notes in the aggregate principal amount
of $750,000. Accrued interest totaled $90,600 and $137,500 as of December
31, 1995 and June 30, 1996, respectively.
In March and October 1996, BFI and a majority of the Purchasers entered into
amendments (collectively, the Amendments) to the Agreement. The Amendments
provide that, upon consummation of an IPO, the outstanding principal and all
accrued interest on the notes will be converted into the Company's Common
Stock at a conversion price equal to the price per share to the public of
the
F-20
<PAGE> 71
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock sold in the IPO (IPO price). In addition, upon the closing of
the IPO, note holders would receive, at no additional cost, two shares of
BFI Common Stock (the "Additional Shares") for each $10 of the original
principal balance of the notes and a warrant to purchase 50 shares of BFI
Common Stock for each $1,000 of the outstanding principal balance of the
note held by such holder at an exercise price equal to 120% of the IPO
price. In May 1996, BFI accelerated the issuance of the Additional Shares
and issued 112,500 shares to the Purchasers in respect of the Agreement.
(2) In December 1995, BFI entered into a Secured Note and Stock Purchase
Agreement (the Agreement) with the Purchasers named therein. BFI authorized
the issuance of secured promissory notes (the Notes) in the aggregate
principal amount of $350,000 of which $300,000 was received as of December
31, 1995. In connection with the issuance of the Notes, BFI issued an
aggregate of 26,200 shares of its Common Stock at $0.01 per share. Accrued
interest totaled $1,600 and $18,900 as of December 31, 1995 and June 30,
1996, respectively.
In March 1996, BFI and a majority of the Purchasers entered into an
amendment (the Amendment) to the Agreement. Pursuant to the Amendment, upon
closing of the proposed bridge loan, note holders would receive, at no
additional cost, two shares of BFI Common Stock (the "Additional Shares")
for each $10 of the original principal balance of the Notes. In May 1996,
BFI accelerated the issuance of the Additional Shares and issued 52,500
shares to the Purchasers pursuant to the Amendment to the Agreement.
(3) In February 1996, BFI authorized the issuance of unsecured promissory notes
in the aggregate principal amount of $315,000. In connection therewith, BFI
issued an aggregate of 70,900 shares of its Common Stock.
(4) In May 1996, BFI authorized the issuance of unsecured promissory notes in
the aggregate principal amount of $300,000. In connection therewith, BFI
issued an aggregate of 67,500 shares of its Common Stock.
(5) Accrued interest on these notes totaled $147,100 and $172,000 as of December
31, 1995 and June 30, 1996.
(6) In March 1996, BFI and a former BFI officer and current minority stockholder
entered into a Settlement Agreement under which BFI agreed to pay the former
BFI officer $75,000 in complete settlement of all claims, including $38,000
in principal amount of unsecured notes and related accrued interest of
approximately $13,000. The amount of settlement in excess of the principal
and accrued interest was charged to administrative expenses for the year
ended December 31, 1995.
(7) In October 1996, BFI and the note holders entered into an amendment to the
note agreement, pursuant to which in the event the IPO is consummated prior
to March 31, 1997, the principal will be paid in full by the proceeds of the
IPO and all accrued interest through the IPO closing date will be converted
into the Company's Common Stock at the IPO price. The amendment also
provides that upon the closing of the IPO, the Company will issue to each
note holder, at no cost, a warrant to purchase 75 shares of its Common Stock
for each $1,000 of the original principal balance of the notes at an
exercise price equal to 120% of the IPO price.
4. STOCKHOLDERS' EQUITY
In May 1994, pursuant to the PFI Merger Agreement, each share of Series A,
B, and C Preferred Stock and each share of Series D Preferred Stock of PFI was
converted into .05 and .41 shares, respectively, of Series A Preferred Stock of
BFI. In addition, each share of PFI Common Stock was converted into .05 shares
of BFI Common Stock.
F-21
<PAGE> 72
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, BFI had 66,200 shares (giving effect to the reverse
stock split and the 3-for-4 BFI Merger exchange as mentioned below) of its
Series A Preferred Stock issued and outstanding. All outstanding shares of BFI
Series A Preferred Stock at December 31, 1994 were fully paid and
non-assessable. Holders of BFI Series A Preferred Stock had the right to
convert, at any time, some or all of their shares into fully paid and
non-assessable shares of BFI's Common Stock. In July 1995, holders of the BFI
Series A Preferred Stock consented to such conversion, and accordingly, all
shares of BFI Series A Preferred Stock were converted into the same amount of
fully paid non-assessable shares of BFI Common Stock.
Pursuant to an amendment to the Certificate of Incorporation approved by
BFI's Board of Directors and stockholders effective November 1995 (the
Amendment), BFI is authorized to issue 10,000,000 shares of Common Stock, $0.01
par value per share, and 10,000,000 shares of Preferred Stock, $0.01 par value
per share. As provided in the Amendment, each 24 shares of BFI's Common Stock
issued and outstanding were reclassified into one share of BFI Common Stock.
Accordingly, all references in the financial statements to share amounts, per
share amounts and stock option plan data have been restated to reflect this
1-for-24 reverse stock split.
The Amendment also provides that Preferred Stock may be issued from time to
time as a class or in one or more series and that BFI's Board of Directors is
authorized to determine, for a class or each series of Preferred Stock, the
number of shares, dividend rate, terms of redemption, conversion privilege and
voting rights. As of June 30, 1996, no Preferred Stock was issued and
outstanding, and no series of Preferred Stock has been designated.
The financial statements have been retroactively restated to give effect to
the 3-for-4 exchange ratio in connection with the anticipated BFI Merger. See
Note 11. Accordingly, all references in the financial statements to share
amounts and per share amounts have been adjusted to reflect this BFI Merger
exchange, except the BFI stock option plan data which has not been restated
(Note 5).
In connection with the issuance of $750,000 notes in December 1994,
$350,000 notes in December 1995, and $315,000 of notes in February 1996 and
$300,000 in May 1996 (see Note 3), BFI issued to the note holders 329,600 common
shares in total at $0.01 per share. The Company has recorded debt issue costs
based on the estimated fair market value of $0.67 per share.
5. STOCK OPTIONS AND WARRANTS
Stock Options
BFI's Stock Option Plan adopted in February 1994 (the Plan), which is
administered by the Board of Directors, provides for the granting of 1,302,000
stock options. Upon consummation of the BFI Merger, the stock options
outstanding under BFI's plan will become stock options of the Company, subject
to the terms of the plan the Company intends to adopt. Options granted may be
either incentive stock options, as defined in the Internal Revenue Code, or
non-qualified options. The stock options are exercisable over a period
determined by the Board of Directors of BFI, but no longer than ten years after
the date of grant. Incentive stock options must have an exercise price of not
less than fair market value of the Common Stock on the date of grant (or, for
incentive stock options granted to a person holding more than 10% of the voting
power of BFI, options must have an exercise price equal to 110% of the fair
market value, and be exercisable for a period of five years). The aggregate fair
value of the Common Stock subject to options granted to an optionee that are
exercisable for the first time by an optionee during any calendar year may not
exceed $100,000. Options generally expire three months following termination of
employment. BFI recorded compensation expense related to grants and exercise of
stock options of $7,200 in 1994 and $2,600 in 1995.
F-22
<PAGE> 73
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes transactions pursuant to the Plan:
<TABLE>
<CAPTION>
OPTION
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1993.................. 893 $37.68-$141.36
Granted................................................. 34,367 $ 4.80-$ 24.00
Canceled................................................ (271) $ 24.00
Exercised............................................... (3,021) $19.44-$ 24.00
------- --------------
Options outstanding at December 31, 1994.................. 31,968 $ 4.80-$141.36
Granted................................................. 875,000 $ 0.50
Canceled................................................ (31,438) $ 4.80-$141.36
Exercised............................................... (530) $ 4.80
------- --------------
Options outstanding at December 31, 1995.................. 875,000 $ 0.50
Granted................................................. 75,000 $ 0.50
------- --------------
Options outstanding at June 30, 1996...................... 950,000 $ 0.50
======= ==============
Options available for grant at June 30, 1996.............. 352,000 --
Options exercisable at June 30, 1996...................... 405,556 $ 0.50
======= ==============
</TABLE>
The total number of options granted in 1995 consisted of non-statutory
options to purchase 250,000 shares and incentive stock options to purchase
625,000 shares. Incentive stock options to purchase 75,000 shares were granted
in 1996.
Pursuant to the BFI Merger agreement, each option issued under the Plan
will have the right to purchase 5.625 shares of NHancement common stock for each
10 shares of BFI Common Stock which could have been purchased prior to the BFI
Merger, at an exercise price equal to 80% of the IPO price (see Note 11). At
June 30, 1996, after giving effect to the BFI Merger agreement, the total number
of shares to be purchased for options outstanding is 534,375, and the number of
shares for options available for grant is 442,125.
Warrants
In connection with previous financings, BFI issued warrants to acquire
7,184 shares of Common Stock at $25.92 per share, which have been assumed by
NHancement in connection with the BFI Merger. Therefore, 7,184 shares of Common
Stock are reserved for issuance upon conversion of outstanding Common Stock
warrants.
In December 1994, BFI entered into Secured Note and Warrant Purchase
Agreements with various individuals for notes with an aggregate principal amount
of $750,000 (see Note 3). Under this Agreement, BFI issued warrants to purchase
up to an aggregate of 7,800 shares of its Common Stock at a purchase price of
$96.00 per share (250,000 shares at $3.00 per share prior to the 1-for-24
reverse stock split and the 3-for-4 BFI Merger exchange discussed elsewhere
herein). At the issuance, the warrants were valued by the Company at an
estimated fair market value of $250,000. This amount was recorded in additional
paid-in capital ($158,000 in 1994 and $92,000 in 1995). These warrants were
subsequently canceled pursuant to the amendment to the Agreement entered into in
March 1996.
In October 1996, BFI and a majority of the holders of the December 1994,
December 1995, February 1996 and May 1996 notes entered into amendments to the
respective note agreements, pursuant to which, upon the closing of an IPO, the
Company will issue to each note holder a warrant to purchase Common Stock at an
exercise price equal to 120% of the IPO price. The aggregate number of shares of
Common Stock to be issued upon exercise of these warrants is approximately
109,900 (see Note 3).
F-23
<PAGE> 74
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Company leases its office space under a non-cancelable lease agreement
which expires in December 1998. The Company also leases certain office equipment
under operating lease agreements which terminate on various dates through 1999.
Future minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1996....................................................... $ 62,000
1997....................................................... 61,000
1998....................................................... 60,000
1999....................................................... 10,000
--------
$193,000
========
</TABLE>
Rent expense for its office lease for the years ended December 31, 1995 and
1994 was $29,600 and $37,100, respectively. Rent expense for the six months
ended June 30, 1996 and 1995 was $24,800 and $15,000.
The Company's product is based on licensed technology. Accordingly, the
Company is required to pay an 8.5% royalty on sales of the related product. The
Company's ability to sell its product is dependent on the continuation of this
license.
The Company has entered into employment agreements with two officers that
provide for specified severance payments should the Company terminate the
executive's employment with the Company, other than for cause. The amount to be
paid is two years' base salaries and bonuses.
7. RELATED PARTY TRANSACTIONS
During the years 1991 through 1994, BFI borrowed approximately $415,800 in
aggregate from three stockholders. The notes are unsecured and have maturity
dates at the earlier of various dates in 1996 or the closing of an IPO. As of
December 31, 1995 and June 30, 1996, the principal balance was $321,500, and
accrued interest was $147,100 and $172,000, respectively (see Note 3).
During the years 1992 and 1993, BFI borrowed approximately $38,000 from a
former BFI officer. These notes were unsecured and were originally due on
demand. In March 1996, BFI and the former officer entered into a Settlement
Agreement under which BFI agreed to pay the former officer $75,000 in complete
settlement of all claims, including $38,000 in principal amount of unsecured
notes and the related accrued interest of approximately $13,000 (see Note 3).
In November 1994, BFI borrowed a total of $55,000 from various BFI
officers. The notes were unsecured and were due on December 14, 1994. The terms
of the notes provided for an interest rate at 12% per annum. In addition, BFI
borrowed $50,000 from a director of BFI. The note was unsecured and due December
14, 1994. The terms of the note provided for an interest rate of 12% per annum.
In December 1994, notes totaling $55,000 from various officers and $50,000 from
a director of BFI were converted into notes issued pursuant to the Secured Note
and Warrant Purchase Agreement dated December 1, 1994. The notes are secured by
the unencumbered assets of BFI, and have a maturity date of April 1, 1997, as
amended (see Note 3).
In March and June 1996, BFI issued an aggregate of 178,800 shares of its
Common Stock to three of its officers in lieu of cash compensation; and, in June
1996, BFI issued an aggregate of 37,500 shares to two of its directors for
services rendered. These shares are valued at $0.67 per share. In connection
therewith, $110,000
F-24
<PAGE> 75
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
was accrued as deferred compensation to officers as of December 31, 1995, and
the Company recorded an additional $9,100 of compensation expense and $25,000 of
outside service fees in 1996.
8. CONCENTRATION RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and accounts receivable. The Company
places its cash with high quality financial institutions. At December 31, 1995
and periodically throughout the year, the Company maintained a balance in one
bank account in excess of the federally insured limit of $100,000. The Company's
accounts receivable are unsecured and are due from customers located across the
United States. The Company performs on-going credit evaluations of its
customers' financial conditions and establishes an allowance for doubtful
accounts based upon credit risk of specific customers, historical trends and
other information.
Various customers accounted for more than 10% of total net sales for the
years ended December 31, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
CUSTOMER 1995 1994
------------------------------------------------------------- ---- ----
<S> <C> <C>
A............................................................ 68% --
B............................................................ -- 30%
C............................................................ -- 22
D............................................................ -- 14
E............................................................ -- 13
=== ===
</TABLE>
9. INCOME TAXES
From its inception, the Company has generated losses for both financial
reporting and tax purposes. As of December 31, 1995, the Company's net operating
losses for federal income tax purposes were approximately $6 million, and expire
between the years 2003 and 2010. For state income tax purposes, as of December
31, 1995, the Company had net operating loss carryforwards of approximately $1.5
million for the State of California and $2.5 million for the State of Colorado,
which expire in 1997 and in years between 2008 and 2010, respectively. The
Company files its income tax returns on the cash basis; this creates the primary
differences between the Company's net operating losses for financial reporting
and tax purposes. The combined Federal and state tax benefit of the net
operating loss carryforwards is approximately $2.2 million as of December 31,
1995.
This deferred tax asset has been completely offset by a valuation allowance
since management cannot determine that it is more likely than not that the
deferred tax asset can be realized. The use of such net operating loss
carryforwards will be subject to annual limits if the Company has incurred an
"ownership change." In general, an ownership change occurs if, during any
three-year test period, the aggregate of all increases in percentage ownership
by stockholders is more than 50%.
10. PRIVATE PLACEMENT DEBT OFFERING
On November 5, 1996, BFI closed a $500,000 debt offering pursuant to Unit
Subscription Agreements, dated as of October 3, 1996, by and among BFI and
certain Purchasers, for the sale of an aggregate of 10 units, each unit
consisting of (i) an unsecured promissory note in the principal amount of
$50,000, with stated interest at 10%, no monthly installments and a maturity
date of March 31, 1997, and (ii) a warrant to purchase 50,000 shares of BFI
common stock at an exercise price of 120% of the IPO Price, with a provision to
prevent dilution in connection with the BFI Merger (see Note 11).
F-25
<PAGE> 76
NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. ACQUISITIONS AND MERGER TRANSACTIONS
On October 30, 1996, NHancement entered into an Agreement and Plan of
Merger which provides for the merger, concurrently with the IPO, of a wholly
owned subsidiary of NHancement with and into BFI, whereupon BFI will be the
surviving corporation and a wholly owned subsidiary of NHancement, and the
exchange of shares of NHancement Common Stock for all the issued and outstanding
common stock of BFI, in a ratio of three shares of Common Stock for every four
shares of BFI common stock. Pursuant to the BFI Merger agreement, NHancement
will assume (i) the obligations of BFI's outstanding stock options, by which
assumption the optionee will have the right to purchase 5.625 shares of
NHancement Common Stock for every 10 shares of BFI common stock the optionee
could have purchased prior to the BFI Merger at an exercise price per share
equal to 80% of the IPO Price, (ii) the obligations of BFI's issued and
outstanding warrants in accordance with their terms, and (iii) the obligations
of the Registration Rights Agreement dated as of September 1, 1996 and
NHancement will undertake to issue to certain holders of BFI notes, warrants to
purchase an aggregate of 109,900 shares of NHancement's Common Stock,
exercisable one year from the close of the IPO at an exercise price of 120% of
the IPO Price. The consummation of the BFI Merger is contingent upon BFI
stockholder approval, the registration statement filed in connection with the
IPO having been declared effective, and the VPI Merger having been scheduled to
close concurrently with the IPO (see below).
On October 25, 1996, the Company entered into an Agreement and Plan of
Merger which provides for the merger, concurrently with the IPO, of a
wholly-owned subsidiary of the Company with and into VPI whereupon VPI will be
the surviving corporation and a wholly-owned subsidiary of the Company, and the
exchange of (i) the Company's unsecured promissory note in a principal amount of
$1,000,000, bearing interest at the medium term T-bill rate, due on the third
anniversary of the consummation of the merger, (ii) the Company's unsecured
promissory note in a principal amount of $500,000, bearing interest at the
medium term T-bill rate, due on the third anniversary of the consummation of the
merger, and (iii) shares of NHancement Common Stock with a market value of
$4,680,000 (of which, shares valued at $2,400,000 will be sold in the proposed
IPO, and the remainder of the shares are subject to restrictions on
transferability under the Security Act of 1933 and pursuant to a market
stand-off agreement with the underwriter of IPO), for all the issued and
outstanding common stock of VPI. The consummation of the VPI Merger is
contingent upon the registration statement filed in connection with the proposed
IPO having been declared effective. The Agreement terminates, without liability,
if the merger shall not have been consummated prior to March 31, 1997. In
connection with the VPI Merger, the Company entered into a three-year employment
agreement with the president and sole stockholder of VPI, pursuant to which the
Company will pay a base salary of $150,000 per year, commissions of
approximately $200,000 per year and an annual performance based bonus. The
employment agreement provides that if the Company materially breaches the
agreement or terminates the employee without "cause," the Company will continue
to pay base salary and 50% of the commissions for the duration of the term and,
in the event of a material breach by the Company, the two promissory notes will
be accelerated and immediately become due and payable.
In October, 1996, the Company entered into a letter of intent, which
provides for the merger of a wholly owned subsidiary of the Company, with and
into Cossey-Capozzi, Inc. (CCA), whereupon CCA will be the surviving corporation
and a wholly-owned subsidiary of the Company, and the exchange of shares of
Common Stock with a market value of $1,040,000 (which shares are subject to
restrictions on transfer pursuant to a market stand-off agreement) for all of
the issued and outstanding common stock of CCA. The consummation of the merger
is contingent upon the receipt of approval from the California Commissioner of
Corporations. The letter of intent terminates, without liability, if the merger
shall not have been consummated prior to March 31, 1997.
F-26
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and the Stockholders of
Voice Plus, Inc.
We have audited the accompanying balance sheet of Voice Plus, Inc. as of
December 31, 1995, and the related statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Voice Plus, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
San Francisco, California
April 19, 1996, except for notes 10 and 11
which are as of October 25, 1996
F-27
<PAGE> 78
VOICE PLUS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current
Cash and cash equivalents (Note 7)............................... $ 457,400 $ 1,064,300
Accounts receivable, less allowance for doubtful accounts of
$25,000 and $35,000 in 1995 and 1996.......................... 1,363,300 2,189,500
Inventories...................................................... 324,600 852,800
Prepaid expenses and other current assets........................ 38,800 42,800
Deferred income taxes (Note 3)................................... 68,300 --
---------- -----------
Total current assets..................................... 2,252,400 4,149,400
---------- -----------
Property and equipment, net (Note 1)............................... 168,500 254,000
---------- -----------
Other assets....................................................... 17,400 22,000
---------- -----------
$2,438,300 $ 4,425,400
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit (Note 2).......................................... $ -- $ --
Deferred revenues................................................ 816,100 1,863,400
Accounts payable................................................. 665,300 1,591,300
Accrued expenses................................................. 174,800 149,000
Commissions payable.............................................. 119,600 155,800
Accrued compensation and benefits (Note 5)....................... 99,500 131,100
Deferred income taxes (Note 3)................................... -- 11,500
---------- -----------
Total current liabilities................................ 1,875,300 3,902,100
---------- -----------
Commitments and contingencies (Notes 4, 5, 7, 10 and 11)
Stockholders' equity
Common stock, no par -- 100,000 shares authorized, 96,000 and
91,000 shares issued and outstanding in 1995 and 1996 (Note
6)............................................................ 72,000 22,000
Retained earnings (Note 10)...................................... 491,000 501,300
---------- -----------
Total stockholders' equity............................... 563,000 523,300
---------- -----------
$2,438,300 $ 4,425,400
========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-28
<PAGE> 79
VOICE PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ --------------------------
1994 1995 1995 1996
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues................................. $6,698,600 $7,258,900 $ 3,931,300 $ 3,899,700
Cost of revenues............................. 4,197,700 4,190,100 2,441,000 2,443,800
---------- ---------- ----------- -----------
Gross profit................................. 2,500,900 3,068,800 1,490,300 1,455,900
---------- ---------- ----------- -----------
Marketing and selling........................ 1,010,400 1,242,800 609,800 685,800
General and administrative, including
$550,000 of officer bonuses in 1994 and
1995....................................... 1,228,800 1,540,300 630,700 467,700
---------- ---------- ----------- -----------
Total operating expenses........... 2,239,200 2,783,100 1,240,500 1,153,500
---------- ---------- ----------- -----------
Income from operations....................... 261,700 285,700 249,800 302,400
Interest and other, net...................... 20,500 30,600 7,800 10,400
---------- ---------- ----------- -----------
Income before income taxes................... 282,200 316,300 257,600 312,800
Income taxes (Note 3)........................ 134,000 144,500 117,700 84,300
---------- ---------- ----------- -----------
Net income......................... $ 148,200 $ 171,800 $ 139,900 $ 228,500
========== ========== =========== ===========
Pro forma (Note 9)
Historical income before income taxes...... $ 312,800
Pro forma income taxes..................... 125,300
-----------
Pro forma net income............... $ 187,500
===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-29
<PAGE> 80
VOICE PLUS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ -------- --------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993........................ 96,000 $ 72,000 $ 271,000 $ 343,000
Net income........................................ 148,200 148,200
------ -------- --------- ---------
Balance, December 31, 1994........................ 96,000 72,000 419,200 491,200
Dividends......................................... (100,000) (100,000)
Net income........................................ 171,800 171,800
------ -------- --------- ---------
Balance, December 31, 1995........................ 96,000 72,000 491,000 563,000
Dividends (unaudited)............................. (218,200) (218,200)
Repurchase and retirement of common stock (Note 6)
(unaudited)..................................... (5,000) (50,000) (50,000)
Net income (unaudited)............................ 228,500 228,500
------ -------- --------- ---------
Balance, June 30, 1996 (unaudited)................ 91,000 $ 22,000 $ 501,300 $ 523,300
====== ======== ========= =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-30
<PAGE> 81
VOICE PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS
31, ENDED JUNE 30,
----------------------- -------------------------
1994 1995 1995 1996
----------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income................................... $ 148,200 $ 171,800 $ 139,900 $ 228,500
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts on
accounts receivable..................... -- 13,000 -- 10,000
Proceeds from sales of assets............. -- -- -- 800
Loss on disposition of assets............. 55,700 3,500 -- 400
Depreciation.............................. 66,500 46,900 20,900 36,200
Deferred income taxes..................... (9,900) (59,400) -- 79,800
Changes in assets and liabilities:
Accounts receivable..................... 301,700 (436,700) (376,000) (836,200)
Inventories............................. 124,600 (40,800) 152,700 (528,200)
Prepaid expenses and other assets....... (7,500) (20,400) (40,400) (8,600)
Deferred revenues....................... 15,900 (146,200) (105,400) 1,047,300
Accounts payable and accrued expenses... 6,800 598,900 680,700 968,000
----------- --------- --------- -----------
Net cash provided by operations................ 702,000 130,600 472,400 998,000
----------- --------- --------- -----------
Cash flows from investing activities
Capital expenditures......................... (53,900) (123,700) (29,600) (122,900)
----------- --------- --------- -----------
Net cash used in investing activities.......... (53,900) (123,700) (29,600) (122,900)
----------- --------- --------- -----------
Cash flows from financing activities
Borrowings under line of credit.............. 932,000 -- -- --
Repayments on line of credit................. (1,117,000) -- -- --
Repurchase and retirement of common stock.... -- -- -- (50,000)
Dividends.................................... -- (100,000) -- (218,200)
----------- --------- --------- -----------
Net cash used in financing activities.......... (185,000) (100,000) -- (268,200)
----------- --------- --------- -----------
Net increase (decrease) in cash................ $ 463,100 $ (93,100) $ 442,800 $ 606,900
Cash and cash equivalents, beginning of
period....................................... 87,400 550,500 550,500 457,400
----------- --------- --------- -----------
Cash and cash equivalents, end of period....... $ 550,500 $ 457,400 $ 993,300 $ 1,064,300
=========== ========= ========= ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-31
<PAGE> 82
VOICE PLUS, INC.
SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Voice Plus, Inc. (the Company) is a retailer of voice processing equipment,
and was incorporated in the State of California in April 1987. The Company also
provides various services including equipment installation, technical support
and ongoing maintenance. Revenues generated from providing these services were
approximately 25% and 18% of total 1995 and 1994 revenues. The Company maintains
offices in the states of California, New York, and Arizona.
CASH EQUIVALENTS
The Company considers all short-term investments purchased with a maturity
of three months or less to be cash equivalents.
INVENTORIES
Inventories consist primarily of systems and system components and are
valued at the lower of cost (first-in, first-out method) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, which range from five to ten years. Maintenance and repairs are expensed
as incurred and improvements are capitalized.
REVENUE RECOGNITION
The Company recognizes revenue under several methods as dictated by the
nature of the service or product provided and the terms of the sales agreement.
System sales are recognized when all significant uncertainties about customer
acceptance of the system have been resolved. Once system installation is
complete, seller obligations, including estimated future technical support
costs, are immaterial. Revenue from maintenance contracts is prorated over the
life of the contract, normally one year, although the entire amount of the
contract is collected at the beginning of the term. Services, labor and the sale
of parts, upgrades, moves, adds and changes are recorded in the period shipped
or provided.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income tax assets and liabilities are recognized
based on the temporary differences between the financial statement and income
tax bases of assets, liabilities and carryforwards using enacted tax rates.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-32
<PAGE> 83
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose the
estimated fair value for its financial instruments for which it is practicable
to estimate their values. The Company's financial instruments include cash,
accounts receivable and accounts payable, and their carrying value approximates
fair value due to the short maturities of these instruments.
BASIS OF PRESENTATION
The accompanying balance sheet as of June 30, 1996 and the statements of
operations and cash flows for each of the six months ended June 30, 1996 and
1995 have not been audited. However, in the opinion of management, they include
all adjustments necessary for a fair presentation of the financial position and
the results of operations for the periods presented. The results of operations
for the six months ended June 30, 1996 are not necessarily indicative of results
to be expected for any future period.
F-33
<PAGE> 84
VOICE PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Automobiles................................................. $171,300 $ 171,300
Office equipment............................................ 56,700 115,100
Furniture and fixtures...................................... 61,700 57,400
Computers................................................... 105,900 161,400
-------- ---------
395,600 505,200
Accumulated depreciation.................................... 227,100 251,200
-------- ---------
$168,500 $ 254,000
======== =========
</TABLE>
2. LINE OF CREDIT AGREEMENT
The Company has a $400,000 revolving line of credit collateralized by
substantially all of the assets of the Company and guaranteed by the president
who is also a majority stockholder of the Company. Interest is payable on
outstanding borrowings at the bank's prime rate (8.5% at December 31, 1995) plus
1.5%. At December 31, 1995 and June 30, 1996, the Company had no outstanding
borrowings under the line of credit, which expired in June 1996 and is currently
under renegotiation for extension. The credit agreement contains various
restrictions which require, among other things, maintenance of certain financial
ratios. At December 31, 1995, the Company was in compliance with all such
covenants.
3. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, SIX MONTHS ENDED JUNE 30,
-------------------- --------------------------
1994 1995 1995 1996
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current
Federal............................... $122,700 $154,600 $ 126,000 $ --
State................................. 33,000 49,300 40,200 4,500
-------- -------- -------- --------
155,700 203,900 166,200 4,500
Deferred
Federal............................... (21,700) (59,400) (48,500) 79,800
-------- -------- -------- --------
Provision for income taxes.............. $134,000 $144,500 $ 117,700 $ 84,300
======== ======== ======== ========
</TABLE>
Effective January 1, 1996, the Company elected to be taxed under the
Subchapter S rules of the Internal Revenue Code. As a result of this change, the
stockholders will report corporate taxable income in their individual tax
returns and be taxed depending on their personal tax strategies. The effect of
this change during the six months ended June 30, 1996 was an elimination of the
net deferred tax asset totaling $68,300 and the establishment of an $11,500
deferred tax liability for potential built-in gains on the effective date of
election. The states in which the Company operates recognize Federal S
Corporation provisions but impose a tax at a reduced rate of approximately 1.5%.
F-34
<PAGE> 85
VOICE PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
The following summarizes the difference between the income tax expense and
the amount computed by applying the Federal income tax rate of 34% in 1995 and
1994 to income before income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Federal income tax at statutory rate........................... $ 95,900 $107,500
State income taxes, net of Federal tax benefit................. 22,000 33,000
Other, net..................................................... 16,100 4,000
-------- --------
$134,000 $144,500
======== ========
</TABLE>
The effective tax rate for the six months ended June 30, 1995 differs from
the Federal statutory tax rate due primarily to State income taxes. The
effective tax rate for the six months ended June 30, 1996 differs from the
Federal statutory tax rate due to the change to the Subchapter S corporation
status effective January 1, 1996.
Deferred tax assets comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 AMOUNT
--------------------------------------------------------------------------- -------
<S> <C>
Deferred revenue on system sales........................................... $33,300
State income taxes......................................................... 15,100
Reserves and accrued liabilities........................................... 17,200
Accumulated depreciation................................................... 2,700
-------
Net deferred tax asset..................................................... $68,300
=======
</TABLE>
4. COMMITMENTS
The Company leases certain property consisting of corporate and sales
office facilities, and equipment under operating leases which expire during 1996
and 1997. Certain facility leases require the Company to pay real estate taxes,
maintenance and utilities.
The Company's future minimum lease commitments for operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------------------------------------------------------------------- --------
<S> <C>
1996.................................................................. $166,200
1997.................................................................. 38,600
--------
$204,800
========
</TABLE>
Rent expense under operating leases was $119,600 and $183,800 for the years
ended December 31, 1994 and 1995, and $87,800 and $92,700 for the six months
ended June 30, 1995 and 1996.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan in which all qualifying
employees with a minimum of 1,000 hours of service at year end are eligible to
participate. Matching contributions are made at the discretion of the Company's
Board of Directors. The Company pays all fees to administer the plan. On
December 29, 1995, the Company accrued matching contributions up to 6.5% of
employee compensation plus an additional $50,000 for the plan year ended
December 31, 1995. Total expense under this plan was $0 and $99,500 for the
years ended December 31, 1994 and 1995. The accrued contribution at December 31,
1995 was paid in
F-35
<PAGE> 86
VOICE PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
August 1996. No additional matching contributions were accrued or paid during
the six months ended June 30, 1995 and 1996.
6. RELATED PARTY TRANSACTIONS
A customer controlled by a minority stockholder of the Company, purchased
$94,500 and $99,700 of equipment from the Company during the years ended
December 31, 1994 and 1995. Included in accounts receivable at December 31, 1995
is $19,000 due from this related customer. In February 1996, the Company
purchased this minority stockholder's 5% interest in the Company for $50,000 and
retired the related shares of common stock.
7. CONCENTRATION RISK
Revenues from one customer accounted for approximately 13% and 10% of total
net revenues during the years ended December 31, 1994 and 1995, and 15% and 28%
of total net revenues during the six months ended June 30, 1995 and 1996.
Included in accounts receivable at December 31, 1995 and June 30, 1996 is
$431,900 and $496,900 due from this customer.
Trade accounts receivable are due from numerous customers located in many
geographic regions throughout the United States. The Company performs ongoing
credit evaluations of its customers' financial conditions and establishes an
allowance for doubtful accounts based upon the credit risk of specific
customers, historical trends and other information. The Company does not require
collateral from its customers.
Substantially all of the Company's inventory purchases in 1994 and 1995
were made from one vendor, Centigram Communications Corporation (Centigram). Any
termination or adverse change in the Company's distributor relationship with
Centigram would have a material adverse impact upon the Company's voice
processing business. In addition, the Company depends upon Centigram to offer
products which are competitive with products offered by other manufacturers as
to technological advancement, reliability and price. If Centigram's competitors
should surpass Centigram in any of these qualities, the Company may be required
to establish alternative strategic relationships. Any such development would
have an adverse effect on the Company's business for an indefinite period until
new supplier relationships could be established. Included in accounts payable at
December 31, 1995 and June 30, 1996 is $634,800 and $1,557,100 due to Centigram.
Cash and cash equivalents are held principally at two high quality
financial institutions. At times, such balances may be in excess of the FDIC
insurance limit.
8. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information:
Cash paid for:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ --------------------------
1994 1995 1995 1996
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest................................ $ 4,900 $ 1,100 $ 200 $ 2,000
======== ======== ========= =======
Income taxes............................ $135,100 $189,500 $ 152,800 $ 6,455
======== ======== ========= =======
</TABLE>
During 1994 and 1995, the Company reclassified equipment leased to
customers with a net book value of $29,700 and $4,500 from property and
equipment to inventories.
F-36
<PAGE> 87
VOICE PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
9. PRO FORMA
In connection with the contemplated purchase of the Company by NHancement
Technologies Inc. (NHancement), successor to BioFactors, Inc. (see Note 11), the
Company intends to terminate its status as a Subchapter S corporation. The pro
forma adjustments reflect a provision for income taxes at an effective rate of
40% for the six months ended June 30, 1996. Prior to January 1, 1996, the
Company was a C Corporation.
10. SUBSEQUENT EVENTS
Prior to the pending merger discussed in Note 11, the Company intends to
declare a $1,250,000 dividend and/or bonus to the sole stockholder and certain
key employees. The dividend portion will be in an amount not to exceed
$1,000,000. The effect, on a pro forma basis, on the June 30, 1996 stockholders'
equity is to reduce it from $523,300 to a capital deficit of $726,700.
On October 16, 1996, the Company signed a letter of intent to purchase
certain assets, including all inventory, fixed assets, customer lists,
trademarks and logos, and assume certain liabilities, including approximately
$52,500 due to Centigram, all liabilities associated with equipment and office
leases and all liabilities incurred in connection with the maintenance of
service contracts with customers, of Phonetics, Inc. (Phonetics), which is
located in Dallas, Texas, for $145,000. The purchase is subject to the
completion of due diligence, approval by the directors of both companies, and
the preparation, execution and performance of a definitive written Asset
Purchase Agreement. Phonetics distributes voice processing equipment and
provides various services including equipment installation, technical support
and ongoing maintenance, primarily within the state of Texas. Phonetics had
unaudited net revenues of $512,000 and a net loss of $12,000 during the eight
months ended August 31, 1996.
11. ACQUISITION AGREEMENT
On October 25, 1996, the Company entered into an Agreement and Plan of
Merger (the Merger) with NHancement whereby NHancement would acquire,
concurrently with NHancement's proposed Initial Public Offering (IPO), all the
outstanding shares of the Company. The consideration for the outstanding shares
consists of (i) an unsecured promissory note in a principal amount of
$1,000,000, bearing interest at the medium term T-bill rate, due on the third
anniversary of the consummation of the Merger, (ii) an unsecured promissory note
in a principal amount of $500,000, bearing interest at the medium term T-bill
rate, due on the third anniversary of the consummation of the Merger, and (iii)
shares of NHancement Common Stock with a market value of $4,680,000 (of which,
shares valued at $2,400,000 will be sold in the proposed IPO, and the remainder
of the shares are subject to restrictions on transferability under the
Securities Act of 1933 and pursuant to a market stand-off agreement with the
underwriter of the proposed IPO). The consummation of the Merger is contingent
upon the registration statement filed in connection with the proposed IPO having
been declared effective. The Agreement terminates, without liability, if the
merger shall not have been consummated prior to March 31, 1997. In connection
with the Merger, NHancement entered into a three-year employment agreement with
the president and sole stockholder of the Company, pursuant to which NHancement
will pay a base salary of $150,000 per year, commissions of approximately
$200,000 per year and an annual performance-based bonus. The employment
agreement provides that if NHancement materially breaches the agreement or
terminates the employee without "cause," NHancement will continue to pay base
salary and 50% of the commissions for the duration of the term and, in the event
of a material breach, the two promissory notes will be accelerated and
immediately become due and payable.
F-37
<PAGE> 88
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and the Stockholders of
Cossey-Capozzi, Inc.
dba C. C. & Associates
We have audited the accompanying balance sheet of Cossey-Capozzi, Inc. as
of September 30, 1995, and the related statements of operations, stockholders
equity, and cash flows for the years ended September 30, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cossey-Capozzi, Inc. as of
September 30, 1995, and the results of its operations and its cash flows for the
years ended September 30, 1995 and 1994 in conformity with generally accepted
accounting principles.
Meredith, Cardozo & Lanz LLP
San Jose, California
April 19, 1996, except for Note 8,
which is as of October 30, 1996
F-38
<PAGE> 89
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents (Note 6)............................... $ 11,800 $ 99,700
Accounts receivable, net of allowance for doubtful accounts of
$3,000 (Note 6)............................................... 257,400 81,500
Due from stockholder (Note 1).................................... 44,600 31,700
Other assets..................................................... 9,800 4,400
--------- ---------
Total current assets..................................... 323,600 217,300
--------- ---------
Deferred taxes (Note 4)............................................ -- 100
Property and equipment, net (Note 2)............................... 31,700 41,800
--------- ---------
$ 355,300 $ 259,200
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank borrowings (Note 3)......................................... $ 15,300 $ 20,000
Accounts payable................................................. 76,600 18,500
Accrued payroll and related expenses............................. 84,400 28,700
Income taxes payable (Note 4).................................... -- 37,100
Deferred income taxes (Note 4)................................... 48,300 16,100
--------- ---------
Total current liabilities................................ 224,600 120,400
--------- ---------
Deferred income taxes (Note 4)..................................... 1,500 --
--------- ---------
Commitments and contingencies (Notes 5 and 8)
Stockholders' equity
Common stock, no par value: 500,000 shares authorized, 400 shares
issued and outstanding........................................ 3,000 3,000
Retained earnings............................................. 126,200 135,800
--------- ---------
Total stockholders' equity............................... 129,200 138,800
--------- ---------
$ 355,300 $ 259,200
========= =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-39
<PAGE> 90
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30, NINE MONTHS ENDED JUNE 30,
---------------------- --------------------------
1994 1995 1995 1996
-------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues (Note 6).......................... $375,700 $1,075,800 $ 499,500 $ 561,800
Cost of revenues............................... 208,400 564,000 200,900 336,800
-------- ---------- -------- --------
Gross profit................................... 167,300 511,800 298,600 225,000
-------- ---------- -------- --------
Selling, general and administrative expenses... 217,000 388,400 190,900 209,000
-------- ---------- -------- --------
Income (loss) from operations.................. (49,700) 123,400 107,700 16,000
Other income (expense)
Interest expense............................. (1,400) (2,100) (2,200) (500)
Other income................................. 4,100 2,600 -- --
-------- ---------- -------- --------
Total other income (expense)......... 2,700 500 (2,200) (500)
-------- ---------- -------- --------
Income (loss) before income taxes.............. (47,000) 123,900 105,500 15,500
Income taxes (benefit) (Note 4)................ (5,600) 47,200 39,300 5,900
-------- ---------- -------- --------
Net income (loss).................... $(41,400) $ 76,700 $ 66,200 $ 9,600
======== ========== ======== ========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-40
<PAGE> 91
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1993........................... 400 $3,000 $ 90,900 $ 93,900
Net loss............................................ -- -- (41,400) (41,400)
--- ------ -------- ---------
Balance, September 30, 1994........................... 400 3,000 49,500 52,500
Net income.......................................... -- -- 76,700 76,700
--- ------ -------- ---------
Balance, September 30, 1995........................... 400 3,000 126,200 129,200
Net income (unaudited).............................. -- -- 9,600 9,600
--- ------ -------- ---------
Balance, June 30, 1996 (unaudited).................... 400 $3,000 $135,800 $ 138,800
=== ====== ======== =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-41
<PAGE> 92
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
--------------------- --------------------------
1994 1995 1995 1996
-------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities (Note 7)
Net income (loss)............................ $(41,400) $ 76,700 $ 66,200 $ 9,600
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 16,300 19,300 13,800 7,700
Allowance for doubtful accounts........... 3,000 -- -- --
Deferred income taxes..................... 3,400 46,400 38,500 (33,800)
Changes in assets and liabilities:
Accounts receivable..................... (15,300) (244,000) (34,100) 175,900
Other assets............................ (9,800) -- (7,500) 5,400
Accounts payable........................ 33,400 43,000 (24,500) (58,100)
Accrued expenses........................ (25,200) 70,000 (11,700) (55,700)
Income taxes payable.................... (7,700) (800) (800) 37,100
-------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................... (43,300) 10,600 39,900 88,100
-------- --------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment........... (7,300) (10,400) (12,900) (17,800)
Disposition of property and equipment........ -- 37,600 21,300 --
-------- --------- --------- ---------
Net cash (used in) provided by investing
activities................................... (7,300) 27,200 8,400 (17,800)
-------- --------- --------- ---------
Cash flows from financing activities
Advances to stockholder...................... -- (36,000) -- (4,900)
Repayment on advances to stockholder......... 9,800 -- (5,000) 17,800
Proceeds from bank borrowings................ 6,400 9,200 13,400 40,000
Repayments of bank borrowings................ (300) -- (4,200) (35,300)
Repayment of notes payable................... (6,600) (14,100) (9,300) --
-------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................... 9,300 (40,900) (5,100) 17,600
-------- --------- --------- ---------
Net (decrease) increase in cash and cash
equivalents.................................. (41,300) (3,100) 43,200 87,900
Cash and cash equivalents, beginning of
period....................................... 56,200 14,900 14,900 11,800
-------- --------- --------- ---------
Cash and cash equivalents, end of period....... $ 14,900 $ 11,800 $ 58,100 $ 99,700
======== ========= ========= =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-42
<PAGE> 93
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Cossey-Capozzi, Inc. (the Company) was incorporated in California in 1978.
The Company provides employee investigation services for corporations,
specializing in investigating employee theft and work related drug use.
Investigations include surveillance for employee misconduct.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
certificates of deposit and all liquid cash investments with original maturities
of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is calculated
using the straight-line method over the estimated useful lives of the related
assets, generally three to five years.
REVENUE RECOGNITION
Revenue is generally recognized upon the completion of the services
performed.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses
were $600 and $1,800 for the years ended September 30, 1994 and 1995, and $1,500
and $2,600 for the nine months ended June 30, 1995 and 1996, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred tax
liabilities or assets at the end of each period are determined using the tax
rate expected to be in effect when taxes are actually paid or recovered.
Deferred income taxes as of September 30, 1995 primarily result from certain
expenses that are not currently deductible for tax purposes.
BASIS OF PRESENTATION
The accompanying balance sheet as of June 30, 1996 and the statements of
operations and cash flows for each of the nine months ended June 30, 1995 and
1996 have not been audited. However, in the opinion of management, they include
all adjustments necessary for a fair presentation of the financial position and
the results of operations for the periods presented. The results of operations
for the nine months ended June 30, 1996 are not necessarily indicative of
results to be expected for any future period.
F-43
<PAGE> 94
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. DUE FROM STOCKHOLDER
Due from stockholder consists principally of expenses paid by the Company
for the benefit of the stockholder. This amount is due on demand.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures...................................... $ 33,100 $ 40,300
Machinery and equipment..................................... 18,300 26,300
Office equipment............................................ 18,200 20,800
Leasehold improvements...................................... 700 700
--------- ---------
70,300 88,100
Less accumulated depreciation and amortization.............. (38,600) (46,300)
--------- ---------
Property and equipment, net....................... $ 31,700 $ 41,800
========= =========
</TABLE>
3. LINE OF CREDIT AGREEMENT
The Company has a $50,000 revolving line of credit with a bank which
expires on July 1, 1996, bears interest at the bank's prime rate plus 3.25%
(12.00% at September 30, 1995). The Company expects to renew the line of credit
under similar terms and conditions. As of September 30, 1995, the Company had
$34,700 available under the revolving line of credit. As of June 30, 1996, the
Company had $30,000 available under the revolving line of credit.
4. INCOME TAXES
Income taxes (benefit) comprise:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------- --------------------------
1994 1995 1995 1996
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal................................. $(9,800) $ -- $ -- $ 30,300
State................................... 800 800 800 9,400
------- ------- ------- ---------
(9,000) 800 800 39,700
Deferred:
Federal................................. 3,400 38,300 33,600 (27,400)
State................................... -- 8,100 4,900 (6,400)
------- ------- ------- ---------
3,400 46,400 38,500 (33,800)
Total:
Federal................................. (6,400) 38,300 33,600 2,900
State................................... 800 8,900 5,700 3,000
------- ------- ------- ---------
$(5,600) $47,200 $39,300 $ 5,900
======= ======= ======= =========
</TABLE>
F-44
<PAGE> 95
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences in the recognition
of certain expenses and income items for tax and financial reporting purposes as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
----------------- --------------------------
1994 1995 1995 1996
------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash to accrual adjustment................. $ 400 $47,400 $38,500 $31,700
Reserves not deductible.................... -- -- -- 900
Depreciation............................... 3,000 (1,000) -- 1,200
------ ------- ------- -------
$3,400 $46,400 $38,500 $33,800
====== ======= ======= =======
</TABLE>
The following summarizes the difference between the income tax expense and
the amount computed by applying the Federal income tax rate of 34% in 1995 and
1994 to income before income taxes:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------- --------------------------
1994 1995 1995 1996
-------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Federal income tax (benefit) expense at
statutory rate......................... $(16,000) $42,100 $35,900 $ 5,300
State income taxes, net of federal tax
benefit................................ 500 7,500 6,500 1,200
Surtax exemption......................... -- (6,400) (3,100) (2,900)
Other, net............................... 9,900 4,000 -- 2,300
-------- ------- ------- -------
$ (5,600) $47,200 $39,300 $ 5,900
======== ======= ======= =======
</TABLE>
Deferred tax assets (liabilities) comprises the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
Cash to accrual adjustment................................. $ (47,800) $ (16,100)
Reserves not deductible.................................... -- 900
Depreciation............................................... (2,000) (800)
--------- ---------
Net deferred tax liability....................... $ (49,800) $ (16,000)
========= =========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company leases its office space under a lease agreement on a month to
month basis from a related party. The Company also leases certain office
equipment under a lease agreement which terminates in 1996. Future minimum
commitments under this lease are $6,500 due in 1996.
Rent expense for the years ended September 30, 1994 and 1995 was $38,100
and $38,400, respectively, and $30,800 and $20,900 for the nine months ended
June 30, 1995 and 1996, respectively.
6. CONCENTRATION RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents with high quality
financial institutions and, by policy, limits the amount of credit exposure to
any one financial institution.
F-45
<PAGE> 96
COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1994, there were no customers that accounted for more than 10 percent of
net revenues. In 1995, one customer accounted for approximately 46% of net
revenues. For the nine months ended June 30, 1995, two customers accounted for
approximately 45% and 10% of net revenues, and for the nine months ended June
30, 1996, three customers accounted for approximately 28%, 18% and 11% of net
revenues.
The Company's accounts receivable are spread across many customers in
various industries. The Company performs credit evaluations of its customers'
financial condition and establishes an allowance for possible losses based upon
credit risk of specific customers, historical trends and other information. The
Company generally does not require cash collateral or other security to support
customer receivables.
7. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
Cash paid for:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------- -----------------------------
1994 1995 1995 1996
------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest........................... $2,500 $2,100 $ 2,200 $ 500
====== ====== ======= =======
Income taxes....................... $8,000 $1,600 $ 800 $ 2,500
====== ====== ======= =======
</TABLE>
8. ACQUISITION AGREEMENT
The Company entered into a letter of intent in October 1996, which provides
for the merger of a wholly-owned subsidiary of NHancement Technologies Inc., a
Delaware corporation (NHancement), with and into the Company, whereupon the
Company will be the surviving corporation and a wholly owned subsidiary of
NHancement, and the exchange of shares of NHancement common stock with a market
value of $1,040,000 (which shares are subject to restrictions on transfer
pursuant to a market stand-off agreement) for all of the issued and outstanding
common stock of the Company. The consummation of the merger is conditioned upon
the terms and conditions of the merger having been approved by the California
Commissioner of Corporations pursuant to a fairness hearing held pursuant to
Section 25142 of the California Corporate Securities Law of 1968, as amended.
The letter of intent terminates, without liability, if the merger shall not have
been consummated prior to March 31, 1997.
F-46
<PAGE> 97
PLANNED INTEGRATION OF VPI AND BFI PRODUCTS
The diagram will show two separate Novell(R) LAN systems side by side that
are sold by VPI and BFI. One LAN(R) is used in a multimedia application as
provided by VPI. The other LAN is deployed to support BFI's FACTOR 1000(R)
testing system. Two converging arrows are shown between the two LAN systems
depicting the planned integration of the two systems to enable the Company to
offer multimedia messaging to the factory and field workforce.
<PAGE> 98
===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING AND NOT CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITY OTHER THAN THE REGISTERED SECURITIES OFFERED BY THIS PROSPECTUS OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN
OFFER OR SOLICITATION IS NOT AUTHORIZED OR WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS, NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Summary Historical and Pro Forma
Combined Financial Data............. 3
Risk Factors.......................... 5
The Company........................... 12
Use of Proceeds....................... 12
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 21
Management............................ 32
Certain Transactions.................. 38
Principal and Selling Stockholders.... 40
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 45
Underwriting.......................... 45
Legal Matters......................... 47
Experts............................... 47
Available Information................. 47
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
===============================================================================
===============================================================================
2,300,000 SHARES
OF COMMON STOCK
NHANCEMENT TECHNOLOGIES INC.
--------------------
PROSPECTUS
--------------------
CHATFIELD DEAN & CO.
, 1996
===============================================================================
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has included in its Certificate of Incorporation and in its
Bylaws provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the General Corporation Law of Delaware and (ii) indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
The Company will purchase a directors' and officers' insurance policy with
a $1 million coverage limit per occurrence and $2 million in the aggregate per
year.
Section K of the Underwriting Agreement (to be filed as Exhibit 1.1 hereto)
provides that the Underwriters will indemnify and hold harmless the Company and
each director, officer or controlling person of the Company from and against any
liability caused by any statement or omission in the Registration Statement or
Prospectus based on certain information furnished to the Company by the
Underwriters for use in the preparation thereof.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered (all amounts are estimated except
the SEC Registration Fee and the Nasdaq Filing Fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 3,607
The Nasdaq SmallCap Market Filing Fee............................................. o
Blue Sky Qualification Fees and Expenses (including legal fees)................... o
Printing Expenses................................................................. o
Legal Fees and Expenses........................................................... o
Accountants' Fees and Expenses.................................................... o
Transfer Agent and Registrar Fees................................................. o
Miscellaneous Expenses............................................................ o
--------
Total........................................................................... $350,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
On March 16, 1994, BFI's predecessor, Performance Factors, Inc. ("PFI"),
consummated a bridge financing (the "Series D Financing") pursuant to which it
issued an aggregate of (i) 1,212,124 shares of PFI Series D Preferred Stock, and
(ii) $721,550 principal amount of unsecured promissory notes, bearing interest
at the rate equal to 2% per annum above a certain domestic rate announced by the
Bank of America, NT&SA, San Francisco. In May 1994, the shareholders of PFI
approved a merger of PFI with and into BFI. The terms of the merger required
that all PFI common stock be converted into shares of BFI Common Stock and all
other PFI securities, including the PFI Series D Preferred Stock and the Series
D Notes, be converted into shares of BFI Series A Preferred Stock as follows:
(i) 3.0303 shares of PFI Series D Preferred Stock for each $1.00 of PFI Series D
Notes; and (ii) .4072 shares of BFI Series A Preferred Stock for each share of
PFI Series D Preferred Stock. Concurrently, the BFI shareholders approved a
24-to-one reverse split. The shares of Common Stock issued upon conversion and
exchange of the securities issued in connection with the BFI
II-1
<PAGE> 100
Series D Financings are entitled to certain registration rights. See
"Description of Capital Stock -- Registration Rights." The proceeds from the
sale of the Series D Financing were used for general corporate purposes.
On June 1, 1994, BFI consummated a bridge financing (the "Series A
Financing"), pursuant to which it issued an aggregate of 311,245 shares of its
Series A Preferred Stock. In July 1995, the holders of BFI Series A Preferred
Stock approved the conversion of BFI A Preferred Stock into shares of BFI Common
Stock, effective in November 1995. Concurrently, the BFI shareholders approved a
24-to-one reverse split. The shares of Common Stock issued upon conversion and
exchange of the securities issued in connection with the BFI Series A Financing
are entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." The proceeds from the sale of the Series A
Financing were used for general corporate purposes.
On December 1, 1994, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $750,000 principal amount of promissory notes (the
"December 1994 Notes"), secured by the all of the assets of BFI, bearing
interest at the rate of 12% per annum due and payable on April 1, 1997; and (ii)
shares of BFI Common Stock, which are exchangeable for 112,500 restricted shares
of Common Stock. Such shares of Common Stock are entitled to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
At the time the notes were issued, the notes were secured by the pledge of a
promissory note of Sports Trac, payable to BFI. Subsequently, the Sports Trac
Note was paid in full and the security interest securing the December 1995 Notes
was terminated. Upon consummation of this Offering, all of the outstanding
principal and accrued interest will be converted into Common Stock at a
conversion price equal to the Offering Price, the security interest will be
released, and the Company will issue warrants to purchase an aggregate of 37,500
shares of Common Stock at an exercise price of 120% of the Offering Price. The
proceeds from the sale of the December 1994 Notes were used for general
corporate purposes.
On December 1, 1995, BFI closed a bridge financing pursuant to which it
issued an aggregate of (i) $350,000 principal amount of unsecured promissory
notes (the "December 1995 Notes"), bearing interest from the date of issuance
until due and payable on March 31, 1997 at a rate of 10% per annum, and
thereafter at 18% per annum, and (ii) shares of BFI Common Stock, which are
exchangeable for 78,750 restricted shares of Common Stock. Such shares are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid and all accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
and the Company will issue warrants to purchase an aggregate of 26,250 shares of
Common Stock at an exercise price of 120% of the Offering Price. The proceeds
from the December 1995 Notes were used for general corporate purposes.
On February 1, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $315,000 principal amount of unsecured promissory
notes (the "February 1996 Notes"), bearing interest from the date of issuance
until due and payable on March 31, 1997 at a rate of 10% per annum, and
thereafter at 18% per annum, and (ii) shares of BFI Common Stock, which are
exchangeable for 70,875 restricted shares of Common Stock. Such shares of Common
Stock are entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid and all accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
and the Company will issue warrants to purchase an aggregate of 23,625 shares of
Common Stock at an exercise price of 120% of the Offering Price. The proceeds
from the February 1996 Notes were used for general corporate purposes.
On May 17, 1996, BFI closed a bridge financing, pursuant to which it issued
an aggregate of (i) $300,000 principal amount of unsecured promissory notes (the
"May 1996 Notes"), bearing interest at 10% per annum, due and payable on March
31, 1997, and (ii) shares of BFI Common Stock, which are exchangeable for 67,500
restricted shares of Common Stock. Such shares of Common Stock are entitled to
certain registration rights. See "Description of Capital Stock -- Registration
Rights." Upon consummation of this Offering, the outstanding principal amount
will be repaid and all accrued interest will be converted into Common Stock at a
conversion price equal to the Offering Price, and the Company will issue
warrants to purchase an aggregate of
II-2
<PAGE> 101
22,500 shares of Common Stock at an exercise price of 120% of the Offering
Price. See "Description of Capital Stock -- Registration Rights." The proceeds
from the sale of the May 1996 Notes were used for general corporate purposes.
On November 5, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $500,000 principal amount of unsecured promissory
notes (the "November 1996 Notes"), bearing interest at 10% per annum, due and
payable on the earlier of (a) March 31, 1997, or (b) the consummation of this
Offering, and (ii) warrants exercisable to purchase 500,000 shares of restricted
Common Stock at an initial exercise price of 120% of the Offering Price. The
shares of Common Stock issued upon exercise of the warrants are entitled to
certain registration rights. See "Description of Capital Stock -- Registration
Rights." The proceeds from the November 1996 Notes were used to purchase
director and officer liability insurance and to pay legal, accounting and other
fees in connection with this Offering.
The Company intends to use a portion of the proceeds of this Offering to
repay $350,000 of the principal amount of the December 1995 Notes, $315,000 of
the principal amount of the February 1996 Notes, $300,000 of the principal
amount of the May 1996 Notes, and $500,000 of the principal amount and
approximately $8,300 of accrued interest on the November 1996 Notes. See "Use of
Proceeds."
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of the Company
3.2 -- Bylaws of the Company
4.1 -- Form of Common Stock Certificate
4.2* -- Form of Warrant
4.3* -- Registration Rights Agreement, dated September 1, 1996 between
BioFactors, Inc. ("BFI") and (i) a majority of the holders of
securities pursuant to the Secured Note and Warrant Purchase
Agreement dated December 1, 1994, as amended; (ii) a majority of the
holders of securities issued pursuant to the Secured Note and Stock
Purchase Agreement, dated December 1, 1995, as amended; (iii) a
majority of the holders of securities issued pursuant to the
Unsecured Note and Stock Purchase Agreement, dated February 1, 1996,
as amended; (iv) a majority of the holders of securities issued
pursuant to the Unit Subscription Agreement, dated May 17, 1996, as
amended; (v) the purchasers of securities issued pursuant to the Unit
Subscription Agreement, dated October 3, 1996; and (vi) the former
holders of BFI's Series A Preferred Stock
4.4 -- Registration Rights Agreement, dated October 25, 1996, between the
Company and James S. Gillespie
5.1* -- Form of Opinion of Davis, Graham & Stubbs LLP as to the legality of
issuance of the Company's Common Stock
10.1 -- Formation Agreement, dated as of October 15, 1996, between BFI and
VPI
10.2* -- Agreement and Plan of Merger, dated as of October 30, 1996, between
the Company, BFI Acquisition Corporation and BioFactors, Inc.
10.3* -- Agreement and Plan of Merger, dated as of October 25, 1996, between
the Company, VPI Acquisition Corporation, Voice Plus, Inc. and James
Gillespie
</TABLE>
II-3
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.4* -- Agreement and Plan of Merger, dated as of November , 1996, between
the Company, C.C. & Associates, CCA Acquisition Corporation and Kent
and Karon Cossey.
10.5 -- License Agreement, dated November 24, 1988, by and between BFI and
Systems Technology Inc., as amended by Addendum to License Agreement,
dated May 19, 1994
10.6 -- Sublicense Agreement, dated August 30, 1995, between BFI and
SportsTrac, Inc., as amended by Addendum to Sublicense Agreement,
dated July 31, 1996
10.7* -- Secured Note and Warrant Purchase Agreement, dated December 1, 1994,
between BFI and the purchasers listed therein, as amended by the
First Amendment to Secured Note and Warrant Purchase Agreement, dated
July 1995, and as amended by Amendment to Secured Note and Warrant
Purchase Agreement, dated December 1, 1995, as amended by Third
Amendment to Secured Note and Warrant Purchase Agreement, dated March
1, 1996, and as amended by Fourth Amendment to Secured Note and
Warrant Purchase Agreement, dated October 1, 1996, together with
Amended and Restated Security Agreement and Form of Secured
Promissory Note
10.8* -- Secured Note and Stock Purchase Agreement, dated December 1, 1995
between BFI and the purchasers listed therein, as amended by First
Amendment to Secured Note and Stock Purchase Agreement, dated March
22, 1996, as amended by Second Amendment to Secured Note and Stock
Purchase Agreement, dated July 1, 1996, and as amended by Third
Amendment to Secured Note and Stock Purchase Agreement, dated October
1, 1996; together with Form of Secured Promissory Note
10.9* -- Unsecured Note and Stock Purchase Agreement, dated February 1, 1996,
between BFI and the purchasers listed therein, as amended by First
Amendment to Unsecured Note and Stock Purchase Agreement, dated March
22, 1996, as amended by Second Amendment to Unsecured Note and Stock
Purchase Agreement, dated July 1, 1996, and as amended by Third
Amendment to Unsecured Note and Stock Purchase Agreement, dated
October 1, 1996; together with Form of Unsecured Promissory Note
10.10* -- Unit Subscription Agreement, dated May 17, 1996, between BFI and the
purchasers listed therein, as amended by First Amendment to Unit
Subscription Agreement, dated October 1, 1996; together with Form of
Promissory Note
10.11* -- Unit Subscription Agreement, dated October 3, 1996, between BFI and
the purchasers listed therein; together with Form of Warrant
10.12* -- NHancement Technologies Inc. Equity Incentive Plan
10.13 -- Employment Agreement, between Douglas S. Zorn and the Company
10.14 -- Employment Agreement, between James S. Gillespie and the Company
10.15 -- Employment Agreement, between Esmond T. Goei and the Company
10.16 -- Form of Factor 1000(R) Service Contract
10.17* -- Office Building Lease, dated April 8, 1996, between BFI and Denver
West Office Building No. 21 Venture
10.18 -- Authorized U.S. Distributor Agreement, dated April 16, 1996, between
Centigram Communications Corporation and Voice Plus, Inc. ("VPI")
10.19* -- Office Lease, dated October 20, 1994, between AJ Partners Limited
Partnership and VPI
</TABLE>
II-4
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.20* -- Agreement, dated October 16, 1995, between BFI, Burton Kanter and
Elliot Steinberg, as amended by Amendment dated July 16, 1996,
between BFI, Esmond Goei, Douglas Zorn, Burton Kanter and Elliot
Steinberg
21* -- Subsidiaries
23.1 -- Consent of BDO Seidman, LLP
23.2 -- Consent of Meredith, Cardozo & Lanz LLP
23.3* -- Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
24 -- Power of Attorney (included on Page II-4)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
None.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Company's Bylaws, Certificate of Incorporation or the
Underwriting Agreement, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 104
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on November 5, 1996.
NHancement Technologies Inc.
By: /s/ ESMOND T. GOEI
------------------------------------
Esmond T. Goei
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears herein constitutes and appoints Esmond T. Goei and Douglas S. Zorn, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), including a
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
/s/ ESMOND T. GOEI Chairman, President, Chief November 5, 1996
- --------------------------------------------- Executive Officer and
Esmond T. Goei Director (Principal
Executive Officer)
/s/ DOUGLAS S. ZORN Executive Vice President, November 5, 1996
- --------------------------------------------- Secretary, Chief Operating
Douglas S. Zorn and Financial Officer,
Treasurer and Director
(Principal Financial and
Accounting Officer)
/s/ JAMES S. GILLESPIE Vice President of Sales and November 5, 1996
- --------------------------------------------- Director
James S. Gillespie
</TABLE>
II-6
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of the Company
3.2 -- Bylaws of the Company
4.1 -- Form of Common Stock Certificate
4.2* -- Form of Warrant
4.3* -- Registration Rights Agreement, dated September 1, 1996 between
BioFactors, Inc. ("BFI") and (i) a majority of the holders of
securities pursuant to the Secured Note and Warrant Purchase
Agreement dated December 1, 1994, as amended; (ii) a majority of the
holders of securities issued pursuant to the Secured Note and Stock
Purchase Agreement, dated December 1, 1995, as amended; (iii) a
majority of the holders of securities issued pursuant to the
Unsecured Note and Stock Purchase Agreement, dated February 1, 1996,
as amended; (iv) a majority of the holders of securities issued
pursuant to the Unit Subscription Agreement, dated May 17, 1996, as
amended; (v) the purchasers of securities issued pursuant to the Unit
Subscription Agreement, dated October 3, 1996; and (vi) the former
holders of BFI's Series A Preferred Stock
4.4 -- Registration Rights Agreement, dated October 25, 1996, between the
Company and James S. Gillespie
5.1* -- Form of Opinion of Davis, Graham & Stubbs LLP as to the legality of
issuance of the Company's Common Stock
10.1 -- Formation Agreement, dated as of October 15, 1996, between BFI and
VPI
10.2* -- Agreement and Plan of Merger, dated as of October 30, 1996, between
the Company, BFI Acquisition Corporation and BioFactors, Inc.
10.3* -- Agreement and Plan of Merger, dated as of October 25, 1996, between
the Company, VPI Acquisition Corporation, Voice Plus, Inc. and James
Gillespie
10.4* -- Agreement and Plan of Merger, dated as of November , 1996, between
the Company, C.C. & Associates, CCA Acquisition Corporation and Kent
and Karon Cossey.
10.5 -- License Agreement, dated November 24, 1988, by and between BFI and
Systems Technology Inc., as amended by Addendum to License Agreement,
dated May 19, 1994
10.6 -- Sublicense Agreement, dated August 30, 1995, between BFI and
SportsTrac, Inc., as amended by Addendum to Sublicense Agreement,
dated July 31, 1996
10.7* -- Secured Note and Warrant Purchase Agreement, dated December 1, 1994,
between BFI and the purchasers listed therein, as amended by the
First Amendment to Secured Note and Warrant Purchase Agreement, dated
July 1995, and as amended by Amendment to Secured Note and Warrant
Purchase Agreement, dated December 1, 1995, as amended by Third
Amendment to Secured Note and Warrant Purchase Agreement, dated March
1, 1996, and as amended by Fourth Amendment to Secured Note and
Warrant Purchase Agreement, dated October 1, 1996, together with
Amended and Restated Security Agreement and Form of Secured
Promissory Note
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.8* -- Secured Note and Stock Purchase Agreement, dated December 1, 1995
between BFI and the purchasers listed therein, as amended by First
Amendment to Secured Note and Stock Purchase Agreement, dated March
22, 1996, as amended by Second Amendment to Secured Note and Stock
Purchase Agreement, dated July 1, 1996, and as amended by Third
Amendment to Secured Note and Stock Purchase Agreement, dated October
1, 1996; together with Form of Secured Promissory Note
10.9* -- Unsecured Note and Stock Purchase Agreement, dated February 1, 1996,
between BFI and the purchasers listed therein, as amended by First
Amendment to Unsecured Note and Stock Purchase Agreement, dated March
22, 1996, as amended by Second Amendment to Unsecured Note and Stock
Purchase Agreement, dated July 1, 1996, and as amended by Third
Amendment to Unsecured Note and Stock Purchase Agreement, dated
October 1, 1996; together with Form of Unsecured Promissory Note
10.10* -- Unit Subscription Agreement, dated May 17, 1996, between BFI and the
purchasers listed therein, as amended by First Amendment to Unit
Subscription Agreement, dated October 1, 1996; together with Form of
Promissory Note
10.11* -- Unit Subscription Agreement, dated October 3, 1996, between BFI and
the purchasers listed therein; together with Form of Warrant
10.12* -- Incentive Stock Plan
10.13 -- Employment Agreement, between Douglas S. Zorn and the Company
10.14 -- Employment Agreement, between James S. Gillespie and the Company
10.15 -- Employment Agreement, between Esmond T. Goei and the Company
10.16 -- Form of Factor 1000(R) Service Contract
10.17* -- Office Building Lease, dated April 8, 1996, between BFI and Denver
West Office Building No. 21 Venture
10.18 -- Authorized U.S. Distributor Agreement, dated April 16, 1996, between
Centigram Communications Corporation and Voice Plus, Inc. ("VPI")
10.19* -- Office Lease, dated October 20, 1994, between AJ Partners Limited
Partnership and VPI
10.20* -- Agreement, dated October 16, 1995, between BFI, Burton Kanter and
Elliot Steinberg, as amended by Amendment dated July 16, 1996,
between BFI, Esmond Goei, Douglas Zorn, Burton Kanter and Elliot
Steinberg
21* -- Subsidiaries
23.1 -- Consent of BDO Seidman, LLP
23.2 -- Consent of Meredith, Cardozo & Lanz LLP
23.3* -- Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
24 -- Power of Attorney (included on Page II-4)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF
NHANCEMENT TECHNOLOGIES INC.
A DELAWARE CORPORATION
ARTICLE 1
The name of the Corporation is Nhancement Technologies Inc.
(hereinafter referred to as the "Corporation").
ARTICLE 2
The address of the Corporation's registered office in the State of
Delaware is The Prentice-Hall Corporation System, Inc., 1013 Centre Road,
Wilmington, Delaware 19805, County of New Castle. The name of its registered
agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE 3
The nature of the business of the Corporation and the purposes for
which it is organized are to engage in any business and in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware (the "GCL") and to possess and employ all powers and privileges
now or hereafter granted or available under the laws of the State of Delaware to
such corporations.
ARTICLE 4
4.1 Authorized Shares. The total number of shares which the Corporation
is authorized to issue is one thousand and ten (1,010) shares of which one
thousand (1,000) shares shall be common stock, par value $.01 per share, and ten
(10) shares shall be preferred stock, par value $.01 per share.
4.2 Common Stock. Each holder of common stock shall be entitled to one
vote for each share of common stock held on all matters as to which holders of
common stock shall be entitled to vote. Except for and subject to those
preferences, rights, and privileges expressly granted to the holders of all
classes of stock at the time outstanding having prior rights, and series of
preferred stock which may from time to time come into existence, and except as
may be provided by the laws of the State of Delaware, the holders of common
stock shall have exclusively all other rights of stockholders of the
Corporation, including, but not by way of limitation, (i) the right to receive
dividends when, as and if declared by the board of
<PAGE> 2
directors out of assets lawfully available therefor, and (ii) in the event of
any distribution of assets upon the dissolution and liquidation of the
Corporation, the right to receive ratably and equally all of the assets of the
Corporation remaining after the payment to the holders of preferred stock of the
specific amounts, if any, which they are entitled to receive as may be provided
herein or pursuant hereto.
4.3 Preferred Stock. The preferred stock authorized by this Certificate
of Incorporation may be issued from time to time in one or more series. The
board of directors of the Corporation is authorized, subject to limitations
prescribed by law, to provide by resolution or resolutions for the issuance of
the shares of preferred stock as a class or in series, and, by filing a
certificate of designation, pursuant to the GCL, setting forth a copy of such
resolution or resolutions, to establish from time to time the number of shares
to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of the class or of each such series, and
the qualifications, limitations, and restrictions thereof. The authority of the
board of directors with respect to the class or each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting any series and the
distinctive designation of that series;
(b) The dividend rate on the shares of the class or of any series,
whether dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
the class or of that series;
(c) Whether the class or any series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether the class or any series shall have conversion
privileges, and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the board of
directors shall determine;
(e) Whether or not the shares of the class or of any series shall
be redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(f) Whether the class or any series shall have a sinking fund for
the redemption or purchase of shares of the class or of that series, and, if so,
the terms and amount of such sinking fund;
(g) The rights of the shares of the class or of any series in the
event of voluntary or involuntary dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of the class
or of that series;
-2-
<PAGE> 3
(h) Any other powers, preferences, rights, qualifications,
limitations, and restrictions of the class or of any series.
ARTICLE 5
5.1 Number and Election of Directors. The number of directors of the
Corporation shall be fixed from time to time in the manner provided in the
bylaws and may be increased or decreased from time to time in the manner
provided in the bylaws. Election of directors need not be by written ballot
except and to the extent provided in the bylaws of the Corporation. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and qualified, subject,
however, to such director's prior death, resignation, retirement,
disqualification or removal from office.
5.2 Quorum. A quorum of the board of directors for the transaction of
business shall not consist of less than a majority of the total number of
directors, except as may be provided in this Certificate of Incorporation or in
the bylaws with respect to filling vacancies.
5.3 Newly Created Directorships and Vacancies. Except as otherwise
fixed relative to the rights of the holders of any class or series of stock
having a preference over the common stock as to dividends or upon liquidation to
elect directors under specified circumstances, newly created directorships
resulting from any increase in the number of directors and any vacancies on the
board of directors resulting from death, resignation, disqualification, removal
or other cause shall be filled solely by the affirmative vote of a majority of
the remaining directors then in office, or by a sole remaining director, even
though less than a quorum of the board of directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the new directorship which was created or in which the vacancy
occurred and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the board of
directors shall shorten the term of any incumbent director.
ARTICLE 6
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the board
of directors is expressly authorized to adopt, repeal, alter, amend and rescind
any or all of the bylaws of the Corporation, but such authorization shall not
divest the stockholders of the power, nor limit their power to adopt, amend or
repeal bylaws.
ARTICLE 7
7.1 Stockholder Actions. Any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of such stockholders and may not be effected by any consent
in writing by such stockholders.
-3-
<PAGE> 4
7.2 Meetings. Meetings of stockholders may be held within or without
the State of Delaware, as the bylaws may provide. Except as otherwise required
by law and subject to the rights of the holders of any class or series of stock
having a preference over the common stock, special meetings of the stockholders
may be called only by the chairman of the board, the chief executive officer,
the president, the board of directors pursuant to a resolution approved by a
majority of the entire board of directors, or as may be designated in the bylaws
of the Corporation.
7.3 Corporate Books. The books of the Corporation may be kept (subject
to any provision contained in the statutes) outside the State of Delaware at
such place or places as may be designated from time to time by the board of
directors or in the bylaws of the Corporation.
ARTICLE 8
The board of directors of the Corporation, when evaluating any offer of
another party to (a) make a tender or exchange offer for any equity security of
the Corporation, (b) merge or consolidate the Corporation with another
corporation, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of the Corporation, shall in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to (i) all relevant
factors including, without limitation, the social, legal, environmental and
economic effects on the employees, customers, suppliers and other affected
persons, firms and corporations and on the communities and geographical areas in
which the Corporation and its subsidiaries operate or are located and on any of
the businesses and properties of the Corporation or any of its subsidiaries, as
well as such other factors as the directors deem relevant, and (ii) not only the
consideration being offered, in relation to the then current market price for
the Corporation's outstanding shares of capital stock, but also in relation to
the then current value of the Corporation in a freely negotiated transaction and
in relation to the board of directors' estimate of the future value of the
Corporation (including the unrealized value of its properties and assets) as an
independent going concern.
ARTICLE 9
Notwithstanding any other provisions of the Certificate of
Incorporation of the Corporation or of the bylaws of the Corporation (and
notwithstanding the fact that a lessor percentage may be specified by law, the
Certificate of Incorporation or the bylaws), the affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class), shall be required to amend or repeal
or adopt any provisions inconsistent with Articles 7, 8 and 9 of this
Certificate of Incorporation.
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<PAGE> 5
ARTICLE 10
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability for (i) any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) violations of Section 174 of the GCL, or (iv) any transaction from
which the director derived any improper personal benefit. If the GCL hereafter
is amended to eliminate or limit further the liability of a director in addition
to the elimination and limitation of liability provided by the preceding
sentence, the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the GCL as so amended. Any repeal or
modification of the foregoing provisions of this Article 10 by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation under this Article 10, as in effect immediately
prior to such repeal or modification, with respect to any liability that would
have accrued, but for this Article 10, prior to such repeal or modification.
ARTICLE 11
The Corporation shall indemnify, to the fullest extent permitted by
applicable law as in effect from time to time, any person against all liability
and expense (including attorneys' fees) incurred by reason of the fact that he
is or was a director or officer of the Corporation or any of its subsidiaries,
or while serving as a director or officer of the Corporation or any of its
subsidiaries, he is or was serving at the request of the Corporation or any of
its subsidiaries as a director, officer, partner or trustee of, or in any
similar managerial or fiduciary position of, or as an employee or agent of,
another corporation, partnership, joint venture, trust, association, or other
entity. Expenses (including attorneys' fees) incurred in defending an action,
suit, or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding to the fullest extent permitted
by Delaware law. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, fiduciary, or agent
of the Corporation or any of its subsidiaries against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's position, whether or not the Corporation would have the power to
indemnify against such liability under the provisions of this Article 11. The
indemnification provided by this Article 11 shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under this Certificate
of Incorporation, any bylaw, agreement, vote of stockholders or disinterested
directors, statute, or otherwise, and shall inure to the benefit of their heirs,
executors, and administrators. The provisions of this Article 11 shall not be
deemed to preclude the Corporation from indemnifying other persons from similar
or other expenses and liabilities as the board of directors or the stockholders
may determine in a specific instance or by resolution of general application.
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ARTICLE 12
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE 13
The name and address of the incorporator is:
Lester R. Woodward
370 Seventeenth Street, Suite 4700
Denver, CO 80202
The names and mailing addresses of the persons who are to serve as
directors of the Corporation until the first annual meeting of stockholders or
until their successors are elected and qualified or until their earlier
resignations or removal are:
Name Address
Esmond T. Goei 1746 Cole Boulevard, Suite 265
Golden, Colorado 80401
Douglas S. Zorn 1746 Cole Boulevard, Suite 265
Golden, Colorado 80401
James S. Gillespie 39899 Balentine Drive
Newark, California 94560
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IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on the 16th day of October, 1996.
/s/ Lester R. Woodward
--------------------------------
Lester R. Woodward, Incorporator
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Exhibit 3.2
NHANCEMENT TECHNOLOGIES INC.
BYLAWS
Article I
OFFICES
The registered office of Nhancement Technologies Inc. (the
"Corporation") in the State of Delaware shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Corporation shall have offices at
such other places as the board of directors, in its discretion, may from time
to time determine.
Article II
STOCKHOLDERS
Section 1. Annual Meetings.
The annual meeting of stockholders for the election of directors and
for the transaction of such other business as may properly come before the
meeting shall be held on the third Tuesday of May in each year, or on such date
as the board of directors shall each year fix. Each such annual meeting shall
be held at such place, within or without the State of Delaware, and hour as
shall be determined by the board of directors. The day, place and hour of each
annual meeting shall be specified in the notice of such annual meeting. Any
annual meeting of stockholders may be adjourned from time to time and place to
place until its business is completed.
Section 2. Business Conducted at Meetings.
At an annual meeting of stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (b) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (c) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before a meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the secretary of the Corporation. To be
timely with respect to an annual meeting, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 120 in advance of the date of the Corporation's
proxy statement released to stockholders in connection with the previous year's
annual
<PAGE> 2
meeting of stockholders, except that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than
30 calendar days from the date contemplated at the time of the previous year's
proxy statement, a proposal shall be received by the Corporation a reasonable
time before the solicitation is made. To be timely with respect to any meeting
other than an annual meeting, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation a
reasonable time before the solicitation is made. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to be
brought before the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at a meeting except in accordance with the procedures set forth in
this Section 2. The presiding officer at a meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
2, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Section 3. Special Meetings.
Except as otherwise required by law or by the Certificate of
Incorporation and subject to the rights of the holders of any class or series
of stock having a preference over the common stock, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer, the president, the executive vice president or the board of
directors pursuant to a resolution approved by a majority of the entire board
of directors. The term "entire board of directors," as used in these Bylaws,
means the total number of directors which the Corporation would have if there
were no vacancies.
Section 4. Stockholder Action: How Taken.
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such stockholders and may not be effected by any consent in writing by such
stockholders.
Section 5. Notice of Meeting.
Written notice stating the place, date and hour of the meeting and, in
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, except as otherwise required by statute or the Certificate
of
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<PAGE> 3
Incorporation, either personally or by mail, prepaid telegram, telex, facsimile
transmission, cablegram, or radiogram, to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be given
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his address as it appears on the stock records of the
Corporation. If given personally or otherwise than by mail, such notice shall
be deemed to be given when either handed to the stockholder or delivered to the
stockholder's address as it appears on the stock records of the Corporation.
Section 6. Waiver.
Attendance of a stockholder of the Corporation, either in person or by
proxy, at any meeting, whether annual or special, shall constitute a waiver of
notice of such meeting, except where a stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A written waiver of notice of any such meeting signed by a
stockholder or stockholders entitled to such notice, whether before, at or
after the time for notice or the time of the meeting, shall be equivalent to
notice. Neither the business to be transacted at, nor the purposes of, any
meeting need be specified in any written waiver of notice.
Section 7. Voting List.
The secretary shall prepare and make available, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least ten days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.
Section 8. Quorum.
Except as otherwise required by law, the Certificate of Incorporation
or these Bylaws, the holders of not less than one-third of the shares entitled
to vote at any meeting of the stockholders, present in person or by proxy,
shall constitute a quorum, and the act of the majority of such quorum shall be
deemed the act of the stockholders. If a quorum shall fail to attend any
meeting, the chairman of the meeting may adjourn the meeting from time to time,
without notice if the time and place are announced at the meeting, until a
quorum shall be present.
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At such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the original meeting. If the
adjournment is for more than thirty days or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then, notwithstanding the prior paragraph
and except as otherwise required by law, those present at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of votes cast at such meeting.
Section 9. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting, or at any adjournment of a meeting of
stockholders; or entitled to receive payment of any dividend or other
distribution or allotment of any rights; or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock; or for the purpose of
any other lawful action; the board of directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors. The record date
for determining the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournments thereof shall not be more than
sixty nor less than ten days before the date of such meeting. The record date
for any other action shall not be more than sixty days prior to such action.
If no record date is fixed, (i) the record date for determining stockholders
entitled to notice of or to vote at any meeting shall be the close of business
on the day next preceding the day on which notice is given or, if notice is
waived by all stockholders, at the close of business on the day next preceding
the day on which the meeting is held; and (ii) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating to such other
purpose. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 10. Procedure.
The order of business and all other matters of procedure at every
meeting of the stockholders may be determined by the presiding officer.
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Article III
DIRECTORS
Section 1. Number.
Except as otherwise fixed pursuant to the provisions of the
Certificate of Incorporation, including Article 4 relating to the rights of the
holders of any class or series of stock having a preference over the common
stock, the number of directors shall be fixed from time to time exclusively by
resolutions adopted by the board of directors; provided, however, that the
number of directors shall at no time be less than three nor greater than eleven
and further provided that no decrease in the number of directors constituting
the board of directors shall shorten the term of any incumbent director.
Section 2. Election and Terms.
A director shall hold office until the next annual meeting after he is
elected and until his successor shall be elected and qualified, subject,
however, to such director's prior death, resignation, retirement,
disqualification or removal from office. Subject to the rights of holders of
any class or series of stock having a preference over the common stock,
nominations for the election of directors may be made by the board of directors
or a committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the secretary of the Corporation no later than (i)
with respect to an election to be held at an annual meeting of stockholders,
ninety days prior to the anniversary date of the immediately preceding annual
meeting, and (ii) with respect to an election to be held at a special meeting
of stockholders for the election of directors, the close of business on the
tenth day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated; (b) representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and
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Exchange Commission; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected. The presiding officer of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
Section 3. Newly Created Directorships and Vacancies.
Except as otherwise fixed pursuant to the provisions of Certificate of
Incorporation, including Article 4 relating to the rights of the holders of any
class or series of stock having a preference over the common stock, newly
created directorships resulting from any increase in the number of directors
and any vacancies on the board of directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office or a
sole remaining director, even though less than a quorum of the board of
directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the new directorship
which was created or in which the vacancy occurred and until such director's
successor shall have been elected and qualified.
Section 4. Regular Meetings.
The first meeting of each newly elected board of directors elected at
the annual meeting of stockholders shall be held immediately after and at the
same place as, the annual meeting of the stockholders, provided a quorum is
present, and no notice of such meeting shall be necessary in order to legally
constitute the meeting. Regular meetings of the board of directors shall be
held at such times and places as the board of directors may from time to time
determine.
Section 5. Special Meetings.
Special meetings of the board of directors may be called at any time,
at any place and for any purpose by the chairman of the executive committee,
the chairman of the board, the chief executive officer, or by any officer of
the Corporation upon the request of a majority of the entire board of
directors.
Section 6. Notice of Meetings.
Notice of regular meetings of the board of directors need not be
given.
Notice of every special meeting of the board of directors shall be
given to each director at his usual place of business or at such other address
as shall have been furnished by him for such purpose. Such notice shall be
properly and timely given if it is (a) deposited in the United States mail not
later than the third calendar day preceding the date of the meeting or
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(b) personally delivered, telegraphed, sent by facsimile transmission or
communicated by telephone at least twenty-four hours before the time of the
meeting. Such notice need not include a statement of the business to be
transacted at, or the purpose of, any such meeting.
Section 7. Waiver.
Attendance of a director at a meeting of the board of directors shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. A written waiver of notice signed by a director or
directors entitled to such notice, whether before, at, or after the time for
notice or the time of the meeting, shall be equivalent to the giving of such
notice.
Section 8. Quorum.
Except as may be otherwise provided by law, in the Certificate of
Incorporation, or in these Bylaws, the presence of a majority of the entire
board of directors shall be necessary and sufficient to constitute a quorum for
the transaction of business at any meeting of the board of directors, and the
act of a majority of the directors present at a meeting at which a quorum is
present shall be deemed the act of the board of directors. Less than a quorum
may adjourn any meeting of the board of directors from time to time without
notice.
Section 9. Participation in Meetings by Telephone.
Members of the board of directors, or of any committee thereof, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 10. Powers.
The business, property and affairs of the Corporation shall be managed
by or under the direction of its board of directors, which shall have and may
exercise all the powers of the Corporation to do all such lawful acts and
things as are not by law, by the Certificate of Incorporation, or by these
Bylaws, directed or required to be exercised or done by the stockholders.
Section 11. Compensation of Directors.
Directors shall receive such compensation for their services as shall
be determined by a majority of the entire board of directors, provided that
directors who are serving the Corporation as officers or employees and who
receive compensation
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for their services as such officers or employees shall not receive any salary
or other compensation for their services as directors.
Section 12. Action without a Meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of
the board of directors or any committee thereof may be taken without a meeting
if written consent thereto is signed by all members of the board of directors
or of such committee, as the case may be, and such written consent is filed
with the minutes of proceedings of the board or committee. Any such consent
may be in counterparts and shall be effective on the date of the last signature
thereon unless otherwise provided therein.
Article IV
COMMITTEES
Section 1. Designation of Committees.
The board of directors may establish committees for the performance of
delegated or designated functions to the extent permitted by law, each
committee to consist of one or more directors of the Corporation. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of such absent or
disqualified member.
Section 2. Committee Powers and Authority.
The board of directors may provide, by resolution or by amendment to
these Bylaws, that a committee may exercise all the power and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; provided, however, that a committee may not
exercise the power or authority of the board of directors in reference to
amending the Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors, pursuant to Article 4 of
the Certificate of Incorporation, fix the designations and any of the
preferences or rights of shares of preferred stock relating to dividends,
redemption, dissolution, any distribution of property or assets of the
Corporation, or the conversion into, or the exchange of shares for, shares of
any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any
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<PAGE> 9
series of stock or authorize the increase or decrease of the shares of any
series), adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
these Bylaws; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 3. Committee Procedures.
To the extent the board of directors or the committee does not
establish other procedures for the committee, each committee shall be governed
by the procedures established in Article III, Section 4 (except as they relate
to an annual meeting of the board of directors) and Article III, Sections 5, 6,
7, 9, 10, and 12 of these Bylaws, as if the committee were the board of
directors.
Article V
OFFICERS
Section 1. Number.
The officers of the Corporation shall be appointed or elected by the
board of directors. The officers shall be a chief executive officer, a
president and a chief operating officer, such number of executive vice
presidents as the board of directors may from time to time determine, such
number of vice presidents as the board of directors may from time to time
determine, a secretary, such number of assistant secretaries as the board of
directors may from time to time determine, and a treasurer. Any person may
hold two or more offices at the same time. Section 2. Additional Officers.
The board of directors may appoint such other officers as it shall
deem appropriate.
Section 3. Term of Office, Resignation.
All officers, agents and employees of the Corporation shall hold their
respective offices or positions at the pleasure of the board of directors and
may be removed at any time by the board of directors with or without cause.
Any officer may resign at any time by giving written notice of his resignation
to the chief executive officer, the president or to the secretary, and
acceptance of such resignation shall not be necessary to make it effective
unless the notice so provides. Any vacancy occurring in any office shall be
filled by the board of directors.
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Section 4. Duties.
The officers of the Corporation shall perform the duties and exercise
the powers as may be assigned to them from time to time by the board of
directors or the president and chief executive officer. In the absence of such
assignment, the officers shall have the duties and powers described in Sections
5 through 10 of this Article V.
Section 5. Chairman of the Board, President and Chief Executive Officer.
The chairman of the board, president and chief executive officer shall
be the chairman of the board of directors and the chief executive officer of
the Corporation and any authority and duties conferred by law exclusively upon
the president, and, subject to the direction and control of the board of
directors, shall manage the business of the Corporation. The chairman of the
board, president and chief executive officer may execute contracts, deeds and
other instruments on behalf of the Corporation. As chairman of the board, he
shall preside at all meetings of the stockholders and directors at which he may
be present and shall have such other duties, powers and authority as may be
prescribed elsewhere in these Bylaws. The board of directors may delegate such
other authority and assign such additional duties to the chairman of the board
as it may from time to time determine. The chairman of the board, president
and chief executive officer shall have full authority on behalf of the
Corporation to attend any meeting, give any waiver, cast any vote, grant any
discretionary or directed proxy to any person, and exercise any other rights of
ownership with respect to any shares of capital stock or other securities held
by the Corporation and issued by any other corporation or with respect to any
partnership, trust or similar interest held by the Corporation.
Section 6. Executive Vice President and Chief Operating Officer.
The executive vice president and chief operating officer shall be the
chief operating officer of the Corporation and, subject to the direction and
control of the board of directors and the chairman of the board, president and
chief executive officer, shall manage the business of the Corporation. The
executive vice president and chief operating officer may execute contracts,
deeds and other instruments on behalf of the Corporation. In the absence of
the chairman of the board, president and chief executive officer or in the
event of his disability, inability or refusal to act, the executive vice
president and chief operating officer shall perform the duties and exercise the
power of the chairman of the board, president and chief executive officer. The
executive vice president and chief operating officer shall have full authority
on behalf of the Corporation to attend any meeting, give any waiver, cast any
vote, grant any discretionary or directed proxy to any person,
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and exercise any other rights of ownership with respect to any shares of
capital stock or other securities held by the Corporation and issued by any
other corporation or with respect to any partnership, trust or similar interest
held by the Corporation.
Section 7. Vice President.
Each vice president, if any, shall perform such functions as may be
prescribed by the board of directors, the chairman of the board, president and
the chief executive officer, or the executive vice president and chief
operating officer. Each vice president may execute contracts, deeds and other
instruments on behalf of the Corporation. The vice president shall have full
authority on behalf of the Corporation to attend any meeting, give any waiver,
cast any vote, grant any discretionary or directed proxy to any person, and
exercise any other rights of ownership with respect to any shares of capital
stock or other securities held by the Corporation and issued by any other
corporation or with respect to any partnership, trust or similar interest held
by the Corporation. Upon the death, disability or absence of the executive
vice president and chief operating officer, the vice president (or if more than
one holds office, the vice president among those present who has held such
office for the longest continuous period, unless another method of selection
has been established by resolution of the board of directors) shall perform the
duties and exercise the powers of the executive vice president and chief
operating officer. Each vice president shall perform such other duties as the
board, the chairman of the board, president and chief executive officer, the
executive vice president and chief operating officer may from time to time
prescribe or delegate to him.
Section 8. Secretary.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and, upon the request of a person entitled to call a
special meeting of the board of directors, he shall give notice of any such
special meeting. He shall keep the minutes of all meetings of the
stockholders, the board of directors, or any committee established by the board
of directors. The secretary shall be responsible for the maintenance of all
records of the Corporation and may attest documents on behalf of the
Corporation. The secretary shall perform such other duties as the board, the
chairman of the board, president and chief executive officer, the executive
vice president and chief operating officer or any vice president may from time
to time prescribe or delegate to him.
Section 9. Treasurer.
The treasurer shall be responsible for the control of the funds of the
Corporation and the custody of all securities owned by the Corporation. The
treasurer shall perform such other
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duties as the board, the chairman of the board, president and chief executive
officer, the executive vice president and chief operating officer or any vice
president may from time to time prescribe or delegate to him.
Section 10. Compensation.
Officers shall receive such compensation, if any, for their services
as may be authorized or ratified by the board of directors. Election or
appointment as an officer shall not of itself create a right to compensation
for services performed as such officer.
Article VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1. Directors and Officers.
Subject to the Certificate of Incorporation and the other sections of
this Article VI, the Corporation shall indemnify, to the fullest extent
permitted by, and in the manner permissible under, the laws of the State of
Delaware in effect on the date hereof and as amended from time to time, any
person who was or is threatened to be made, a party to any threatened, pending
or completed action, suit, or proceeding, whether criminal, civil,
administrative, or investigative, by reason of the fact that he, is or was a
director or officer of the Corporation, or, is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, association, or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
including any action, suit or proceeding by or in the right of the Corporation
(a "Proceeding"). The Corporation shall advance all reasonable expenses
incurred by or on behalf of any such person in connection with any Proceeding
within ten days after the receipt by the Corporation of a statement or
statements from such person requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the expenses incurred by such
person and, if such person is an officer or director of the Corporation, shall
include or be preceded or accompanied by an undertaking by or on behalf of such
person to repay any expenses advanced if it shall ultimately be determined that
such person is not entitled to be indemnified against such expenses. Costs,
charges or expenses of investigating or defending Proceedings for which
indemnity shall be sought hereunder may be incurred without the Corporation's
consent; provided that no settlement of any such Proceeding may be made
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without the Corporation's consent, which consent shall not be unreasonably
withheld.
Section 2. Determination of Right to Indemnification.
(a) Any indemnification requested by any person under Section 1 of
this Article VI shall be made no later than forty-five (45) days after receipt
of the written request of such person, unless a determination is made within
said forty-five (45) day period (i) by a majority vote of directors who are not
parties to such Proceedings, or (ii) in the event a quorum of non-involved
directors is not obtainable, at the election of the Corporation, by independent
legal counsel in a written opinion, that such person is not entitled to
indemnification hereunder.
(b) Notwithstanding a determination under Section 2(a) above that
any person is not entitled to indemnification with respect to a Proceeding,
such person shall have the right to apply to any court of competent
jurisdiction for the purpose of enforcing such person's right to
indemnification pursuant to these Bylaws. Neither the failure of the
Corporation (including its board of directors or independent legal counsel) to
have made a determination prior to the commencement of such action that such
person is entitled to indemnification hereunder, nor an actual determination by
the Corporation (including its board of directors or independent legal counsel)
that such person is not entitled to indemnification hereunder, shall be a
defense to the action or create any presumption that such person is not
entitled to indemnification hereunder.
(c) The Corporation shall indemnify any person against all
expenses incurred in connection with any hearing or Proceeding under this
Section 2 if such person prevails on the merits or otherwise in such
Proceeding.
Section 3. Subrogation.
In the event of payment under these Bylaws, the indemnifying party or
parties shall be subrogated to the extent of such payment to all of the rights
of recovery of the indemnified person therefor, and such indemnified person
shall execute all papers required and shall do everything that may be necessary
to secure such rights, including the execution of such documents necessary to
enable the indemnifying party or parties to effectively bring suit to enforce
such rights.
Section 4. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that such person is entitled to indemnification
under this Article, and the Corporation shall have the burden of proof to
overcome that
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<PAGE> 14
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in these Bylaws) of itself adversely affect the right of any person to
indemnification or create a presumption that such person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that such person had reasonable cause to believe that his conduct
was unlawful.
Section 5. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provision of these Bylaws, no person shall
be entitled to indemnification or advancement of expenses under these Bylaws
with respect to any Proceeding brought by such person, unless the bringing of
such Proceeding or making of such claim shall have been approved by the board
of directors.
Section 6. Contract.
The foregoing provisions of this Article VI shall be deemed to be a
contract between the Corporation and each director and officer who serves in
such capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The foregoing rights of indemnification shall not be deemed exclusive
of any other rights to which any director or officer may be entitled apart from
the provisions of this Article VI.
Section 7. Surviving Corporation.
The board of directors may provide by resolution that references to
"the Corporation" in this Article VI shall include, in addition to this
Corporation, all constituent corporations absorbed in a merger with this
Corporation so that any person who was a director or officer of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, employee, or agent of another corporation,
partnership, joint venture, trust, association, or other entity shall stand in
the same position under the provisions of this Article VI with respect to this
Corporation as he would if he had served this Corporation in the same capacity
or is or was so
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<PAGE> 15
serving such other entity at the request of this Corporation, as the case may
be.
Section 8. Inurement.
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors, and administrators of such person.
Section 9. Employees and Agents.
To the same extent as it may do for a director or officer, the
Corporation may indemnify and advance expenses to a person who is not and was
not a director or officer of the Corporation but who is or was an employee or
agent of the Corporation.
Article VII
CAPITAL STOCK
Section 1. Certificates.
Each stockholder of the Corporation shall be entitled to a certificate
or certificates signed by or in the name of the Corporation by the chairman of
the board and chief executive officer, the president or a vice president, and
by the treasurer, an assistant treasurer, the secretary or an assistant
secretary, certifying the number of shares of stock of the Corporation owned by
such stockholder. Any or all the signatures on the certificate may be a
facsimile.
Section 2. Facsimile Signatures.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he, she
or it was such officer, transfer agent or registrar at the date of issue.
Section 3. Registered Stockholders.
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock of the Corporation as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it has actual or other notice thereof, except as provided by law.
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Section 4. Cancellation of Certificates.
All certificates surrendered to the Corporation shall be cancelled
and, except in the case of lost, stolen or destroyed certificates, no new
certificates shall be issued until the former certificate or certificates for
the same number of shares of the same class of stock have been surrendered and
cancelled.
Section 5. Lost, Stolen or Destroyed Certificates.
The board of directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate or
certificates to be lost, stolen or destroyed. In its discretion, and as a
condition precedent to the issuance of any such new certificate or
certificates, the board of directors may require that the owner of such lost,
stolen or destroyed certificate or certificates, or such person's legal
representative, give the Corporation and its transfer agent or agents,
registrar or registrars a bond in such form and amount as the board of
directors may direct as indemnity against any claim that may be made against
the Corporation and its transfer agent or agents, registrar or registrars on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate.
Section 6. Transfer of Shares.
Shares of stock shall be transferable on the books of the Corporation
by the holder thereof, in person or by duly authorized attorney, upon the
surrender of the certificate or certificates representing the shares to be
transferred, properly endorsed, with such proof or guarantee of the
authenticity of the signature as the Corporation or its agents may reasonably
require.
Section 7. Transfer Agents and Registrars.
The Corporation may have one or more transfer agents and one or more
registrars of its stock, whose respective duties the board of directors may,
from time to time, define. No certificate of stock shall be valid until
countersigned by a transfer agent, if the Corporation shall have a transfer
agent, or until registered by the registrar, if the Corporation shall have a
registrar. The duties of transfer agent and registrar may be combined.
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Article VIII
SEAL
The board of directors may adopt and provide a seal which shall be
circular in form and shall bear the name of the Corporation and the words
"Seal" and "Delaware," and which, when adopted shall constitute the corporate
seal of the Corporation.
Article IX
FISCAL YEAR
The fiscal year for the Corporation shall be established by resolution
of the Board of Directors.
Article X
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, these
Bylaws may be altered, amended or repealed at any regular meeting of the
stockholders (or at any special meeting thereof duly called for that purpose)
by a majority vote of the shares represented and entitled to vote at such
meeting; provided that in the notice of such special meeting, notice of such
purpose shall be given. Subject to the laws of the State of Delaware, the
Certificate of Incorporation and these Bylaws, the board of directors may, by
majority vote of those present at any meeting at which a quorum is present,
amend these Bylaws, or enact such other Bylaws as in their judgment may be
advisable for the regulation of the conduct of the affairs of the Corporation.
----------------------------------------
Secretary
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EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
______ ______
NHANCEMENT TECHNOLOGIES INC.
______ Shares are with $.01 Par Value
COMMON STOCK
This certifies that ___________________________________________ is the
owner of ________________ Shares of the Capital Stock of Nhancement Technologies
Inc., fully paid and non-assessable, transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and its Corporate Seal
to be hereunto affixed this ____ day of _____________ A.D. 19__.
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Secretary President
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of October 25, 1996 by and between NHANCEMENT TECHNOLOGIES,
INC., a Delaware corporation ("Parent"), and JAMES GILLESPIE (the
"Stockholder").
W I T N E S S E T H
WHEREAS, pursuant to the Agreement and Plan of Merger, of even date
herewith, by and among Parent, VPI Acquisition Corporation, a Delaware
corporation, Voice Plus, Inc., a California corporation ("VPI") and Stockholder
(the "Merger Agreement"), in exchange for all of the outstanding capital stock
of VPI, Parent has agreed to issue to Stockholder, as part of the consideration,
the number of shares of common stock of Parent, par value $.01 per share (the
"Parent Common Stock"), equal to the quotient of $2,850,000 divided by the IPO
Price (as defined in the Merger Agreement) and VPI will become a wholly-owned
subsidiary of Parent ("VPI Sub");
WHEREAS, the ability of Stockholder to sell his shares of Parent Common
Stock is subject to certain restrictions under the Securities Act of 1933, as
amended (the "Securities Act"); and
WHEREAS, as a condition to the Merger Agreement, Parent has agreed to
provide Stockholder with a mechanism that will permit him, subject to a market
stand-off agreement, to sell certain of his shares of Parent Common Stock in the
future.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements, and subject to the terms and conditions herein
contained, the parties hereto hereby agree as follows:
1. REGISTRATION RIGHTS.
1.1 Contingent Registration. Stockholder, during the six months
following the first anniversary of the closing of an underwritten initial public
offering of Parent Common Stock pursuant to a registration statement (the "IPO
Registration Statement") filed under the Securities Act (the "IPO"), may request
the registration under the Securities Act on Form S-3 or any similar short-form
registration statement then in effect, of that number of Registrable Shares
equal to the quotient of Six Hundred Thousand Dollars ($600,000) divided by the
price per share to the public in the IPO (the "Contingent Right"), if, and only
if, VPI Sub has achieved a Net Profit (defined below) for calendar year 1997 of
at least Seven Hundred Fifty Thousand Dollars ($750,000) (the "Profit Target");
provided, that, in the event of the implementation during calendar year 1997 of
a management decision made by Parent concerning the operations of VPI Sub or
the duties and responsibilities of its key employees which adversely affects
the Net Profit,
<PAGE> 2
the Profit Target shall be adjusted by an amount mutually agreed to among
Stockholder, Parent and the underwriter of the IPO. "Net Profit" shall mean net
profit before taxes of VPI Sub, as determined in accordance with generally
accepted accounting principles consistently applied, consistent with operations
of VPI in the ordinary course prior to the Merger, without giving effect to
Parent's overhead allocations or to legal and accounting fees and other
extraordinary expenses incurred in connection with the acquisition at Parent's
direction of the stock or assets of other businesses. The Contingent Right is
not subject to the limitations of Section 1.3.
1.2 Demand Registration. Subject to the limitations of Section 1.3,
at any time after the eighteen-month anniversary of the closing of the IPO, and
ending on the 36- month anniversary of such closing, Stockholder may request the
registration, once and only once, under the Securities Act of all or part of the
Registrable Shares (as defined in Section 8.1) then outstanding on Form S-3 or
any similar short-form registration statement then in effect (a "Demand
Registration"). Subject to the conditions of Section 2, Parent shall use its
best efforts to file such registration statement under the Securities Act as
promptly as practicable after the date any such request is received by Parent
and to cause such registration statement to be declared effective. Parent shall
notify Stockholder promptly when any such registration statement has been
declared effective. If, as a result of limitations pursuant to Sections 2.1.1 or
2.1.2, not all the Registrable Shares requested to be registered in such Demand
Registration are registered, such request will not constitute a Demand
Registration for purposes of this Section 1.2.
1.3 "Market Stand-Off" Agreement. Stockholder hereby agrees that,
for a period commencing on the date hereof and ending 24 months following the
effective date of the IPO Registration Statement (the "Lockup Period"),
Stockholder shall not, without the prior written consent of the managing
underwriter of the IPO, directly or indirectly, sell, offer to sell, or contract
to sell (including, without limitation, any short sale), any Registrable Shares
or other securities of Parent convertible into or exchangeable or exercisable
for or evidencing any right to purchase or subscribe for any shares of Parent
Common Stock ("Parent Securities") held by Stockholder at any time during such
period; provided, that after one year the restrictions of this Section 1.3 shall
not apply to the shares permitted to be registered pursuant to Section 1.1
hereof; further provided, that commencing eighteen (18) months from the
effective date of the IPO Registration Statement, Stockholder may sell, offer to
sell, or contract to sell (including, without limitation, any short sale, up to
an aggregate of 50% of any Parent Securities held by him, or any beneficial
interest in them. Stockholder further agrees that, during the Lockup Period, the
Underwriter shall be given the first right of refusal to sell any and all Parent
Securities held by Stockholder and which Stockholder may wish to sell pursuant
to Rule 144 promulgated under the Securities Act.
In order to enforce the foregoing covenant, Parent may impose
stop-transfer instructions with respect to the Parent Securities held by
Stockholder (and the Parent Securities held by every other person subject to the
foregoing restriction) until the end of such period.
In connection with the foregoing, Stockholder hereby agrees to the
placement of restrictive legends on all certificates representing Parent
Securities held by Stockholder and agrees
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to execute promptly any written agreement evidencing this "market stand off"
agreement in favor of the managing underwriter of the IPO.
2. CONDITIONS AND LIMITATIONS ON REGISTRATIONS.
2.1 The registration rights granted by Sections 1.1 and 1.2 hereof
are subject to the following additional conditions and limitations:
2.1.1 In the event the Demand Registration is underwritten, if
the managing underwriter advises Parent in writing that in its opinion the
number of Registrable Shares and other securities requested to be included in
such registration exceeds the number that can be sold in such offering, Parent
will give priority for inclusion in such registration (a) first, to securities
requested to be included in such Demand Registration that are Registrable Shares
and (b) second, to other securities requested to be included in such
registration, if any.
2.1.2 Notwithstanding the receipt of a request for a Demand
Registration under Section 1.2 hereof, Parent shall always have the right to
initiate a primary offering of its securities at any time. If Parent elects to
do so, (a) subject to Section 2.1.5 hereof, it may postpone the filing of a
registration statement in response to such demand for up to 180 days after
receipt of such request for registration or (b) it may include the Registrable
Shares and other securities subject to the demand in such registration
statement. In the event Registrable Shares and other securities subject to the
demand are included in such registration statement, Parent will give priority
for inclusion in such registration (i) first, to the securities Parent proposes
to sell, (ii) second, to shares of Parent Common Stock requested to be included
by holders of securities subject to that certain Investors' Rights Agreement
dated as of June 1, 1994, by and among Parent and the Investors named therein,
as amended, and to securities held by the managing underwriter, if any, of
Parent's offering, (iii) third, to shares of Parent Common Stock requested to be
included by holders of securities subject to that certain Registration Rights
Agreement dated as of September 1, 1996, by and among Parent and the Investors
named therein, as amended from time to time, and (iv) fourth, to shares of
Parent Common Stock held by Pari Passu Stockholders (as defined in Section 8.2)
and Registrable Shares, pro rata among the holders of such securities on the
basis of the number of shares held. Parent's determination of priority for
inclusion in any such registration statement shall be final and binding, absent
manifest error.
2.1.3 Parent shall not be obligated to effect the Contingent
Registration or the Demand Registration pursuant to Sections 1.1 or 1.2,
respectively, if Form S-3 is not available for such offering or, in the case of
the Demand Registration, if Parent delivers to Stockholder an opinion, in form
and substance acceptable to Stockholder, of counsel satisfactory to Stockholder
pursuant to Rule 144 under the Act within a consecutive three-month period.
2.1.4 Parent may delay the filing or the effective date of any
registration statement that includes Registrable Shares if, at the time of a
request made under Section 1.1 or Section 1.2, or at the time of filing or
after filing but before the effective date of
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<PAGE> 4
such registration statement, Parent is in possession of material nonpublic
information that Parent does not deem advisable to disclose in a registration
statement, whether such information relates to a financing project, pending
acquisition, merger, or other material corporate transaction to which Parent is
or expects to be a party, or any other matter or matters. If Parent delays the
filing or effective date of any such registration statement, Parent will
promptly furnish Stockholder with notice of the fact that filing or
effectiveness will be delayed by reason of material nonpublic information, and
will promptly advise Stockholder when such delay is no longer applicable.
Notwithstanding the foregoing, Parent shall not delay the filing or effective
date of any such registration statement for a period of more than 90 days.
2.1.5 Parent shall not be required to proceed with the
Contingent Registration or the Demand Registration for a period of 180 days from
the completion of sales of Registrable Shares in any prior underwritten
registration; provided, however, that Parent shall proceed with such
registration if and to the extent permitted by the managing underwriter of the
offering to which such prior registration relates.
2.1.6 Parent shall have the right to notify such of its
stockholders as it shall desire of any registration pursuant to Sections 1.1 and
1.2 and to invite them to participate in such registration. Further, Parent
shall also be entitled to participate in any such registration.
2.1.7 The registration rights granted by Sections 1.1 and 1.2
hereof shall not be transferable or assignable without Parent's prior written
consent. Any purported transfer or assignment in violation of this provision
shall be void.
2.1.8 Parent's obligations to register Registrable Shares under
Section 1.2 shall terminate on the earlier of: (a) the 36-month anniversary of
the closing of the IPO, or (b) the date on which Stockholder is able to transfer
all of his Registrable Shares in accordance with Rule 144, promulgated under the
Securities Act, in a consecutive three-month period.
3. EFFECTIVENESS. Parent will use its reasonable best efforts to
maintain the effectiveness for up to 180 days of any registration statement
effected pursuant to Sections 1.1 or 1.2, pursuant to which any of the
Registrable Shares are being offered; and, from time to time, will amend or
supplement such registration statement and the prospectus contained therein to
the extent necessary to comply with the Securities Act and any applicable state
securities statute or regulation. Parent will also provide Stockholder with as
many copies of the prospectus contained in any such registration statement as he
may reasonably request.
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<PAGE> 5
4. INDEMNIFICATION.
4.1 Indemnification of Stockholder In the event that Parent
registers any of the Registrable Shares under the Securities Act, Parent will
indemnify and hold harmless Stockholder from and against any and all losses,
claims, damages, expenses or liabilities to which he becomes subject under the
Securities Act and, except as hereinafter provided, will reimburse Stockholder
for legal or other expenses, if any, reasonably incurred by him in connection
with investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented by Parent) 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 in order to make the
statements therein not misleading, unless (a) such untrue statement or omission
was made in such registration statement, preliminary prospectus or prospectus in
reliance upon and in conformity with information furnished in writing to Parent
in connection therewith by Stockholder expressly for use therein or (b) such
violation arises from the failure of Stockholder to comply with any legal
requirement applicable to him to deliver a copy of the prospectus or any
supplements or amendments thereto after Parent has furnished Stockholder with a
sufficient number of copies of the same. Promptly after receipt by Stockholder
of notice of the commencement of any action in respect of which indemnity may be
sought from Parent, Stockholder shall notify Parent in writing of the
commencement thereof and, subject to the provisions hereinafter stated, Parent
shall assume the defense of such action (including the employment of counsel
selected by Parent, who shall be counsel reasonably satisfactory to
Stockholder), and the payment of expenses insofar as such action shall relate to
any alleged liability in respect of which indemnity may be sought against
Parent. Stockholder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of Parent. Parent shall not be required
to indemnify any person for any settlement of any such action effected without
Parent's prior written consent. Parent shall not, except with the approval of
Stockholder, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to the parties being so indemnified of a release from all liability in
respect to such claim or litigation.
4.2 Indemnification of Parent. In the event that Parent registers
any of the Registrable Shares under the Securities Act, Stockholder will
indemnify and hold harmless Parent, each of its directors, each of its officers
who have signed the registration statement, each underwriter of the Registrable
Shares so registered (including any broker or dealer through whom the shares may
be sold) and each person, if any, who controls Parent within the meaning of
Section 15 of the Securities Act from and against any losses, claims, damages,
expenses or liabilities, joint or several, to which they become or any of them
may become subject under the Securities Act and, except as hereinafter provided,
will reimburse Parent, and each such director, officer, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
or any of them in connection with investigating or defending any actions whether
or not
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<PAGE> 6
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement or in any preliminary prospectus or prospectus (as from time to time
amended or supplemented) 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 in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to Parent in connection
therewith by Stockholder expressly for use therein. Promptly after receipt of
notice of the commencement of any action in respect of which indemnity may be
sought against Stockholder, Parent will notify Stockholder in writing of the
commencement thereof, and Stockholder shall, subject to the provisions
hereinafter stated, assume the defense of such action (including the employment
of counsel selected by Stockholder, who shall be counsel reasonably
satisfactory to Parent) and the payment of expenses insofar as such action
shall relate to the alleged liability in respect of which indemnity may be
sought against Stockholder. Parent and each such director, officer, underwriter
or controlling person shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall not be at the expense of Stockholder.
Stockholder shall not be required to indemnify any person for any settlement of
any such action effected without Stockholder's consent.
5. LISTING AND EXCHANGE ACT MATTERS. Parent will, at its expense, upon
the effectiveness of a registration statement covering the sale of Registrable
Shares, list the Registrable Shares on The Nasdaq Stock Market and maintain such
listing of the securities that are so registered.
6. FURTHER OBLIGATIONS OF PARENT. Whenever, under the preceding
Sections of this Agreement, Parent is required to register Registrable Shares,
it agrees that it shall also do the following at its cost:
6.1 Furnish to Stockholder such copies of each preliminary and final
prospectus and such other documents as Stockholder may reasonably request to
facilitate the public offering of his Registrable Shares.
6.2 Before filing any registration statement or any amendment
thereto that includes Registrable Shares, furnish to Stockholder copies of the
sections in the registration statement that include information relating to
Stockholder for his review and comment and Stockholder agrees that he shall
provide Parent and the managing underwriter, if any, with all information
regarding Stockholder that is reasonably requested to be included in the
registration statement.
6.3 With respect to a registration of Registrable Shares that is not
underwritten, notify Stockholder, at any time when a prospectus relating to a
registration statement is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes
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an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and at the request of
Stockholder prepare and furnish to Stockholder such number of copies of a
supplement to or an amendment of such prospectus as may be reasonably necessary
so that, as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus shall not include an 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 not misleading in light of the circumstances then
existing.
6.4 Use its reasonable efforts to register or qualify the
Registrable Shares covered by said registration statement under the applicable
securities or "blue sky" laws of such jurisdictions as Stockholder shall
reasonably request; provided, however, that Parent shall not be obligated to
qualify to do business in any jurisdiction where it is not then so qualified or
to take any action which would subject it to service of process in suits other
than those arising out of the offer or sale of the securities covered by the
registration statement in any jurisdiction where it is not then so subject.
6.5 Use its reasonable efforts to obtain all necessary approvals
from the National Association of Securities Dealers, Inc.
6.6 If requested by the managing underwriter in an underwritten
secondary offering in which Registrable Shares are included, enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain such representations and warranties of Parent and such other terms
and provisions as are customarily contained in underwriting agreements with
respect to secondary offerings, including indemnification and contribution to
the effect and to the extent provided in Sections 4.1 and 4.2 hereof.
6.7 During the term of this Agreement and for a period of at least
180 days following the date on which registration rights under this Agreement
terminate with respect to all Registrable Shares, Parent will continue to file
reports under the Securities Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder to the extent required from time to time to enable Stockholder to
sell such Registrable Shares with the limitation of the exemptions provided by
Rule 144 under the Securities Act as such rule may be amended from time to time
and any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission.
7. Expenses.
7.1 In the case of a registration pursuant to Section 1.1, Parent
shall bear all costs and expenses of such registration with respect to
Registrable Shares included therein, including, but not limited to, printing,
legal and accounting expenses, Securities and Exchange Commission filing fees
and "blue sky" fees and expenses, and, in addition, Parent shall bear all
reasonable costs and expenses of Stockholder paid to an underwriter, broker or
dealer for effecting the sale of the Registrable Shares thus registered.
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<PAGE> 8
7.2 With respect to expenses in connection with the Demand
Registration pursuant to Section 1.2, the parties agree as follows:
(a) In the case of an underwritten registration in which Parent
does not participate, Parent shall bear all costs and expenses of such
registration with respect to Registrable Shares included therein, including, but
not limited to, printing, legal and accounting expenses, Securities and Exchange
Commission filing fees and "blue sky" fees and expenses, which expenses would
have been incurred by Parent had the offering not been underwritten.
(b) In the case of an underwritten registration in which Parent
participates, or a registration that is not underwritten, Parent shall bear all
costs and expenses of each such registration with respect to Registrable Shares
included therein, including, but not limited to, printing, legal and accounting
expenses, Securities and Exchange Commission filing fees and "blue sky" fees and
expenses.
(c) Notwithstanding Sections 7.2(a) and (b), in no event shall
Parent have any obligation to pay or otherwise bear (i) any portion of the fees
or disbursements of counsel for Stockholder or (ii) any portion of the
underwriters' or broker-dealers' commissions or discounts attributable to the
Registrable Shares being offered and sold by Stockholder.
8. Definitions.
8.1 Registrable Shares. "Registrable Shares" means and includes the
shares of Parent Common Stock issued to Stockholder pursuant to the Merger
Agreement. As to any particular Registrable Shares, such securities will cease
to be Registrable Shares when (a) they have been effectively registered under
the Securities Act and disposed of in accordance with the registration statement
covering them, (b) they are transferred pursuant to Rule 144 or Rule 144A (or
any similar provisions that are then in effect) under the Securities Act, (c)
they are transferred in a private placement effected in accordance with
applicable federal and state securities laws and regulations, or (d) they have
been otherwise transferred and new certificates for them not bearing a
restrictive legend have been issued by Parent and Parent shall not have "stop
transfer" instructions against them.
8.2 Pari Passu Stockholders. "Pari Passu Stockholders" means and
includes certain holders of Parent Common Stock granted registration rights
similar to those granted herein, in connection with acquisition agreements
entered into by Parent on or before the two-year anniversary of its IPO. Parent
shall, upon written request, provide to Stockholder a list of Pari Passu
Stockholders, including their names and respective numbers of shares of Parent
Common Stock held by them. Parent's determination as to which of its
stockholders are Pari Passu Stockholders shall be final and binding, absent
manifest error.
9. Miscellaneous.
-8-
<PAGE> 9
9.1 Waiver. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
9.2 Entire Agreement; Modifications. This Agreement represents the
entire understanding between the parties with respect to the subject matter
hereof, and this Agreement supersedes any and all prior understandings,
agreements, plans, and negotiations, whether written or oral, with respect to
the subject matter hereof. All modifications to this Agreement must be in
writing and signed by the party against whom enforcement of such modification is
sought.
9.3 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.4 Notices. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery, or
first-class mail, certified or registered, by facsimile transmission, or by
commercial overnight courier and shall be deemed to have been duly given upon
personal delivery to the party to be notified, automatic receipted delivery by
facsimile transmission, one day after deposit with a commercial overnight
courier to the address specified below, or four days after deposit in the U.S.
mail as provided above and addressed as follows:
If to Parent:
Nhancement Technologies, Inc.
Attn: General Counsel
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Tel: (303) 271-0505
Fax: (303) 271-9493
If to Stockholder:
James Gillespie
198 Country Club Lane
Incline Village, NV 89451
Any party may change such party's address by notice given pursuant to this
Section 9.3.
9.5 Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, each of the parties' heirs, executors, administrators,
successors and assigns. No party may assign its obligations hereunder without
the written consent of the other parties hereto, and any purported assignment in
violation of this provision shall be void.
9.6 Headings. The Section headings herein are intended for reference
and shall not by themselves determine the construction or interpretation of this
Agreement.
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<PAGE> 10
9.7 Gender; Number. Words of gender may be read as masculine,
feminine, or neuter, as required by context. Words of number may be read as
singular or plural, as required by context.
9.8 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Colorado without application of the conflict of
laws principles which would otherwise provide for the application of the
substantive laws of another jurisdiction.
9.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Agreement.
[The remainder of this page intentionally left blank.]
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
PARENT:
NHANCEMENT TECHNOLOGIES, INC.
By: /s/ ESMOND T. GOEI
--------------------------------
Name: Esmond T. Goei
Title: President and CEO
STOCKHOLDER:
/s/ JAMES GILLESPIE
-----------------------------------
James Gillespie
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<PAGE> 1
EXHIBIT 10.1
FORMATION AGREEMENT
This Formation Agreement (this "Agreement") is made as of the 15th day
of October, 1996, by and between BIOFACTORS, INC., a Delaware corporation
("BFI"), and VOICE PLUS, INC., a California corporation ("VPI").
WITNESSETH:
WHEREAS, BFI is the developer and marketer of a system to assess
performance readiness called the FACTOR 1000(R) system;
WHEREAS, VPI is a systems integrator and national distributor of voice
processing equipment;
WHEREAS, BFI and VPI have determined that it would be desirable to
combine the marketing, distribution and service capabilities of VPI with the
experienced product and business development skills of BFI management and BFI's
proprietary FACTOR 1000 technology;
WHEREAS, to effect such combination, BFI and VPI have determined that
BFI and VPI should become wholly-owned subsidiaries of a newly formed Delaware
corporation ("Parent");
WHEREAS, BFI and VPI have also determined that, as part of such
combination, Parent should undertake an underwritten initial public offering of
its common stock ("Parent Common Stock") pursuant to a registration statement
filed under the Securities Act of 1933, as amended (the "IPO"); and
WHEREAS, BFI and VPI intend that the foregoing steps be accomplished
pursuant to an integrated transaction which constitutes a Section 351
transaction for federal income tax purposes.
THEREFORE, in consideration of the foregoing and of the mutual promises
and agreements herein contained, and intending to be legally bound, the parties
hereby agree as follows:
<PAGE> 2
1. Formation of Parent. BFI and VPI shall cause the formation of Parent
as a corporation under the laws of the State of Delaware pursuant to a
Certificate of Incorporation substantially in the form attached hereto as
EXHIBIT A. Initially, for purposes of effecting the transactions described
herein, BFI and VPI each shall own 50 percent of the issued and outstanding
shares of capital stock of Parent.
2. Formation of Merger Subsidiaries. To facilitate the mergers
described in Section 3, Parent shall cause the formation of two corporations
under the laws of the State of Delaware (the "Merger Subs"), and shall acquire
all of the issued and outstanding shares of their capital stock.
3. Mergers. In furtherance of the intent of the parties that BFI and
VPI become wholly-owned subsidiaries of Parent, pursuant to agreements
substantially in the forms attached hereto as EXHIBITS B and C, the Merger Subs
shall be merged with and into BFI and VPI, respectively, the separate corporate
existence of the Merger Subs shall cease, and BFI and VPI shall be the surviving
corporations.
4. Public Offering. The parties hereby agree to use all commercially
reasonable efforts to cause Parent to file a registration statement
("Registration Statement") with the Securities and Exchange Commission to
initiate the IPO and to cause the Registration Statement to be declared
effective on or before March 31, 1997. It is further agreed that BFI shall
advance to Parent sufficient funds to pay all costs, fees and expenses of the
IPO (except the underwriting discount and fees in connection with the concurrent
registration and sale of shares of Parent Common Stock owned by the sole
stockholder of VPI), which advance shall be repaid upon completion of the IPO.
5. Section 351 Treatment. The obligation of each of BFI and VPI to
consummate each of the transactions described in Sections 3 and 4 in which it is
a participant shall be contingent upon all of the transactions described in
Sections 3 and 4 being consummated. The parties intend that such transactions
shall be integrated for federal income tax purposes and shall together
constitute a single transaction described in Section 351 of the Internal Revenue
Code of 1986, as amended, as a transfer of property to Parent.
6. Miscellaneous.
a. This Agreement constitutes the entire understanding between the
parties with respect to the subject matter contained herein and in the Exhibits
hereto and supersedes any prior understandings and agreements among them
respecting such subject matter. This Agreement may be amended, supplemented, or
terminated only by a written instrument duly executed by both parties.
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<PAGE> 3
b. This Agreement may not be assigned by either party.
c. This Agreement shall be governed by and construed under the law
of the State of Colorado, disregarding Colorado principles of conflicts of laws
which would otherwise provide for the application of the substantive laws of
another jurisdiction.
d. This Agreement may be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument.
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<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
BIOFACTORS, INC.
By: /s/ ESMOND T. GOEI
---------------------------------
Esmond T. Goei, President, CEO
and Chairman
VOICE PLUS, INC.
By: /s/ JAMES S. GILLESPIE
---------------------------------
James S. Gillespie, President
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<PAGE> 1
Exhibit 10.5
LICENSE AGREEMENT
THIS AGREEMENT is made and entered into this 24th day of November,
1988, by and between SYSTEMS TECHNOLOGY, INC., a California corporation ("STI"),
and COGNITIVE SYSTEMS, INC., a California corporation ("CSI").
RECITALS
A. STI has developed a computer system and associated protocols and
methodology collectively named Critical Task Testing (CTT) designed to test
operator impairment in an objective manner. This system is described briefly in
Exhibit "B" hereto. This system is hereinafter referred to as the "Property".
The software component of the Property is sometimes hereinafter referred to as
the "Software", and the technology underlying the Property is sometimes
hereinafter referred to as the "Technology".
B. CSI desires to market the Property to customers in the market
segments hereinafter set forth.
C. An agreement was executed on April 6, 1988 between CSI and STI
(hereinafter "First Agreement") for evaluating the marketing and manufacture of
systems incorporating the technology, software and property of this Agreement.
This Agreement upon execution supersedes the First Agreement and the First
Agreement thereafter has no force and effect.
NOW, THEREFORE, the parties hereto agree as follows:
1. EXCLUSIVE LICENSE.
(a) Grant of License. Except as is specifically reserved in
subparagraph 1(c) below, STI hereby grants to CSI a sole and exclusive license
to (i) develop and manufacture or have manufactured devices incorporating the
Property, Software and/or Technology, including all future developments and
improvements that may be made by STI, and (ii) reproduce, use, market and
otherwise fully exploit the commercial potential of the Property, Software,
Technology and/or future developments thereof in the market segments set forth
in Exhibit "A" attached hereto and
<PAGE> 2
incorporated herein. Without limiting the foregoing, CSI shall have the sole
and exclusive right to use the Property in connection with the routine testing
of employees, customers, clients or agents for impairment. Except as granted
to CSI, the right to future development of the Property, Software and/or
Technology shall be left exclusively to STI.
(b) Sublicenses and Assignment. STI also grants to CSI the right to
issue sublicenses during the term of this Agreement. Each sublicense shall
include all of the rights and obligations due STI under the terms of this
Agreement. This Agreement may be assigned by CSI to one of its subsidiaries or
affiliates, provided such subsidiary or affiliate shall be bound by all the
terms and conditions of this Agreement.
(c) Reservation. STI specifically reserves from the license being
granted to CSI, the research market in the same market segments in Exhibit "A".
Notwithstanding the preceding sentence, this reservation shall apply only to
nonprofit entities, including but not limited to, government organizations,
research foundations, educational and trade foundations, and only the right to
use, develop, manufacture and sell the Property for a purpose other than the
routine testing of employees, customers, clients or agents for impairment.
(d) Royalties.
(1) Within sixty (60) days following the conclusion of each
calendar quarter following date of signing this Agreement, CSI shall pay to STI
a royalty of 8-1/2% of the gross contract revenue for CTT related impairment
testing products and services. This only includes employees tested for which CSI
is paid, and does not include employees tested for other purposes such as for
calibration or experimental reasons. STI is not entitled to royalty revenue
derived from installation, maintenance or any other revenues that are not
directly related to CTT impairment testing of employees.
2. TERM.
This Agreement shall commence on the date hereof and continue for an
initial period of five years after the expiration of the First Agreement. The
term of the Agreement may be extended by CSI for a further period of five years
by written notice given to STI in the manner provided in paragraph 15, below at
any time prior to the expiration of such initial period.
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<PAGE> 3
3. ACCOUNTING
(a) Records. CSI shall maintain accurate records covering the
transactions relating to employee testing and assistance projects which utilize
the Property (the "Records"). "Records" shall mean property related (Records)
relating to the Property related employee testing and assistance projects. Each
payment of the Quarterly Fee shall be accompanied by a statement ("fee
statement") setting forth the computation of the Quarterly Fee in accordance
with subparagraph 3(b) below. STI and/or STI's agent, upon giving seven (7) days
prior written notice to CSI, shall have the right to inspect the Records during
normal business hours at CSI's place of business. STI agrees to sign or require
its agent to sign reasonable non-disclosure Agreements obliging STI and its
agent not to disclose confidential information of CSI that does not pertain to
STI, the employee testing and assistance projects, or the Records.
(b) Fee Statements. Each fee statement shall accurately contain the
following information:
(1) The amount in dollars of Gross Testing Receipts from all
Property related employee testing.
(2) The net Quarterly Fee due to STI.
(c) Due Date. Payment with respect to each fee statement shall be
due and payable within thirty (30) days after such statements are dated.
4. MINIMUM PAYMENT.
If the total royalty payment made by CSI to STI at the end of the third
year after execution or this agreement does not exceed $75,000, then STI shall
have the option to terminate this agreement, except that CSI may maintain this
agreement by payment to STI of the difference between the received royalties and
the amount indicated above.
5. MAJOR DEVELOPMENTS.
Major developments involving uses for the Property not know at the date
of this Agreement shall be communicated in writing promptly by STI to CSI and
CSI to STI. Upon request by CSI or STI, (each party,) shall furnish to the other
detailed descriptions of each such major development.
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<PAGE> 4
6. SOFTWARE MAINTENANCE AND PRODUCT DEVELOPMENT.
(a) Billing for Technical Assistance. STI shall be entitled to bill
CSI on a time and materials basis, at its standard hourly rate, for the time
cost and labor cost expended in maintaining the Software or providing CSI with
any technical assistance referred to in this paragraph 6; provided, however,
that STI shall not be entitled to bill CSI for time and labor costs spent on
correcting errors or defects in the Software. All billable technical assistance
shall be estimated by STI and agreed upon in writing by CSI before STI performs
services in connection with any project. STI shall provide monthly statements
for technical assistance which shall itemize the expenditure of time and
materials on a project by project basis.
(b) Maintenance of the Software. STI and CSI acknowledge and agree
that the Software will, from time to time, undergo changes as necessary to
maintain the Property in a commercially viable condition or to exploit certain
or all market segments listed in Exhibit "A". From time to time during the term
of this Agreement, CSI may request STI to make reasonable modifications and
improvements to the software to enhance the marketability of the Property and
the devices, products and special equipment manufactured therefrom, and to
correct any errors or defects that CSI has reason to believe exist in the
Software. STI shall use its best efforts to make such modifications and
improvement, and shall initiate activity to verify and remedy any such error or
defect within 5 working days after written notification. If a requested
modification and/or improvement, or verified error or defect, cannot be remedied
within 60 days, or if STI is unwilling or unable to maintain the Software in a
commercially viable condition, then upon written demand by CSI, STI shall
promptly provide appropriate source codes and consultation to CSI as necessary
to enable CSI to make the modifications or improvements, correct the errors or
defects, and/or maintain the Software in a commercially viable condition.
(c) Product Development and Software Conversion. STI and CSI
acknowledge and agree that the successful commercial exploitation of the
Property will require the manufacture of one or more end devices incorporating
the Property and/or Technology covered by this Agreement. STI and CSI also
acknowledge and agree that it may be necessary at some future time to convert
the Software into another medium (such as firmware), or into another computer
language, in order to successfully market the product. From time to time during
the term of this Agreement, CSI may request STI to provide technical assistance
to CSI and to those
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<PAGE> 5
persons or entities with which CSI contracts or which CSI directs for purposes
of undertaking the tasks expressed and implied in this subparagraph 6(c), and
upon such request by CSI, STI shall make available to CSI qualified technical
personnel for 15 man days per calendar quarter for the purpose of providing such
technical assistance. If STI is unwilling or unable to provide qualified
technical personnel upon request from CSI, then CSI shall have the right to
engage independent contractors and employees as necessary to obtain the
technical assistance required to complete the tasks expressed and implied by
this paragraph 6, and STI shall make available to such independent contractors
and employees all documents and information relevant to completing such tasks.
Without limiting the foregoing, STI shall promptly supply necessary
specifications of the Software, Technology, and Property as reasonably requested
by CSI to facilitate the development of the Property into a product or products
which may be utilized in providing services or sold to prospective customers, in
the market segments listed in Exhibit "A".
(d) Rights in New Development. Any new developments or improvements
made to the devices or Property by CSI or at CSI's expense shall belong to CSI.
CSI grants STI the right to use such new developments or improvements in the
field designated to STI under this Agreement. Upon any termination of this
License Agreement, CSI continues to own the developments or improvements and STI
is limited thereafter to use of the
development or improvement only in STI's field designated in this Agreement.
7. REPRESENTATION AND WARRANTY OF STI.
(a) Right and Power to License. STI represents and warrants that it
is the sole owner of all right, title and interest in and to the Property, and
patents or patent applications therefore, and that it has the full right and
power to grant this license in the manner and form herein expressed, free and
clear of any adverse assignment, grant or any other encumbrances inconsistent
herewith.
(b) Exclusive License. STI represents and warrants that it has not
granted any license relating to the Property in the market segment set forth in
Exhibit "A" to any party and will not negotiate or grant any such license to any
party other than CSI during the term of this Agreement, including any extension
hereof.
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<PAGE> 6
(c) Fitness. STI represents and warrants that the Property is in
substantial accordance with the description previously supplied to CSI, a copy
of which is attached hereto as Exhibit "B" and incorporated herein. This
warranty is in addition to all other warranties, express or implied, including
the implied warranty of merchantability, and fitness for a particular purpose.
8. MANUFACTURING.
(a) Basic Design Specifications. STI shall assist CSI in the
development of a definitive set of basic design specifications (the
"Specifications") for use in manufacturing devices which (i) embody the Property
and (ii) are suitable for use in CSI 's employee testing and assistance
projects. The specifications shall be determined by mutual agreement of the
parties; provided, however, that if the parties fail to reach agreement as to
the Specifications, or any part thereof, CSI shall have the right to resolve any
point of disagreement as CSI, in its sole discretion, deems appropriate.
(b) STI and CSI acknowledge and agree that in order to successfully
exploit the Property CSI must obtain the services of qualified and experienced
contractors that have the technical, competence to manufacture in a timely
manner, and according to the Specifications, the devices, products and
specialized equipment contemplated by this Agreement. STI shall have the right
to submit a bid, as a contractor, for the manufacture of such devices, products
and specialized equipment, which CSI will reasonably consider. CSI and STI will
jointly and by mutual consent establish criteria for accepting bids submitted by
contractors. To be considered as a contractor, STI should (a) demonstrate to the
satisfaction of CSI that STI is capable of manufacturing the Property according
to the Specifications, (b) That STI satisfies such criteria or STI furnishes a
performance bond issued by a corporation surety authorized to issue surety
insurance in the State of California for the faithful performance of the
contract in an amount equal to 100% of the contract price, and (c) submits a bid
that CSI determines is within 5% of the lowest competitive bid. Then CSI will
accept STI's lowest bid. If STI'S bid is the lowest competitive bid, and all
other conditions to CSI's acceptance of STI's bid are otherwise satisfied, then
CSI, if it accepts STI's bid, will pay an amount equal to one hundred five
percent [105%] of STI's bid. In lieu of the performance bond described in the
preceding sentence, CSI may, in its sole discretion, provide STI with an
alternative method of establishing that it has sufficient financial resources
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<PAGE> 7
to indemnify CSI for any losses or delays caused by its inability to manufacture
the devices, products, and specialized equipment contemplated by this paragraph
8, in a timely manner, and in accordance with the Specifications.
9. PROPERTY APPLICATION.
CSI agrees that any promotion to or solicitation from prospective
customers for the Property or devices manufactured therefrom shall be made with
due consideration of the impact to STI's general business and professional
reputation. CSI further agrees that it shall inform and consult with STI as to
proposed promotions of the Property or devices manufactured therefrom for the
purpose of obtaining an appraisal of the performance standards, given the
commercial environment involved, in the operation of the property or the devices
manufactured therefrom for the proposed use by the prospective customer(s). Said
appraisal shall consider the efficiency, efficacy and accuracy of the Property
or devices manufactured therefrom in the proposed commercial environment. In
connection therewith, STI agrees that CSI may with prior written disclosure to
STI publish and release the results of said appraisal to those prospective
customers or to a class of similar prospective customers.
Any consulting requested by CSI under this paragraph 9, including the
rendering of any appraisal, shall be billable as technical assistance in
accordance with paragraph 6.
10. CONFIDENTIALITY.
(a) It is recognized that in the course of the performance of this
Agreement, proprietary, confidential and trade secret information of STI may be
furnished to CSI and proprietary, confidential and trade secret information of
CSI furnished to STI. Any such "Confidential Information" shall be first
presented in a sealed envelope or container that is identified as such on the
outer cover. It is mutually agreed between the parties that any such
Confidential Information that is received and accepted by the other party shall
be kept in confidence, not disclosed to any unauthorized person or persons, and
not used except for carrying out the purposes of this Agreement. It is agreed,
however, that there shall be no liability for the use or disclosure of any such
information, except as may be afforded under the United States or Foreign Patent
and Copyright Laws, if such information was in the public domain at the time of
receipt, was known to recipient at the time of receipt, is disclosed
inadvertently despite the reasonable
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<PAGE> 8
degree of care such as recipient would take to safeguard its own proprietary
information, is disclosed or used with the written approval of the party
providing the information, is used or disclosed after three years from the date
of dissolution of this Agreement, or becomes known to recipient from a source
other than the other party without a breach of this Agreement.
(b) Each party agrees, that it shall take immediate affirmative
steps to ensure that confidentiality is maintained including, without
limitation, obtaining the prior written agreement of all employees, agents and
other individuals who have or may have contact with Confidential Information,
that they shall not disclose Confidential Information to any unauthorized third
party. The parties further agree to protect all Confidential Information
received from each other with the same standard of care and procedures with
which the receiving party's own Confidential Information is protected.
11. ESCROW OF SOURCE CODE.
(a) Creation of Escrow. STI agrees that, it shall place In escrow,
in a system satisfactory to both parties, the complete source code, object code,
related documentation, and similar data relating to the Property, Software and
Technology and shall keep such materials updated as may be required.
(b) Escrow Instructions. The instructions of the escrow shall
direct that CSI shall be delivered the corpus of the escrow by the escrow agent
in the event that:
STI is acquired, merged or its principal assets acquired, unless the
successor-in-interest agrees in writing to be bound by all obligations
undertaken by STI to CSI hereunder.
(c) Finalization. The parties agree that the precise language of
the escrow instructions and choice of an escrow holder for deposit of the source
code and other materials shall be finalized not later than sixty (60) days
following the effective date hereof.
12. PROPERTY OWNERSHIP
CSI acknowledges that the Property is licensed to it pursuant to this
Agreement. The Property shall remain the exclusive property of STI, and STI's
trade name and logo shall be
-8-
<PAGE> 9
clearly displayed on the Property. Except as set forth herein, CSI shall
obtain no ownership rights to the Property.
13. SUPPORT.
If requested by CSI, STI shall advise and assist CSI in the
presentation of the Property to CSI's customers and potential customers, and in
the marketing of the Property generally. CSI shall reimburse STI for its
reasonable expenses incurred in connection with providing such advice and
assistance.
14. NOTICES.
All notices required to be given hereunder shall be in writing and may
be and delivered or sent certified mail, return receipt requested, to the
parties at the following Addresses:
If to STI:
SYSTEMS TECHNOLOGY, INC.
13766 South Hawthorne Blvd.
Hawthorne, California 90250
Attn: President.
If to CSI:
COGNITIVE SYSTEMS, INC.
9925 Channel Rd.
Lakeside, California 92040
Attn: Marc R. Silverman
cc: Elliot G. Steinberg
cc: Ted Schramm
or at such other address as either party may in writing advise to the other
party pursuant to the Paragraph. If notice is given by mail it shall be deemed
effective on the fourth business day following mailing or on the date of actual
receipt, whichever is earlier.
15. INFRINGEMENT.
If either party shall learn of a substantial infringement of CSI's
exclusive rights to use the Properly in connection with the testing of
employees, customers, clients and agents for impairment, and such infringement
is being accomplished by means of information obtained in a confidential
relationship with CSI or STI, or by a device or through the use of information
which was sold by STI under STI's reserved right to market the
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<PAGE> 10
Property, pursuant to this Agreement, then STI shall use its best efforts in
cooperation with CSI to terminate such infringement with or without litigation.
16. INDEMNITIES AND COSTS.
Each party to the Agreement shall, at its own expense, indemnify,
defend, and hold harmless the other party against and in respect of any and all
claims, demands, loses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies, that the other party incurs or suffers which arise
or result from any breach of, or failure by it, to perform any of its
representations, warranties or promises in this Agreement.
(a) However STI makes no representation or warranty that the use of
the Property licensed hereunder will be free of infringement of the rights of
other parties.
(b) STI assumes no liability for the use of the Property under this
License Agreement.
(c) CSI agrees to indemnify STI and to hold STI harmless against
all loss, cost or damage resulting from claims of third party for loss or
injury, arising in connection with the manufacture, assembly, use or sale of
devices licensed under this agreement except in the event such devices are
manufactured by STI. CSI further agrees to include STI as a co-insuree in any
insurance policy obtained to insure against such loss or injury.
17. MISCELLANEOUS
(a) Severability. If any one or more of the provisions of this
Agreement shall be found to be illegal or unenforceable, then this Agreement
shall remain in full force and effect, and such illegal and unenforceable term
or provision shall be deemed stricken
(b) Performance. Neither party's right to require performance of
the other party's obligations hereunder shall be affected by any previous
waiver, forbearance or course of dealing.
(c) Relationship of Parties. No agency, partnership, joint venture
or joint relationship is created hereby and neither party has any authority of
any kind to bind the other in any respect whatever.
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(d) Excusable Default. Notwithstanding anything in this Agreement
to the contrary, no default, delay or failure to perform by either party shall
be a breach of this Agreement if such default, delay or failure to perform is
shown to be due entirely to causes beyond the reasonable control of the
defaulting party including, without limitation, labor disputes, inclement
weather, default of a common carrier, acts of embargo or of the acts of God.
(e) Integration. This Agreement supersedes all proposals, oral or
written, and all communications between the parties relating to the subject
matter hereof, except for the First Agreement. This Agreement may be modified
only by a writing signed by both parties.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(g) In the case of the failure of either party to fulfill any of
its obligations hereunder, the other party shall have the right to cancel and
terminate this Agreement by giving sixty (60) days written notice of its
intention so to do and specifying the alleged failure, providing, however, that
if there has been no such failure or such obligations are fulfilled during such
sixty (60) day period, then such notice of cancellation shall be null and void;
otherwise, this Agreement shall be considered as canceled after the expiration
of said sixty (60) day period.
(h) In the event of any adjudication or bankruptcy, appointment on
a receiver by any court of competent jurisdiction, assignment for the benefit of
creditors, or levy of execution directly involving said CSI this Agreement may
be terminated at the option of STI by giving CSI five (5) days written notice of
his intention so to do.
(i) Should this Agreement be canceled or terminated as provided
herein, CSI shall not be relieved of liability for payment of royalty or license
fees due STI which accrued prior to the effective date of such cancellation or
termination.
(j) Arbitration. Any dispute relating to the interpretation or
performance of this Agreement shall be resolved at the request of either party
through binding arbitration. Arbitration shall be conducted in the City of Los
Angeles, California, in accordance with the prevailing rules of the
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American Arbitration Association. Judgment upon any award by the arbitrators may
be entered in the state or federal Court having jurisdiction. In the event of
litigation or arbitration under this Agreement, the prevailing party in any such
dispute shall be entitled to an award of cost of suit including investigative
cost and reasonable attorneys fees and costs as shall be determined by the
Court.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as indicated below.
SYSTEMS TECHNOLOGY, INC., a
California corporation
By /s/ IRV ASHKENAS
------------------------------------
Its Vice President
-----------------------------------
COGNITIVE SYSTEMS, INC., a
California corporation
By /s/ MARK SILVERMAN
------------------------------------
Its President
-----------------------------------
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EXHIBIT A
MARKET SEGMENTS
1. Public Transportation
2. Trucking
3. Utilities
4. Military
5. Aerospace
6. HAZMAT
7. Law enforcement
8. Fire fighters
9. Hospitals
10. Construction
11. Security
12. Banking/Securities
13. Manufacturing
14. Service Industries
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May 19, 1994
Mr. Wade Allen
President
Systems Technology, Inc.
13766 S. Hawthorne Blvd.
Hawthorne, CA 90250
RE: Addendum to the License Agreement dated November 24, 1988 between
System Controls, Inc. ("STI") and Performance Factor, Inc. ("PFI"),
formerly Cognitive Systems, Inc. (CSI)
ADDENDUM TO LICENSE AGREEMENT
This addendum deletes the original PARAGRAPH 2. TERM in its entirety and
replaces it with the following:
PARAGRAPH 2. TERM. "This agreement shall commence on the date hereof and
continue for an initial period of five (5) years. The term of the Agreement may
be extended by PFI for three (3) periods of five years each by written notice
given to STI in the manner provided in paragraph 14 of this agreement at any
time prior to the expiration of the previous period."
All other terms and conditions in the Agreement remain unchanged.
Agreed, Accepted and Agreed,
/s/ MARK SILVERMAN /s/ WADE ALLEN
Mark Silverman Wade Allen
President President
Performance Factors, Inc. Systems Technology, Inc.
<PAGE> 1
Exhibit 10.6
SUBLICENSE AGREEMENT
THIS SUBLICENSE AGREEMENT (the "Agreement") is entered into to be
effective as of August 30, 1995, by and between BioFactors, Inc., a Delaware
Corporation, ("BFI") and Bogart International Associates, Inc. or its assignees
("Bogart").
WHEREAS, BFI holds an exclusive, transferable license of proprietary
computer software and associated protocols and methodology for objectively
testing operator psychomotor skills developed by Systems Technology, Inc., a
California Corporation ("STI") collectively referred to as the "Critical
Tracking Task" ("CTT") technology" or the STI proprietary technology; and
WHEREAS, pursuant to its exclusive license, BFI has developed hardware,
software and delivery systems to utilize STI's proprietary technology and is
currently marketing (1) a non-invasive fitness-for-work testing service ("FACTOR
1000 Service") and (2) has developed a prototype on-field athletic performance
system based on the FACTOR 1000 Service ("SportsTrac System or"SportsTrac"),
defining the correlation between hand-eye coordination as measured by FACTOR
1000 and on-the-field athletic performance; and
WHEREAS, simultaneous herewith the parties herewith are entering into a
novation agreement with STI in connection with this agreement (the "STI Novation
Agreement"); and
WHEREAS, Bogart wishes to obtain the exclusive license to market
SportsTrac to sports markets on a world-wide basis and BFI is willing to grant
to Bogart such a license;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
SUBLICENSES AND MARKETING
1.1 Sublicense. BFI hereby grants to Bogart an exclusive and world-wide
sublicense (the "Sublicense") to reproduce, manufacture, use and market directly
and through sub-distributors and/or sublicensees, to commercial end-user
customers, the SportsTrac System solely for sports-related and sports
entertainment applications. Sports-related and sports entertainment applications
shall include athletic performance enhancement, measuring sports diagnostics,
sports rehabilitation and sports related clinical applications and applications
directly related to the foregoing. In no event shall sports-related applications
include fitness-for-work testing. Bogart shall not sublicense to customers the
SportsTrac System, except as permitted by Section 1.2 herein. BFI grants to
Bogart the right to assign or issue sublicenses, except each sublicense shall
include and be limited to all the terms of this agreement. BFI shall not itself
or through agents
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or third parties license, sublicense, market, or distribute SportsTrac during
the term of this Agreement.
1.2 Customer Sublicenses. Pursuant to the sublicense granted to Bogart
in Section 1.1, Bogart shall have the rights to grant to its customers (object
code only) or co-venturers and partners non-exclusive and non-transferable
sublicenses to utilize the SportsTrac System.
1.3 Trademark License. BFI has not registered a service mark in
connection with the name, marketing, selling or sublicensing of the SportsTrac
System. Bogart undertakes to use its best efforts to register service mark or
trademark for SportsTrac (under that or any other name selected by Bogart) and
such mark for SportsTrac shall be owned, and inure to the benefit of Bogart.
Bogart shall have no liability in the event it is unable to obtain such service
mark or trademark. This license will not create any right, title or interest in
the FACTOR 1000 or BioFactors' Service Marks in Bogart. Bogart shall acknowledge
BFI's ownership of the FACTOR 1000 Service Mark in its advertising and other
literature describing SportsTrac in which there is any reference to BFI or the
FACTOR 1000 service. Bogart hereby agrees to promptly provide BFI with copies of
Bogart's service mars use guidelines and all revisions thereto used to govern
the use by all licensees of sublicensees of the SportsTrac service mark in the
Territory. Bogart further agrees to comply with any requirements as to patent
and trademark notices contained in STI's license to BFI.
1.4 Developments and Associated Products. This license will not create
any right, title or interest to BFI in any developments or associated products
Bogart may produce or develop that do not use the FACTOR 1000 or SportsTrac
systems as defined herein ("Associated Products"). Any use of the name
"SportsTrac" or SportsTrac System" or any other name on an Associated Product
does not of itself create any right title or interest in the Associated Product
to BFI.
ARTICLE II
ROYALTIES AND PAYMENTS
2.1 Initial Royalty License Fee. Bogart shall pay a fee to BFI as
follows:
(a) A non-refundable royalty of $1,000,000 payable as follows:
(1) $300,000 upon the execution of this Agreement, of which
$50,000 has already been received as an earnest deposit;
(2) A promissory Note in the amount of $700,000 payable to BFI.
The terms of the note shall provide that $350,000 is due and payable on March
31, 1996 and $350,000 due and payable on July 31, 1996.
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<PAGE> 3
(3) In the event that Bogart undertakes an initial public
offering of its shares prior to the due dates for payment on amounts due under
the promissory note, any proceeds received as a result of such offering, shall
be utilized to retire the promissory note.
2.2 Continuing Royalty. A royalty equal to eight and one-half percent
(8-1/2%) of the cash receipts from the sale or license by Bogart of products or
services containing the FACTOR 1000 technology, but not including any revenues
derived by Bogart from installation, maintenance, consulting, hardware sales, or
any other revenues not directly or indirectly related to the FACTOR 1000 or CTT
technology. BFI shall have the right to audit Bogart's records, with adequate
notice, for the purpose of verifying royalty payments. Said royalty shall be
due and payable within thirty (30) days after the conclusion of each calendar
quarter commencing with the quarter ending December 31, 1995.
2.3 Other Consideration.
(a) Warrants. As additional consideration for this Agreement,
Bogart has authorized the issuance or warrants (the "Warrants") to purchase up
to an aggregate of seven and one-half (7-1/2%) percent of the fully diluted
outstanding Common Stock of Bogart or any affiliate or subsidiary or other
entity formed by or through Bogart that may be in existence or formed to operate
under this Agreement ("NEWCO") such percentage to be measured at the time of
initial capitalization. It is anticipated that the initial aggregate capital
will be $500,000 on or before September 9, 1995. Such warrants will be promptly
issued and BFI may exercise its Warrants, in whole or in part, at any time
beginning on a date one year from the date of any initial public offering of the
shares of NEWCO, but not later than a date three years from the date of initial
public offering (the "Expiration Date"), at a purchase price equal to the per
share price of the shares offered to the public in the initial public offering.
(b) Capital Stock. BFI (either directly, through its shareholders,
or other designees, as designated by BFI) shall have the right to contribute
capital up to twenty-five (25%) percent of any funds initially contributed to
NEWCO in exchange for up to twenty-five percent of the ownership of said entity
on the same terms and conditions as all other investors, on or before September
8, 1995. Bogart agrees that the initial capitalization NEWCO shall be
approximately $500,000.
(c) Board Representation. BFI shall have be entitled to designate
one member of the Board of Directors of NEWCO. Bogart shall cause NEWCO's other
investors to enter into a voting agreement in form and substance reasonably
satisfactory to BFI, in order to effectuate this provision.
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<PAGE> 4
ARTICLE III
TERM
3.1 Term. This agreement shall be in effect during the term of BFI's
License Agreement with STI, including all renewals and extensions thereof. The
term of BFI's License Agreement with STI expires on November 24, 2008. BFI shall
use its best efforts to maintain its License Agreement with STI in good standing
and in full force and effect. In the event of any default in BFI's License
Agreement with STI, subject to STI's consent, Bogart shall have the right to
cure said default on behalf of BFI, and to the extent such cure requires money
payments, Bogart shall have the right to cure said defaults by paying all
delinquent payments due and offset said payments by Bogart against any royalties
due BFI under this Agreement. After said default is corrected by Bogart the
continuing license will be between Bogart and STI directly, with all future
royalty payments paid directly to STI (see Exhibit A, the STI Novation
Agreement). Attached hereto as Exhibit B is a true and correct copy of the BFI
License Agreement with STI.
3.2 Termination. This Agreement shall be terminable by notice in
writing from the party not at fault if any one of the following events shall
occur:
(a) Either party's material default under this Agreement which has
not been remedied within thirty (30) days from notice in writing from the party
not in default specifying such default;
(b) Bogart's failure to pay any amounts due to BFI pursuant to
Article II when due and such failure is not cured within thirty (30) days from
written notice after such payment is due;
(c) Bogart's material misrepresentation of the function of the
SportsTrac System to Bogart's customers and said failure is not corrected within
thirty (30) days after written notice from BFI of such failure.
(d) Termination of the STI License Agreement shall automatically
terminate this Sublicense granted to Bogart in Article I of this Agreement and
Bogart's ongoing license will be directly with STI without change in terms (see
Section 3.1 Term and the STI Novation Agreement).
ARTICLE IV
BFI's OBLIGATIONS AND WARRANTIES
4.1 Obligations of BFI. BFI shall:
(a) Provide Bogart with one complete copy of all its FACTOR 1000
systems and application source code, to be used by Bogart for only the purposes
provided herein.
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<PAGE> 5
(b) Provide Bogart with one complete copy of all the source code
for sports related applications completed to date, to be used by Bogart for only
the purposes provided herein.
(c) Provide Bogart with one copy of all written technical
documentation for its FACTOR 1000 and sports related software, including
programmer's notes, file layouts, and flow charts, to be used by Bogart for only
the purposes provided herein.
(d) Provide Bogart with all its internal FACTOR 1000 support
software and related documentation, including complete listings of all libraries
and subroutines (both developed internally and provided by third parties).
Provide all third party vendor's name, address and all documentation detailing
the routine or library's utility.
(e) Provide Bogart with its complete FACTOR 1000 database software
system (known as "FMR") at no cost and a suitable operating platform at BFI's
current fully burdened cost, if Bogart chooses to purchase said platform from
BFI.
(f) Provide Bogart with initial technical support and consulting
equal to 40 hours without charge as reasonably required and requested by Bogart,
it being acknowledged by Bogart that BFI's currently available resources for
such support are quite limited. BFI's reasonable out-of-pocket costs, if any,
will be paid by Bogart.
(g) Provide Bogart with reasonable ongoing technical support at
BFI's current fully burdened cost, as requested by Bogart. Such support will
include up to 40 hours per month of Mark Itkonen's engineering expertise during
the first six months of this agreement.
(h) Provide Bogart with all current control panel documentation,
including bills of materials, parts lists, diagrams, schematics, and vendor
lists. BFI grants Bogart the right to have control panels manufactured directly
with BFI's vendor or any other vendor Bogart deems qualified to produce the
control panel.
(i) Sell Bogart reasonable quantities of control panels, which
shall be forecasted quarterly by Bogart, at BFI's current fully burdened cost.
(j) Sell Bogart reasonable quantities of hardware platforms or full
systems at BFI's current fully burdened cost.
(k) Not incur any liability on behalf of Bogart or in any way to
pledge Bogart credit or accept any order or make any contract binding upon
Bogart without proper written consent.
4.2 Additional Assistance. For additional assistance requested by
Bogart and provided to Bogart or its customers during installation of the
SportsTrac service, Bogart shall pay BFI at BFI's then current published rates
for such assistance. BFI shall also be reimbursed for reasonable out-of-pocket
expenses. Payments due under this section shall be due and payable upon receipt
by Bogart of an invoice for such assistance from BFI.
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4.3 BFI Representations and Warranties.
(a) BFI warrants that it has the right to provide the hardware and
sublicense the software to Bogart hereunder and that BFI has not received notice
from any third party that the FACTOR 1000 System and/or the SportsTrac System
infringes any United States or Canadian patent or copyright;
(b) BFI warrants to Bogart that each diskette(s) on which the
FACTOR 1000 and/or SportsTrac software is furnished to Bogart and each of the
Control Panels supplied pursuant to Section 4.1 will be free from defects in
materials and workmanship under normal use and in good working condition. BFI
will replace any diskette and control panel not meeting the foregoing warranty
within five(s) business days of receipt of said alleged defective diskette or
Control Panel by BFI for a period of one year after shipment;
(c) BFI warrants to Bogart that its License Agreement with STI,
granting BFI, among other things, the right to develop, manufacture, reproduce,
use and market certain proprietary technology and associated protocols and
methodologies which BFI utilizes in the FACTOR 1000 and SportsTrac Services are
in full force and effect, there is no breach of said agreement by either party
and entering into and performing, this Agreement will not constitute or result
in a breach under said agreement.
EXCEPT AS PROVIDED FOR IN THIS SECTION 4.3, BFI DISCLAIMS ALL
WARRANTIES ON THE HARDWARE AND SOFTWARE PROVIDED PURSUANT TO THIS AGREEMENT,
INCLUDING ANY AND ALL IMPLIED WARRANTIES OF FITNESS AND/OR MERCHANTABILITY. THE
PARTIES AGREE THAT EXCEPT AS PROVIDED FOR IN THIS SECTION 4.3, BFI WILL NOT BE
LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT
OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE HARDWARE OR SOFTWARE
FURNISHED BY BFI.
4.4 Marketing. BFI hereby grants to Bogart the right to copy any
manuals and marketing materials used in connection with its FACTOR 1000 service
as are required or as needed for the marketing and implementation of the
SportsTrac Service to existing and prospective Bogart customers.
4.5 Marketing. Bogart shall have the exclusive authority to determine
its own marketing and sales program for the Territory. This shall include the
right to market directly and through sub-distributors appointed by Bogart from
time to time in its sole discretion; provided that any such sub-distributor
shall enter into an agreement with Bogart by which such sub-distributor agrees
to honor the provisions of Section 5.2 hereof.
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ARTICLE V
CERTAIN AGREEMENTS OF BOGART
5.1 Bogart's Obligation. Bogart shall:
(a) Use all reasonable efforts to develop, promote and market the
SportsTrac System within its markets.
(b) be solely responsible for all marketing, sales and related
activities in connection with its efforts to solicit and grant sublicenses to
utilize the technology pursuant to this Agreement;
(c) provide BFI with adequate lead time to supply control panels
required for Bogart's client installations, and pay BFI for said control panels
at BFI's current fully burdened cost.
(d) provide BFI with advance copies of all advertising and/or
marketing materials it intends to distribute concerning the FACTOR 1000 service,
which materials will be approved by BFI in its sole discretion prior to use by
Bogart;
(e) Bogart shall not solicit or attempt to hire Mark Itkonen, an
employee of BFI, but shall have the right to reasonably retain his services
through BFI at BFI's fully burdened cost for said employee (see Section 4.1(g);
(f) During the term of this agreement, Bogart shall not, except
with BFI's prior written consent, engage in any business activity which is
directly in competition with any of the other products or services being sold or
otherwise provided by BFI, as of the date of this agreement.
5.2 Confidentiality.
(a) Proprietary Information. In conducting the activities
contemplated by this Agreement, Bogart may, from time to time, receive from BFI
confidential information and trade secrets ("Secrets"). Bogart acknowledges that
BFI's Secrets include, but are not limited to (i) software source and object
code, certain documentation for its FACTOR 1000 and the SportsTrac Services,
schematics, reports, programs, user lists and/or the date generated by users of
its FACTOR 1000 service, training techniques, formats, specifications and
procedures relating to testing, documentation, algorithms, processes, "look and
feel" of its FACTOR 1000 service and know-how (whether or not reduced to writing
and whether or not copyrightable); (ii) any modification of the same; and (iii)
any extraction from the same; and certain other scientific, technical,
financial, marketing and business information, trade secrets, and confidential
knowledge of BFI;
(b) Protection. Bogart agrees (i) to hold BFI's Secrets in
confidence; (ii) to refrain from disclosing BFI's secrets except to its own
personnel and agents who need to know such information to perform their duties
and to licensees of Bogart's who enter into similar confidentiality agreements
with Bogart for the benefit of BFI; (iii) to safeguard BFI's Secrets in
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the same manner it employs for its own trade secrets, but in no event shall
Bogart exercise less than due care and diligence in accordance with good
commercial practice; and (iv) not to use BFI's Secrets to the detriment of BFI,
nor use BFI's Secrets in any business competitive with or similar to any
business of BFI, which secrets Bogart may have acquired in the course of or
incident to the performance of this Agreement, including, without limitation,
any material available to Bogart or any reproductions or summaries thereof.
Notwithstanding the foregoing, Bogart may make such disclosures as may be
required by any court or quasi-judicial administrative body pursuant to any
applicable laws, statutes or regulations, provided that Bogart shall, to the
extent possible, give BFI advance notice of any such demand for information and
shall permit BFI to intervene and make such representations and take such
actions to challenge any such demand as BFI may deem necessary or appropriate;
such intervention or other action being done at BFI's expense. Bogart further
agrees to deliver to BFI all hardware, software, manuals, documentation,
confidential information, proprietary documents, data or calculations, and any
copies thereof, in its possession pertaining to BFI or any of its affiliates at
the time of termination of this Agreement. Bogart agrees to notify BFI
immediately if it has knowledge that any unauthorized third party possesses or
uses BFI's Secrets or that BFI's Secrets are being utilized for any unauthorized
purpose;
(d) Exclusion. This Section 5.2 shall not apply to secrets that are
or become generally known or used by others in the same or competing business
with BFI other than through breach of this Agreement by Bogart, its employees or
agents;
(e) Copying and Modification. Bogart shall not make any
unauthorized copy of any Secrets disclosed by BFI. Bogart shall not make any
unauthorized copy of any of the proprietary software provided to Bogart pursuant
to this Agreement. Bogart may make modifications but such modifications,
enhancements or derivative works are hereby assigned to BFI, subject to the
exclusive license hereunder in favor of Bogart. Bogart shall take any and all
steps from time to time as may be reasonably necessary to effectuate such
assignment.
ARTICLE VI
INDEMNIFICATION
6.1 BFI's Indemnification of Bogart. BFI will indemnify, defend and
hold harmless Bogart, and each of its officers and directors, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), arising out of or based on any negligence on the part of BFI or its
officers, directors, employees or agents, in the performance of BFI's
obligations pursuant to this Agreement and any breach, breach of warranty or
material misrepresentation by BFI. BFI will indemnify, defend and hold harmless
Bogart against any claim, suit or proceeding against Bogart based on (i) any
such material breach or misrepresentation or (ii) a claimed infringement of a
United States patent or copyright by the software or (iii) a claimed
infringement of a United States service mark or trademark by its FACTOR 1000
service mark.
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6.2 Bogart's indemnification of BFI. Bogart will indemnify, defend and
hold harmless BFI, and each of its officers and directors, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof), arising
out of or based on any third party claim resulting from (i) Bogart's marketing
and/or implementation of products containing the FACTOR 1000 or SportsTrac
technology; (ii) services rendered by Bogart hereunder, except to the extent set
forth in section 6.1 above; and (iii) the use or performance of equipment
provided by Bogart; except claims based upon BFI's negligence with respect
thereto. Notwithstanding the foregoing, the liability of Bogart pursuant to the
indemnities set forth in this Section 6.2 shall be limited to the amount of One
hundred Thousand Dollars ($100,000).
6.3 Indemnification Procedures. Each party entitled to indemnification
under this Article VI (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such indemnified Party has actual knowledge of any claim as to which indemnity
may be sought. After notice from the indemnifying Party to the indemnified Party
of the indemnifying Party's assumption of the defense of all such actions or
proceedings, the indemnifying Party shall not be liable to such indemnified
Party for any fees of such indemnified Party's counsel subsequently incurred in
connection with the defense of such actions or proceedings, but shall-be liable
to the extent described above for all other reasonable expenses incurred by such
indemnified Party. The indemnified Party shall have the right to employ separate
counsel at the indemnifying Party's expense if (i) the indemnifying Party has
agreed to pay such fees and expenses; (ii) the indemnifying Party shall have
failed to promptly assume the defense of such action or proceeding, and employ
counsel reasonably satisfactory to the indemnified Party in such action or
proceeding; or (iii) the named parties to any such action or proceeding
(including any impleased parties) include the indemnified Party and the
indemnifying Party, and the indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to the indemnified Party
which are different from or in addition to those available to the indemnifying
Party and which could result in actual or potential differing interests between
such parties in the conduct of the defense of such actions or proceedings. No
indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified Party
of a release from all liability in respect to such claim or litigation.
ARTICLE VII
MISCELLANEOUS
7.1 Independent Agents. Each party to this Agreement shall act as an
independent agent with relation to this Agreement and has no authority to act
for or on behalf of the other or to bind the other to any obligation in any
manner except as expressly set forth herein. Nothing contained herein shall be
construed as creating a joint venture or partnership between the parties.
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7.2 Continuing. All obligations that by nature survive expiration or
termination of this Agreement shall continue subsequent to and regardless of
such expiration or termination until full satisfaction, or until by nature
expire.
7.3 Successors and Assigns. Except to the extent assignment is
specifically limited herein, this Agreement shall inure to the benefit of and be
binding on and be enforceable by the respective successors, assigns and legal
representatives of the parties hereto.
7.4 Entire Agreement: Modifications. This Agreement, including all
Exhibits and Schedules hereto (each of which is incorporated herein by this
reference), contains the entire Agreement between the parties and supersedes any
and all prior agreements, arrangements and understandings between the parties
relating to the subject matter hereof. No oral understandings, statements,
promises or inducements contrary to the terms of this Agreement exist. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by the parties hereto. No waiver of any of the provisions of
the Agreement shall be deemed to be or shall constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver. The parties also intend this Agreement to be a complete and exclusive
statement of the terms of their agreement, which may not be explained or
supplemented by evidence of consistent additional terms.
7.5 Amendments and waivers. Any term of this Agreement may be amended
and the observance of any term hereof may be waived (either prospectively or
retrospectively and either generally or in a particular instance) only with the
written consent of the parties hereto.
7.6 Choice of Law. This Agreement is entered into and is to be
performed in accordance with the laws of the State of Delaware and shall be
construed and enforced in accordance therewith.
7.7 Notices, etc. All notices and other communications required or
permitted hereunder will be in writing and will be mailed by first-class mail,
postage prepaid, addressed
(a) if to BFI at:
BioFactors, Inc.
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Attn.: Douglas S. Zorn, Chief Operating Officer
(303) 271-0505
or at such other address as BFI will have furnished to Bogart in writing in
accordance with this section, or
(b) Bogart at:
Bogart International Associates, Inc.
750 Lexington Ave.
27th Floor
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<PAGE> 11
New York, New York 10022
(212) 593-7901
(212) 980-6653 fax
or at such other address as Bogart wild have furnished to BFI in writing in
accordance with this section. All notices and other communications to be given
hereunder shall be given in writing. Except as otherwise specifically provided
herein, all notices and other communications hereunder shall be deemed to have
been given if personally delivered to an officer of the party being served, of
by Telex or facsimile machine, at the time they are transmitted, or Three (3)
business days after mailing thereof by registered or certified mail, return
receipt requested, postage prepaid, to the address of the receiving party set
forth above (until notice of change thereof is served in the manner provided in
this Section 7.7).
7.9 Separability. In case any provision of this Agreement not material
to the benefits intended to be conferred hereby is invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired thereby.
7.10 Miscellaneous. Except as set forth herein, time is of the essence
for the performance of each and every covenant and the satisfaction of each and
every condition contained in this agreement. The headings and captions of this
Agreement are for the purpose of reference only and shall not limit or define
any meaning or terms hereof. All references to the masculine shall include both
the neuter and the feminine. The singular shall include the plural and vice
versa as the context shall require. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The provision of this
Agreement shall be interpreted in accordance with their fair meaning and shall
not be construed strictly for or against a party.
7.11 Authority and Execution. Each person executing this Agreement on
behalf of a party hereto represents and warrants that he is duly and validly
authorized to do so on behalf of such a party, with full right and authority to
execute this Agreement and to bind such party with respect to all of its
obligations hereunder.
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<PAGE> 12
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their duly authorized representatives effective as of the date
first set forth above.
BioFactors, Inc.
/s/ ESMOND T. GOEI
---------------------------------------
Its CEO August 30, 1995
-------------------------------
Bogart International Associates, Inc.
---------------------------------------
Its
-------------------------------
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<PAGE> 13
July 31, 1996
Addendum to Sublicense Agreement, dated as of August 30, 1995
("Sublicense Agreement") by and between BioFactors, Inc. ("BFI") and SportsTrac,
Inc. ("SportsTrac").
WHEREAS, BFI and SportsTrac are parties to the Sublicense Agreement and
desire to clarify certain provisions thereof;
NOW, THEREFORE, the parties agree as follows:
1. The prototype on-field athletic performance system referred to in
the second "WHEREAS" clause of the Sublicense Agreement, developed by
BioFactors, was a research prototype used to validate the application of the CTT
and Factor 1000 technologies to evaluate athletic performance which BioFactors
did not and has not developed for commercial production.
2. The license granted by BioFactors pursuant to Section 1.1 of the
Sublicense Agreement was a license of the Factor 1000 technology developed by
BioFactors, and a sublicense of the CTT technology, which technologies
SportsTrac subsequently incorporated in its SportsTrac System.
BIOFACTORS, INC. SPORTSTRAC, INC.
By: /s/ Douglas Zorn By: /s/ Marc Silverman
-------------------------------- ------------------------------
Douglas S. Zorn Marc Silverman
Vice President and COO President and CEO
Date: 7/31/96 Date: 7/31/96
------------------------------- ------------------------------
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<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of October 30, 1996, by and between Nhancement Technologies Inc., a Delaware
corporation (the "Company"), and Douglas S. Zorn (the "Officer").
RECITAL
The Officer has been serving as Vice President, Secretary and
Chief Operating Officer of BioFactors, Inc., a Delaware corporation ("BFI").
BFI has entered into an agreement which provides for the
merger of BFI with a wholly owned subsidiary of the Company pursuant to that
certain Agreement and Plan of Merger dated as of October 30, 1996 by and among
the Company, BFI and BFI Acquisition Corporation, a Delaware corporation (the
"BFI Merger").
Upon the consummation of the BFI Merger, the Board of
Directors of the Company desire to continue the appointment of Officer as an
officer of the Company and of BFI and the Officer desires to accept such
continued appointment.
The Company and the Officer desire to set forth herein the
terms and conditions of his continued employment. This Agreement supersedes and
replaces all existing employment agreements between the parties, oral or
written.
AGREEMENT
In consideration of the mutual promises, covenants and
agreements contained herein, and intending to be legally bound, the parties
hereby agree as follows:
1. Agreement to Serve.
1.1 Title. The Company shall employ the Officer
and the Officer shall serve in the employ of the Company as Executive Vice
President, Treasurer, Chief Operating Officer and Chief Financial Officer of the
Company and of BFI.
1.2 Duties. The Officer shall assume and
discharge the responsibilities of Executive Vice President, Treasurer, Chief
Operating Officer and Chief Financial Officer (as set forth in the Bylaws of the
Company), as well as such other duties and responsibilities as may be assigned
to him by the Chief Executive Officer and the Board of Directors of the Company
and as are appropriate to the offices he holds. In addition, the Officer shall
perform his duties to the best of his abilities and shall devote most of his
business time and attention to the good faith
<PAGE> 2
performance of his duties. The Officer shall not engage in other businesses or
activities for compensation during the term of this Agreement to the extent
such other businesses or activities would substantially interfere with the
performance of his duties hereunder. The Officer shall perform his services to
the Company at its principal offices or at such other location as may be
acceptable to the Board of Directors.
2. Terms of Employment.
2.1 Basic Term. The term of the Officer's
employment under this Agreement (the "Term") shall extend for a period of three
years from the date of the consummation of the BFI Merger, subject to the
remaining provisions of this Section 2. The period described in the preceding
sentence shall be referred to herein as the "Initial Term." The Term will be
extended for successive one-year periods beginning on the first day after the
final day of the Initial Term, except in the event the Officer or the Company
provides written notice to the other at least 180 days before the beginning of
such one-year period, of the intention not to extend the Term. During the Term,
the same terms and conditions contained in this Agreement (including salary as
may be determined under Section 3.1) shall remain in effect during the
continuance of the Officer's employment.
2.2 Termination for Cause. The Company shall
have the right to terminate the Officer for cause and said termination shall be
effected by and upon written notification to Officer. Grounds for termination
for cause shall include only, (i) the Officer's material breach of any terms of
this Agreement, if such material breach has not been substantially cured within
thirty (30) days following written notice of such breach to the Officer from the
Company setting forth with specificity the nature of the breach or, if cure
cannot reasonably be effected within such 30-day period, if the Officer does not
commence to cure the breach within such 30-day period and thereafter pursue such
cure continuously and with due diligence until cure has been fully effected;
(ii) the Officer's willful dishonesty towards, fraud upon, crime against,
misrepresentation, embezzlement, deliberate or attempted injury or bad faith
action with respect to, or deliberate or attempted injury to, the Company; (iii)
the Officer's gross negligence in the performance of, willful failure or refusal
to perform, the services required of him hereby, or to carry out proper
directions by the Board of Directors of the Company with respect to the services
to be rendered by him hereunder or the manner of rendering such services, his
willful misconduct in the performance of his duties hereunder; (iv) any unlawful
or criminal activity of a serious nature; or (v) the Officer's conviction for
any felony crime (whether in connection with the Company's affairs or
otherwise).
2.3 Termination Without Cause. The Company shall have
the right, upon 60 days' written notification to the Officer, to terminate the
Officer's employment without cause (as defined above); provided, however, that,
except as provided in Section 2.4 or 2.5, during the Initial Term no such
termination without cause shall be effective without the prior written consent
of the underwriter of the Company's initial public offering, so long as such
underwriter is still engaged as financial advisor to the Company. Except as
otherwise provided
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<PAGE> 3
in Section 3.5, upon any termination without cause pursuant
to this Section 2.3, the Officer shall be paid all accrued salary, vested
deferred compensation (other than pension plan or profit-sharing plan benefits,
which will be paid in accordance with the provisions of the applicable plan),
any benefits then due under any plans of the Company in which the Officer is a
participant, accrued vacation pay, sick-leave pay, and any appropriate business
expenses incurred by the Officer in connection with his duties hereunder, all to
the effective date of termination ("Accrued Compensation"), and all severance
compensation provided for in Section 4.1.
2.4 Disability. If, during the Term of this
Agreement, the Officer, in the reasonable judgment of the Board of Directors of
the Company, has failed to perform his duties under this Agreement on account of
illness or physical or mental disability, which condition renders the Officer
incapable of performing the duties of his office, and such condition continues
for a total of six months during any 12-month (or shorter) period, the Company
shall have the right to terminate the Officer's employment hereunder by and upon
written notification to the Officer (which also will be considered notice not to
extend the Term pursuant to Section 2.1) and payment to the Officer of all
Accrued Compensation to the date of termination, and disability benefits as
provided in Section 4.2, but no other compensation, severance or reimbursement
of any kind.
2.5 Death. In the event of the Officer's death
during the Term of this Agreement, the Officer's employment shall be deemed to
have terminated as of the last day of the month during which his death occurs,
and the Company shall pay to his estate all Accrued Compensation to the date of
termination, but no other compensation, severance or reimbursement of any kind.
2.6 Termination Upon a Change in Control.
(a) In the event of a Termination Upon a
Change in Control, the Officer shall immediately be paid all Accrued
Compensation and the severance compensation provided for in Section 4.1.
"Termination Upon a Change in Control" shall mean a termination by the Company
without cause, or by the Officer for "Good Reason," of the Officer's employment
with the Company following a "Change in Control" (as defined below,
respectively).
(b) For purposes of this Agreement "Good
Reason" shall include, but not be limited to, any of the following (without the
Officer's express written consent):
(i) within the first 12 months after
the Change in Control, the assignment to the Officer by the Company of duties
inconsistent with, or a substantial alteration in the nature or status of, the
Officer's responsibilities immediately prior to a Change in Control other than
any such alteration primarily attributable to the fact that the Company's
securities are no longer publicly traded;
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<PAGE> 4
(ii) within the first 12 months after
the Change in Control, a reduction by the Company in the
Officer's compensation or benefits as in effect on the date
of a Change in Control;
(iii) the Company's relocation of the
Officer to any place other than the principal offices of the Company (or such
other location as the Board of Directors has agreed the Officer may be located
pursuant to Section 1.2 hereof), except for reasonably required travel by the
Officer on the Company's business;
(iv) any material breach by the Company
of any provision of this Agreement, if such material breach has not been cured
within thirty (30) days following written notice of such breach by the Officer
to the Company setting forth with specificity the nature of the breach or, if
the cure cannot reasonably be effected within such 30-day period, then if the
Company does not commence to cure the breach within such 30-day period and
thereafter in good faith pursue such cure; or
(v) any failure by the Company to
obtain the assumption and performance of this Agreement by any successor (by
merger, consolidation or otherwise) or assign of the Company.
For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 51% of the then
outstanding voting stock of the Company; or (b) at any time during any period of
three consecutive years (not including any period prior to the date hereof),
individuals who at the beginning of such period constitute the Board (and any
new director whose election by the Board or whose nomination for election by the
Company's stockholders were approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof; or (c) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into securities of the surviving entity) at least 50% of the combined
voting power of the voting securities or at least 50% of the total value of the
Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
2.7 Voluntary Termination. In the event
Sections 2.2, 2.3, 2.4 and 2.6 are not applicable, and the Officer voluntarily
terminates his employment hereunder, the
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<PAGE> 5
Company shall promptly pay all Accrued Compensation to the date of termination,
but no other compensation or reimbursement of any kind, including, without
limitation, severance pay.
3. Compensation.
3.1 Base Salary. During the Term of this
Agreement, the Company agrees to pay the Employee for his services hereunder a
salary at the initial rate of $135,000 per annum ("Base Salary") payable in
equal semi-monthly installments. The Base Salary for each year during the Term
hereof shall be increased, subject to the approval of the Board of Directors, by
the greater of (a) an amount equal to the average annual incremental increase
applicable to the Company's senior executive management or (b) an amount equal
to the annual increase in the consumer price index.
3.2 Benefits. The Officer shall be entitled to
participate in any of the Company's benefit and deferred compensation plans as
are from time to time available to the officers of the Company, including, but
not limited to, profit-sharing, medical, dental, health and annual physical
examination plans, life and disability insurance plans and supplemental
retirement programs (provided, however, that the Officer's benefits may be
modified or the Officer may be denied participation in any such plan because of
a condition or restriction imposed by law or regulation or third-party insurer
or other provider relating to participation of officers).
3.3 Bonus. The Officer shall be entitled to
receive an annual bonus pursuant to a written bonus plan approved by the Board
of Directors, subject, however, to the Company meeting its goals and financial
performance targets for such period, where failure to so meet such goals will
reduce or eliminate Officer's annual bonus.
3.4 Other Allowances and Vacation. The Officer
shall be entitled to reasonable expense reimbursements upon presentation of
supporting documentation in accordance with Company policies. Company agrees to
provide Officer with a leased vehicle for Officer's use and further agrees to
make lease and insurance payments on such vehicle in an amount not to exceed
Five Hundred Dollars ($500) per month. Officer shall be entitled to all holidays
applicable to all employees of the Company, four weeks paid vacation per year,
and such other benefits appropriate to the office of Executive Vice President,
Chief Operating Officer and Chief Financial Officer of the Company as the Board
may deem reasonable.
3.5 Prohibition Against Certain Golden Parachute
Payments . Notwithstanding any other provision of this Agreement or of any other
agreement, the Officer shall not be entitled to receive the amount (or portion
thereof), if any, of compensation or severance reimbursement that (i) would be
treated as a "parachute payment" for purposes of Section 280G of the Internal
Revenue Code and (ii) would subject the Officer to an excise tax on "excess
parachute payments" under Section 4999 of the Internal Revenue Code such that
the Officer would receive, on an after-tax basis, total compensation, severance,
and reimbursement
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<PAGE> 6
amounts than the Officer otherwise would have received if no "parachute
payment" has been made to the Officer.
4. Severance and Other Payments.
4.1 Severance Compensation.
(a) In the event the Officer's employment is
terminated under Sections 2.3 or 2.6, the parties acknowledge that the Officer
will sustain actual damages, the amount of which is indefinite, uncertain and
difficult of exact ascertainment because of the uncertainties of successfully
relocating and seeking a comparable position. In order to avoid dispute as to
the amount of such damages and the mutual expense and inconvenience such dispute
would entail, the Company and the Officer have agreed hereby that the Company
shall pay to the Officer severance compensation determined in the manner set
forth below. In the event the Company terminates the Officer's employment at any
time prior to the end of the Term: (i) if a Termination Without Cause pursuant
to Section 2.3, then the Company shall pay severance compensation in an amount
equal to the Officer's Base Salary (at the rate payable at the time of such
termination) for the greater of a period of two years following the date of
termination or the balance of the Term, plus a bonus for each such year (or pro
rata part thereof) equal to the average of the bonus received by the Officer
for each of the two years preceding the year in which termination occurs, in
the manner specified in Section 3.1; or (ii) if a Termination upon a Change in
Control pursuant to Section 2.6, then the Company shall pay severance
compensation in an amount equal to two times the sum of (x) the Officer's Base
Salary (at the rate payable at the time of such termination) plus (y) a bonus
calculated in the manner provided in the foregoing clause (i) payable in the
manner specified in Section 3.1. In either such event, the Officer shall be
entitled to a letter of credit or other security reasonably acceptable to the
Officer to secure payment to him of the amounts owed. It is hereby agreed that
in the event of such termination by the Company, the Officer shall receive such
amounts as herein provided, not as a penalty, but as the Officer's agreed
severance compensation and sole damages for the termination of this Agreement,
in lieu of the Officer's proof of his actual damages on that account. All
severance compensation shall be without prejudice to the Officer's right to
receive all Accrued Compensation (as defined in Section 2.3) earned and unpaid
up to the time of termination.
(b) Following a termination under
Sections 2.3 or 2.6, the Officer may in the Officer's sole discretion, by
delivery of a notice to the Company within thirty (30) days following such
termination, elect to receive from the Company a lump sum severance payment by
bank cashier's check equal to the present value of the flow of cash payments
that would otherwise be paid to the Officer pursuant to Section 4.1(a). The
present value shall be determined as of the date of delivery of the notice of
election of the Officer and shall be based on a discount rate equal to the
interest rate on 90-day U.S. Treasury Bills, as reported in the Wall Street
Journal (or similar publication) on the date of delivery of the election notice.
If the Officer elects to receive a lump sum severance payment, the Company shall
make such payment to the
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<PAGE> 7
Officer within sixty (60) days following the date on which the Officer notifies
the Company of the Officer's election.
(c) No deduction shall be made by the
Company under this Section 4.1 for any compensation earned by the Officer from
any other employment or for any other monies otherwise received by the Officer
subsequent to termination of employment hereunder.
(d) In the event of a termination under
Sections 2.3 or 2.6, at the Officer's sole discretion, the vesting schedule, if
any, for all stock options previously granted to Officer shall be accelerated
and all such options shall become fully vested as of the date of his
termination.
4.2 Disability Benefits. In the event of
termination of the Officer's employment by reason of disability pursuant to
Section 2.4, the Company shall pay to the Officer the difference between (i) 75%
of the sum of the Officer's Base Salary at the rate and times payable at the
time of termination and (ii) amounts received by the Officer from long term
disability insurance carried by the Company, during the remaining Term of this
Agreement.
5. Non-Competition
5.1 No Competition. Officer agrees that, unless terminated
without cause, he will not, anywhere in the world, without the prior written
approval of the Biofactors Board of Directors, until the lapse of two (2) years
after his termination pursuant to Sections 2.1, 2.2, 2.4 or 2.7, engage,
directly or indirectly, in a "Competing Business," as defined below, whether as
a sole proprietor, partner, corporate officer, employee, director, shareholder,
consultant, agent, independent contractor, trustee, or in any other manner by
which officer holds any beneficial interest in a competing business, derive any
income from any interest in a competing business, or provide any service to a
competing business. "Competing Business" shall mean the design, development,
manufacture or marketing of products in any line of business in which
Biofactors is, or has in the past been, involved, or is or has planned or
considered involvement. the provisions of this paragraph will not, however,
restrict officer from owning less than one percent of the outstanding stock of
a publicly-traded corporation engaged in a competing business.
5.2 No Solicitation of Customers. Officer will not, directly
or indirectly, until the lapse of two (2) years after his termination pursuant
to Sections 2.1, 2.2, 2.4 or 2.7, without the prior written approval of the
Biofactors Board of Directors, call upon, cause to be called upon, solicit or
assist in the solicitation of, any customer or potential customer of Biofactors
for the purpose of diverting any existing or future business of such customers
to a competing business.
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<PAGE> 8
5.3 No Hiring of Employees. Officer will not, directly or
indirectly, until the lapse of two (2) years after his termination pursuant to
Sections 2.1, 2.2, 2.4 or 2.7, without the prior written approval of the
Biofactors Board of Directors, employ, engage, or seek to employ or engage,
directly or indirectly, any employee of Biofactors.
5.4 Equitable Remedies. The services to be rendered by officer
and the information disclosed to officer prior to and during the term hereof are
of a unique and special character, and any breach of Section 5 hereof will cause
Biofactors immediate and irreparable injury and damage, for which monetary
relief would be inadequate or difficult to quantify. Therefore, Biofactors will
be entitled to, in addition to all other remedies available to it, injunctive
relief and specific performance to prevent a breach and to secure the
enforcement of all provisions of Section 5 hereof. Injunctive relief may be
granted immediately upon the commencement of any such action.
6. Miscellaneous.
6.1 Severability. Should a court or other body
of competent jurisdiction determine that any provision of this Agreement is
excessive in scope or otherwise invalid or unenforceable, such provision shall
be adjusted rather than voided, if possible, so that it is enforceable to the
maximum extent possible, and all other provisions of the Agreement shall be
deemed valid and enforceable to the extent possible.
6.2 Withholdings. All compensation and benefits
to the Officer hereunder shall be reduced by all federal, state, local and other
withholdings and similar taxes and payments required by applicable law.
6.3 Arbitration. The parties hereby agree that
any dispute or controversy arising out of or relating to this Agreement,
Officer's employment with the Company, or the termination or cancellation of
that employment or this Agreement, including without limitation any claim by
Officer under any federal, state or local law or statute regarding
discrimination in employment, shall be settled by arbitration by a panel of
three arbitrators in accordance with the Commercial Arbitration Rules of the
American Arbitration Association from time to time in force. The hearing on any
such arbitration shall be held in Denver, Colorado. If such Commercial
Arbitration Rules and practices shall conflict with the Colorado Rules of Civil
Procedure or any other provisions of Colorado law then in force, such Colorado
rules and provisions shall govern. Arbitration of any such dispute or
controversy shall be a condition precedent to any legal action thereon. This
submission and agreement to arbitration shall be specifically enforceable.
Within thirty (30) days of the receipt by one party of a
written notice to arbitrate delivered by the other party, each party shall
select one arbitrator by written notice to the other party. Within thirty (30)
days of the delivery of both notices, the two arbitrators will select a third
arbitrator. If the two cannot agree on such third arbitrator, the selection of a
third arbitrator
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<PAGE> 9
shall be made by the Chief Judge of the U.S. District Court for
the District of Colorado or, if such judge refuses to act, such selection shall
be made in accordance with the procedures of the American Arbitration
Association.
Awards shall be final and binding on all parties to the extent
and in the manner provided by Colorado law. Each award shall expressly entitle
the prevailing party to recover such party's attorneys' fees and costs, and the
award shall specifically allocate such fees and costs between the parties. All
awards may be filed by any party with the Clerk of the District Court in the
City and County of Denver, Colorado, and an appropriate judgment entered thereon
and execution issued therefor. At the election of any party, said award may also
be filed, and judgment entered thereon and execution issued therefor, with the
clerk of one or more other courts, state or federal, having jurisdiction over
the party against whom such an award is rendered or its property.
6.4 Entire Agreement; Modifications. This
Agreement represents the entire agreement between the parties and may be
amended, modified, superseded, or cancelled, and any of the terms hereof may be
waived, only by a written instrument executed by each party hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provisions hereof shall not
affect the right at a latter time to enforce the same. No waiver by any party of
the breach of any provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or of any other term of this
Agreement.
6.5 Applicable Law. This Agreement shall be
construed under and governed by the laws of the State of
Colorado.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
NHANCEMENT TECHNOLOGIES, INC.
By /s/ ESMOND T. GOEI
-------------------------------
Esmond T. Goei
President and Chief Executive
Officer
/s/ DOUGLAS S. ZORN
-------------------------------
Douglas S. Zorn
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<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made this 25th
day of October, 1996, by and between NHANCEMENT TECHNOLOGIES INC., a Delaware
corporation ("Employer"), and JAMES GILLESPIE, a resident of the State of Nevada
("Employee").
WITNESSETH
WHEREAS, concurrently herewith, Employer has agreed to
purchase all of the outstanding capital stock of Voice Plus, Inc., a California
corporation ("VPI"), consisting of ninety-one thousand (91,000) shares of Common
Stock, par value $1.00 per share, pursuant to an Agreement and Plan of Merger by
and among Employer, VPI Acquisition Corporation ("Merger Sub"), VPI, and
Employee (the "Merger Agreement"), pursuant to which Merger Sub will be merged
with and into VPI and VPI will become a wholly-owned subsidiary of Employer
("VPI Sub");
WHEREAS, Employer is unwilling to consummate the transactions
contemplated by the Merger Agreement unless this Agreement has been executed by
Employee; and
WHEREAS, Employee agrees to be employed by Employer for the
period and upon and subject to the terms herein provided.
THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements contained herein and intending to be legally
bound, Employer and Employee agree as follows:
1. TERMS OF EMPLOYMENT
a) Term. Employer agrees to employ Employee for a
period commencing on the Effective Date (as defined in the Merger Agreement) and
ending on the third anniversary of the Effective Date (the "Term"), and for such
additional term as may be agreed to in writing by the Parties hereto.
b) Base Salary. Employer will pay Employee a base
salary for his services as Employer's Vice-President Sales and President of VPI
Sub during the Term of his employment hereunder at an annual rate of One
Hundred Fifty Thousand Dollars ($150,000), payable in equal monthly
installments in accordance with Employer's standard practice, subject only to
such payroll and withholding deductions as are required by law, and subject to
the same annual incremental increase as is applicable to executive management
of Employer with responsibilities similar to those of Employee ("Executive
Management").
<PAGE> 2
c) Bonus and Commissions.
i) Commissions. Employer agrees to pay
Employee an annual commission based on a percentage of the combined net revenues
of VPI Sub and BioFactors, Inc. (a sister subsidiary of VPI Sub); which
percentage for the calendar year 1997 will be two and one-half percent (2 1/2%),
and for subsequent years will be a percentage negotiated between Employer and
Employee which results in a commission amount of approximately Two Hundred
Thousand Dollars ($200,000) per year.
ii) Annual Performance Bonus. During the
Term of this Agreement and any extensions thereof, Employer agrees to pay
Employee a performance-based bonus consistent with that paid Executive
Management under the bonus plan approved by Employer's Board of Directors.
d) Equity Compensation Plans. Employee shall be
offered or allowed to participate in all equity compensation plans provided to
Executive Management, which plans shall be reviewed annually to ensure their
competitiveness.
e) Insurance. Employer agrees to provide Employee
with health, hospitalization, life and disability insurance coverage consistent
with coverage provided or offered to Executive Management.
f) Car Allowance. Employer agrees that Employee shall
be allowed exclusive use of the Jeep currently owned by VPI and further agrees
that Employer shall cause VPI Sub to continue to make insurance payments on such
vehicle through the Term hereof or until such vehicle is disposed of by VPI Sub,
at which time, Employee shall receive a monthly car allowance in such amount as
provided or offered to Executive Management.
2. OFFICE AND DUTIES. Employee shall have the dual titles of
Vice- President Sales of Employer and President of VPI Sub, and shall have
responsibility, subject to the direct supervision of Employer's chief operating
officer, and indirect supervision of Employer's chief executive officer and its
Board of Directors, for the management of Employer's sales activities,
performance of Employer's sales and for the management and performance of VPI
Sub. Employee shall perform such other tasks, not inconsistent with his
position, as may from time to time be assigned to him by the chief operating
officer, the chief executive officer or the Board of Directors of Employer.
Employee shall devote all of his business time, labor, skill, undivided
attention and best ability to the performance of his duties hereunder in a
manner which will faithfully and diligently further the business and interests
of Employer and VPI Sub. During the term of his employment, Employee shall not
directly or indirectly pursue any other business activity without Employer's
prior written consent, with the exception of passive personal investments not in
breach of any other term or provision hereof. Employee agrees that he will
travel to whatever extent is reasonably necessary in the conduct of Employer's
business.
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<PAGE> 3
Employer acknowledges that Employee owns and operates
Intermedia Technologies, a Nevada corporation ("Intermedia"), which is engaged
in the business of reselling used electronic equipment and electronic data
systems including voice messaging systems, and in providing associated
maintenance, installation and repair services. Employer agrees that Employee may
maintain his ownership and activities in promotion of Intermedia during the term
of his employment hereunder; provided, however, that such activities shall not
materially detract from or impair Employee's performance of his duties as
specified herein. Employer acknowledges and agrees that Intermedia's business as
currently conducted, and Employee's interests therein and activities therewith
as currently conducted, do not constitute a breach of any noncompetition
provision of this Agreement. Employee agrees that, during the term of this
Agreement, he will cause Intermedia to seek prior express consent of Employer to
any solicitation by Intermedia of a customer of VPI Sub or any other Employer
subsidiary or the hiring of any employee of VPI Sub or any other subsidiary of
Employer, and any failure to do so shall be a breach of Section 8 hereof.
3. REIMBURSEMENT OF EXPENSES. Employee shall be entitled to be
reimbursed in accordance with such procedures as Employer has heretofore or may
hereafter establish, for reasonable and proper business expenses incurred by him
in connection with the performance of his duties hereunder.
4. VACATION DURING EMPLOYMENT. Employee shall be entitled to
such reasonable vacations as may be allowed by Employer consistent with its
customary practice with respect to Executive Management.
5. ADDITIONAL BENEFITS. In addition to the benefits set forth
in Sections 1, 2, 3 and 4, Employee shall be entitled to receive such fringe
benefits as are generally available to Executive Management, but Employer shall
not be required to establish or continue any such benefits or to take any action
to cause Employee to be eligible for any of such benefits on a basis more
favorable than that applicable to Executive Management generally.
6. TERMINATION OF EMPLOYMENT.
a) Notwithstanding any other provision of this
Agreement, Employee's employment may be terminated:
i) By Employer for "Cause" (defined below),
upon forty-five (45) days' notice to Employee setting forth in
writing its election to terminate the Agreement and the
specific reasons for termination, and if, within such 45 days,
Employee was given the right to present his position regarding
the termination to Employer's Board of Directors ("Board") and
after such hearing a majority of the Board ratified the
decision to terminate his employment. For purposes of this
Agreement, "Cause" justifying the termination of this
Agreement by Employer is defined as: (1) willful dishonesty
towards, fraud upon, crime against, misrepresentation,
embezzlement, deliberate or attempted injury or bad faith
action
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<PAGE> 4
with respect to, Employer; (2) willful failure or refusal to
perform the services required of him hereby; or (3)
Employee's conviction of any felony (whether in connection
with Employer's affairs or otherwise).
ii) By Employer upon Employee receiving
benefits under Employer's long-term disability insurance
policy.
iii) By either party for any material breach
of any of the terms of this Agreement, if such material breach
has not been substantially cured within thirty (30) days
following written notice of such breach from the party
aggrieved to the other specifying the breach relied on for
such termination, and failure of such party to cure such
breach within such period or, if cure cannot reasonably be
effected within such 30-day period, if the party does not
commence to cure the breach within such 30-day period and
thereafter pursue such cure continuously and with due
diligence, until cure has been fully effected. The parties
hereby agree that the following shall be deemed to be a
material breach of this Agreement and shall constitute an
"Acceleration Event" as defined in the Merger Agreement: (1)
Employer's failure to cure, within forty-five (45) days after
written notice from Employee, any payment default on the
Promissory Notes (as defined in Section 1.6 of the Merger
Agreement), or (2) Employer's failure to make any payment due
hereunder within five business days after receipted notice
from Employee of default.
iv) In the event of Employee's death during
the term of his employment.
v) By Employee upon sixty (60) days notice
to Employer.
vi) By Employer, without Cause, upon sixty
(60) days notice to Employee.
b) Termination of this Agreement pursuant to
Subsections 6(a)(i), (ii) (iv) or (v), or by expiration of the Term, shall
terminate all obligations of the parties hereunder except for the obligations
set forth in Sections 7 and 8.
c) In the event of termination of this Agreement by
Employee pursuant to Subsection 6(a)(iii) upon material breach hereof by
Employer, Employer's obligation to pay 100% of the base salary pursuant to
Section 1(b) hereunder and 50% of the commission payable pursuant to Section
1(c)(i) hereunder shall continue for the duration of the Term; all other
obligations of the parties hereunder shall terminate except for the obligations
set forth in Sections 7 and 8(b) through (e).
d) In the event of termination of this Agreement by
Employer pursuant to Subsection 6(a)(vi), Employer's obligation to pay 100% of
the base salary payable pursuant to
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<PAGE> 5
Section 1(b) hereunder and 50% of the commissions payable pursuant to Section
1(c)(i) hereunder shall continue for the duration of the Term and such
termination shall constitute an Acceleration Event.
7. ASSIGNMENT OF INVENTIONS: WORK PRODUCT.
a) Employee further agrees that during his employment
he shall not make, use or permit to be used any notes, memoranda, reports,
lists, records, drawings, sketches, specifications, software programs, data,
documentation or other materials of any nature relating to any matter within the
scope of the business of Employer or any of its subsidiaries including VPI Sub
(collectively, the "Subsidiaries") or concerning any of their respective
dealings or affairs otherwise than for the benefit of Employer or the
Subsidiaries. He further agrees that he shall not, after the termination of his
employment, use or permit to be used any such notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials, it being agreed that all of the foregoing
shall be and remain the sole and exclusive property of Employer or its
respective Subsidiary and that immediately upon the termination of his
employment he shall deliver all of the foregoing, and all copies thereof, to
Employer, at its main office.
b) If at any time or times during his employment,
Employee shall (either alone or with others) make, conceive, discover or reduce
to practice any invention, modification, discovery, design, development,
improvement, process, software program, work of authorship, documentation,
formula, data, technique, know-how, secret or intellectual property right
whatsoever or any interest therein (whether or not patentable or registrable
under copyright or similar statutes or subject to analogous protection) (herein
called "Developments") that (i) relates to the business of Employer or the
Subsidiaries, or any customer of or supplier to Employer or the Subsidiaries, or
any of the products or services being developed, manufactured or sold by
Employer or the Subsidiaries, or which may be used in relation therewith, (ii)
results from tasks assigned him by Employer or the Subsidiaries, or (iii)
results from the use of premises or personal property (whether tangible or
intangible) owned, leased or contracted for by Employer or the Subsidiaries,
such Developments and the benefits thereof shall immediately become the sole and
absolute property of Employer and its assigns, and Employee shall promptly
disclose to Employer (or any persons designated by it) each such Development and
hereby assigns any rights he may have or acquire in the Developments and
benefits and/or rights resulting therefrom to Employer and its assigns without
further compensation and shall communicate, without cost or delay, and without
publishing the same, all available information relating thereto (with all
necessary plans and models) to Employer.
c) Employee hereby represents and warrants that all
Developments by him during the time he worked or was associated with VPI became
assets of, and were owned by VPI; and he hereby assigns any rights he may have
or acquire in such Developments and benefits and/or rights resulting therefrom
to Employer and its assigns without further compensation and shall communicate,
without cost or delay, and without publishing the same, all available
information relating thereto (with all necessary plans and models) to Employer.
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<PAGE> 6
d) Upon disclosure of each Development to Employer,
Employee will, during his employment and at any time thereafter, at the request
and cost of Employer, sign, execute, make and do all such deeds, documents, acts
and things as Employer and its duly authorized agents may reasonably require:
i) to apply for, obtain and vest in the name
of Employer alone (unless Employer otherwise directs) letters
patent, copyrights or other analogous protection in any
country throughout the world and when so obtained or vested
to renew and restore the same; and
ii) to defend any opposition proceedings in
respect of such applications and any opposition proceedings
or petitions or applications for revocation of such letters
patent, copyright or other analogous protection.
e) In the event Employer is unable, after reasonable
effort, to secure Employee's signature on any letters patent, copyright or other
analogous protection relating to a Development, whether because of any physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints Employer and its duly authorized officers
and agents as his agent and attorney-in-fact, to act for and in his behalf and
stead to execute and file any such application or applications and to do all
other lawfully permitted acts to further the prosecution and issuance of letters
patent, copyright or other analogous protection thereon with the same legal
force and effect as if executed by Employee.
8. NON-COMPETITION; CONFIDENTIALITY.
a) No Competition. Employee will not, anywhere in the
world, without the prior written approval of Employer, until the lapse of two
(2) years after his termination pursuant to Sections 1 or 6, engage, directly or
indirectly, in a "Competing Business," as defined below, whether as a sole
proprietor, partner, corporate officer, employee, director, shareholder,
consultant, agent, independent contractor, trustee, or in any other manner by
which Employee holds any beneficial interest in a Competing Business, derives
any income from any interest in a Competing Business, or provides any service to
a Competing Business. "Competing Business" shall mean the design, development,
manufacture or marketing of products in any line of business in which any of
Employer or the Subsidiaries is, or has in the past been, involved, or is or has
planned or considered involvement; provided, however, that Employee's employment
by a manufacturer of voice processing or telecommunications equipment not
manufactured by the Company or its Subsidiaries, and Employee's activities in
connection with his ownership and operation of Intermedia shall be excluded from
such definition. The provisions of this paragraph will not, however, restrict
Employee from owning less than one percent of the outstanding stock of a
publicly-traded corporation engaged in a Competing Business.
b) No Solicitation of Customers. Employee will not,
directly or indirectly, until the lapse of two (2) years after his termination
pursuant to Sections 1 or 6, without the prior written approval of Employer,
call upon, cause to be called upon, solicit or
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<PAGE> 7
assist in the solicitation of, any customer or potential customer of Employer
or the Subsidiaries for the purpose of diverting any existing or future
business of such customers to a Competing Business.
c) No Hiring of Employees. Employee will not,
directly or indirectly, until the lapse of two (2) years after his termination
pursuant to Sections 1 or 6, without the prior written approval of Employer,
employ, engage, or seek to employ or engage, directly or indirectly, any
employee of Employer or the Subsidiaries.
d) Confidentiality. Employee will not, without
Employer's prior written approval reveal to any person or entity any of the
trade secrets or confidential information concerning the organization, business
or finances of Employer or the Subsidiaries or of any third party which any of
Employer or the Subsidiaries is under an obligation to keep confidential
(including but not limited to trade secrets or confidential information
respecting inventions, products, designs, methods, know-how, techniques,
systems, processes, software programs, works of authorship, customer lists,
projects, plans and proposals), except as may be required in the ordinary course
of performing his duties as an employee of Employer, and he shall keep secret
all matters entrusted to him and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to Employer or the
Subsidiaries.
e) Equitable Remedies. The services to be rendered by
Employee and the information disclosed to Employee prior to and during the term
hereof are of a unique and special character, and any breach of Sections 7 or 8
hereof will cause Employer immediate and irreparable injury and damage, for
which monetary relief would be inadequate or difficult to quantify. Therefore,
Employer will be entitled to, in addition to all other remedies available to it,
injunctive relief and specific performance to prevent a breach and to secure the
enforcement of all provisions of Sections 7 and 8 hereof. Injunctive relief may
be granted immediately upon the commencement of any such action.
9. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire understanding between the parties with respect to the subject matter
contained herein and supersedes any prior understandings and agreements among
them respecting such subject matter. This Agreement may be amended,
supplemented, or terminated only by a written instrument duly executed by both
parties.
10. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not affect its interpretation.
11. GENDER; NUMBER. Words of gender may be read as masculine,
feminine, or neuter, as required by context. Words of number may be read as
singular or plural, as required by context.
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<PAGE> 8
12. SEVERABILITY. If any provision of this Agreement is held
illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability shall not affect any other provisions hereof. This Agreement
shall, in such circumstances, be deemed modified to the extent necessary to
render enforceable the provisions hereof.
13. NOTICES. All notices, requests, demands, waivers,
consents, approvals, or other communications required or permitted hereunder
shall be in writing and shall be deemed to have been given if delivered
personally, sent by receipted delivery by facsimile transmission,
telegram or telex, or sent by certified or registered mail or same day or
overnight courier service, postage prepaid, return receipt requested, to the
following addresses:
If to Employer, to:
Nhancement Technologies, Inc.
1746 Cole Boulevard, Suite 265
Golden, CO 80401
Attention: Douglas S. Zorn
If to Employee, to:
James Gillespie
198 Country Club Drive
Incline Village, NV 89451
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
14. WAIVER. The failure of any party to insist upon strict
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of any of his/its rights hereunder.
15. ASSIGNMENT. Employee may not assign any of his rights or
delegate any of his obligations hereunder, and such purported assignment or
delegation shall be void.
16. SUCCESSORS AND ASSIGNS. This Agreement binds, inures to
the benefit of, and is enforceable by the successors and permitted assigns of
the parties and does not confer any rights on any other persons or entities,
except as expressly provided herein.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH NEVADA LAW EXCEPT FOR ANY NEVADA CONFLICT-OF-LAW
PRINCIPLE THAT MIGHT REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION.
SUBMISSION TO JURISDICTION; SERVICE; WAIVERS. WITH RESPECT
TO ANY CLAIM ARISING OUT OF THIS AGREEMENT, EACH PARTY
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<PAGE> 9
HERETO (A) IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE CITY OF RENO AND
COUNTY OF WASHOE, NEVADA, AND APPELLATE COURTS THEREFROM, (B) AGREES THAT THE
VENUE FOR ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE EXCLUSIVE TO AND LIMITED TO SUCH COURTS, AND (C) IRREVOCABLY
WAIVES ANY OBJECTION IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT BROUGHT
IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM
AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH CLAIM,
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT THAT SUCH COURT DOES NOT
HAVE JURISDICTION OVER IT. EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OF THE
AFORESAID COURTS BY THE MAILING OF COPIES OF SUCH PROCESS TO THE OTHER PARTY OR
PARTIES HERETO, BY CERTIFIED OR REGISTERED MAIL AT THE ADDRESS SPECIFIED IN
PARAGRAPH 13.
18. ATTORNEYS' FEES. In the event it becomes necessary for
either party hereunder to employ an attorney to enforce or interpret the
Agreement, the prevailing party, if any, shall be entitled to recover reasonable
attorneys' fees, costs and necessary disbursements from the opposing party.
[The remainder of this page intentionally left blank.]
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
EMPLOYER:
NHANCEMENT TECHNOLOGIES INC.
By: /s/ ESMOND T. GOEI
------------------------------------
Esmond T. Goei, President and CEO
EMPLOYEE:
/s/ JAMES GILLESPIE
------------------------------------
James Gillespie
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<PAGE> 1
Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
October 30, 1996, by and between Nhancement Technologies Inc., a Delaware
corporation (the "Company"), and Esmond T. Goei (the "Officer").
RECITAL
The Officer has been serving as Chairman of the Board of Directors,
President and Chief Executive Officer of BioFactors, Inc., a Delaware
corporation ("BFI"), pursuant to an employment agreement between the parties
hereto dated as of June 1, 1994 (the "Previous Employment Agreement").
BFI has entered into an agreement which provides for the merger of
BFI into a wholly owned subsidiary of the Company pursuant to that certain
Agreement and Plan of Merger dated as of October 30, 1996, by and among the
Company, BFI and BFI Acquisition Corporation, a Delaware corporation (the "BFI
Merger").
Upon the consummation of the BFI Merger, the Board of Directors of
the Company desire to continue the appointment of Officer as an officer of the
Company and of BFI and the Officer desires to accept such continued appointment.
The Company and the Officer desire to set forth herein the terms and
conditions of his continued employment. This Agreement supersedes and replaces
the Previous Employment Agreement and all existing employment agreements between
the parties, oral or written.
AGREEMENT
In consideration of the mutual promises, covenants and agreements
contained herein, and intending to be legally bound, the parties hereby agree as
follows:
1. Agreement to Serve.
1.1 Title. The Company shall employ the Officer and the
Officer shall serve in the employ of the Company as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company and of BFI.
1.2 Duties. The Officer shall assume and discharge the
responsibilities of Chairman of the Board of Directors, President and Chief
Executive Officer (as set forth in the Bylaws of the Company), as well as such
other duties and responsibilities as may be assigned to
<PAGE> 2
him by the Board of Directors of the Company and as are appropriate to the
offices he holds. In addition, the Officer shall perform his duties to the best
of his abilities and shall devote the majority of his business time and
attention to the good faith performance of his duties. The Officer shall not
engage in other businesses or activities for compensation during the term of
this Agreement to the extent such other businesses or activities would
substantially interfere with the performance of his duties hereunder; it being
acknowledged and agreed, however, that Officer may from time to time perform
services for other companies as a member of the board of directors or in a
consulting or advisory capacity, for which Officer may receive compensation
from such companies. In no event shall Officer be precluded from performing
limited services in the management of his personal investments. The Officer
shall perform his services to the Company at its principal offices or at such
other location as may be acceptable to the Board of Directors.
2. Terms of Employment.
2.1 Basic Term. The term of the Officer's employment under
this Agreement (the "Term") shall extend for a period of three years from the
date of the consummation of the BFI Merger, subject to the remaining provisions
of this Section 2. The period described in the preceding sentence shall be
referred to herein as the "Initial Term." The Term will be extended for
successive one-year periods beginning on the first day after the final day of
the Initial Term, except in the event the Officer or the Company provides
written notice to the other, at least 180 days before the beginning of such
one-year period, of the intention not to extend the Term. During the Term, the
same terms and conditions contained in this Agreement (including salary as may
be determined under Section 3.1) shall remain in effect during the continuance
of the Officer's employment.
2.2 Termination for Cause. The Company shall have the right to
terminate the Officer for cause and said termination shall be effected by and
upon written notification to Officer. Grounds for termination for cause shall
include only, (i) the Officer's material breach of any terms of this Agreement,
if such material breach has not been substantially cured within thirty (30) days
following written notice of such breach to the Officer from the Company setting
forth with specificity the nature of the breach or, if cure cannot reasonably be
effected within such 30-day period, if the Officer does not commence to cure the
breach within such 30-day period and thereafter pursue such cure continuously
and with due diligence until cure has been fully effected; (ii) the Officer's
willful dishonesty towards, fraud upon, crime against, misrepresentation,
embezzlement, deliberate or attempted injury or bad faith action with respect
to, or deliberate or attempted injury to, the Company; (iii) the Officer's
willful failure or refusal to perform the services required of him hereby, or to
carry out proper directions by the Board of Directors of the Company with
respect to the services to be rendered by him hereunder or the manner of
rendering such services, his willful misconduct in the performance of his duties
hereunder; (iv) any unlawful or criminal activity of a serious nature; or (v)
the Officer's conviction for any felony crime (whether in connection with the
Company's affairs or otherwise).
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<PAGE> 3
2.3 Termination Without Cause. The Company shall have the
right, upon 60 days' written notification to the Officer, to terminate the
Officer's employment without cause (as defined above); provided, however, that,
except as provided in Section 2.4 or 2.5, during the Initial Term no such
termination without cause shall be effective without the prior written consent
of the underwriter of the Company's initial public offering, so long as such
underwriter is still engaged as financial advisor to the Company. Except as
otherwise provided in Section 3.5, upon any termination without cause pursuant
to this Section 2.3, the Officer shall be paid all accrued salary, vested
deferred compensation (other than pension plan or profit-sharing plan benefits,
which will be paid in accordance with the provisions of the applicable plan),
any benefits then due under any plans of the Company in which the Officer is a
participant, accrued vacation pay, sick-leave pay, and any appropriate business
expenses incurred by the Officer in connection with his duties hereunder, all
to the effective date of termination ("Accrued Compensation"), and all
severance compensation provided for in Section 4.1.
2.4 Disability. If, during the Term of this Agreement, the
Officer, in the reasonable judgment of the Board of Directors of the Company,
has failed to perform his duties under this Agreement on account of illness or
physical or mental disability, which condition renders the Officer incapable of
performing the duties of his office, and such condition continues for a total of
six months during any 12-month (or shorter) period, the Company shall have the
right to terminate the Officer's employment hereunder by and upon written
notification to the Officer (which also will be considered notice not to extend
the Term pursuant to Section 2.1) and payment to the Officer of all Accrued
Compensation to the date of termination, and disability benefits as provided in
Section 4.2, but no other compensation, severance or reimbursement of any kind.
2.5 Death. In the event of the Officer's death during the Term
of this Agreement, the Officer's employment shall be deemed to have terminated
as of the last day of the month during which his death occurs, and the Company
shall pay to his estate all Accrued Compensation to the date of termination, but
no other compensation, severance or reimbursement of any kind.
2.6 Termination Upon a Change in Control.
(a) In the event of a Termination Upon a Change in
Control, the Officer shall immediately be paid all Accrued Compensation and the
severance compensation provided for in Section 4.1. "Termination Upon a Change
in Control" shall mean a termination by the Company with out cause, or by the
Officer for "Good Reason," of the Officer's employment with the Company
following a "Change in Control" (as defined below, respectively).
(b) For purposes of this Agreement "Good Reason" shall
include, but not be limited to, any of the following (without the Officer's
express written consent):
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<PAGE> 4
(i) within the first 12 months after the Change in
Control, the assignment to the Officer by the Company of duties
inconsistent with, or a substantial alteration in the nature or status
of, the Officer's responsibilities immediately prior to a Change in
Control other than any such alteration primarily attributable to the
fact that the Company's securities are no longer publicly traded;
(ii) within the first 12 months after the Change
in Control, a reduction by the Company in the Officer's compensation or
benefits as in effect on the date of a Change in Control;
(iii) the Company's relocation of the Officer to
any place other than the principal offices of the Company (or such
other location as the Board of Directors has agreed the Officer may be
located pursuant to Section 1.2 hereof), except for reasonably required
travel by the Officer on the Company's business;
(iv) any material breach by the Company of any
provision of this Agreement, if such material breach has not been cured
within thirty (30) days following written notice of such breach by the
Officer to the Company setting forth with specificity the nature of the
breach or, if the cure cannot reasonably be effected within such 30-day
period, then if the Company does not commence to cure the breach within
such 30-day period and thereafter in good faith pursue such cure; or
(v) any failure by the Company to obtain the
assumption and performance of this Agreement by any successor (by
merger, consolidation or otherwise) or assign of the Company.
For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 51% of the then
outstanding voting stock of the Company; or (b) at any time during any period of
three consecutive years (not including any period prior to the date hereof),
individuals who at the beginning of such period constitute the Board (and any
new director whose election by the Board or whose nomination for election by the
Company's stockholders were approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof; or (c) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into securities of the surviving entity) at least 50% of the combined
voting power of the voting securities or at least 50% of the total value of the
Company or such surviving entity outstanding
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<PAGE> 5
immediately after such merger or consolidation, or the stockholders approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
2.7 Voluntary Termination. In the event Sections 2.2, 2.3, 2.4
and 2.6 are not applicable, and the Officer voluntarily terminates his
employment hereunder, the Company shall promptly pay all Accrued Compensation to
the date of termination, but no other compensation or reimbursement of any kind,
including, without limitation, severance pay.
3. Compensation.
3.1 Base Salary. During the Term of this Agreement, the
Company agrees to pay the Employee for his services hereunder a salary at the
initial rate of $135,000 per annum ("Base Salary") payable in equal
semi-monthly installments. The Base Salary for each year during the Term hereof
shall be increased, subject to the approval of the Board of Directors, by the
greater of (a) an amount equal to the average annual incremental increase
applicable to the Company's senior executive management or (b) an amount equal
to the annual increase in the consumer price index.
3.2 Benefits. The Officer shall be entitled to participate in
any of the Company's benefit and deferred compensation plans as are from time to
time available to the officers of the Company, including, but not limited to,
profit-sharing, medical, dental, health and annual physical examination plans,
life and disability insurance plans and supplemental retirement programs
(provided, however, that the Officer's benefits may be modified or the Officer
may be denied participation in any such plan because of a condition or
restriction imposed by law or regulation or third-party insurer or other
provider relating to participation of officers).
3.3 Bonus. The Officer shall be entitled to receive an annual
bonus, pursuant to a written bonus plan approved by the Board of Directors,
subject, however, to the Company meeting its goals and financial performance
targets for such period, where failure to so meet such goals will reduce or
eliminate Officer's annual bonus.
3.4 Other Allowances and Vacation. The Officer shall be
entitled to reasonable expense reimbursements upon presentation of supporting
documentation in accordance with Company policies. Company agrees to provide
Officer with a leased vehicle for Officer's use and further agrees to make lease
and insurance payments on such vehicle in an amount not to exceed Five Hundred
Dollars ($500) per month. Officer shall be entitled to all holidays applicable
to all employees of the Company, four weeks paid vacation per year, and such
other benefits appropriate to the office of Chairman of the Board, President and
Chief Executive Officer of the Company as the Board may deem reasonable.
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3.5 Prohibition Against Certain Golden Parachute Payments.
Notwithstanding any other provision of this Agreement or of any other agreement,
the Officer shall not be entitled to receive the amount (or portion thereof), if
any, of compensation or severance or reimbursement that (i) would be treated as
a "parachute payment" for purposes of Section 280G of the Internal Revenue Code
and (ii) would subject the Officer to an excise tax on "excess parachute
payments" under Section 4999 of the Internal Revenue Code such that the Officer
would receive, on an after-tax basis, total compensation, severance, and
reimbursement amounts than the Officer otherwise would have received if no
"parachute payment" had been made to the Officer.
4. Severance and Other Payments.
4.1 Severance Compensation.
(a) In the event the Officer's employment is terminated
under Sections 2.3 or 2.6, the parties acknowledge that the Officer will sustain
actual damages, the amount of which is indefinite, uncertain and difficult of
exact ascertainment because of the uncertainties of successfully relocating and
seeking a comparable position. In order to avoid dispute as to the amount of
such damages and the mutual expense and inconvenience such dispute would
entail, the Company and the Officer have agreed hereby that the Company shall
pay to the Officer severance compensation determined in the manner set forth
below. In the event the Company terminates the Officer's employment at any time
prior to the end of the Term: (i) if a Termination Without Cause pursuant to
Section 2.3, then the Company shall pay severance compensation in an amount
equal to the Officer's Base Salary (at the rate payable at the time of such
termination) for the greater of a period of two years following the date of
termination or the balance of the Term, plus a bonus for each such year (or pro
rata part thereof) equal to the average of the bonus received by the Officer
for each of the two years preceding the year in which termination occurs, in
the manner specified in Section 3.1; or (ii) if a Termination upon a Change in
Control pursuant to Section 2.6, then the Company shall pay severance
compensation in an amount equal to two times the sum of (x) the Officer's Base
Salary (at the rate payable at the time of such termination) plus (y) a bonus
calculated in the manner provided in the foregoing clause (i) payable in the
manner specified in Section 3.1. In either such event, the Officer shall be
entitled to a letter of credit or other security reasonably acceptable to the
Officer to secure payment to him of the amounts owed. It is hereby agreed that
in the event of such termination by the Company, the Officer shall receive such
amounts as herein provided, not as a penalty, but as the Officer's agreed
severance compensation and sole damages for the termination of this Agreement,
in lieu of the Officer's proof of his actual damages on that account. All
severance compensation shall be without prejudice to the Officer's right to
receive all Accrued Compensation (as defined in Section 2.3) earned and unpaid
up to the time of termination.
(b) Following a termination under Sections 2.3 or 2.6,
the Officer may in the Officer's sole discretion, by delivery of a notice to the
Company within thirty
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(30) days following such termination, elect to receive from the Company a lump
sum severance payment by bank cashier's check equal to the present value of the
flow of cash payments that would otherwise be paid to the Officer pursuant to
Section 4.1(a). The present value shall be determined as of the date of
delivery of the notice of election of the Officer and shall be based on a
discount rate equal to the interest rate on 90-day U.S. Treasury Bills, as
reported in the Wall Street Journal (or similar publication) on the date of
delivery of the election notice. If the Officer elects to receive a lump sum
severance payment, the Company shall make such payment to the Officer within
sixty (60) days following the date on which the Officer notifies the Company of
the Officer's election.
(c) No deduction shall be made by the Company under this
Section 4.1 for any compensation earned by the Officer from any other employment
or for any other monies otherwise received by the Officer subsequent to
termination of employment hereunder.
(d) In the event of a termination under Sections 2.3 or
2.6, at the Officer's sole discretion, the vesting schedule, if any, for all
stock options previously granted to Officer shall be accelerated and all such
options shall become fully vested as of the date of his termination.
4.2 Disability Benefits. In the event of termination of the
Officer's employment by reason of disability pursuant to Section 2.4, the
Company shall pay to the Officer the difference between (i) 75% of the sum of
the Officer's Base Salary at the rate and times payable at the time of
termination and (ii) amounts received by the Officer from long term disability
insurance carried by the Company, during the remaining Term of this Agreement.
5. Non-Competition; Confidentiality
5.1 No Competition. Officer agrees that, unless terminated
without Cause, he will not, anywhere in the world, without the prior written
approval of the BioFactors Board of Directors, until the lapse of two (2) years
after his termination pursuant to Sections 2.1, 2.2, 2.4 or 2.7, engage,
directly or indirectly, in a "Competing Business," as defined below, whether as
a sole proprietor, partner, corporate officer, employee, director, shareholder,
consultant, agent, independent contractor, trustee, or in any other manner by
which Officer holds any beneficial interest in a Competing Business, derive any
income from any interest in a Competing Business, or provide any service to a
Competing Business. "Competing Business" shall mean the design, development,
manufacture or marketing of products in any line of business in which BioFactors
is, or has in the past been, involved, or is or has planned or considered
involvement. The provisions of this paragraph will not, however, restrict
Officer from owning less than one percent of the outstanding stock of a
publicly-traded corporation engaged in a Competing Business.
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<PAGE> 8
5.2 No Solicitation of Customers. Officer will not, directly
or indirectly, until the lapse of two (2) years after his termination pursuant
to Sections 2.1, 2.2, 2.4 or 2.7, without the prior written approval of the
BioFactors Board of Directors, call upon, cause to be called upon, solicit or
assist in the solicitation of, any customer or potential customer of BioFactors
for the purpose of diverting any existing or future business of such customers
to a Competing Business.
5.3 No Hiring of Employees. Officer will not, directly or
indirectly, until the lapse of two (2) years after his termination pursuant to
Sections 2.1, 2.2, 2.4 or 2.7, without the prior written approval of the
BioFactors Board of Directors, employ, engage, or seek to employ or engage,
directly or indirectly, any employee of BioFactors.
5.4 Equitable Remedies. The services to be rendered by Officer
and the information disclosed to Officer prior to and during the term hereof are
of a unique and special character, and any breach of Section 5 hereof will cause
BioFactors immediate and irreparable injury and damage, for which monetary
relief would be inadequate or difficult to quantify. Therefore, BioFactors will
be entitled to, in addition to all other remedies available to it, injunctive
relief and specific performance to prevent a breach and to secure the
enforcement of all provisions of Section 5 hereof. Injunctive relief may be
granted immediately upon the commencement of any such action.
6. Miscellaneous.
6.1 Severability. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the maximum extent
possible, and all other provisions of the Agreement shall be deemed valid and
enforceable to the extent possible.
6.2 Withholdings. All compensation and benefits to the Officer
hereunder shall be reduced by all federal, state, local and other withholdings
and similar taxes and payments required by applicable law.
6.3 Arbitration. The parties hereby agree that any dispute or
controversy arising out of or relating to this Agreement, Officer's employment
with the Company, or the termination or cancellation of that employment or this
Agreement, including without limitation any claim by Officer under any federal,
state or local law or statute regarding discrimination in employment, shall be
settled by arbitration by a panel of three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association from time
to time in force. The hearing on any such arbitration shall be held in Denver,
Colorado. If such Commercial Arbitration Rules and practices shall conflict with
the Colorado Rules of Civil Procedure or any other provisions of Colorado law
then in force, such Colorado rules and provisions shall govern. Arbitration of
any such dispute or controversy shall be a condition precedent
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<PAGE> 9
to any legal action thereon. This submission and agreement to arbitration shall
be specifically enforceable.
Within thirty (30) days of the receipt by one party of a written
notice to arbitrate delivered by the other party, each party shall select one
arbitrator by written notice to the other party. Within thirty (30) days of the
delivery of both notices, the two arbitrators will select a third arbitrator. If
the two cannot agree on such third arbitrator, the selection of a third
arbitrator shall be made by the Chief Judge of the U.S. District Court for the
District of Colorado or, if such judge refuses to act, such selection shall be
made in accordance with the procedures of the American Arbitration Association.
Awards shall be final and binding on all parties to the extent and
in the manner provided by Colorado law. Each award shall expressly entitle the
prevailing party to recover such party's attorneys' fees and costs, and the
award shall specifically allocate such fees and costs between the parties. All
awards may be filed by any party with the Clerk of the District Court in the
City and County of Denver, Colorado, and an appropriate judgment entered thereon
and execution issued therefor. At the election of any party, said award may also
be filed, and judgment entered thereon and execution issued therefor, with the
clerk of one or more other courts, state or federal, having jurisdiction over
the party against whom such an award is rendered or its property.
6.4 Entire Agreement; Modifications. This Agreement represents
the entire agreement between the parties and may be amended, modified,
superseded, or canceled, and any of the terms hereof may be waived, only by a
written instrument executed by each party hereto or, in the case of a waiver,
by the party waiving compliance. The failure of any party at any time or times
to require performance of any provisions hereof shall not affect the right at a
latter time to enforce the same. No waiver by any party of the breach of any
provision contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such breach or of any other term of this Agreement.
6.5 Applicable Law. This Agreement shall be construed under
and governed by the laws of the State of Colorado.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NHANCEMENT TECHNOLOGIES, INC.
By /s/ DOUGLAS S. ZORN
-------------------------------------------
Douglas S. Zorn
Vice President, Chief Operating Officer and
Chief Financial Officer
/s/ ESMOND T. GOEI
--------------------------------------------
Esmond T. Goei
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<PAGE> 1
Exhibit 10.16
CONTRACT # _____________
PERFORMANCE FACTORS
FACTOR 1000(R) SERVICE CONTRACT
CLIENT: Name COMPANY: PERFORMANCE FACTORS
Address A DIVISION OF BIOFACTORS, INC
City/State/Zip 1746 COLE BOULEVARD, SUITE 265
Contact: GOLDEN, COLORADO 80401
Telephone: TELEPHONE: 303/271-0505
Facsimile: FACSIMILE: 303/271-9493
THE COMPANY'S OBLIGATIONS:
HARDWARE AND SOFTWARE. The Company shall provide one copy of the Software and
associated licenses for each Location, and hardware as set forth in Exhibit A
hereto. Software shall remain the Company's property subject to licensing rights
of Client.
IMPLEMENTATION AND TRAINING. Upon Client's request, the Company shall provide
implementation services and training of client- designated personnel on-site at
Client's location for a fee as defined in Exhibit A.
DOCUMENTATION. The Company shall provide Client with user manuals, workbooks,
and support materials.
SUPPORT SERVICES. The Company shall provide all services reasonably required to
maintain the Software including periodic software upgrades.
PERIODIC REPORTS. The Company has the rights to all employee data and agrees to
maintain appropriate confidentiality and privacy regarding such data. The
Company shall provide Client with periodic management reports containing trend
data regarding Client's use of FACTOR 1000(R) in accordance with Company
procedures. The Company shall provide Client periodic analyses regarding
Client's utilization and operation of FACTOR 1000(R).
EXPERT TESTIMONY. If requested to do so by Client, the Company will provide
reasonable expert testimony concerning the scientific validity of FACTOR 1000(R)
in any legal action or proceeding to which Client is a party and in which the
issue of the validity of the testing measurements utilized by the Company to
test for inference of a psychomotor impairment is raised.
CLIENT'S OBLIGATIONS:
PRICE: Client shall pay (a) a license fee for each employee tested during the
term of this agreement as defined in Exhibit A, (b) for the Hardware as listed
in Exhibit A, and (c) an implementation fee, plus travel and out-of-pocket
expenses for on-site Implementation and Training, as set forth above, and any
additional implementation and on-site training requested by Client as defined in
Exhibit A.
PAYMENT TERMS, as set forth in Exhibit A hereto.
CLIENT HARDWARE. Client is responsible for hardware maintenance at its own
expense. Where the hardware is not purchased from the Company, the Client's
hardware must be certified by a Company representative. A one time charge of
$400.00 per day, plus travel and reasonable out-of-pocket expenses will be
charged to ensure that the Client provided hardware meets the Company's
specifications. Where the hardware is not purchased as part of FACTOR 1000(R),
Client shall supply and maintain the Hardware at its own expense.
CONTROL PANELS. Client shall pay a fee for each control panel as defined in
Exhibit A. Control panels are proprietary hardware and remain the sole property
of the Company. Should Client identify and the Company agree that a control
panel has become inoperable, and an on-site replacement is not available, the
Company will ship via next-day delivery a replacement to Client at the Company's
expense. Client must promptly return the defective hardware; should the Company
determine that the failure of the control panels was due to Client's negligence,
Client will be responsible for the costs of repairing or replacing the hardware,
whichever is lower. Client agrees to ensure that all hardware provided by the
Company is not lost or damaged while the equipment is in Client's possession.
CLIENT POLICIES. Client acknowledges that while the FACTOR 1000(R) Documentation
contains policy options for Client to consider, Client's policy related to its
use of FACTOR 1000(R) is Client's sole responsibly and has been or will be
developed and adopted at the sole discretion of Client.
TERM, ADDITIONS, AND OTHER TERMS AND CONDITIONS.
TERM. The term of this contract is for 12 months, commencing _________through
____________. This Contract is non-cancelable and shall automatically continue
on a year to year basis at the end of the term set forth herein unless either
party notifies the other party of its intent to terminate this Contract in
writing at least sixty (60) days prior to the end of the then current term.
ADDITIONS. Client may add employees to be tested at any time at the rate per
employee set forth in Exhibit A, adjusted for the portion of year actually
tested. If additional Company Hardware, Implementation, and Training is
required, such shall be provided at the rates set forth in Exhibit A.
OTHER TERMS AND CONDITIONS. This Contract is subject to the other terms and
conditions set forth on the reverse side hereof, Exhibit A attached hereto, and
any Special Terms, Conditions or Exceptions set forth below.
SPECIAL TERMS, CONDITIONS OR EXCEPTIONS: Any exceptions, additions or deletions
to this contract will be noted in an Exhibit B, "Additional Terms and
Conditions" and supersedes the main contact.
Agreed To By: Sales/Use Tax Status: (Check One)
___________________________________ _______ Taxable _______ Exempt
Company Name
___________________________________ ________________________________
Client Authorized Signature Tax Exemption Number (if Exempt)
___________________________________
Title
___________________________________
Date
===================================
ACCEPTED BY:
___________________________________
Performance Factors
- ------------------------- ------------ ----------
Title Date
<PAGE> 2
TERMS AND CONDITIONS
Delivery. Shipment of the FACTOR 1000(R) shall be F.O.B. the Company's place of
business. Client shall be responsible for all freight and insurance charges,
which will be initially paid by the Company and added to the final invoice to
Client.
Taxes. Client is responsible for the ultimate payment of all taxes which may be
assessed or levied on or on account of the FACTOR 1000(R) sold hereunder to
Client, including any applicable sales tax.
Inspection on Arrival. Promptly following Client's installation of FACTOR
1000(R), the Company's field service representatives will perform the Company's
customary acceptance testing procedures, and upon satisfactory completion of
such testing will provide Client with written certification that the FACTOR
1000(R) is performing in accordance with the specifications set forth in Exhibit
A.
Return of Goods. Return of goods will not be accepted by the Company unless they
are shipped F.O.B. authorized destination and with prior written authorization
by the Company. In the case of a return of defective goods for warranty service
or replacement, such shipment may be freight collect.
Warranties.
Software Warranty: Client understands that the individual performance level
"baseline" of each Client designated employee who is tested using FACTOR 1000(R)
(the IPL) is determined for the employee alone and is the measure against which
that employee's test results are compared. Thus, IPL's will differ from employee
to employee. FACTOR 1000(R) is a hand-eye coordination measurement that compares
an employee's daily testing results with his or her own IPL. Performing at or
above the IPL indicates that an employee is operating within a prescribed range
of his or her normal hand-eye coordination level. Failure to perform at or above
an employee's IPL is an indication of psychomotor impairment only, i.e., the
employee is not operating within a prescribed range of his or her normal
hand-eye coordination level. Client understands and acknowledges that an
individual's performance on FACTOR 1000(R) does not constitute any
representation by Company of the individual's absolute level of on-the-job
performance. FACTOR 1000(R) measures only one factor of many which collectively
determine an individual's ability to perform his or her job. FACTOR 1000(R) does
not identify or diagnose the specific cause of any potential psychomotor
impairment. Client further acknowledges that while the Company warrants the
validity of the measurements utilized in FACTOR 1000(R), machine malfunctions or
other factors beyond the Company's control (e.g., acts of God) could result in
inaccurate test scores. "The Company warrants to Client that the FACTOR 1000(R)
software will perform as outlined above and in the Operators Manuals for the
term of this contract. All warranty repairs are to be performed during the
normal business hours of 8:00 a.m. to 5:00 p.m. Mountain Standard Time, Monday
through Friday, excluding Company holidays. Warranty repairs requested by Client
outside of normal business hours will be billable at standard billing rates.
Clients will ensure that the FACTOR 1000(R) software will be accessible to the
Company's representatives at the agreed upon time.
Hardware Warranty: The Company warrants that the Equipment, when installed
properly, will conform to the manufacturer's published specifications and be in
good working order. The Company hereby assigns and transfers to Client all of
Company's rights under any warranty from manufacturer to Company covering all or
any part of the Third Party Equipment, together with any right or license of
Company to use any manufacturer software included as part of the Third Party
Equipment, and Client agrees to be bound by the terms and limitations of any
such warranty, right or license. The Company warrants all computer equipment,
monitors, printers, networking hardware, keyboards, and other components sold to
Client for a period of thirteen (13) months form the original date of shipment
form Company's office, or Third Party location. Such warranty will cover
component or system failure, but will not cover damage caused by flood, fire,
lightning, abuse, acts of God, or other physical damage to the equipment.
Hardware Warranty Service: During the warranty period as described above,
Company or its agent, will provide immediate replacement of any failed component
or system, once notification is made to the Company as to the nature of the
failure, and the exact location where the replacement is to be shipped. The
Company or its agent will endeavor to ship a replacement system or component
within one business day form the time the failure is reported to Company. The
Company, or its agent, will ship the replacement to the end user site, at its
own expense, and will arrange for pickup or the failed system or component via a
UPS "Call Tag". The freight charges for the returned item or items will also be
paid for by the Company or its agent. In most circumstances, the failed system
or component will be sent by overnight delivery (within the continental 48
states. This procedure will apply whenever the failed system or component has
disabled either a tracking station or file server from operating properly. In
certain instances where a failed component does not materially effect or hamper
the basic functioning of the tracking station or file server, the item may be
shipped by Company or agent at lower cost method. After the warranty period, the
Company will offer extended equipment maintenance coverage that would provide
the same services and coverage as described above. If extended maintenance
coverage is denied, all maintenance will be performed as depot maintenance at
the Company's location. Parts, labor and shipping charges will be the
responsibility of the Client.
THE FOREGOING WARRANTY AND REMEDY ARE EXCLUSIVE AND EXPRESSLY IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR USE OR ANY PARTICULAR PURPOSE. THE
COMPANY NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME ON ITS BEHALF
ANY OTHER LIABILITY IN CONNECTION WITH THE SALE, INSTALLATION, SERVICE OR USE OF
THE FACTOR 1000(R). NOTWITHSTANDING THE GENERALITY OF THE FOREGOING, (A) THE
COMPANY SHALL HAVE NO LIABILITY WHATSOEVER FOR CONSEQUENTIAL, INCIDENTAL OR
PUNITIVE DAMAGES OF ANY KIND ARISING OUT OF THE SALE, INSTALLATION, SERVICE, OR
USE OF THE FACTOR 1000(R), AND (B) THE COMPANY'S LIABILITY SHALL IN NO EVENT
EXCEED THE ORIGINAL PURCHASE PRICE OF THE FACTOR 1000(R).
Employee Consents. It is Client's sole responsibility to determine the need for
employee consents for Client's use of FACTOR 1000(R).
Employee Actions. Any actions taken against Client's employees as a result of
Factor 1000(R)testing is strictly the discretion of the Client and not the
responsibility of the Company.
Control Panels. Client agrees to pay a fee as identified in Exhibit A for each
Control Panel that is cracked, broken, altered, lost, stolen, or otherwise
damaged not under warranty while in Client's custody.
Force Majeure. Neither party shall be responsible for any resulting loss if the
fulfillment of any of the terms or provisions of this Contract is delayed or
prevented by revolutions, insurrections, riots, wars, acts of enemies, national
emergency, strikes, floods, fires, acts of God or by any other cause not within
the control of the party whose performance is interfered with which, by the
exercise of reasonable diligence, such party is unable to prevent, whether of
the class or causes enumerated above or not.
Proprietary Information. Any information, including specifications, drawings,
technical information and data, concerning the FACTOR 1000(R) or any of the
Company's other products, methods, or processes furnished by the Company to
Client shall remain the Company's property and shall not be copied or duplicated
in any manner, except for internal use, without the Company's advance written
consent. All such information shall be used only in Client's use of FACTOR
1000(R) and shall be returned to the Company at the termination of this
Contract. Each of Client's designated employees will establish an Individual
Performance Level ("IPL") or baseline. Each IPL will be encrypted in the FACTOR
1000(R) and will be available to Client or Client's employees. All individual
data generated by FACTOR 1000(R) software, other than the "Above IPL" or "Below
IPL" result of each test and related statistics, is confidential and proprietary
information belonging solely to the Company. The Company may use such data for
research and other purposes, but in no case will the Company reveal any
association between proprietary data and the names of Client or Client's
employees without their express permission.
Indemnification. Client shall indemnify, defend, and hold harmless the Company
against all losses and costs, including reasonable attorneys' fees, which the
Company may sustain or incur in connection with Client's use of FACTOR 1000(R),
including, but not limited to, claims by employees for tortuous interference
with contract or prospective economic advantage, discrimination, wrongful
discharge, and defamation, unless such claim is due solely to a breach of
warranty or the Company's negligence.
Assignment. Neither the Company nor Client may assign its rights or delegate its
duties under this Contract without the written consent of the other, except that
the Company or Client may assign its rights and duties hereunder to a successor
or purchaser of its assets. This Contract shall inure to the benefit of and be
binding on and enforceable by permitted assigns of the parties hereto. Any
purported assignment or delegation not permitted hereunder shall not relieve the
Company or Client of its duties under this Contract.
Complete Agreement. This Contract, together with the Exhibits hereto, is
intended by the parties as a final expression of their agreement and as a
complete and exclusive statement of the terms thereof. No course of prior
dealings between the parties and no usage of the trade shall be relevant or
admissible to supplement, explain or vary any of the terms of this Contract.
Acceptance of, or acquiescence in, a course of performance rendered under this
or any prior agreement or purchase contract shall not be relevant or admissible
to determine the meaning of this Contract, even though the accepting or
acquiescing party has knowledge of the nature of the performance and an
opportunity to object. No other representations, understandings or agreements
have been made or relied upon in the making of this Contract other than those
specifically set forth herein. Without limiting the generality of the foregoing,
this Contract supersedes the terms of any purchase order issued by Client to the
Company and any acknowledgment of any such purchase order by the Company. This
Contract can be modified only by a writing signed by the parties, and no such
modification shall be binding upon the Company unless signed by an authorized
representative of the Company.
Applicable Law. This Contract shall be governed by and construed in accordance
with the internal laws, and not the law of conflicts, of the State of Colorado,
including the Uniform Commercial Code as in effect in Colorado. Client hereby
consents to the jurisdiction of the courts of the State of Colorado.
Notices. For the purpose of any notice required to be given by this Contract or
by an applicable provision of the Uniform Commercial Code or other law, notice
shall be sent by telecopy, messenger or first-class United States mail, postage
prepaid, to the addresses set forth above or to such other addresses of which
notice has been provided in accordance with this section. Notice given by mail
shall be deemed given three (3) days after the notice is deposited with the
United States mails.
FACTOR 1000(R)SOFTWARE LICENSE
1 The Company hereby grants to Client a personal, nonexclusive, and
nontransferable license to use the Software solely for its own internal purposes
and only within the scope and locations as identified in this Service Agreement
and defined in Exhibit A, for the term of this agreement.
2. Client shall not modify the Software without prior written consent from the
Company.
3. Client may not make copies of the Software except for archival copies of
software and copies for each Tracking Station pursuant to the Purchase Contract.
A separate license is required for each computer system on which the Software
Products are loaded or operated, except that the Software Products may be loaded
and or used temporarily on a backup computer if the Designated Equipment is
inoperative for any reason and providing that the Company is notified and
approves.
4. Client understands that Software Products may include software manufactured
by several different manufacturers who may require Client to use their standard
licensing agreements in using such Software Products. Client shall sign all such
agreements provided such agreements do not substantially conflict with the
material terms of the Purchase Contract.
5. Client agrees that all right, title and interest in all enhancements to the
Software shall belong to the Company, or in certain instances, other vendor
suppliers to the Company.
6. The Software is highly confidential and the property of the Company and, in
certain instances, other vendor suppliers to the Company. Client agrees not to
disclose, publish or release any Software to anyone other than those of its
employees having a need to know without first obtaining the Company's written
permission. Client's obligation of non-disclosure shall survive termination of
this Agreement.
7. Client further agrees not to reverse assemble or reverse engineer the
Software to acquire knowledge about the logic, structure or sequence of Software
or decode any Software or to bypass or defeat protection methods providing for
preventing unauthorized uses of the Software or to derive any source code or
algorithms therefrom without prior written permission from the Company.
<PAGE> 1
EXHIBIT 10.18
CENTIGRAM
DISTRIBUTOR AGREEMENT
Centigram Communications Corporation
91 East Tasman Drive
San Jose, California 95134
August 23, 1996
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APPOINTMENT AS AUTHORIZED CENTIGRAM
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sales Outside Territory . . . . . . . . . . . . . . . . . . . . 1
Non-Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . 2
Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
OBLIGATIONS OF DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . 2
Technical Capacity . . . . . . . . . . . . . . . . . . . . . . . 2
Sales Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sales Reports . . . . . . . . . . . . . . . . . . . . . . . . . 2
Special Services and Materials . . . . . . . . . . . . . . . . . 2
Customer Service . . . . . . . . . . . . . . . . . . . . . . . . 3
Lead Follow-Up . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incentive Programs . . . . . . . . . . . . . . . . . . . . . . . 3
Distributor Covenants . . . . . . . . . . . . . . . . . . . . . 3
Distributor Financial Condition . . . . . . . . . . . . . . . . 3
Notification of Claims . . . . . . . . . . . . . . . . . . . . . 3
OBLIGATIONS OF CENTIGRAM . . . . . . . . . . . . . . . . . . . . . . . . 4
Sales Materials . . . . . . . . . . . . . . . . . . . . . . . . 4
Marketing Support . . . . . . . . . . . . . . . . . . . . . . . 4
Advertising Permission . . . . . . . . . . . . . . . . . . . . . 4
Sales Training . . . . . . . . . . . . . . . . . . . . . . . . . 4
Sales Leads . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Installation, Cutover and
Maintenance Assistance . . . . . . . . . . . . . . . . . . . . . 4
Remote Technical Assistance Service . . . . . . . . . . . . . . 4
Service Training . . . . . . . . . . . . . . . . . . . . . . . . 4
ORDER PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Centigram Acceptance . . . . . . . . . . . . . . . . . . . . . . 5
Controlling Terms . . . . . . . . . . . . . . . . . . . . . . . 5
Change Orders and Cancellation by
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Cancellation by Centigram . . . . . . . . . . . . . . . . . . . 5
Distributor Acceptance . . . . . . . . . . . . . . . . . . . . . 5
PRICES AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Prices to Distributor . . . . . . . . . . . . . . . . . . . . . 6
Increase in Prices for Failure to
Meet Quota . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Taxes and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
Invoicing . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Payment and Terms . . . . . . . . . . . . . . . . . . . . . . . 6
Security Interest . . . . . . . . . . . . . . . . . . . . . . . 7
SHIPMENT, RISK OF LOSS AND DELIVERY . . . . . . . . . . . . . . . . . . . 7
Shipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Partial Delivery . . . . . . . . . . . . . . . . . . . . . . . . 7
Delivery Schedule; Delays . . . . . . . . . . . . . . . . . . . 7
DISTRIBUTOR DETERMINES ITS OWN PRICES . . . . . . . . . . . . . . . . . . 8
PROPRIETARY RIGHTS AND CONFIDENTIALITY . . . . . . . . . . . . . . . . . 8
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . 8
Sale Conveys no Right to
Manufacture or Copy . . . . . . . . . . . . . . . . . . . . . . 8
Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 8
TRADEMARKS, TRADE NAMES AND COPYRIGHTS . . . . . . . . . . . . . . . . . 9
Trademark Use During Agreement . . . . . . . . . . . . . . . . . 9
Copyright and Trademark Notices . . . . . . . . . . . . . . . . 9
No Distributor Rights in
Trademarks or Copyrights . . . . . . . . . . . . . . . . . . . . 9
Obligation to Protect . . . . . . . . . . . . . . . . . . . . . 9
INTELLECTUAL PROPERTY INFRINGEMENT . . . . . . . . . . . . . . . . . . . 9
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 9
Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Entire Liability . . . . . . . . . . . . . . . . . . . . . . . . 10
WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Hardware Warranty . . . . . . . . . . . . . . . . . . . . . . . 10
Software Warranty . . . . . . . . . . . . . . . . . . . . . . . 11
Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
LIMITED LIABILITY TO DISTRIBUTOR AND
OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SOFTWARE LICENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DURATION AND TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . 14
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Centigram Termination For Cause . . . . . . . . . . . . . . . . 14
Automatic Termination . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
Orders After Termination Notice . . . . . . . . . . . . . . . . 15
Effect of Termination . . . . . . . . . . . . . . . . . . . . . 15
No Damages For Termination . . . . . . . . . . . . . . . . . . . 15
Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . 16
FCC CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . 17
Execution of Agreement . . . . . . . . . . . . . . . . . . . . . 17
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 17
Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 17
Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 17
Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . 17
Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 18
Release of Claims . . . . . . . . . . . . . . . . . . . . . . . 18
Due Execution . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
LIST OF EXHIBITS
Exhibit A - Authorized Centigram Products
Exhibit B - Territory
Exhibit C - Quota
Exhibit D - Purchase Order for Demonstration Systems
Exhibit E - Purchase Order for Training Services
Exhibit F - End-User Software License
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<PAGE> 5
AUTHORIZED U.S. DISTRIBUTOR AGREEMENT
This Agreement is entered into as of April 16, 1996 (the "Effective Date") by
and between Centigram Communications Corporation, a Delaware corporation with
its principal place of business at 91 East Tasman Drive, San Jose, California
95134 ("Centigram"), and Voice Plus, Inc., a California corporation, with its
principal place of business at 39899 Balentine Drive, Suite 350, Newark, CA
94560 ("Distributor").
RECITALS
A. Centigram is a manufacturer of voice processing systems,
including the products listed on Exhibit A hereto (the "Products"). This
Agreement pertains only to the Products set forth on Exhibit A and not to any
other products that are now, or may hereafter be, published, manufactured or
distributed by Centigram.
B. Products are distributed under trademarks and trade names having
a valuable reputation and goodwill which belong exclusively to Centigram.
Centigram spends substantial sums of money advertising and promoting Products,
as well as in establishing an effective distribution network for Products.
C. Centigram and Distributor recognize that in order for Products to
compete effectively in the marketplace, it is necessary that they be marketed
by distributors who have the ability to explain, demonstrate, install, service
and support Products, who have adequate facilities and personnel to perform
such functions, and who are fully able to serve the demand for Products in
their respective market areas. Distributor represents that Distributor is able
to explain, demonstrate, install, service, and support the Products and that
Distributor desires, at its own risks, to distribute the Products in the
Territory specified in Section 1.A hereof.
D. Centigram and Distributor desire that Distributor act as an
independent distributor of Products under the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual covenants
and agreements hereinafter set forth, Centigram and Distributor agree as
follows:
1. APPOINTMENT AS AUTHORIZED CENTIGRAM DISTRIBUTOR
A. Appointment. Centigram hereby appoints Distributor, and
Distributor hereby accepts such appointment, as an independent, nonexclusive
distributor of Products, solely in the Territory (as defined in Exhibit B), and
Centigram hereby grants to Distributor the nonexclusive right to distribute and
resell Products. Products may be changed, abandoned or added by Centigram, at
its sole discretion, upon written notice to Distributor.
B. Sales Outside Territory. Distributor agrees not to sell,
actively solicit sales, market or promote Products outside the Territory
without prior written consent of Centigram.
C. Non-Exclusivity. Centigram reserves the right to sell the
Products in the Territory directly and through other distributors and other
third party intermediaries, including without limitation original equipment
manufacturers who add value to the Products in the form of additional features,
services and/or brand name recognition and sell the resulting derivative
product through their own channels of distribution. If, at the request of
Centigram, Distributor performs installation, maintenance or other services in
connection with any such sales by Centigram or any such original equipment
manufacturer, then Distributor shall be compensated for such services at its
standard hourly rates and materials prices.
D. Title. Despite the use in this Agreement of the words "sale,"
"distribution," "purchase," "supply" and words of similar connotation, all
right, title and copyrights to software programs and documentation included in
or with the Products is reserved to Centigram and shall at no time pass to
Distributor or to any end user.
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<PAGE> 6
2. OBLIGATIONS OF DISTRIBUTOR
In recognition of the particular expertise and commitment necessary to
market and support Products properly, Distributor represents and warrants to
and agrees with Centigram that Distributor has, and during the term of this
Agreement will continue to maintain, the capacity, facilities and personnel
necessary to perform such functions as are required to carry out its
obligations under this Agreement, that it is ready and willing to do so, and in
particular that:
A. Technical Capacity. Distributor will maintain the technical
capability to enable it to demonstrate wazzu and explain in detail to customers
the features and capabilities of Products and the differences between Products
and competing products, and to install, service and support Products. In that
connection, the Distributor will employ, train and maintain a sufficient number
of capable technical and sales personnel to have the knowledge and training
necessary: (a) to inform customers properly concerning the features and
capabilities of Products; (b) to assist customers in determining which products
will best meet the customer's particular needs and desires; and (c) to install
and maintain the Products and provide pre- and post-distribution technical
assistance, service and support to customers in connection with Products.
B. Sales Quotas. Distributor agrees to meet or exceed the sales
quotas set forth on Exhibit C to this Agreement (the "Quota"). In the event
that Distributor does not meet the Quota requirements for any two (2)
consecutive quarters, Centigram shall have the option to increase prices in
accordance with Section 5.B. In addition, failure to make Quota for two (2)
conservative quarters can give rise to termination pursuant to Section
15.B(vi).
C. Sales Reports. Distributor shall provide to Centigram a monthly
activity report.
D. Special Services and Materials. Distributor shall pay to
Centigram reasonable charges for special support services and materials that
Centigram provides at Distributor's request and which are not normally covered
under Centigram's product warranty or other practices.
E. Customer Service. Distributor shall respond to customer service
requests, utilizing technicians certified by Centigram, in a timely fashion.
Distributor shall: (i) respond to major system failures within four (4) hours
during normal working days, and within eight (8) hours during weekends,
holidays or after hours; (ii) respond to minor failures and malfunctions within
one (1) business day; and (iii) in the case of major failures, restore service
within eight (8) hours after response, and notify Centigram's Technical
Assistance Center if service cannot be restored to the customer within such
period of time. In addition, Distributor shall respond promptly to all
customer complaints referred to Distributor by Centigram.
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<PAGE> 7
G. Lead Follow-Up. Distributor shall follow-up on each and every
qualified sales lead from Centigram and report on the results of such field
sales efforts, so that Centigram can properly manage sales inquiry generation
and qualification programs.
H. Incentive Programs. Distributor shall permit Centigram to
implement such sales incentive programs for Distributor's field sales personnel
and sales management as Centigram may deem necessary or desirable to stimulate
increased sales efforts. Such incentive programs shall be in addition to any
compensation provided by Distributor.
I. Distributor Covenants. Distributor agrees: (a) to conduct
business in a manner that reflects favorably at all times on the Products and
the good name, goodwill and reputation of Centigram; (b) to avoid deceptive,
misleading or unethical practices that are detrimental to Centigram, Products
or the public, including but not limited to disparagement of Centigram or
Products; (c) to make no false or misleading representations with regard to
Centigram or Products; (d) not to publish or employ or cooperate in the
publication or employment of any misleading or deceptive advertising material
and (e) to make no representations, warranties or guarantees to customers or to
the trade with respect to the specifications, features or capabilities of
Products that are inconsistent with the literature distributed by Centigram,
including all warranties and disclaimers contained in such literature, if any.
J. Distributor Financial Condition. Distributor is in, and shall
remain in, good financial condition, solvent and able to pay its bills when
due. Distributor will maintain under this agreement such working capital and
net worth as may be required in the reasonable opinion of Centigram to enable
Distributor to carry out and perform all of Distributor's obligations and
responsibilities under this Agreement; and from time to time, on reasonable
notice by Centigram, Distributor will furnish such financial reports and other
financial data as Centigram may reasonably request as necessary to determine
Distributor's financial condition. Centigram will have the right to change its
financial requirements at any time.
K. Notification of Claims. Distributor will notify Centigram in
writing of any claim or proceeding involving Products within ten (10) days
after Distributor learns of such claim or proceeding. Distributor will also
report promptly to Centigram all claimed or suspected product defects.
3. OBLIGATIONS OF CENTIGRAM
Centigram agrees to provide the following support to Distributor during
the term of the Agreement:
A. Sales Materials. Centigram shall make available to Distributor,
at reasonable cost, suitable quantities as may reasonably be requested of sales
support materials such as product brochures, data sheets, user guides,
applications, briefs, sales notebooks, formal sales presentations in overhead,
slide, or flip chart form, and other such material necessary to aid in the
selling process.
B. Marketing Support. Centigram shall provide to Distributor timely
reports detailing marketing or technical information on Products, competitive
comparisons, special sales or service suggestions, competitive announcements,
etc., and shall respond promptly to all inquiries and requests for help from
Distributor.
C. Advertising Permission. Centigram shall permit Distributor to
advertise Centigram's Products, subject to Centigram's approval of the content
of the advertisement prior to publication, placement or use.
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<PAGE> 8
D. Sales Training. Centigram shall provide field sales and sales
technical support training for Distributor's sales force at Centigram's
corporate offices, or (subject to reasonable fees and expensive reimbursement)
at Distributor's location, and shall assist in direct customer contacts.
E. Sales Leads. Centigram shall, in its discretion, provide to
Distributor, from time to time, qualified sales leads, provided that
Distributor pursues and further qualifies such leads with its sales force and
then provides Centigram with reasonably requested information about the
results.
F. Installation, Cutover and Maintenance Assistance. Centigram
shall, upon request from Distributor, make available at the installation site
and at such other times as may be requested by Distributor, a qualified field
engineer to render installation, cutover and customer assistance as may be
required by Distributor, in accordance with the Customer Support Service
program and fees set forth in Exhibit G.
G. Remote Technical Assistance Service. Centigram will provide
remote technical assistance as set forth in the Customer Support Service
program.
H. Service Training. Centigram shall provide field service
training, tools, and other necessary materials for Distributor's product
service organization as set forth in the Customer Support Service program.
4. ORDER PROCEDURE
A. Orders. All orders by Distributor for products shall be
initiated through a purchase order sent to Centigram by hard copy, facsimile or
telex. All purchase orders are subject to acceptance in writing by Centigram,
as provided in Section 4(b).
B. Centigram Acceptance. All orders shall be subject to acceptance
in writing by Centigram at its principal place of business and shall not be
binding until the earlier of such acceptance or shipment, and, in the case of
acceptance by shipment, only as to the portion of the order actually shipped.
Centigram has no obligation to accept orders placed by Distributor with
Centigram, and once Centigram receives an order, it agrees to provide
Distributor with a written acknowledgement of acceptance or rejection within
twenty (20) working days of such receipt. Partial acceptance of an order does
not constitute acceptance of the entire order.
C. Controlling Terms. The terms and conditions of this Agreement
and of the applicable Centigram invoice or confirmation will apply to each
order accepted or shipped by Centigram hereunder. The provisions of
Distributor's form of purchase order or other business forms will not apply to
any order notwithstanding Centigram's acknowledgement or acceptance of such
order.
D. Change Orders and Cancellation by Distributor.
(i) Distributor may cancel an order, or any portion thereof,
without penalty, provided that notice of cancellation of is received by
Centigram no less than thirty (30) days prior to the date of scheduled
shipment.
(ii) Within thirty (30) days prior to the date of scheduled
shipment but not less than ten (10) days prior to the scheduled date,
Distributor may make a change in any order, without penalty.
E. Cancellation by Centigram. Centigram reserves the right to
cancel any orders placed by Distributor and accepted by Centigram as set forth,
or to refuse or delay shipment thereof, if Distributor (a) fails to make any
payment as provided in this Agreement or under the terms of payment
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<PAGE> 9
set forth in any invoice or otherwise agreed to by Centigram and Distributor,
(b) fails to meet credit or financial requirements established by Centigram,
including any established credit limits or (c) otherwise fails to comply with
the terms and conditions of this Agreement. Centigram also reserves the right
to discontinue the publication, manufacture or distribution of any or all
Products at any time, and to cancel any orders for such discontinued Products
without liability of any kind to Distributor or to any other person. No such
cancellation, refusal or delay will be deemed a termination (unless Centigram
so advises Distributor) or breach of this Agreement by Centigram.
F. Distributor Acceptance. All orders shipped by Centigram to
Distributor must be accepted or rejected by Distributor within thirty (30) days
from the date of shipment. Distributor's failure to notify Centigram in
writing of its rejection of any or all Products, will be deemed to be an
acceptance of such Products.
5. PRICES AND PAYMENT
A. Prices to Distributor. Distributor shall initially be entitled,
during the first two (2) quarters of the initial term of this Agreement, to the
prices listed on Exhibit A. Centigram may change its prices to Distributor at
the discretion of Centigram, effective as of any time following the end of such
initial period, upon not less than thirty (30) days prior notice to
Distributor. The actual price paid by Distributor to Centigram for a Product,
less any changes, exchanges, credits or similar reimbursements, shall be
referred to herein as the "Purchase Price." Centigram will honor all MesaQuotes
provided to Distributor by Centigram for a period of ninety (90) days.
B. Increase in Prices for Failure to Meet Quota. In the event that
Distributor does not purchase, for shipment during any two (2) consecutive
quarters, systems representing an aggregate dollar volume equal to or exceeding
the Quota for such respective quarters, then Centigram shall have the option
thereafter, upon immediate notice to Distributor, to increase the price for its
Products based upon prices applicable to the annualized dollar volume of
purchases by Distributor during the preceding two (2) quarters. Any increase
will be similar to the pricing available to other distributors at similar
revenue levels.
C. Taxes and Fees. Centigram's prices do not include any national,
state or local sales, use, value added or other taxes or levies that Centigram
may be required to pay or collect upon the delivery of Products or upon
collection of the prices. Should any tax demand be made, Distributor agrees to
pay such tax and indemnify Centigram for any claim for such tax demanded.
Distributor represents and warrants to Centigram that all Products acquired
hereunder are for redistribution in the ordinary course of Distributor's
business, and Distributor agrees to provide Centigram with appropriate resale
certificate numbers and other documentation satisfactory to the applicable
taxing authorities to substantiate any claim of exemption from any such taxes
or fees.
D. Invoicing. Centigram shall submit an invoice to Distributor upon
each shipment of each Product ordered by Distributor. All invoicing shall be
to Distributor's address set forth at the beginning of this Agreement, without
regard to the actual shipping address. Each invoice shall cover Distributor's
Purchase Price for the Products in a given shipment plus any freight, taxes or
other applicable costs initially paid by Centigram but to be borne by
Distributor.
E. Payment and Terms. Payment terms shall be net cash payable
immediately. However, Centigram may in its discretion make available to
Distributor credit terms of net thirty (30) days from day of delivery of the
Product to the commercial carrier F.O.B. point of shipment or "will call."
Distributor's payment terms are subject to approval and change by Centigram's
credit department, taking into consideration the information provided pursuant
to Section 2.N and other relevant factors. Any invoiced amount not paid when
due may bear interest at the lesser of one and one-half percent (1.5%) per
month or the maximum rate permitted by applicable law. Distributor shall pay
all
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<PAGE> 10
of Centigram's costs and expenses (including reasonable attorneys fees) to
enforce and preserve Centigram's rights under this subsection 5.E. All
amounts due Centigram hereunder shall be paid in U.S. dollars. Centigram will
provide a 2% discount for all orders placed thirty (30) days prior to the
required ship date.
F. Security Interest. Distributor agrees that Centigram reserves a
continuing security interest in any Products now or later acquired by
Distributor and all related proceeds and accessions, which shall secure any and
all existing or future debt, obligations or liabilities of Distributor to
Centigram, including without limitation, any late payment or interest charges
due from Distributor and any expenses incurred by Centigram in enforcing its
rights (including attorneys' fees, court costs and the costs of retaking,
holding, preparing for resale or other disposition, or selling Products). In
the event of default by Distributor in any of its obligations to Centigram,
Centigram will have the right to repossess the goods sold hereunder without
liability to Distributor. A copy of the invoice may be filed with appropriate
authorities at any time as a financing statement and/or chattel mortgage to
perfect Centigram's security interest. On the request of Centigram,
Distributor will execute financing statements and all such other instruments as
Centigram may request to perfect its security interest.
6. SHIPMENT, RISK OF LOSS AND DELIVERY
A. Shipment. All Products will be shipped F.O.B. Centigram's
distribution facility. Shipments will be made to Distributor's identified
warehouse facilities or freight forwarder, or such other location as
Distributor shall request in writing (subject to Centigram's reasonable
approval). Unless specified in Distributor's order, Centigram will select the
mode of shipment and the carrier. Distributor will be responsible for and pay
all packing, shipping, freight and insurance charges, which charges Centigram
may require Distributor to pay in advance. Distributor reserves the right to
pick up any order at Centigram "will call".
B. Risk of Loss. All risk of loss of or damage to Products will
pass to Distributor, or to such financing institution or other party or parties
as may have been designated to Centigram by Distributor, upon delivery by
Centigram to the carrier, freight forwarder or Distributor, whichever first
occurs. Distributor will bear the risk of loss or damage in transit.
C. Partial Delivery. Unless Distributor clearly advises Centigram
to the contrary in writing, Centigram may make partial shipments on account of
Distributor's orders, to be separately invoiced and paid for when due. Delay
in delivery of any installment shall not relieve Distributor of its obligation
to accept the remaining deliveries.
D. Delivery Schedule; Delays. Centigram will use reasonable efforts
to meet Distributor's requested delivery schedule for Products, subject to the
terms as set forth in subsection 6.6. Centigram shall notify Distributor
promptly if any order cannot be filled according to the requested delivery
schedule. Should orders for Products exceed Centigram's available inventory.
Centigram will allocate its available inventory and make deliveries on a basis
Centigram deems equitable, in its sole discretion, and without liability to
Distributor on account of the method of allocation chosen or its implementation.
7. DISTRIBUTOR DETERMINES ITS OWN PRICES
Distributor is free to determine unilaterally its own prices to its
customers. Although Centigram may publish suggested wholesale or retail
prices, these are suggestions only and Distributor shall be entirely free to
determine the actual prices at which Products will be sold and licensed to
Distributor's customers.
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<PAGE> 11
8. PROPRIETARY RIGHTS AND CONFIDENTIALITY
A. Proprietary Rights. Distributor agrees that Centigram owns all
right, title, and interest in the product lines that include the Products now
or hereafter subject to this Agreement and in all of Centigram's patents,
trademarks, trade names, inventions, copyrights, know how, and trade secrets
relating to the Products and the design, manufacture, operation or service of
the Products. The use by Distributor of any of these proprietary rights is
authorized only for the purposes herein set forth, and upon termination of this
Agreement for any reason such authorization shall cease.
B. Sale Conveys no Right to Manufacture or Copy. The Products are
offered for sale and are sold by Centigram subject, in every case, to the
condition that such sale does not convey any license, expressly or by
implication, to manufacture, duplicate or otherwise copy or reproduce any of
the Products. Distributor shall take appropriate steps with its customers, as
Centigram may request, to inform them of and assure compliance with the
restrictions contained in this Section 8.B.
C. Confidentiality. The parties acknowledge that by reason of
their relationship to each other hereunder each will have access to certain
information and materials concerning the other's business, plans, customers,
technology and/or products that is confidential and of substantial value to
that party, which value would be impaired if such information were disclosed to
third parties. Each party agrees that it will not use in any way for its own
account or the account of any third party, nor disclose to any third party, any
such confidential information revealed to it by the other party and shall take
every reasonable precaution to protect the confidentiality of such information.
Upon request by either party, the other party shall advise whether or not it
considers any particular information or materials to be confidential.
Distributor shall not publish any technical description of the Products beyond
the description published by Centigram. In the event of termination of this
Agreement for any reason, there shall be no use or disclosure by a party of any
confidential information of the other party for a period of five (5) years from
the date of such termination, and neither party shall manufacture nor have
manufactured any product, device, component or assembly utilizing any of the
other party's confidential information.
9. TRADEMARKS, TRADE NAMES AND COPYRIGHTS
A. Trademark Use During Agreement. During the term of this
Agreement, Distributor is authorized by Centigram to use the trademarks
Centigram uses for Products in connection with Distributor's advertisement,
promotion and distribution of Products. Distributor's use of such trademarks
and logos will be in accordance with Centigram's policies in effect from time
to time, including but not limited to trademark usage and cooperative
advertising policies.
B. Copyright and Trademark Notices. Distributor agrees to include
on each copy of the Products that it distributes, and on all containers and
storable media therefor, all trademark, copyright, logos and other notices of
proprietary rights included by Centigram on such Products. Distributor agrees
not to alter, erase, deface or overprint any such notice on anything provided
by Centigram.
C. No Distributor Rights in Trademarks or Copyrights. Distributor
has paid no consideration for the use of Centigram's trademarks, logos,
copyrights, trade names or designations, and nothing contained in this
Agreement shall give Distributor any interest in any of them. Distributor
acknowledges that Centigram owns and retains all copyrights and other
proprietary rights in all Products, and agrees that it will not at and time
during or after this Agreement assert or claim any interest in or do anything
that may adversely affect the validity or enforceability of any trademark,
trade name, copyright or logo belonging to or licensed to Centigram (including,
without limitation, any act, or assistance to any act, which may infringe or
lead to the infringement of any copyright in the
-7-
<PAGE> 12
Products). Distributor agrees not to attach any additional trademarks, logos
or trade designations to any Product which interfere with or obscure
Centigram's trademarks, logos, copyrights or other notices of proprietary
rights. Distributor further agrees not to affix any Centigram trademark, logo
or trade designations to any non-Centigram product.
D. Obligation to Protect. Distributor agrees to use reasonable
efforts to protect Centigram's proprietary rights and to cooperate without
charge in Centigram's efforts to protect its proprietary rights. Distributor
agrees to notify Centigram of any known or suspected infringement or breach of
Centigram's proprietary rights that comes to Distributor's attention.
Centigram shall have the exclusive right to institute infringement or other
appropriate legal action against alleged prospective or actual infringers of
Centigram's Products, and shall incur all expenses in connection with any such
legal action and shall retain all monetary recoveries received therefrom.
10. INTELLECTUAL PROPERTY INFRINGEMENT
A. Indemnification. Distributor agrees that Centigram has the right
to defend, or at its option to settle, and Centigram agrees at its own expense
to defend or at its option to settle, any claim, suit or proceeding brought
against Distributor or its customer on the issue of infringement of any United
States patent, copyright or trademark by the Products sold hereunder or the use
thereof, subject to the limitations hereinafter set forth. Centigram shall have
sole control of any such action or settlement negotiations, and Centigram agrees
to pay, subject to the limitations hereinafter set forth, any final judgment
entered against Distributor or its customer on such issue in any such suit or
proceeding defended by Centigram. Distributor agrees that Centigram at its sole
option shall be relieved of the foregoing obligations unless Distributor or its
customer notifies Centigram promptly in writing of such claim, suit or
proceeding and gives Centigram authority to proceed as contemplated herein, and,
at Centigram's expense, gives Centigram proper and full information and
assistance to settle and/or defend any such claim, suit or proceeding for
infringement of any United States patent, copyright or trademark. If it is
adjudicatively determined that the Products, or any part thereof, infringe any
United States patent, copyright or trademark, or if the sale or use of the
Products, or any part thereof, is as a result enjoined, then Centigram may at
its option and expense: (a) procure for Distributor and its customers the right
under such patent, copyright or trademark to sell or use, as appropriate, the
Products or such part thereof; or (b) replace the Products, or part thereof,
with other suitable Products or parts; or (c) suitably modify the Products or
part thereof; or (d) if the use of the Products, or part thereof. is prevented
by injunction, remove the Products, or part thereof, and refund the aggregate
Purchase Price paid therefor by Distributor, less a deduction for use and damage
equal to the aggregate Purchase Price pro-rated over a thirty-six month period
from date of installation. Centigram shall not be liable for any costs or
expenses incurred without its prior written authorization.
B. Limitation. Notwithstanding the provisions of Section 10.A,
Centigram assumes no liability for (a) infringement of patent or copyright
claims covering any equipment or system in which any of the Products may be
used but not covering the Products standing alone; (b) any trademark
infringements involving any marking or branding not applied by Centigram or
involving any marking or branding applied at the request of Distributor; or (c)
any modification of the Products, or any part thereof, unless such modification
was made by Centigram.
C. Entire Liability. This Section 10 states the entire liability
and obligations of Centigram and the exclusive remedy of Distributor and its
customers with respect to any alleged patent, copyright or trademark
infringement by the Products or any part thereof.
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<PAGE> 13
11. WARRANTY
A. Title. Centigram warrants that Distributor, upon payment in full
of the Purchase Price, shall acquire good title to the Products purchased
hereunder, free and clear of all encumbrances.
B. Hardware Warranty. Centigram warrants that the equipment and
hardware included in the Products (collectively, the "Hardware") shall be free
of defects in material and workmanship and shall perform, under normal use and
circumstances, in accordance with Centigram's published specifications in
Centigram's Installation and Maintenance Manual for a period of twelve (12)
months from the date of installation by Distributor or fifteen (15) months from
date of shipment by Centigram, whichever such period shall terminate first. In
the event that Distributor shall notify Centigram during the warranty period
that any Hardware does not conform to this warranty, Centigram shall inspect
such Hardware and, upon conformation of a defect or failure to perform as
warranted, Centigram shall at its sole option either repair or replace the
nonconforming Hardware. All replacement parts furnished to Distributor under
this warranty shall be new or refurbished and equivalent to new, and shall be
warranted as new for the remainder of the original warranty period. All
defective parts which have been replaced shall become the property of Centigram
and Distributor shall return such parts, prepaid by Distributor, to Centigram's
designated place of repair. All defective parts that have been repaired shall
remain the property of the Distributor, and Centigram shall, upon repair or
replacement, return such parts to Distributor's designated location, freight
prepaid. Centigram shall use its best efforts to return such repaired or
replaced parts to Distributor within thirty (30) days of receipt of the
defective parts from Distributor. The terms and conditions of Centigram's
customary repair program are as set forth in Exhibit F. Centigram shall upon
request of Distributor provide to Distributor advance replacement parts required
for correction of defective or nonconforming Products, in accordance with
Centigram's advance replacement program as set forth in Exhibit F.
C. Software Warranty. Centigram warrants that the media (the
"Media") on which the software incorporated in the Products (the "Software") is
recorded shall be free from defects in material and workmanship under normal
use for a period of twelve (12) months following the date of installation by
Distributor or fifteen (15) months from date of shipment by Centigram to
Distributor, whichever such period shall terminate first. Distributor's sole
and exclusive remedy for defective, and Centigram's sole and exclusive
liability, shall be replacement of the Media in accordance with this limited
warranty. Centigram further warrants that the Software shall perform, under
normal use and circumstances, in accordance with Centigram's published
specifications for a period of two (2) years from the date of installation by
Distributor. In the event that Centigram receives notice from Distributor
during such warranty period that the Software does not conform to this
warranty, Centigram shall determine, in its sole judgment, whether the Software
is nonconforming, and if so Centigram shall, at its option, either repair or
replace the nonconforming Software.
D. Procedures. An item may only be returned to Centigram with its
prior written approval. Any such approval shall reference a returned material
authorization number issued by authorized Centigram service personnel.
Transportation costs, if any, incurred in connection with the return of a
defective item to Centigram shall be borne by Distributor. Any transportation
costs incurred in connection with the redelivery of a repaired or replacement
item to Distributor by Centigram shall be borne by Centigram; provided,
however, that such costs shall be borne by Distributor if Centigram reasonably
determines that the item is not nonconforming. If Centigram determines, in its
sole discretion, that the allegedly detective item is not covered by the terms
of the warranty or that a warranty claim is made after the warranty period, the
cost of the repair by Centigram, including all shipping expenses, shall be
reimbursed by Distributor.
E. Exclusions. The foregoing warranties and remedies shall be void
as to any Products damaged or rendered unserviceable by: (1) improper or
inadequate maintenance by anyone other than Centigram, (2) software or
interfacing supplied by anyone other than Centigram,
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<PAGE> 14
(3) modifications, alterations or additions to the system by personnel not
certified by Centigram to perform such acts, or other unauthorized repair,
installation or opening or other causes beyond Centigram's control, (4)
unreasonable refusal to agree with engineering change notice programs, (5)
negligence by any person other than Centigram or Centigram's authorized
representatives, (6) misuse, abuse, accident, electrical irregularity, theft,
vandalism, fire, water or other peril, (7) damage caused by containment author
operation outside the environmental specifications for the Products, and (8)
alteration or connection of the Products to other systems, equipment or devices
(other than those specifically approved by Centigram) without the prior approval
of Centigram. Moreover, this warranty shall be void as to any system sold or
located outside the United States of America, its territorial possession and
Canada.
F. Limitation. This warranty constitutes the sole and exclusive
warranty made by Centigram with respect to the Products and may be modified,
amended or supplemented only by a written instrument signed by a duly
authorized officer of Centigram and accepted by Distributor.
THE LIMITED WARRANTIES EXPRESSLY STATED IN THIS SECTION 11 CONSTITUTE
THE SOLE AND EXCLUSIVE WARRANTIES PROVIDED BY CENTIGRAM, AND ARE IN LIEU OF ALL
OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE,
REGARDING THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES
OF MERCHANTABLE QUALITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE
AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR
USAGE OF TRADE. CENTIGRAM DOES NOT WARRANT THAT THE PRODUCTS WILL MEET THE
REQUIREMENTS OF DISTRIBUTOR OR ITS CUSTOMERS.
CENTIGRAM'S MAXIMUM AGGREGATE LIABILITY UNDER THIS WARRANTY SHALL BE LIMITED IN
ALL RESPECTS TO A REFUND OF THE DISTRIBUTOR'S PURCHASE PRICE. IN NO EVENT
SHALL CENTIGRAM BE LIABLE FOR THE COST OF PROCUREMENT OF SUBSTITUTE GOODS BY
THE DISTRIBUTOR OR ANY END USER CUSTOMER OF DISTRIBUTOR OR FOR ANY SPECIAL,
CONSEQUENTIAL OR INCIDENTAL DAMAGES FOR BREACH OF WARRANTY, INCLUDING WITHOUT
LIMITATION LOST PROFITS, LOSS OF USE, LOSS OF DATA, ECONOMIC LOSS OR ANY LOSS
ARISING FROM ANY CLAIM BY A THIRD PARTY.
12. LIMITED LIABILITY TO DISTRIBUTOR AND OTHERS
CENTIGRAM'S MAXIMUM AGGREGATE LIABILITY ARISING OUT OF THIS AGREEMENT, THE
TERMINATION THEREOF, AND/OR SALE OF THE PRODUCTS SHALL BE LIMITED TO THE AMOUNT
PAID BY THE DISTRIBUTOR FOR THE PRODUCT. IN NO EVENT SHALL CENTIGRAM BE LIABLE
FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS BY ANYONE. IN NO EVENT SHALL
CENTIGRAM BE LIABLE TO DISTRIBUTOR OR ANY OTHER ENTITY FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, INDIRECT OR OTHER DAMAGES, HOWEVER CAUSED, INCLUDING
LOSS OF PROFITS, LOSS OF USE, ECONOMIC LOSS, ANY LOSS ARISING FROM ANY CLAIM BY
A THIRD PARTY, OR ANY CLAIM ARISING FROM ANY DEFAULT OR FAILURE OF PERFORMANCE
WHETHER SUCH CLAIM IS FOR BREACH OR FUNDAMENTAL BREACH OF CONTRACT, NEGLIGENCE
OR OTHERWISE, AND WHETHER OR NOT CENTIGRAM HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGE. THIS LIMITATION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.
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<PAGE> 15
13. SOFTWARE LICENSE
Centigram hereby grants to Distributor, for the term of this Agreement,
a non-exclusive, non-transferrable right and license to use the software
incorporated in the Products, in object code form only (the "Software"), and
related product manual and other documentation (collectively, the
"Documentation"), solely for the purpose of selling, installing, servicing and
supporting Centigram Products. This license will include the limited right to
sublicense the Software and Documentation to end users of Products solely on a
non-transferrable basis in connection with an end user's purchase of Product
from Distributor.
Each sublicense to end users shall be in accordance with the End User
License Agreement attached hereto as Exhibit F, a copy of which Distributor
shall have each end user customer sign as a condition to the grant of the
sublicense. Distributor shall promptly deliver copies of each such agreement
to Centigram.
The Software and Documentation licensed hereunder is proprietary to
Centigram. Neither Distributor nor any of its end user customers shall receive
any title or ownership rights to such Software or Documentation. Distributor
acknowledges that Distributor and its end user customers will receive solely
the object code and operation manuals for the Software, and will not receive
nor be entitled to source code or other materials associated with the design
and creation of the Software.
Distributor shall not copy, in whole or in part, any Software or
Documentation provided by Centigram, whether in the form of computer tape,
disk, printed or other form; provided, however, that Distributor may make one
copy of each version of Software licensed hereunder solely for archival backup
purposes in conjunction with the sale and service of Centigram Products.
Distributor agrees that it shall not decompile, reverse engineer or otherwise
attempt to gain access to the source code of the software.
Distributor agrees not to provide, disclose or otherwise make available
the Software or Documentation to any person other than Distributor or its
properly registered end user customers, and then only for such purposes as are
necessary to sell and service the Centigram Products. Distributor further
agrees to take reasonable steps to safeguard copies of Software and
Documentation against disclosure to or use by unauthorized persons, and to take
reasonable steps to ensure that the provisions of this Agreement are not
violated by Distributor's employees.
Distributor shall have no right to make any alterations, modifications,
improvements, or enhancements to, or derivative works of, the Software, except
as Centigram may specifically authorize hereafter by a written instrument
executed by an officer of Centigram. All developments, modifications,
improvements and enhancements to, and derivative works of, the Software
conceived, developed or implemented by Distributor shall be the sole property
of Centigram. Distributor shall cooperate fully to protect Centigram's
proprietary rights in any such developments, modifications, improvements,
enhancements and derivative works.
Distributor agrees that it will affix, to all copies of the Software and
Documentation, the form of copyright notice and other proprietary notices as
designated by Centigram.
14. DURATION AND TERMINATION OF AGREEMENT
A. Term. This Agreement shall begin on the Effective Date and
shall expire on December 31, 1997. Thereafter, the Agreement shall
automatically renew for a term of two years until cancelled by either party
upon ninety (90) days' notice. Notwithstanding the provisions of this Section
15.A, or any other provisions of this Agreement, this Agreement may be
terminated prior to the expiration of its stated term as set forth below.
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<PAGE> 16
B. Centigram Termination For Cause. Centigram may terminate this
Agreement at any time, immediately upon written notice to Distributor, prior to
the expiration of its stated term, in the event that:
(i) Distributor defaults in any payment due to Centigram and
such default continues unremedied for a period of sixty (60) days after written
notice of default is sent to Distributor by Centigram;
(ii) Distributor shall breach Section 8 (Proprietary Rights and
Confidentiality), 9 (Trademarks, Trade Names and Copyrights), or 13 (Software
License) hereof;
(iii) Distributor acquires or is acquired by a business entity
that provides product or services in direct competition with Centigram's
products, and in Centigram's sole judgment such acquisition represents a
conflict of interest;
(iv) Distributor fails to perform any other obligation,
warranty, duty or responsibility or is in default with respect to any term or
condition undertaken by Distributor under this Agreement and such failure or
default continues unremedied for a period of twenty (20) days after written
notice of failure to perform is sent to Distributor by Centigram;
(v) Distributor fails to purchase any Centigram assigned Quota
for two (2) consecutive quarters; or
(vi) Distributor sells, markets or promotes Products outside
Distributor's designated Territory, or sells, markets or promotes Products to a
third party when Distributor knows, or has reason to know, the third party
intends to transport Products outside the Territory.
C. Automatic Termination. This Agreement shall terminate
automatically, with no further act or action of either party, if Distributor
becomes insolvent or unable to pay its debts as they mature in the ordinary
course of business; if Distributor makes an assignment for the benefit of its
creditors; if a receiver or trustee is appointed for Distributor or its
property; if proceedings are commenced by, for or against Distributor under any
bankruptcy, insolvency or debtor's relief law; or if Distributor is liquidated
or dissolved.
D. Orders After Termination Notice. In the event that any notice of
termination of this Agreement is given, Centigram will be entitled, in its
discretion, to accept or to reject all or part of any orders received from
Distributor after notice but prior to the effective date of termination.
E. Effect of Termination. Upon termination of this Agreement:
(i) The due dates of all outstanding invoices to Distributor
for Products automatically will be accelerated so they become due and payable
on the effective date of termination, even if longer terms had been provided
previously. All orders or portions thereof remaining unshipped as of the
effective date of termination shall automatically be canceled.
(ii) For a period of one (1) year after the date of
termination, Distributor shall make available to Centigram for inspection and
copying all books and records of Distributor that pertain to Distributor's
performance of and compliance with its obligations, warranties and
representations under this Agreement.
(iii) Distributor shall cease using any Centigram trademark,
logo or trade name.
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<PAGE> 17
(iv) Centigram shall continue to provide to Distributor for a
period of five (5) years following termination spare parts so Distributor can
properly support its existing customer based, at Centigram's then current
pricing and terms and condition of sale with respect to spare parts sold to
distributors generally.
F. No Damages For Termination. Neither Centigram nor Distributor
shall be liable to the other for damages of any kind, including incidental or
consequential damages, on account of the termination of this Agreement in
accordance with this Section 15. Distributor waives any right it may have to
receive any compensation or reparations on termination or expiration of this
Agreement, which includes, but is not limited to, loss of goodwill, prospective
profits or anticipated orders, or an account of any expenditures, investments,
leases or commitments made by either Centigram or Distributor. The parties
acknowledge that this Section 10 has been included as a material inducement for
Centigram to enter into this Agreement and that Centigram would not have
entered into this Agreement but for the limitations of liability as set forth
herein.
G. Survival. Centigram's rights and Distributor's obligations to
pay Centigram all amounts due hereunder, as well as Distributor's obligations
under Sections 2.D, 2.E, 2.J, 2.M, 2.0, 4.C, 4.E, 4.F, 5.C, 5.E, 5.F, 6.A, 6.B,
7, 8, 9.C, 9.D, 10, 11, 12, 13, 15, 16, 18 and 19 shall survive expiration or
termination of this Agreement for any reason.
16. RELATIONSHIP OF THE PARTIES
Distributor's relationship with Centigram during the term of this
Agreement will be that of an independent contractor. Distributor will not
have, and will not represent that it has, any power, right or authority to bind
Centigram, or to assume or create any obligation or responsibility, express or
implied, written or oral, on behalf of Centigram or in Centigram's name, except
as herein expressly provided. Nothing stated in this Agreement shall be
construed as constituting Distributor and Centigram as partners or as creating
the relationships of employer/employee, franchisor/franchisee, or
principal/agent between the parties. In all matters relating to this
Agreement, neither Distributor nor its employees or agents are, or shall act
as, employees of Centigram within the meaning or application of any laws or
regulations which may impute any obligations or liabilities to Centigram by
reason of an employment relationship. Distributor shall reimburse Centigram
for and hold it harmless from any liabilities or obligations imposed or
attempted to be imposed upon Centigram by virtue of any such law with respect
to employees of Distributor in performance of this Agreement.
17. FCC CERTIFICATION
Centigram warrants that, at the time of shipment, all Products sold to
Distributor herein shall, when required, be in compliance with Parts 15 and 68
of the Rules and Regulations of Federal Communications Commission.
18. ARBITRATION
Any controversy or claim arising out of or related to this Agreement
shall be submitted to final and binding arbitration before and in accordance
with the then prevailing rules of the American Arbitration Association. Any
arbitration shall be held in San Jose, California, unless another site is
mutually agreed upon and shall be enforceable by judgment in a court of
competent jurisdiction as provided in Section 19.E hereof. The prevailing
party in any such arbitration proceeding, or in any court action to enforce an
award resulting from such arbitration, shall be entitled to recover its
reasonable attorneys' fees and costs associated with such proceeding or action.
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<PAGE> 18
19. GENERAL
A. Waiver. The waiver by Centigram of any default by Distributor
shall not waive subsequent defaults by Distributor of the same or different
kind.
B. Notices. All notices and demands hereunder shall be in writing
and shall be served by personal service or by mail at the address of the
designated representative of the receiving party set forth in this Agreement (or
at such different address as may be designated by such party by written notice
to the other party). All notices or demands by mail shall be by telex, or by
certified or registered airmail, return receipt requested, and shall be deemed
complete upon receipt. The designated representative for Centigram shall be
Centigram's Chief Financial Officer, and the designated representative for
Distributor shall be the Distributor's President or an equivalent representative
appointed by Distributor and accepted by Centigram.
C. Attorneys' Fees. In the event any litigation is brought by
either party in connection with this Agreement, the prevailing party in such
litigation shall be entitled to recover from the other party all the costs,
attorneys' fees and other expenses incurred by such prevailing party in the
litigation, including all costs incurred beyond amounts awarded as attorneys'
fees by any court.
D. Execution of Agreement. This Agreement shall become effective
only after it has been signed by an authorized representative of Distributor
and has been accepted by an officer of Centigram. Upon such execution, the
effective date of the Agreement shall be deemed to be the Effective Date first
stated above.
E. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California as they
apply to contracts entered into and wholly to be performed within such state.
Any suit hereunder will be brought in the federal or state courts in the
Northern District of California and Distributor hereby submits to the exclusive
personal jurisdiction and venue thereof.
F. Severability. In the event that any of the provisions of this
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be unenforceable, such provision will be enforced to the maximum extent
permissible in accordance with the general intent of this Agreement and the
remaining portions of this Agreement shall remain in full force and effect.
G. Interpretation. Any ambiguity in this Agreement shall be
interpreted equitably without regard to which party drafted the Agreement or
any provision hereof.
H. Force Majeure. Centigram shall not be responsible for any
failure to perform due to unforeseen circumstances or to causes beyond
Centigram's control, including but not limited to acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods, accidents,
strikes, or shortages of transportation, facilities, fuel, energy, labor or
materials. In the event of any such delay, Centigram may defer the delivery
date of orders for Products for a period equal to the time of such delay.
I. Equitable Relief. Both parries acknowledge that any breach of
its obligations under this Agreement with respect to the proprietary rights or
confidential information of Centigram will cause Centigram irreparable injury
for which there are inadequate remedies at law, and that therefore Centigram
will be entitled to equitable relief in addition to all other remedies provided
by this Agreement or available at law.
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<PAGE> 19
J. Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof, and
supersedes in the entirety any and all written or oral agreements previously
existing between the parties with respect to such subject matter. Distributor
acknowledges that it is not entering into this Agreement on the basis of any
representations not expressly contained herein. Any modifications of this
Agreement must be in writing and signed by both parties hereto.
K. Release of Claims. Any and all claims against Centigram arising
under prior agreements, whether oral or in writing, between Centigram and
Distributor are waived and released by Distributor by acceptance of this
Agreement.
L. Due Execution. The party executing this Agreement represents and
warrants that he or she has been duly authorized to execute this Agreement on
behalf of Distributor.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date specified below. This Agreement may be executed in two or more
counterparts, each of which shall be an original.
CENTIGRAM: DISTRIBUTOR:
CENTIGRAM COMMUNICATIONS VOICE PLUS, INC.
CORPORATION
/s/ DELORES Y. COPPER /s/ JAMES S. GILLESPIE
- ------------------------------------ --------------------------------------
SIGNATURE SIGNATURE
DELORES Y. COPPER JAMES S. GILLESPIE
- ------------------------------------ --------------------------------------
PRINTED NAME PRINTED NAME
PROCESS IMPROVEMENT/CONTRACT MANAGER PRESIDENT
- ------------------------------------ --------------------------------------
TITLE TITLE
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<PAGE> 20
Exhibit A
AUTHORIZED CENTIGRAM PRODUCTS
The Centigram Distributor Price list attached hereto shall apply to all
purchases of Centigram Products by Customer. This includes:
Model 70
120I & 120S
640
OneView
Voice Gateway
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<PAGE> 21
Exhibit B
TERRITORY
US
Puerto Rico
Canada
CPE & Service Provider
Domestic Customers with International Offices
International locations with written authorization of Centigram
-17-
<PAGE> 22
Exhibit C
QUOTA
<TABLE>
<CAPTION>
Aggregate Purchase Price
Date from Effective Date
---- ------------------------
<S> <C>
Within the first three full calendar months from Effective $250 K
Date:
Within six full calendar months from Effective Date: $500 K
Within nine full calendar months from Effective Date: $750 K
Within twelve full calendar months from Effective Date: $1,000 K
Within fifteen full calendar months from Effective Date: $1,250 K
Within eighteen full calendar months from Effective Date: $1,500 K
</TABLE>
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<PAGE> 23
Exhibit D
PURCHASE ORDER FOR DEMONSTRATION SYSTEMS
Not Required
-19-
<PAGE> 24
Exhibit E
PURCHASE ORDER FOR TRAINING SERVICES
Not Required
-20-
<PAGE> 25
EXHIBIT F
[Letterhead of Centigram]
END USER SOFTWARE LICENSE
Centigram Communications Corporation
91 East Tasman Drive
San Jose, California 95134
February 3, 1995
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<PAGE> 26
End User Software License
- --------------------------------------------------------------------------------
End User Software License
Each person ("Licensee") who uses the software (the "Software") licensed
hereunder by Centigram Communications Corporation, a Delaware corporation
("Centigram"), agrees to be bound by the terms and conditions of this End-User
Software License Agreement ("License").
1. LICENSE
Centigram hereby grants to Licensee, and Licensee hereby
accepts, a personal, nontransferable, non-exclusive license to use the Software
and related product documentation (the "Documentation"), in accordance with the
terms and conditions of this License.
A. Licensee may use the Software solely on the original
Centigram system with which it is provided (the "System"). Licensee may not
transfer the Software to or use the Software on any equipment other than the
System, whether or not such other shall have been manufactured by Centigram.
This license shall expire upon sale of the System by Licensee.
B. Licensee agrees not to make any copies of the Software
or the Documentation, in whole or in part, other than one permitted copy of the
Software and Documentation which Licensee may maintain for archival purposes
only. Licensee agrees not to modify, translate wazzu, reverse engineer,
decompile, disassemble, or create derivative works based on the Software,
except to the extent that the foregoing may not be prohibited by applicable
law.
C. Licensee agrees to take reasonable steps to safeguard
copies of the Software against disclosure, copying or use by unauthorized
persons, and to take reasonable steps to ensure that the provisions of this
license are not violated CENTIGRAM by Licensee's employees or agents.
2. TITLE
Licensee acknowledges and agrees that all right, title and
interest in and to the Software and Documentation, including all intellectual
property rights therein, shall remain the property of Centigram or its
suppliers, subject only to the limited license to use granted to Licensee
hereunder. This license is not a sale and does not transfer to Licensee any
title or ownership in or to the Software or the Documentation or any patent,
copyright, trade secret, trade name, trademark or other proprietary or
intellectual property rights related thereto.
3. NONTRANSFERABILITY
Licensee mat not rent, transfer, assign, sublicense or grant
any rights in the Software or Documentation, in full or in part, to any person.
-22-
<PAGE> 27
4. LIMITED WARRANTY AND DISCLAIMER
Centigram warrants that, for a period of two (2) years from the date of
initial installation of the Software, the Software shall conform to current
published Documentation with respect to such Software. In the event that
during such period of two (2) years from the date of initial installation the
Software shall fail to perform in accordance with such Documentation, then
Centigram or its authorized distributor will correct such failure to conform at
no charge to Licensee, provided that Licensee has advised Centigram in writing
as to the nature of the failure to conform and such failure to conform can be
replicated by Centigram and corrected by Centigram with commercially reasonable
efforts. Centigram's entire liability and Licensee's exclusive remedy under
this warranty shall be to use commercially reasonable efforts to correct any
failure of the Software to conform to then current Documentation.
EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES, CENTIGRAM AND ITS
SUPPLIERS MAKE AND LICENSEE RECEIVES NO WARRANTY, CONDITION OR REPRESENTATION,
EITHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE SOFTWARE
OR DOCUMENTATION. CENTIGRAM AND ITS SUPPLIERS SPECIFICALLY DISCLAIM ANY
IMPLIED WARRANTIES OF PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. MOREOVER, CENTIGRAM AND ITS SUPPLIERS SHALL NOT BE RESPONSIBLE FOR
DAMAGE RESULTING FROM ACCIDENT, TRANSPORTATION, NEGLECT, MISUSE, MODIFICATION
WITHOUT CENTIGRAM'S PRIOR CONSENT, UNAUTHORIZED ATTEMPTS TO REPAIR, OR FAILURE
OF ELECTRICAL POWER OR ENVIRONMENTAL CONTROLS. NO CENTIGRAM DISTRIBUTOR, AGENT
OR EMPLOYEE IS AUTHORIZED TO MAKE ANY MODIFICATIONS, EXTENSIONS OR ADDITIONS TO
THIS LIMITED WARRANTY. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY
FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED WARRANTY.
5. TERMINATION
This License shall continue in effect until terminated hereunder. This
License shall terminate automatically on Licensee's failure to comply with any
of the restrictions and provisions herein, including without limitation any
attempt to transfer this license. Upon any termination of this License,
Licensee agrees promptly to destroy or return to Centigram all copies of the
Software and Documentation, including without limitation all original and
archival copies thereof. No refunds shall be given for such returned
materials. Notwithstanding, any termination of this License, the rights and
obligations set forth in Sections 2(Title), 3(Non-transferability), 4(Limited
Warranty and Disclaimer), 5(Termination), 6(Limitation of Liability) and
7(Miscellaneous) shall survive such termination.
-23-
<PAGE> 28
6. LIMITATION OF LIABILITY
A. IN NO EVENT SHALL CENTIGRAM, ITS SUPPLIERS OR ITS
DISTRIBUTORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGE, INCLUDING WITHOUT LIMITATION, LOSS OF DATA, LOST PROFITS OR COST OF
COVER, ARISING FROM THE USE OF THE SOFTWARE OR ACCOMPANYING DOCUMENTATION OR
ANY DEFECT IN THE SOFTWARE OR DOCUMENTATION, HOWEVER CAUSED AND ON ANY THEORY
OF LIABILITY. THIS LIMITATION SHALL APPLY EVEN IF CENTIGRAM, ITS SUPPLIERS OR
ITS DISTRIBUTOR SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH DAMAGE.
IN PARTICULAR, BUT WITHOUT LIMITATION, CENTIGRAM, ITS SUPPLIERS AND ITS
DISTRIBUTORS SHALL HAVE NO LIABILITY FOR THE LOSS OF ANY INFORMATION STORED OR
COMMUNICATED OR ATTEMPTED TO BE STORED OR COMMUNICATED WITHIN ANY CENTIGRAM
SYSTEM USING THE SOFTWARE. LICENSEE ACKNOWLEDGES THAT THE LICENSE FEE PAID BY
LICENSEE TO CENTIGRAM FOR THE SOFTWARE REFLECTS THE ALLOCATION OF RISK SET
FORTH HEREIN.
B. THE MAXIMUM AGGREGATE LIABILITY OF AND ITS SUPPLIERS FOR ANY
CLAIM ARISING OUT OF USE OF THE SOFTWARE OR DOCUMENTATION OR ANY DEFECT IN THE
SOFTWARE OR DOCUMENTATION, ON ANY AND ALL THEORIES OF LIABILITY, INCLUDING
WITHOUT LIMITATION, NEGLIGENCE BY CENTIGRAM, SHALL IN ALL EVENTS BE LIMITED TO
RETURN OF THE LICENSE FEE ACTUALLY PAID TO CENTIGRAM FOR THE SOFTWARE, LESS
DEPRECIATION OF SUCH LICENSE FEE LINEARLY OVER A THREE-YEAR PERIOD, WHICH THE
PARTIES AGREE CONSTITUTES A REASONABLE RATE OF DEPRECIATION.
7. U.S. GOVERNMENT RESTRICTED RIGHTS
The Software and Documentation are provided with RESTRICTED RIGHTS.
Use, duplication, or disclosure by the Government is subject to restrictions as
set forth in subparagraph (c) (1) (ii) of The Rights in Technical Data and
Computer Software clause at DFARS 252.227-7013 or subparagraphs (c) (1) and (2)
of the Commercial Computer Software -- Restricted Rights at 48 CFR 52.227-19,
as applicable. Manufacturer is Centigram Communications Corporation/91
equipment East Tasman Drive/San Jose, California 95134.
8. MISCELLANEOUS
A. Licensee may not assign or transfer any of its rights
or delegate any of its obligations under this License. Any attempted
assignment or delegation by Licensee shall be null and void.
B. No delay, failure or waiver by either party to
exercise any right or remedy, under this License, shall operate to limit,
preclude, cancel or waive any exercise of such right or remedy or the exercise
of any other right or remedy.
-24-
<PAGE> 29
C. This License shall be governed by and construed in
accordance with the laws of the State of California without regard to conflict
of laws principles and without regard to the 1980 U.N. Convention on Contracts
for the International Sale of Goods. The federal and state courts of
California shall have exclusive jurisdiction and venue to adjudicate any
dispute arising out of this License, and Licensee expressly consents to (i) the
personal jurisdiction of the state and federal courts of California and (ii)
service of process being effected upon it by registered mail sent to the
Licensee.
D. If any provision in this License shall be found or be
held to be invalid or unenforceable in any jurisdiction in which this License
is being performed, then the meaning of said provision shall be construed, to
the extent feasible, so as to render the provision enforceable, and if no
feasible interpretation would save such provision, it shall be severed from the
remainder of this License which shall remain in full force and effect. In such
event, the parties shall negotiate, in good faith, a substitute, valid and
enforceable provision which most nearly effects the parties' intent in entering
into this License.
E. This License constitutes the entire agreement between
Licensee and Centigram with respect to the subject matter of this License and
shall supersede all prior oral or written understandings, communications or
advertising. This License may be amended or modified only in writing signed by
both parties.
F. If you purchased this product in Canada or in France,
you agree to the following:
(i) The parties hereto confirm that it is their
wish that this Agreement, as well as other documents relating hereto, including
notices, have been and shall be written in the English language only.
(ii) Les parties aux presentes confirment leur
volonte que cette convention de meme que tous les documents y compris tout avis
qui s'y rattache, soient rediges en langue anglais.
-25-
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
NHancement Technologies Inc.
(formerly BioFactors, Inc.)
Golden, Colorado
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated April 19, 1996, except
for Notes 10 and 11 which are as of November 1, 1996, relating to the financial
statements of NHancement Technologies Inc. and of our report dated April 19,
1996, except for Notes 10 and 11 which are as of October 25, 1996, relating to
the financial statements of Voice Plus, Inc., both of which are contained in
that Prospectus. Our report on NHancement Technologies Inc. contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
San Francisco, California
November 5, 1996
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
NHancement Technologies, Inc.
formerly BioFactors, Inc.
Golden, Colorado
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated April 19, 1996, except
for Note 8 which is as of October 30, 1996, relating to the financial statements
of Cossey-Capozzi, Inc., which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ Meredith, Cardozo & Lanz LLP
San Jose, California
November 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 225 171
<SECURITIES> 0 0
<RECEIVABLES> 382 725
<ALLOWANCES> 15 10
<INVENTORY> 14 14
<CURRENT-ASSETS> 697 931
<PP&E> 129 124
<DEPRECIATION> 83 65
<TOTAL-ASSETS> 743 990
<CURRENT-LIABILITIES> 3,675 2,424
<BONDS> 0 0
0 0
0 0
<COMMON> 6 1
<OTHER-SE> (2,940) (2,209)
<TOTAL-LIABILITY-AND-EQUITY> 743 990
<SALES> 392 451
<TOTAL-REVENUES> 392 451
<CGS> 72 186
<TOTAL-COSTS> 1,099 1,070
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 363 519
<INCOME-PRETAX> (1,072) (1,139)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,072) (1,139)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,072) (1,139)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
