<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NHANCEMENT TECHNOLOGIES INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
January 28, 1999
Dear Shareholder:
You are cordially invited to attend the NHancement Technologies Inc. 1999
Annual Meeting of Shareholders to be held on February 25, 1999 at 2:30 p.m.,
local time, at the Company's offices located at 39420 Liberty Street, Fremont,
California 94538.
At the 1999 Annual Meeting, you will be asked to elect four directors and
ratify the appointment of BDO Seidman, LLP as the Company's independent auditor
for the fiscal year ending September 30, 1999.
We hope you will be able to attend the 1999 Annual Meeting on February 25,
for a report on the status of the Company's business and performance during
1998. There will be an opportunity for shareholders to ask questions. Whether
or not you plan to attend the meeting, please sign and return the enclosed proxy
card to ensure your representation at the meeting.
Very truly yours,
DOUGLAS S. ZORN, CEO AND PRESIDENT
NHancement Technologies Inc.
<PAGE>
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
NHANCEMENT TECHNOLOGIES INC.
FEBRUARY 25, 1999
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
NHancement Technologies Inc. (the "Company"), a Delaware corporation, will be
held on February 25, 1999 at 2:30 p.m., local time, at its offices located at
39420 Liberty Street, Fremont, California 94538 for the following purposes:
1. To elect four directors to serve until the next annual meeting of
shareholders, or until their respective successors shall be duly elected and
qualified;
2. To ratify the appointment of BDO Seidman, LLP as independent auditors
of the Company for the fiscal year ending September 30, 1999.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Holders of Common Stock and all shares of Common Stock into which shares
of Series A Convertible Preferred Stock were convertible at the close of
business on January 6, 1999, are entitled to notice of and to vote at the
meeting, or any adjournment or adjournments thereof. A complete list of such
shareholders will be open to the examination of any shareholder at the
Company's principal offices at 39420 Liberty Street, Fremont, California
94538, for a period of ten (10) days prior to the meeting. The meeting may
be adjourned from time to time without notice other than by announcement at
the meeting.
This Notice, the accompanying Proxy Statement, and the Proxy enclosed
herewith are sent to you by order of the Board of Directors of the Company.
FOR THE BOARD OF DIRECTORS
DOUGLAS S. ZORN, CEO, PRESIDENT AND SECRETARY
Fremont, California
January 28, 1999
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IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING IN
PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. EACH PROXY GRANTED MAY BE REVOKED BY
THE SHAREHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS VOTED.
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<PAGE>
NHANCEMENT TECHNOLOGIES, INC.
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PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of
NHancement Technologies Inc. (the "Company") for use at the Company's 1999
Annual Meeting of Shareholders ("Annual Meeting") to be held February 25, 1999,
at 2:30 p.m., local time, or at any adjournment(s) or postponement(s) thereof,
for the purposes set forth herein and in the accompanying Notice of 1999 Annual
Meeting of Shareholders. The 1999 Annual Meeting will be held at 39420 Liberty
Street, Fremont, California 94538.
The Company's principal executive offices are located at 39420 Liberty
Street, Fremont, California 94538. The telephone number at that address is
(510) 744-3333.
These proxy solicitation materials were mailed on or about January 28, 1999
to all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on January 6, 1999 (the
"Record Date") are entitled to notice of, and to vote at, the 1999 Annual
Meeting. At the Record Date, 5,808,682 shares of the Company's Common Stock,
and all shares of Common Stock into which shares of Series A Convertible
Preferred Stock ("Preferred Stock") are convertible $.01 par value per share
(the "Common Stock"), were issued and outstanding. At the Record Date Preferred
Stock converts into 529,254 shares of Common Stock. The conversion rate for
converting Preferred Stock to Common Stock fluctuates but is fixed as of the
Record Date. The holders of Preferred Stock shall vote with the holders of
Common Stock as a single class with each share of Preferred Stock entitled to
the number of votes that he or she would have if such shares were converted
into Common Stock as of the Record Date. Each share has one vote on all
matters. No cumulative voting is permitted. The Company's By-Laws provide
that one-third of all of the shares of the stock entitled to vote, whether
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the meeting. Abstentions and broker non-votes
will be counted in determining the number of shares present for purposes of
establishing a quorum for the transaction of business, but will not be voted
in favor of the proposals and will have the same effect as a vote against the
proposals. For information regarding holders of more than 5% of the outstanding
Common Stock, see "Security Ownership of Certain Beneficial Owners and
Management."
REVOCABILITY OF PROXIES
Shareholders may revoke any proxy given pursuant to this solicitation by
attending the Annual Meeting and voting in person, or by delivering to the
Company's Corporate Secretary at the Company's principal offices referred to
above prior to the 1999 Annual Meeting a written notice of revocation, or by
delivering a duly executed proxy bearing a date later than that of the previous
proxy.
SOLICITATION
The cost of soliciting proxies for the 1999 Annual Meeting will be borne by
the Company. The Company may use the services of its directors, officers and
others to solicit proxies, personally, by telephone, telegraph or facsimile
transmission. Additionally, the Company may reimburse brokerage houses and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
and clerical expenses in forwarding solicitation materials to the beneficial
owners of the stock held of record by such persons.
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<PAGE>
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR ANNUAL MEETING FOR FISCAL YEAR
2000
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 2000 Annual Meeting must be received by the
Company no later than October 23, 1999 to be included in the proxy statement and
form of proxy relating to that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a shareholder intends to
submit a proposal at the 1999 Annual Meeting which is not eligible for inclusion
in the proxy statement and form of proxy relating to that meeting, the
shareholder must do so no later than January 9, 1999. If such a shareholder
fails to comply with the foregoing notice provision, the proxy holders will be
allowed to use their discretionary voting authority when the proposal is raised
at the 1999 Annual Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Four directors are to be elected at the 1999 Annual Meeting of
Shareholders. The term of office for each person who is a nominee will
expire at the next Annual Meeting of Shareholders or when his successor shall
have been elected and qualified. Four persons now serving on the Board are
being proposed for election to the Board of Directors at the 1999 Annual
Meeting. Unless otherwise instructed in the enclosed form of proxy, the
proxy holders intend to vote shares of stock represented thereby FOR the
election of the four nominees named below.
Each of the nominees has consented to being nominated for a directorship
and, to the best knowledge of the Board of Directors, each nominee, if elected,
intends to serve the entire term for which election is sought. If any nominee
becomes unavailable or unable to serve, the proxy holders will cast the votes
for a substitute nominee designated by the Board of Directors. At this time,
the Board of Directors of the Company has no reason to believe that any nominee
will be unwilling or unable to serve if elected.
Any shareholder 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 shareholder'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 Company no later than (i) with
respect to an election to be held at an annual meeting of shareholders, 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
shareholders 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
shareholders.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL THE
LISTED NOMINEES.
REQUIRED VOTE
The four nominees receiving the highest number of affirmative votes will be
elected as directors of the Company.
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<PAGE>
DIRECTOR NOMINEES
The names of the nominees for election to the Board of Directors of the
Company and certain information about them, including their principal occupation
and business experience for at least the past five years, are set forth below.
Information about the stock ownership of each director, and all current
directors and executive officers of the Company as a group, is set forth under
"Security Ownership of Certain Beneficial Owners and Management."
<TABLE>
<CAPTION>
Nominees Age Served as Principal Occupation
Director Since
<S> <C> <C> <C>
Douglas S. Zorn 49 1994* Chief Executive Officer, President, Chief Financial
Officer, Treasurer and Secretary of the Company
James S. Gillespie 45 1996** Former Vice President, Sales of the Company; former
President of Voice Plus, Inc.
Robert L. Schmier 50 1999 Director
N. Bruce Walko 58 1999 Director
</TABLE>
* Includes service as a director of the Company's predecessor,
BioFactors, Inc.
** Did not serve as Director from September 23, 1998 through January 5, 1999
DOUGLAS S. ZORN. Effective January 6, 1999 Mr. Zorn became interim
Chief Executive Officer and President to fill the vacancies created by the
resignation of Esmond T. Goei, former Chief Executive Officer and President.
Mr. Zorn has served as Executive Vice President, Chief Financial Officer,
Secretary and a director of the Company since its incorporation in October
1996. Mr. Zorn currently is servicing as Chief Executive Officer, President
Chief Financial Officer, Treasurer and Secretary of the Company. Mr. Zorn
served as Executive Vice President, Secretary and Treasurer and Chief
Financial and Operating Officer of BFI from December 1993 until February
1997, and as a director from June 1994 until February 1997. 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 where he last served as Vice President of Finance
and Administration. Prior to joining Centigram, Mr. Zorn held various
positions with Gould, Inc., a manufacturer of sophisticated logic test
instruments, including Operation Controller of the Biomation Division. Mr.
Zorn is a licensed certified public accountant.
JAMES S. GILLESPIE. Mr. Gillespie served as Vice President, Sales and a
director of the Company since its incorporation in October 1996. He resigned
his position of Vice President of Sales in April 1998, and resigned as a
director of the Company on September 22, 1998; he was reappointed as a
director of the Company on January 6, 1999. In addition, he currently serves
as a Consultant to the Company. Mr. Gillespie was the founder of VPI and
served as President and Chief Executive Officer since VPI's incorporation in
1987 until his resignation in April 1998. Mr. Gillespie was with Centigram
Communications Corporation, a voice messaging equipment manufacturer and
VPI's largest equipment supplier, from 1983 to 1986, during which time he
held a number of positions, with his final position being Director of
National Sales.
ROBERT L. SCHMIER. Mr. Schmier has been President and general partner of
Schmier & Feurring Properties, Inc. since 1981. Mr. Schmier has also served as
owner, developer, and property manager of shopping centers and office buildings
in Palm Beach County, Florida. From 1974 through 1981 he was president of Abbey
Home, Inc., a developer of single-family lots and custom home builder in Oakland
County, Michigan. Mr. Schmier has a B.A. from the University of Michigan and a
J.D. from the University of Michigan, Law School.
N. BRUCE WALKO. Mr. Walko is currently a consultant for several
telemanagement corporations. He previously served as Vice President of
Marketing for MTC NetSource, an international long distance and Internet
services provider. Prior to MTC he was the Southeast Regional General
Manager, NextWave Telecom (1994-1997). Before joining Next Wave Mr. Walko
served as Regional General Manager for CellularOne (McCaw, now AT&T Wireless)
in Central and Northern Florida from 1993-1994. In addition, he managed
McCaw's advanced cellular system tests (at MGM studios, Walt Disney World).
Before joining McCaw, he was the Southwest Region General Manager of US West
Cellular (1989-1993). Mr. Walko has a B.S. degree in
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<PAGE>
Computer Science from Purdue University and an M.B.A. in finance and marketing
from the University of Southern California.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company met a total of 9 times during the
fiscal year ended September 30, 1998.
The Audit Committee of the Board of Directors consisted of former
directors Gary Nemetz and James Boyle. After their resignations from the
Board on January 6, 1999, Messrs. Schmier and Walko were appointed to the
Audit Committee. This committee is primarily responsible for meeting
periodically with representatives of the Company's independent 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 reporting to the Board with respect thereto.
The Compensation Committee of the Board of Directors, consisted of
Directors Nemetz, Boyle and Santanu Das. After their resignations from the
Board on January 6, 1999, Messrs. Gillespie and Walko were appointed to the
Compensation Committee. This committee is primarily responsible for
reviewing the compensation of executives of the Company and recommending
changes to the Board, as well as administering the Company's Equity Incentive
Plan with respect to executives.
During the fiscal year ended September 30, 1998, no director attended
less than 75% of the aggregate of all meetings of the Board of Directors
(including meetings of the predecessor Board of Directors) and the
committees, if any, upon which such director served and which were held
during the period of time that such person served on the Board or such
committee
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company or its subsidiaries are not
separately compensated for serving on the Board of Directors. Prior to
November 1998, non-employee directors were entitled to 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 were reimbursed for reasonable
travel-related expenses for attendance at meetings. The non-employee director
who chairs the Board's compensation committee and the non-employee director who
chairs the Board's audit committee were each entitled to be paid $12,000 per
year in addition to compensation for Board of Director meetings. Effective
November 1998, non-employee directors no longer receive fees for
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<PAGE>
attendance at Board meetings requiring personal attendance, telephonic Board
meetings or committee meetings. In addition, the non-employee directors who
chair the Board's compensation and audit committees will not receive additional
compensation for either of these positions.
On October 30, 1998, the Company granted to Thomas Lawrence, in
connection with his appointment to the Board of Directors, a non-statutory
option ("NSO") to purchase 20,000 shares of Common Stock at a price per share
of $1.15625, one quarter of which vests on each of the four succeeding
anniversary dates of the grant. Mr. Lawrence resigned from the Board on
January 13, 1999 at which time there were no vested shares under his options.
Such options therefore terminated in connection with his resignation from
the Board. Under the Company's Equity Incentive Plan, each outside director
who has served for a full fiscal year will be granted annually a NSO to
purchase 2,000 shares of Common Stock, which will vest one-third on each of
the first, second and third anniversaries of the date of grant. Messrs.
Boyle, Das, Lawrence and Nemetz, who resigned as directors in January 1999,
did not receive these grants from the date of the annual meeting in August
1997 through the dates of their resignations.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed BDO Seidman, LLP, independent
public accountants, as the Company's independent auditors to audit the books,
records and accounts of the Company for the current fiscal year ending
September 30, 1999. Such appointment is being presented to the shareholders
at the 1999 Annual Meeting for ratification. BDO Seidman, LLP has audited
the Company's (or its predecessors) financial statements since the fiscal
year ended December 31, 1994.
A representative of BDO Seidman, LLP is expected to be available at the
Annual Meeting to make a statement if such representative desires to do so and
to respond to appropriate questions from shareholders.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF ITS
APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
REQUIRED VOTE
The affirmative vote of a majority of the shares of the Company's Common
Stock and the shares of Preferred Stock Convertible into Common Stock
represented and voting at the Annual Meeting will be required to approve and
ratify the Board's appointment of BDO Seidman, LLP for the fiscal year ending
September 30, 1999.
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<PAGE>
MANAGEMENT
The Company is not aware of any "family relationships" (as defined in Item
401(c) of Regulation S-B promulgated by the Securities and Exchange Commission)
between or among any of the director nominees and/or any of the executive
officers.
The following table sets forth certain information with respect to each of
the directors, executive officers and significant employees of the Company and
its subsidiaries as of January 14, 1999.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Douglas S. Zorn 49 President, CEO, Chief Financial Officer, Treasurer,
Secretary and Director
Linda V. Moore 52 Vice President, General Counsel and Assistant
Secretary
James B. Linkous 42 Senior Vice President Sales, General Manager of
Voice Plus, Inc.
James Han 49 General Manager, Infotel Technologies Pte Ltd
James S. Gillespie 45 Former Vice President Sales and Former President of
Voice Plus, Inc.
Robert L. Schmier 50 Director
N. Bruce Walko 58 Director
</TABLE>
DOUGLAS S. ZORN. Effective January 6, 1999, Mr. Zorn became Interim
President and Chief Executive Officer to fill the vacancies created by the
resignation on the same date of the former Chief Executive Officer and
President, Esmond T. Goei. resignation. Mr. Zorn is currently serving as
Chief Executive Officer, President, Chief Financial Officer, Treasurer and
Secretary of the Company. Mr. Zorn served as Executive Vice President, Chief
Financial Officer, Secretary and a director of the Company since its
incorporation in October 1996. Mr. Zorn served as Executive Vice President,
Secretary, Treasurer and Chief Financial and Operating Officer of BFI since
December 1993 and as a director since June 1994. 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 where he last served as Vice
President of Finance and Administration. Prior to joining Centigram, Mr. Zorn
held various positions with Gould, Inc., a manufacturer of sophisticated
logic test instruments, including Operation Controller of the Biomation
Division. Mr. Zorn is a licensed certified public accountant.
LINDA V. MOORE. Ms. Moore has served as Vice President, General Counsel
and Assistant Secretary of the Company since September 7, 1998. From 1989,
until she joined the Company, Ms. Moore served as General Counsel and Secretary
for Jabil Circuit, Inc., a printed circuit board assembly manufacturer. Ms.
Moore has also held positions with El Camino Resources, Ltd., Chrysler Systems
Leasing, Inc., Caterpillar Inc. and CMI Corporation.
JAMES B. LINKOUS. Mr. Linkous has served as Senior Vice President of
Sales and General Manager of Voice Plus, Inc. since April 1998. Mr. Linkous
has worked for several key telecommunications distributors, including most
recently COM-AID/NEXUS Integrated Solutions, where he was Vice President and
General Manager. Mr. Linkous helped position COM-AID as the largest
independent NEC dealer in the Western U.S. Previously he
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<PAGE>
was National and Major Accounts Manager for U.S. WEST Communications. He also
has extensive background in Call Center and CTI applications, which are future
target markets for the Company.
JAMES HAN. Mr. Han is a founding member of Infotel and has served as
General Manager since the company started operation in 1984. Prior to jointing
Infotel, he was with an Australian company, Associated Technical Services Pte.
Ltd. (ATS), from 1977 to 1984 and was the General Manager at the time of his
departure. ATS is a wholly owned subsidiary of Elsers IXL, an Australian public
company. AST was involved in distribution and support of telecommunication
products, marine communication and navigational equipment and medical and
analytical instruments.
JAMES S. GILLESPIE. Mr. Gillespie served as Vice President of Sales and
a director of the Company since its incorporation in 1996. He resigned his
position as Vice President of Sales in April 1998, and resigned as a director
of the Company on September 22, 1998; he was reappointed as a director of the
Company on January 6, 1999. In addition, he currently serves as a consultant
to the Company. Mr. Gillespie was the founder of VPI and served as President
from VPI's incorporation in 1987 until his resignation in April 1998. Mr.
Gillespie was with Centigram Communications Corporation from 1983 to 1986,
during which time he held a number of positions, with his final position
being Director of National Sales.
ROBERT L. SCHMIER. Mr. Schmier has been President and general partner of
Schmier & Feurring Properties, Inc. since 1981. Mr. Schmier has also served
as owner, developer, and property manager of shopping centers and office
buildings in Palm Beach County, Florida. From 1974 through 1981, he was
President of Abbey Homes, Inc., a developer of single-family lots and custom
home builder in Oakland County, Michigan. Mr. Schmier has a B.A. from the
University of Michigan and a J.D. from the University of Michigan, Law School.
N. BRUCE WALKO. Mr. Walko is currently a consultant for several
telemanagement corporations. He previously served as Vice President of
Marketing for MTC NetSource, an international long distance and Internet
services provider. Prior to MTC he was the Southeast Regional General
Manager, NextWave Telecom (1994-1997). Before joining Next Wave, Mr. Walko
served as Regional General Manager for CellularOne (McCaw, now AT&T Wireless)
in Central and Northern Florida (1993-1994). In addition, he managed McCaw's
advanced cellular system tests (at MGM studios, Walt Disney World). Before
joining McCaw, he was the Southwest Region General Manager of US West
Cellular (1989-1993). Mr. Walko has a B.S. degree in Computer Science from
Purdue University and a M.B.A. in finance and marketing from the University
of Southern California.
-9-
<PAGE>
CERTAIN TRANSACTIONS
On April 15, 1997, the Board of Directors approved a short-term loan to
Esmond T. Goei to assist him with the costs of relocation due to the
Company's headquarters move from Colorado to California. The principal amount
of the loan is $60,000, with interest accruing at seven percent (7%) per
annum. Principal and interest are due on April 18, 1999. As of September 30,
1998, principal and unpaid interest totaled approximately $66,100.
On December 15, 1997, the Company consummated a stock purchase
acquisition with Advantis Network & System Sdn Bhd, a Malaysian corporation
("Advantis"). The Company purchased all of the shares of stock of Advantis
from the six (6) stockholders who owned all of the issued and outstanding
shares of Advantis ("Advantis Stockholders"). The purchase price consisted of
newly issued shares of the Common Stock of the Company. As a result of the
transaction, Advantis became a wholly owned subsidiary of the Company, and
the Advantis Stockholders became stockholders of the Company. As of December
31, 1997, the Advantis Stockholders had received a total of 208,500 shares of
the Company's Common Stock, with no Advantis Stockholder receiving more than
2.3% of the total issued and outstanding shares of the Company. At the time of
the Advantis acquisition, an Advantis Stockholder had an outstanding loan
payable to Advantis. This loan arose in April 1997, at which time proceeds from
a term loan to the Company from a third party were advanced to such Advantis
Stockholder in return for a promissory note payable to Advantis. Under the
terms of the note, repayments, including interest, were to Advantis'
payments due under the term loan. Those payments provide for monthly
principal and interest payments of $2,600 through April 2012, with interest
payable at the Base Lending Rate in Malaysia plus 2.23%. At September 30,
1998, the Company had no further involvement with this loan arrangement as
the disposal of Advantis by the Company was completed prior to the end of
September 1998.
Upon consummation of the VPI merger on February 3, 1997, the Company
acquired all of the capital stock of VPI from Mr. Gillespie for total
consideration valued at approximately $6,180,000, consisting of: (i)
$1,500,000 in two 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
first fiscal quarter in 1997; (ii) $2,400,000 in shares of Common Stock sold
in the Company's IPO (being 600,000 shares based on the price to the public
in the IPO of $4.00 per share); and (iii) $2,280,000 in restricted shares of
Common Stock (being 712,500 shares based on the estimated fair value of $3.20
per share). In the event of a material breach by the Company of the
employment agreement with Mr. Gillespie, the two promissory notes would have
been accelerated and immediately become due and payable. However, Mr.
Gillespie's employment agreement with the Company terminated effective upon
his resignation as an officer of the Company, on terms whereby the Company
and Mr. Gillespie agreed, not to accelerate payments due under those notes.
During 1997, an aggregate of $1,250,000 was paid to Mr. Gillespie in
connection with the $1,500,000 of notes payable issued to him by the Company.
At September 30, 1998, Mr. Gillespie was owed a total of $187,500 on these
notes. See Item 10, "Employment Agreements." Except for 150,000 shares which
were registered under an S-3 Registration Statement declared effective by the
SEC on June 2, 1998, restricted shares are subject to a lock-up agreement in
favor of Chatfield Dean & Co., the representative of the underwriters of the
IPO, for 18 months following the consummation of the IPO with respect to 50%
of the shares, and for 24 months following the consummation of the IPO with
respect to the remaining 50% of the shares. Regardless of the lock-up
agreement and the shares registered on Form S-3, Mr. Gillespie is an
affiliate of the Company and, as such, is subject to various restrictions on
any transfers of his shares.
The Company entered into a bridge loan with the holders of the Series A
Convertible Preferred Stock (the "Preferred Stockholders") and certain
management stockholders. NHancement Technologies Inc. used the funds in the
aggregate amount of $1,400,000 to complete the acquisition of Infotel.
Interest was payable on the promissory notes at a rate of 10% per annum.
Funds loaned to the Company by the preferred Stockholders totaled $750,000.
The notes payable to the Preferred Stockholders provided for repayment on the
earlier of the closing of the next tranche of the Company's Preferred Stock
in accordance with the terms of the Securities Purchase Agreement, as
amended, or 90 days from the date of issuance. The Company amended the
agreement in September of 1998 limiting further dilutive issuances under the
financing agreement, except by mutual consent of the parties. Additionally,
the notes payable to the preferred Stockholders, which were originally to be
applied against the purchase price of additional Preferred Stock available
for purchase under the Securities Purchase Agreement, subject to receipt by
the Company of certain stockholder approvals, and all accrued interest and a
$135,000 premium, were paid on September 30, 1998. Funds loaned to the
Company by members of management totaled $650,000, of this amount, $125,000,
$225,000 and $300,000 were loaned to the Company by Esmond T. Goei, former
Chairman of the Board and Chief Executive Officer of the Company, Douglas S.
Zorn, then Executive Vice President and Chief Financial Officer of the
Company, and James S. Gillespie, formerly the President of Voice Plus, Inc.,
respectively. The notes payable to management provided for interest at the
rate of ten percent (10%) per annum and for repayment within 90 days from the
date of the loan. The promissory notes (plus accrued interest) were paid in
full and cancelled on November 4, 1998.
-10-
<PAGE>
OTHER INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. officers, directors
and greater than ten percent shareholders are required by Commission regulation
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company for the fiscal year ended September 30, 1998,
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 14, 1999, by (a) each
person known to the Company to own beneficially more than 5% of the Company's
Common Stock, (b) each of the Company's directors and Named Executive Officers,
and 9c) all executive officers and directors as a group.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Names and Addresses Beneficially Ownership Beneficially Ownership
Owned (1) % (1) Owned (1) %(1)
<S> <C> <C> <C> <C>
James S. Gillespie 815,000 (2) 14.19% -- --
198 country club Drive
Incline Village, Nevada 89451
Edmond T. Goei 421,515 (3) 7.03% -- --
c/c NHANCEMENT Technologies Inc.
39420 Liberty Street, Suite 250
Fremont, California 94538
Douglas S. Zorn 405,325 (4) 6.77% -- --
c/o NHANCEMENT Technologies Inc.
39420 Liberty Street, Suite 250
Fremont, California 94538
Robert L. Schmier 125,000 (5) 2.19% -- --
c/o Schmier & Feurring Properties, Inc.
7777 Glades Road, Suite 310
Boca Raton, FL 33434-4195
N. Bruce Walko 38,593 (6) * -- --
5107 Timberview Terrace
Orlando, FL 32818
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
The Endeavour Capital Fund S.A. 332,822 (5) 5.51% 2,441 100.0%
c/o Endeavour Management Inc.
14/14 Divrei Chaim St.
Jerusalem 94479
AMRO INTERNATIONAL S.A. 401,734 (6) 7.03% -- --
50 ULTRA FINANCE
Gross Munster Platz 26
Zurich LH 8022
Switzerland
Directors and executive officers 1,776,840 (7) 28.1% -- --
as a group (8 persons)
</TABLE>
* Less than 1%.
(1) Based on 5,717,228 shares of Common Stock and 2,441 shares of Preferred
Stock issued and outstanding as of January 14, 1998. This number
reflects the cancellation on 1/14/99 of 91,454 shares previously issued to
Advantis shareholders.
(2) Includes warrants to purchase 27,500 shares of Common Stock.
(3) Includes options that are presently exercisable or that will become
exercisable within 60 days to purchase 168,750 shares of Common Stock at an
exercise price of $3.20 per share, 58,333 shares of Common Stock at $3.875
per share and warrants to purchase 51,519 shares of Common Stock.
(4) Includes options that are presently exercisable or that will become
exercisable within 60 days to purchase 140,625 shares of Common Stock at an
exercise price of $3.20 per share, 63,888 shares of Common Stock at $3.875
per share and warrants to purchase 61,375 shares of Common Stock.
(5) Includes 322,822 shares of Common Stock receivable upon conversion of
Preferred Stock (including accrued dividends) held by the Endeavour Capital
Fund S.A. assuming conversion as of January 14, 1999.
(6) Represents the number of shares of Common Stock received upon conversion of
Preferred Stock (including accrued dividends) held by AMRO INTERNATIONAL
S.A.
(7) Includes options that are presently exercisable or that will become
exercisable within 60 days to purchase 431,596 shares of Common Stock and
warrants to purchase 140,394 shares of Common Stock. Mr. Gaei, who
resigned his officer and director positions in January 1999, is included
in this calculation.
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 September 30, 1998 and December 31,
1997 and 1996 by (i) the Company's then Chief Executive Officer and (i) the
three other most highly compensated executive officers of the Company (or its
subsidiaries) at September 30, 1998, who received compensation of at least
$100,000 during the fiscal year ended September 30, 1998 (collectively, the
"Named Executive Officers").
-12-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation Awards
Name and Position Year Salary ($) Bonus ($) Other Annual Restricted Securities
Compensation Stock Awards Underlying
($) ($) Options (#)
<S> <C> <C> <C> <C> <C> <C>
Esmond T. Goei(1) 1998 (2) 157,500 -- 9,700 (3) -- --
Former Chairman of the Board, 1997 163,750 -- 38,000 (4) -- 100,000 (5)
President and Chief Executive 1996 (6) 135,000 125,000 -- (7) --
Officer
Douglas S. Zorn (8) 1998 (2) 112,500 -- 8,400 (3) -- --
President, Chief
Executive Officer 1997 150,000 -- 86,000 (9) -- 100,000 (5)
Chief Financial Officer, 1996 (6) 135,000 125,000 -- (7) -- --
Treasurer, and Secretary
James S. Gillespie (10) 1998 (11) 93,700 -- 88,400 (12) --
Former Vice President of Sales 1997 150,000 -- 230,000 (13) -- --
and Former President of VPI 1996 300,000 550,000 1,003,130 (14) -- --
James B. Linkous 1998 (15) 65,400 36,000 (16) 13,650 (17) -- 100,000 (18)
Vice President of Sales and
General Manager of VPI
</TABLE>
(1) Mr. Goei held the listed positions through the fiscal year ended
September 30, 1998. He resigned his officer positions on January 6, 1999
and resigned as a director on January 13, 1999.
(2) Represents the nine-month period ended September 30, 1998.
(3) Automobile allowance for the nine-month period ended September 30, 1998.
(4) Mr. Goei was reimbursed by the Company in fiscal 1997 $25,000 for
previous years vacation accrued but not take and automobile expenses.
(5) BFI options for 1995 were re-granted upon the Company's February 4, 1997
IPO at the exercise price and vesting schedules as established by
BioFactors.
(6) Data reflects compensation paid by BFI for fiscal years 1995 and 1996.
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 1995, 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 restricted stock of BFI.
(7) Perquisites do not exceed the lesser of $50,000 or 10% of the Named
Executive Officer's total annual salary and bonus.
(8) Mr. Zorn held the position of Executive Vice President, Chief Financial
Officer and Secretary through the fiscal year ended September 30, 1998.
On January 6, 1998, he was appointed interim CFO and President of the
Company; he continues to serve as CFO, Treasurer and Secretary.
(9) Mr. Zorn was reimbursed by the Company in fiscal 1997 for $55,000 in
moving expenses and $25,000 for previous year vacation accrued but not
taken and automobile expenses.
(10) Data reflects compensation paid by VPI for 1995, 1996 and January 1997.
Thereafter, compensation was paid by the Company.
(11) Represents the period January 1, 1998 through Mr. Gillespie's last date
of employment, April 16, 1998.
(12) Represents accrued vacation pay of $39,500, consulting fees of $44,700
accrued for the period April 16, 1998 through September 30, 1998 and
automobile allowance of $4,200.
(13) Represents sales commissions paid to Mr. Gillespie.
-13-
<PAGE>
(14) Mr. Gillespie, formerly the sole shareholder of VPI, received a
$1.0 million dividend from VPI in 1996, approximately $450,000 of which
was to reimburse Mr. Gillespie for income taxes paid by him during that
year.
(15) Represents the period from Mr. Linkous' hire date of April 18, 1998
through September 30, 1998.
(16) Represents signing bonus repayable to the Company if Mr. Linkous leaves
the Company within 1 year.
(17) Represents commissions of $10,900 and automobile allowance of $2,750.
(18) These options were granted on July 2, 1998 under the Company's Equity
Incentive Plan ("Plan"). The options become exercisable at the rate of
1/4 after one year and then 1/36 per month over 36 months.
OPTION GRANTS IN CALENDAR 1998
The following option grants were made to the Named Executive Officers during
the fiscal year ended September 30, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Name Number of Percent of Total Exercise Expiration
Securities Options Granted Price ($/Shr) (2) Date
Underlying to Employees in
Options Fiscal Year
Granted (1)
<S> <C> <C> <C> <C>
James B. Linkous, VP Sales and General Manager 100,000 38.9% $2.06 7/2/2008
of VPI
</TABLE>
(1) These options were granted on July 2, 1998, under the Company's Equity
Incentive Plan ("Plan"). The options generally expire in ten years, become
exercisable at the rate of 1/4 after one year and then 1/36 per month over
the next 36 months.
(2) The exercise price was deemed to be equal to 100% of the fair market value
on the date immediately preceding the date of the grant, as determined by
the closing price as reported on the Nasdaq SmallCap Market System.
The following table sets forth certain information regarding option
exercises during the nine month period ended September 30, 1998 and the number
of shares covered by both exercisable and unexercisable stock options as of
September 30, 1998 for each of the Named Executive Officers:
-14-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised In-the-Money Options
Options at September 30, 1998 at September 30, 1998
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired on Realized ($)
Exercise (#)
<S> <C> <C> <C> <C> <C> <C>
Esmond T. Goei -- -- 218,750 50,000 -- --
Douglas S. Zorn -- -- 190,625 50,000 -- --
James S. Gillespie -- -- -- -- -- --
James B. Linkous -- -- -- 100,000 -- --
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
THE COMMITTEE'S RESPONSIBILITIES: The Compensation Committee of the Board (the
"Committee") has responsibility for setting and administering the policies which
govern executive compensation. The Committee is composed entirely of outside
directors. Reports of the Committee's actions are presented to the full Board.
The purpose of this report is to summarize the philosophical principles,
specific program objectives and other factors considered by the Committee in
reaching its determinations regarding the compensation of the Company's
executive officers.
Prior to their resignations on January 6, 1999, the Compensation Committee
members were Messrs. Nemetz, Boyle and Das. On January 13, 1999, Messrs.
Schmier and Walko were appointed to serve as the members of the Compensation
Committee. As of the date of these proxy materials there had been no meeting
of the new Compensation Committee. Accordingly, this report is submitted by
the former Compensation Committee members.
COMPENSATION PHILOSOPHY: The Committee has approved principles for the executive
compensation program which:
- - Encourage the development and the achievement of strategic objectives that
enhance long-term stockholder value;
- - Attract, retain and motivate key personnel who contribute to the long-term
success of the Company; and
- - Provide a compensation package that recognizes both Company performance and
individual contributions.
COMPENSATION METHODOLOGY: In order to attract and maintain superior executive
talent, the Company strives to provide an executive compensation program that
is both competitive and performance-based. To assist in benchmarking the
competitiveness of the major components of its executive compensation plan,
the Company uses the Annual Compensation Surveys created for the American
Electronics Association by William M. Mercer Incorporated, a nationally
recognized executive compensation firm.
-15-
<PAGE>
COMPONENTS OF COMPENSATION:
- - BASE SALARY. Base salary is intended to be competitive with the salaries
of comparable executives at companies of similar size and location. It is
also intended to reflect an officer's experience and role in developing and
implementing overall business strategy for the Company.
- - BONUSES. The Company believes that a portion of the annual compensation of
an executive should be contingent upon the performance of the Company.
Bonuses are awarded on an annual basis and are based on both subjective and
qualitative factors such as profitability of the Company and operational
performance.
- - LONG-TERM INCENTIVES. Stock options are granted periodically by the Stock
Option committee. Options are granted with an exercise price equal to the
fair market value of the Company's Common Stock on the last market trading
day prior to the date of grant and vest over a period of 48 months. This
approach is designed to create stockholder value over the long-term since
the options only provide value to the recipient when the price of the stock
is greater than the exercise price.
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER COMPENSATION: The base
salary of Mr. Goei was increased in fiscal year 1998 to be competitive with
the salaries of comparable executives in companies of similar size and
location. Mr. Zorn received no increase in fiscal year 1998. No bonuses or
long-term incentives were awarded to Messrs. Goei and Zorn during the fiscal
year 1998.
By the former members of the Compensation
Committee (each having resigned on
January 6, 1999).
Gary L. Nemetz
James Boyle
Dr. Santanu Das
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was or is an officer or employee of
the Company.
-16-
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The following graph shows a two year comparison of cumulative total
return for the Company's Common Stock, the Nasdaq Stock Market - U.S.
Companies Index and the Nasdaq Stock Market- Telecommunications Equipment and
Services Index.
<TABLE>
<CAPTION>
Nasdaq Stock Market - Telecommunications
NHAN Nasdaq Stock Market - U.S. Companies Index Equipment and Services Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
$100.00 $100.00 $100.00
$63.00 $116.00 $102.00
$21.00 $119.00 $112.00
$16.00 $162.00 $144.00
</TABLE>
ASSUMES $100 INVESTED ON FEBRUARY 4, 1997 IN EACH INVESTMENT. TOTAL
RETURN ASSUMES REINVESTMENT OF ANY DIVIDENDS; NO DIVIDENDS WERE
DECLARED BY THE COMPANY DURING THE TWO-YEAR PERIOD. PAST RESULTS
ARE NOT AN INDICATION OF FUTURE INVESTMENT RETURNS.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy to vote the shares they represent as the
Board of Directors may recommend.
It is important that your stock be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute
and return the accompanying proxy in the envelope which has been enclosed, at
your earliest convenience.
FOR THE BOARD OF DIRECTORS
DOUGLAS S. ZORN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
NHANCEMENT TECHNOLOGIES INC.
Dated: January 28, 1999
<PAGE>
NHANCEMENT TECHNOLOGIES INC.
PROXY FOR 1999 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 25, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas S. Zorn as Proxy, with the power to
appoint his substitute, and hereby authorizes him to represent and to vote, as
designated below, all the shares of Common Stock and all shares of Common Stock
into which shares of Series A Convertible Preferred Stock were convertible, par
value $0.01 per share ("Common Stock") of NHancement Technologies Inc. (the
"Company") held of record by the undersigned on January 6, 1999, at the 1999
annual meeting of stockholders to be held on February 25, 1999 at 2:30 p.m.
local time, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL OF THE
LISTED NOMINEES AND APPROVAL OF ITEM 2. IF NOT OTHERWISE SPECIFIED, THIS PROXY
WILL BE VOTED PURSUANT TO THE BOARD OF DIRECTORS' RECOMMENDATIONS.
<TABLE>
<S><C> <C> <C>
1. Proposal to elect four (4) / / FOR all nominees listed / / WITHHOLD AUTHORITY TO VOTE FOR
directors to serve for a term of (EXCEPT AS MARKED TO THE INDIVIDUAL NOMINEES LISTED
one year and until their successors CONTRARY) BELOW:
shall have been duly elected and
qualified.
Douglas S. Zorn, James S. Gillespie, Robert J. Schmier, N. Bruce Walko
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, DRAW
A LINE THROUGH OR OTHERWISE STRIKE OUT HIS NAME.
IF AUTHORITY TO VOTE FOR THE ELECTION OF ANY NOMINEE IS NOT WITHHELD, THE
EXECUTION OF THIS PROXY SHALL BE DEEMED TO GRANT SUCH AUTHORITY.)
- --------------------------------------------------------------------------------
PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
<PAGE>
<TABLE>
<S><C>
2. Proposal to ratify the appointment of BDO Seidman, LLP as the independent public
accountants for the Company and its subsidiaries for the fiscal year ending September 30,
1999.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
The shares represented by this proxy will be voted as directed by the
stockholder. In his discretion, the named proxy may vote on such other business
as may properly come before the 1999 Annual Meeting or any adjournments or
postponements thereof.
This proxy revokes all proxies with respect to the 1999 Annual Meeting and
may be revoked prior to exercise. Receipt of the Notice of 1999 Annual Meeting
and the Proxy Statement relating to the Annual Meeting is hereby acknowledged.
/ / MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
Please mark, sign, date and return the proxy card promptly, using the
enclosed envelope.
Date: ___________________________________
Signature _______________________________
Signature if held jointly _______________
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, as executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NHANCEMENT
TECHNOLOGIES INC. PLEASE SIGN AND RETURN THIS PROXY USING THE ENCLOSED PRE-PAID
ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF
YOU ATTEND THE MEETING.
