Registration No. 333-63053
As filed with the Securities and Exchange Commission on October 27, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
NBI, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
_____________________________
DELAWARE 6749 84-0645110
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification
Classification Number)
Code Number)
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
(Address and telephone number of principal executive offices)
____________________________
Jay H. Lustig, Chief Executive Officer
NBI, Inc.
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
(Name, address and telephone number of agent for service)
Copies to:
John G. Lewis, Esq. Catherine DeBono Holmes, Esq.
Ireland, Stapleton, Pryor Jeffer, Mangels, Butler &
& Pascoe, P.C. Marmaro LLP
1675 Broadway, 26th Floor 2121 Avenue of the Stars, 10 Floor
Denver, Colorado 80202 Los Angeles, California 90067
(303) 623-2700 (310) 201-3553
_________________________
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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, please check the following box. [ ]______
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C>
Title of Each Class of Amount to be
Securities to be Registered Registered
Series A Cumulative Preferred Stock,
par value $0.01 1,000,000
Warrants for purchase of Common Stock,
par value $.01 2,000,000
Units, each consisting of one share
of Series A Cumulative Preferred Stock
and two Warrants for purchase of Common
Stock, both $.01 par value 1,000,000
Series A Cumulative Preferred Stock,
par value $.01, issuable upon payment of
dividends in kind on Preferred Stock 550,000
Common Stock, par value $.01, issuable
upon exercise of warrants 2,000,000
<S> <C> <C> <C>
Proposed Maximum Proposed Maximum Amount of
Offering Price Per Aggrregate Offering Price(1) Registration Fee
Share (1)
Series A Cumulative Preferred Stock,
par value $0.01 $ 9.42 $ 9,420,000 $ 2,779
Warrants for purchase of Common Stock,
par value $.01 $ 0.29 $ 580,000 $ 171
Units, each consisting of one share
of Series A Cumulative Preferred Stock
and two Warrants for purchase of Common
Stock, both $.01 par value $ 10.00 $ 10,000,000 --
Series A Cumulative Preferred Stock,
par value $.01, issuable upon payment of
dividends in kind on Preferred Stock -- -- --
Common Stock, par value $.01, issuable
upon exercise of warrants $ 1.20 $2,400,000 $ 708
<FN>
(1) Estimated pursuant to Rule 457 of the Securities Act of 1933 (the "Act"), as amended, solely for the purpose of
calculating the registration fee.
</TABLE>
Pursuant to Rule 416 of the Act, this Registration Statement also covers
such additional shares of Common Stock as may become issuable as a result of
the anti-dilution provisions of the Warrants.
____________________________
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>
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1998
NBI, INC.
A MINIMUM OF 370,000 UNITS AND
A MAXIMUM OF 1,000,000 UNITS
UNITS OFFERED AT $10.00 PER UNIT
EACH UNIT CONSISTING OF
ONE SHARE OF SERIES A CUMULATIVE PREFERRED STOCK
AND TWO DETACHABLE COMMON STOCK PURCHASE WARRANTS, EXERCISABLE AT $1.20 PER
SHARE
NBI, Inc. ("NBI" or the "Company") hereby offers a minimum of 370,000
Units (the "Minimum Offering Amount") and a maximum of 1,000,000 Units (the
"Maximum Offering Amount"), each Unit offered at $10.00 per Unit, consisting
of one (1) share of Series A Cumulative Preferred Stock, par value $.01,
("Preferred Stock") and two (2) Common Stock Purchase Warrants ("Warrants"),
each exercisable for one (1) share of Common Stock, par value $.01 ("Common
Stock") per Warrant, at an exercise price of $1.20 per Share, (the
"Offering"). Holders of the Preferred Stock will be entitled to cumulative
dividends from the date of original issue, accruing semi-annually, commencing
June 30, 1999, and each December 31 and June 30 thereafter, at the annual rate
per share of either (a) $1.00 in cash, or (b) .11 shares of Preferred Stock.
The method of payment of dividends is selected by each holder of Preferred
Stock, and may be changed annually by the holder subject to certain
restrictions. Dividends will be paid when and as declared by the Board of
Directors out of funds legally available for payment of dividends. To the
extent that insufficient funds are available to pay all dividends accrued as
of each accrual date, dividends will be paid first pro rata to all holders who
have elected to receive dividends payable in additional shares of Preferred
Stock until all such dividends accrued have been paid, and then pro rata to
all holders who have elected to receive dividends payable in cash (under such
circumstances, holders who have elected to receive dividends payable in
additional shares of Preferred Stock could be perceived to have a priority
over holders who elect to receive dividends in cash). Accrued but unpaid
dividends in any particular period will continue to accrue and will be paid in
future periods when sufficient funds are available. See "Description of
Preferred Stock--Dividends." The Preferred Stock is redeemable at the option
of the Company, in whole or in part, at the declining redemption prices set
forth herein. If the Preferred Stock has not been redeemed by December 31,
2004, the dividend rate will thereafter increase to an annual rate per share
of either (a) $1.10 in cash, or (b) .12 additional shares of Preferred Stock,
at the option of the holder. See "Description of Preferred Stock--Optional
Redemption."
Each Warrant entitles the registered holder to purchase one (1) share of
Common Stock, for an exercise price of $1.20, and is exercisable at any time
after issuance until December 31, 2004 (the "Warrant Expiration Date"). See
"Description of Capital Stock--Common Stock Purchase Warrants." The Company's
Common Stock is currently traded in the over-the-counter market. Prior to
this offering, there has been no public market for the Preferred Stock or the
Warrants.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
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>
<CAPTION>
Offering Price Underwriting Proceeds to Company (2)
Discounts and
Commissions (1)
-------------- ---------------- ---------------------
<S> <C> <C> <C>
Total Minimum $ 3,700,000 -0- $ 3,700,000
Total Maximum $ 10,000,000 -0- $ 10,000,000
============= =============== =============== ========================
<FN>
(1) The Company intends to offer and sell Units without participation of
any securities broker-dealers. The Company reserves the right, however, to
engage one or more selected dealers to participate in the Offering, upon terms
and conditions to be negotiated with such selected dealers, provided that the
commission paid to any selected dealer shall not exceed $1.00 (i.e. 10.0%) per
Unit. See "Plan of Distribution."
(2) Before deducting expenses of this Offering payable by the Company,
estimated at approximately $178,000 in the aggregate.
</TABLE>
As of October 19, 1998, the closing bid and asked prices of the Common Stock
were $.8125 and $.96875, respectively.
The date of this Prospectus is , 1998.
<PAGE>
[Inside front cover.]
NBI is a registered trademark of the Company. All other trade names and
trademarks appearing in this Prospectus are the property of their respective
holders.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" OR "NBI"
MEAN NBI, INC. AND (A) ITS WHOLLY-OWNED SUBSIDIARIES, AMERICAN GLASS, INC,
D/B/A L.E. SMITH GLASS COMPANY ("L.E. SMITH"), NBI PROPERTIES, INC., ("NBI
PROPERTIES") THE OWNER AND OPERATOR OF THE BELLE VERNON HOLIDAY INN ("BELLE
VERNON HOLIDAY INN"), AND WILLOWBROOK PROPERTIES, INC. D/B/A NBI DEVELOPMENT
CORPORATION ("NBI DEVELOPMENT"), AND (B) ITS MAJORITY-OWNED SUBSIDIARY KRAZY
COLORS, INC. ("KRAZY COLORS").
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
FORWARD-LOOKING STATEMENTS ARE IDENTIFIABLE BY THE PREFATORY LANGUAGE "MAY,"
"WILL," "EXPECTS," "ANTICIPATES," "ESTIMATES," "HOPES," "CONTINUES," "IF," OR
SYNONYMS OR VARIATIONS OF SUCH TERMS OR THE NEGATIVE OF SUCH TERMS.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE PREDICTED
IN SUCH STATEMENTS. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS
SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS
PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS,"
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN
SUCH FORWARD-LOOKING STATEMENTS.
THE SHARE AND PER SHARE INFORMATION CONTAINED HEREIN DOES NOT REFLECT A
POTENTIAL REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, WHICH HAS BEEN
APPROVED BY THE BOARD OF DIRECTORS AND BY THE STOCKHOLDERS OF THE COMPANY AT
THE ANNUAL MEETING OF STOCKHOLDERS HELD ON OCTOBER 14, 1998. THE PROPOSED
REVERSE STOCK SPLIT WOULD BE EITHER 1 FOR 2.5 SHARES, 1 FOR 3 SHARES, OR 1 FOR
4 SHARES, AT THE DISCRETION OF THE BOARD OF DIRECTORS, AND MAY BE EFFECTED AT
ANY TIME UNTIL THE MAILING OF THE PROXY STATEMENT FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD IN 1999. IF THE REVERSE STOCK SPLIT IS NOT EFFECTED
BY THAT DATE, THE AUTHORIZATION WILL TERMINATE.
THE COMPANY
NBI is a diversified holding company which currently operates in four
distinct business segments: (1) the manufacture and marketing of handmade
pressed crystal and colored glass giftware and lighting fixtures, through its
wholly-owned subsidiary, L.E. Smith of Mount Pleasant, Pennsylvania; (2) the
ownership and operation of the 80-room full service Belle Vernon Holiday Inn,
through its wholly-owned subsidiary NBI Properties; (3) the ownership and
development of an 88-acre parcel of undeveloped land in Belle Vernon,
Pennsylvania, through its wholly-owned subsidiary NBI Development; and (4) the
manufacture and marketing of children's novelty paints, through its
majority-owned subsidiary, Krazy Colors. The principal business office of the
Company is located at 1880 Industrial Circle, Suite F, Longmont, Colorado
80501, telephone (303) 684-2700.
<PAGE>
THE OFFERING
Securities Offered..........A Minimum Offering Amount of 370,000 Units and a
Maximum Offering Amount of 1,000,000 Units, each Unit consisting of one share
of Series A Cumulative Preferred Stock at a purchase price of $9.42 per share
and two Common Stock Purchase Warrants at a purchase price of $0.29 per
Warrant, each Warrant exercisable at any time after issuance until December
31, 2004 (the Warrant Expiration Date) for one share of Common Stock at an
exercise price of $1.20 per share.
Minimum Investment..........10,000 Units ($100,000), which may be waived by
the Company in its sole discretion.
Dividends on Preferred Stock..........Cumulative from the date of original
issue, at an annual rate per share of Preferred Stock of either (a) $1.00 in
cash, or (b) .11 additional shares of Preferred Stock, with the method of
payment selected by the holder, and which may be changed annually by the
holder subject to certain restrictions. Dividends are accrued semi-annually
from the date of original issue commencing June 30, 1999, and each December 31
and June 30 thereafter, and are payable when and as declared by the Board of
Directors out of funds legally available for payment of dividends. To the
extent that insufficient funds are available to pay all dividends accrued as
of each accrual date, dividends will be paid first pro rata to all holders who
have elected to receive dividends payable in additional shares of Preferred
Stock until all such dividends accrued have been paid, and then pro rata to
all holders who have elected to receive dividends payable in cash (under such
circumstances, holders who have elected to receive dividends payable in
additional shares of Preferred Stock would have a priority
over holders who elect to receive dividends in cash). Accrued but unpaid
dividends in any particular period will continue to accrue and will be paid in
future periods when sufficient funds are available. See "Description of
Preferred Stock--Dividends." If the Preferred Stock has not been redeemed by
December 31, 2004, dividends will thereafter accrue at the annual rate of
either (a) $1.10 in cash, or (b) .12 additional shares of Preferred Stock, at
the option of the holder. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL
HAVE SUFFICIENT EARNINGS TO PAY DIVIDENDS AS ACCRUED ON THE PREFERRED STOCK.
See "Risk Factors -- Uncertainty of Payment of Dividends on Preferred Stock"
and "Description of Preferred Stock--Dividends."
In Order to exercise the holder's option to receive either cash or stock in
payment of dividends on the Preferred Stock, each purchaser will make their
initial election on the Subscription Agreement. Subsequently, on an annual
basis, each holder of Preferred Stock will receive a form for election of
method of payment, together with a copy of the Company's most recent Annual
Report on Form 10-KSB, as filed with the Securities and Exchange Commission,
and any other information that the Company determines material in connection
with the holder's election. In order to make a change in the holder's payment
status, the holder will be required to execute and return the election form to
the Company within 30 days after the date the election form is sent by the
Company to the holder. If the holder does not return the form requesting a
change in payment status, the holder will be deemed to elect to retain the
same payment method last chosen by the holder until the next date that the
payment status may be changed.
Fractional Shares..........The Company will not issue any fractional shares of
Preferred Stock in payment of dividends, but will record on its books the
amount of fractional shares that each holder is entitled to receive until the
aggregate value of such fractional interests equals one whole share of
Preferred Stock, which will be issued with the next payment of dividends.
Fractional shares shall not accrue dividends or entitle the holder thereof to
any other rights as a stockholder of the Company. Any fractional share
interests held on the date of redemption of Preferred Stock by the Company
will be paid in cash by the Company to the holders thereof pro rata at the
same rate as the redemption price for whole shares.
Liquidation Preference..........$10.00 per share of Preferred Stock, plus
accrued and unpaid dividends. See "Description of Preferred
Stock--Liquidation Rights."
<PAGE>
Optional Redemption..........The Preferred Stock (including Preferred Stock
issued as dividends) is redeemable at the option of the Company, in whole or
in part, at the following declining per share redemption prices, together with
accrued and unpaid dividends, if any.
If redeemed during the 12 month period beginning January 1, 1999:
Year Redemption Price
1999 $ 11.00
2000 10.80
2001 10.60
2002 10.40
2003 10.20
2004 and thereafter 10.00
See "Description of Preferred Stock--Optional Redemption."
Voting Rights.........Except as provided by law, holders of shares of
Preferred Stock will not be entitled to any voting rights, except that certain
applicable provisions of the Company's Certificate of Incorporation and Bylaws
may not be amended without the approval of the holders of in excess of 50% of
the Preferred Stock. See "Description of Preferred Stock--Voting Rights".
Common Stock..........The Company's Common Stock is traded in the
over-the-counter market under the symbol "NBII." As of October 19, 1998,
there were approximately 1,260 holders of record of the Common Stock and the
closing bid and asked prices were $.8125 and $.96875, respectively.
Use of Proceeds..........Substantially all of the net proceeds from the sale
of the Minimum Offering Amount will be used to pay an installment of $3.5
million due December 31, 1998, owed by the Company for Federal income taxes
relating to the years 1980 through 1988. Any net proceeds from sales of Units
in excess of the Minimum Offering Amount are intended to be used first for
payment of approximately $1.0 million of certain development costs in
connection with the commercial real estate project for the Company's
subsidiary, NBI Development (this amount is an approximation of the equity
requirement anticipated to be imposed by a permanent real estate lender). Any
net proceeds in excess of such amount are intended to be used for working
capital. Thereafter, any net proceeds from additional sales of Units are
expected to be used to pay the remaining $1.8 million balance due on December
31, 1999 owed by the Company for Federal income taxes relating to the years
1980 through 1988. The Company may temporarily invest a portion of the
proceeds of this Offering in excess of the minimum offering amount in
investment securities, consistent with its investment policies. See "Use of
Proceeds".
Plan of Distribution..........The Company intends to offer and sell Units
without participation of any securities broker-dealers. The Company reserves
the right, however, to engage one or more selected dealers to participate in
the Offering, upon terms and conditions to be negotiated with such selected
dealers, provided that the commission paid to any selected dealer shall not
exceed $1.00 (i.e. 10%) per Unit. See "Plan of Distribution".
Lack of Liquid Trading
Market.......... Preferred Stock and Warrants will be freely and separately
transferable immediately upon issuance. However, there is no liquid public
trading market for the Preferred Stock or the Warrants, and there is no
assurance that a market will develop. The Company's Common Stock is traded in
the over-the-counter market under the symbol "NBII." See "Risk Factors--Lack
of Liquid Public Market for Securities"; and "Limitations on Sales of Common
Stock".
<PAGE>
Risk Factors.........THE PREFERRED STOCK AND WARRANTS OFFERED HEREBY ARE
SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
ANYONE WHO CANNOT AFFORD THE LOSS OF HIS OR HER ENTIRE INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND
CONSIDER THE RISK FACTORS SET FORTH IN THE SECTION OF THE PROSPECTUS ENTITLED
"RISK FACTORS" BEFORE SUBSCRIBING.
Offering Period........If the Minimum Offering Amount is not sold by
December 31, 1998 (the "Initial Offering Expiration Date"), the offering will
terminate and all funds held in the escrow account will promptly be returned
to investors, provided that the Company may, in its discretion, extend the
Initial Offering Expiration Date by up to 60 days if the Company has reason to
believe that the Minimum Offering Amount will be sold by the extended Initial
Offering Expiration Date and the extended Initial Offering Expiration Date
would not cause an event of default in the obligations of the Company to the
Internal Revenue Service ("IRS"). If the Minimum Offering Amount is sold by
the Initial Offering Expiration Date, the Offering may continue until the
earliest to occur of (i) the sale of all of the Units offered hereby; (ii)
December 31, 1999, or (iii) such earlier date as the Company shall determine,
in its sole discretion (the "Final Offering Expiration Date"). The Company
will file a sticker supplement to this Prospectus promptly following the
Initial Offering Expiration Date advising of the amount of Units sold as of
that date and that the Company has paid or will pay by the date due the
initial installment of the IRS debt.
The Minimum Offering Amount may include Units purchased by the officers,
directors or existing stockholders of the Company, or other individuals
affiliated with the Company, and such individuals or entities may buy Units in
this Offering without limit.
Escrow Account......... All subscription funds delivered prior to acceptance
by the Company of the Minimum Offering Amount will be held in an escrow
account by Southern California Bank as escrow agent. If the Minimum Offering
Amount is accepted by the Company prior to the Initial Offering Expiration
Date, the Escrow Agent will release the subscription funds held in the escrow
account to the Company. If the Minimum Offering Amount is not accepted by the
Company prior to the Initial Offering Expiration Date, the Escrow Agent will
promptly return all subscription funds to the subscribers, without interest or
deduction.
Subscription Procedures.........Offerees who desire to purchase Units must
complete and execute a Subscription Agreement (the form of which is provided
with this Prospectus), and deliver it to the Company.
Prior to the date of acceptance of subscriptions for the Minimum Offering
Amount:.........Subscribers must deliver funds for the entire amount of
Units subscribed for to Southern California Bank. Funds may be delivered by
check payable to "SCB FBO NBI, Inc. Escrow No. 11781-GG", sent to the
attention of Gloria Garriott, Southern California Bank, 4100 Newport Place,
Suite 130, Newport Beach, California 92660, or by wire transfer sent in
accordance with the following wire transfer instructions:
Southern California Bank
Account No.: 1900307
ABA/Routing No.: 1222-2693-7
Escrow No.: 11781-GG
Wire sent from: (Name of Subscriber)
After the date of acceptance of subscriptions for the Minimum Offering
Amount:......... Subscribers must deliver funds for the entire amount of Units
subscribed for to the Company. Funds may be delivered by check payable to
"NBI, Inc.", sent to the attention of Marjorie A. Cogan, Chief Financial
Officer, NBI, Inc., 1880 Industrial Circle, Suite F, Longmont, Colorado
80501, or by wire transfer sent in accordance with the following wire
transfer instructions:
Norwest Bank Colorado, N.A.
Account No.: 1823506550
ABA/Routing No.: 102000076
Wire sent from: (Name of subscriber)
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus. The statement of
operations data for each of the two years ended June 30, 1998 and 1997, and
the balance sheet data at June 30, 1998, are derived from, and should be read
in conjunction with, the Company's Consolidated Financial Statements and the
Notes thereto audited by BDO Seidman, LLP, Independent Certified Public
Accountants, included elsewhere in this Prospectus.
THE SHARE AND PER SHARE INFORMATION CONTAINED HEREIN DOES NOT REFLECT A
POTENTIAL REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, WHICH HAS BEEN
APPROVED BY THE BOARD OF DIRECTORS AND BY THE STOCKHOLDERS OF THE COMPANY AT
THE ANNUAL MEETING OF STOCKHOLDERS HELD ON OCTOBER 14, 1998. THE PROPOSED
REVERSE STOCK SPLIT WOULD BE EITHER 1 FOR 2.5 SHARES, 1 FOR 3 SHARES, OR 1 FOR
4 SHARES, AT THE DISCRETION OF THE BOARD OF DIRECTORS, AND MAY BE EFFECTED AT
ANY TIME UNTIL THE MAILING OF THE PROXY STATEMENT FOR THE NEXT ANNUAL MEETING
OF STOCKHOLDERS. IF THE REVERSE STOCK SPLIT IS NOT EFFECTED BY THAT DATE, THE
AUTHORIZATION WILL TERMINATE.
<TABLE>
<CAPTION>
ACTUALS
YEAR ENDED JUNE 30,
--------------------------------------
1998 1997
------- --------
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Revenues (1) $ 14,693 $ 13,669
Costs and expenses (1)(2) 14,223 13,014
---------- ---------
Income from operations (1) 470 655
Other income (expense) (1) (660) 140
Benefit (provision) for income taxes (1) 72 (105)
---------- ---------
Income (loss) before discontinued operations and extraordinary gain (118) 690
Income (loss) from discontinued operations, net of
income tax benefit of $24 -- 354
Extraordinary gain, net of income taxes of $149 290 --
---------- ---------
Net income $ 172 $ 1,044
========== =========
Income (loss) per common share - basic:
Income (loss) before discontinued operations and
extraordinary gain $ (.01) $ .09
Income from discontinued operations -- .04
Extraordinary gain .03 --
---------- --------
Net income $ .02 $ .13
Income (loss) per common share - diluted:
Income (loss) before discontinued operations
and extraordinary gain $ (.01) $ .08
Income from discontinued operations -- .04
Extraordinary gain .03 --
---------- -------
Net income $ .02 $ .12
========== =======
Weighted average number of common shares and
common equivalent shares outstanding
- - basic 8,077 7,991
========== =======
- - diluted 8,077 8,202
========== ======
<PAGE>
ACTUALS
YEAR ENDED JUNE 30,
---------------------
1998 1997
------ -----
(In thousands)
OTHER FINANCIAL DATA:
EBITDA (3) $ 1,580 $ 2,402
========= ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998
PROFORMA AS
ADJUSTED FOR
JUNE 30, MINIMUM
1998 OFFERING
ACTUAL AMOUNT(4)
-------- ----------
(In thousands)
BALANCE SHEET DATA:
<S> <C> <C>
Cash and cash equivalents $ 209 $ 209
Working Capital (2,879) 621
Total assets 12,205 12,227
Current liabilities 7,369 3,869
Long-term liabilities 3,536 3,536
Total stockholders' equity 1,300 4,822
<FN>
__________________
(1) The amounts shown for fiscal 1997 are from continuing operations.
(2) The amounts shown for fiscal 1998 include an impairment of goodwill
charge of $167,000.
(3) EBITDA is defined as net income plus interest expense, income taxes,
depreciation and amortization. EBITDA is a financial measure commonly used in
the Company's industries and should not be considered in isolation or as a
substitute for net income, net cash provided by operating activities or other
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. Because EBITDA excludes some, but not all, items that affect net
income and may vary among companies, the EBITDA presented above may not be
comparable to similarly titled measures of other companies.
(4) Adjusted to give effect to the sale of the Units offered by the
Company and the application of a portion of the net proceeds therefrom,
assuming no selected brokers participate in the Offering. See "Use of
Proceeds" and "Capitalization."
</TABLE>
<PAGE>
RISK FACTORS
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth in this
Risk Factors section, which could cause actual results to differ materially
from those indicated in such forward-looking statements.
THE PREFERRED STOCK AND WARRANTS OFFERED HEREBY ARE SPECULATIVE, INVOLVE
A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. IN MAKING AN INVESTMENT DECISION,
EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY, IN ADDITION TO THE
OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
HOLDING COMPANY STRUCTURE
A substantial portion of the Company's assets and operations are located
in its subsidiaries and, to that extent, the Company is effectively a holding
company. The Company must rely on dividends, loan repayments and other
intercompany cash flow from its subsidiaries to generate the funds necessary
to meet the Company's debt service obligations and the payment of cash
dividends on the Preferred Stock. However, dividend payments from L.E. Smith
and NBI Properties are currently restricted by existing loan covenants. See
"Note 10 to the Consolidated Financial Statements". Claims of other creditors
of the Company's subsidiaries, including tax authorities and trade creditors,
will generally have priority as to the assets of such subsidiaries over the
claims of the Company and the holders of indebtedness of the Company and of
the Preferred Stock. The Certificate of Designation establishing the
Preferred Stock does not contain any restrictions on the ability of the
Company or its subsidiaries to incur indebtedness.
LACK OF LIQUID PUBLIC MARKET FOR PREFERRED STOCK AND WARRANTS
Prior to this offering, there has been no public market for the Preferred
Stock or Warrants. There can be no assurance that an active and liquid
trading market will develop or be sustained after this offering. Neither the
Company nor the Preferred Stock currently qualify for listing on the Nasdaq
Stock Market or any exchange and there can be no assurance that the Company
and the Preferred Stock will ever qualify for such listing. Consequently,
holders of Preferred Stock and Warrants may not be able to liquidate their
investment on a timely basis, if at all. The market price of the shares of
Preferred Stock and Warrants may be highly volatile and significantly affected
by factors such as actual or anticipated fluctuations in the Company's
operating results, announcements of new products or new contracts by the
Company, its competitors, or their customers, government regulatory action,
developments with respect to proprietary rights, general market conditions and
other factors. In addition, the stock market has from time to time
experienced significant price and volume fluctuations which have particularly
affected the market prices for stock of smaller companies and that have often
been unrelated to the operating performance of particular companies. These
broad market fluctuations may also adversely affect the market price of the
Preferred Stock.
UNCERTAINTY OF PAYMENT OF DIVIDENDS ON PREFERRED STOCK
Under Delaware law, dividends or distributions to stockholders may be
made only from the surplus of the Company, or, in certain situations, from the
net profits for the current fiscal year or the fiscal year before which the
dividend or distribution is declared. The Company's ability to pay dividends
in the future will depend upon its financial results, liquidity and financial
condition. The Company does not have a history of generating positive cash
flow or profits to make periodic dividend payments, and there can be no
assurances that the Company will have the surplus or profits necessary to pay
any dividends. As a result, the Company may be unable to pay the semi-annual
installments of the cumulative annual dividend on the Preferred Stock. See
"Description of Preferred Stock." In addition, any new debt financing which
may be obtained by the Company may be senior in right of payment to the
Preferred Stock, and may restrict payment of cash dividends on the Preferred
Stock.
UNCERTAIN ABILITY TO PAY DIVIDENDS IN KIND
In order to issue additional shares of Preferred Stock in payment of
dividends on Preferred Stock, the Company will be required to maintain the
effectiveness of a registration statement registering the shares of Preferred
Stock to be issued under the Securities Act of 1933, as amended, and to
maintain the effectiveness of registration or
<PAGE>
qualification of the Preferred Stock with all of the states in which the
Preferred Stock will be held. If the Company is unable to maintain the
effectiveness of the Registration Statement, it will be unable to issue
additional shares of Preferred Stock unless an exemption from registration is
available. If the Company is unable as a practical matter to maintain the
effectiveness of registration or qualification of the Preferred Stock under
the state securities laws of any state in which the Preferred Stock may be
issued, the Company will be unable to issue shares of Preferred Stock in that
state. In the event that the Company is unable to issue additional shares of
Preferred Stock as dividends, whether at all or in particular states, the
Company will be required to accrue dividends payable in cash to the affected
holders of Preferred Stock, and the holders of such shares of Preferred Stock
will not be entitled to exercise their option to accrue dividends payable in
additional shares of Preferred Stock.
RESTRICTIONS ON ABILITY OF HOLDERS TO CHANGE METHOD OF PAYMENT OF DIVIDENDS
A holder of Preferred Stock who desires to change the method of payment
of dividends on such Preferred Stock from cash to in-kind, or from in-kind to
cash, will be required to return to the Company an election form for that
purpose within 30 days of receiving annual notice from the Company of the
right to change method of payment. Any holder who does not return the
election form will be deemed to elect the method of payment last selected by
the holder for the next year, until the next annual notice regarding changes
in method of payment is delivered by the Company.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
NBI historically has experienced significant quarterly fluctuations in
sales and operating results primarily due to seasonal variations in its
businesses. L.E. Smith and the Belle Vernon Holiday Inn typically have their
strongest revenue performance during the Company's first fiscal quarter.
Generally, the second and fourth fiscal quarters' revenues from these
operations are moderately lower than in the first quarter, while the third
fiscal quarter's revenue is usually significantly lower than the other
quarters. However, during fiscal 1998, L.E. Smith received several large
orders from its significant customer during the historically slower quarters,
which created a more consistent revenue stream for the year. The Company is
uncertain whether this trend will continue. Because the Company generally
does not have a large backlog of orders, operating results in any quarter are
highly dependent on orders booked and shipped in that quarter. The Company's
production volume and operating expense levels are based largely upon the
Company's internal forecasts of future demand and not upon firm customer
orders. Failure by the Company to achieve those internal forecasts could
result in expense levels which are inconsistent with actual net sales, which
in turn could have a material adverse effect on the Company's business,
operating results and financial condition. Failure to achieve projected
shipments could result in higher inventories and product costs which could
adversely affect the Company's gross profit margins. The Company's quarterly
results also may be affected by fluctuating demand for, and declines in the
selling prices of, its products and services and by increases in the costs of
components used in manufacturing its products and the costs of its services,
as well as by fluctuations in investment results. See "--Investment Results"
and "Management's Discussion of Financial Condition and Results of Operations
1998-1997 Comparison".
LIMITATIONS ON SALES OF COMMON STOCK
Regulations under the Exchange Act regulate the trading of so-called
"penny stocks" (the "Penny Stock Rules"), which are generally defined as any
security not listed on a national securities exchange or Nasdaq, priced at
less than $5.00 per share and offered by an issuer with limited net tangible
assets and revenues. Currently, the Company's Common Stock is subject to the
Penny Stock Rules. Under these rules, broker-dealers must take certain steps
prior to selling a "penny stock" including (i) obtaining financial and
investment information from the investor, (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor, and (iii)
providing the investor a written identification of the shares being offered
and of what quantity. If the Penny Stock Rules are not followed by the
broker-dealer, the investor has no obligation to purchase the shares.
Accordingly, the Penny Stock Rules may make it more difficult for
broker-dealers to sell the Company's Common Stock and purchasers of the
Company's Common Stock may have difficulty in selling such securities in the
secondary market. As a result, the Company's ability to raise additional
capital through the sale of additional Common Stock may be impaired.
LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARD
Any change in ownership of the Company's voting stock, including the
issuance by the Company of Common Stock underlying the Warrants, which exceeds
50% during any three year period, will reduce the Company's ability to utilize
federal net operating loss carryforwards ("NOLs") which were approximately $62
million at June 30, 1998. Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code"), provides that if an "ownership change"
<PAGE>
occurs with respect to the Company, the ability to use NOLs to offset future
taxable income of the Company is limited annually to the product of the value
of the Company immediately prior to the ownership change times the long-term
tax exempt rate determined by the Treasury Department (5.15% in June 1998).
Assuming that the Company did become subject to the annual limitation, based
upon the Company's market capitalization at June 30, 1998 and June 1998's
long-term tax exempt rate, the future use of the remaining NOLs would be
limited to approximately $325,000 per year.
NEED FOR ADDITIONAL FINANCING
Even if the Company is able to sell the Minimum Offering Amount, which
would raise net proceeds sufficient to pay the initial installment of $3.5
million owed to the IRS due on December 31, 1998, the Company will still owe
an additional $1.8 million to the IRS, which is due on December 31, 1999.
Since the amount due in 1999 does not bear interest, the Company intends to
use any additional net proceeds of the Offering raised in excess of the
initial $3.5 million installment owed to the IRS for other corporate purposes,
including costs of its commercial property development project. However, the
Company may be unable to raise sufficient proceeds from later sales of Units
to pay the final $1.8 million installment owed to the IRS in 1999, and there
can be no assurance that the Company will have other funds available to pay
this amount when it becomes due. The Company's ability to continue as a going
concern is dependent upon attainment of financing sufficient to pay both
installments of the debt to the IRS when due. See "Report of Independent
Certified Public Accountants" and Notes 2 and 8 to the "Consolidated Financial
Statements". See also "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity and Capital Resources". The IRS
debt is collateralized by a security interest in all of the stock of American
Glass, Inc. and NBI Properties, Inc.
ACCUMULATED DEFICIT; CONTINUATION AS A GOING CONCERN
As reflected in the financial statements set forth in the Company's
Annual Report on 10-KSB for the year ended June 30, 1998, the Company as of
June 30, 1998 had a working capital deficit of approximately $2.9 million and
had approximately $5.3 million of debt due to the IRS, of which $3.5 million
is due on December 31, 1998 and the balance of approximately $1.8 million is
due on December 31, 1999. As a result, the Company's independent auditors
stated in their opinion on the financial statements for the fiscal year ended
June 30, 1998, that these conditions raise substantial doubt about the
Company's ability to continue as a going concern. In order to pay the IRS
debt, management intends to obtain additional equity financing through this
Offering. There can be no assurance, however, that the Company will be able
to attain financing sufficient to pay off the IRS debt when due.
ADVERSE EFFECT OF DEFAULT ON IRS DEBT
The Company's debt owed to the IRS is secured by security interests in
the stock of L.E. Smith and NBI Properties. If the Company were to default in
payment of the IRS debt, the IRS would have the right to exercise its remedies
pursuant to its agreement with the Company and attempt to foreclose upon its
security interest and sell the stock of L.E. Smith and NBI Properties. There
can be no assurance that the Company would receive full market value for these
subsidiaries in the event of a foreclosure sale, and the Company could lose a
substantial portion of its net worth and its ability to generate future
revenues and profits. The Company will not sell any Units unless it receives
the Minimum Offering Amount, which will allow it to make the first installment
payment owed on the IRS debt. However, the Company will still be required to
make the final installment of $1.8 million on the IRS debt, which is due on
December 31, 1999. There can be no assurance that the Company will have funds
available to pay this amount when due.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
The Company incurred net losses for fiscal years 1986 through 1995,
except in 1992 when the Company recorded net income due to the gain on
forgiveness of debt resulting from the Chapter 11 bankruptcy. The Company has
recorded net income for fiscal years 1996, 1997 and 1998, primarily due to the
profitable operating results of L.E. Smith, as well as an extraordinary gain
recorded in fiscal 1998, due to forgiveness of accrued interest on the IRS
debt through March 31, 1998, income from discontinued operations recorded in
fiscal 1997, due to a significant translation gain recognized as a result of
the substantial completion of the liquidation of the Company's subsidiary in
the U.K., and a significant net gain on investments recorded in both fiscal
1997 and 1996. There can be no assurance that the Company will continue to
operate profitably in the future, or that any future net income will be
sufficient to pay dividends on the Preferred Stock.
<PAGE>
CONFLICTS OF INTEREST
The Company purchased 80% of the stock of Krazy Colors in February 1995,
55% of the stock of which was then owned by Jay Lustig, the Company's Chief
Executive Officer ("CEO"). Under the terms of the purchase agreement, the
sellers of the stock are eligible to receive a continuing royalty payment from
the Company. See "Certain Transactions". Although the Board of Directors
believes that the terms of the purchase agreement are fair and reasonable to
the Company, there can be no assurance that the Company could not have
obtained more favorable terms had the agreement been negotiated with a
non-affiliated third party. These relationships may lead to conflicts
of interest.
NO PARTICIPATION OF INDEPENDENT SECURITIES BROKER-DEALER
This offering is being conducted by the Company without participation of
any independent broker-dealer. As a result, the Company has not obtained any
valuation of the Units or review of the terms of this Offering by any
independent third party.
NO INDEPENDENT DIRECTORS
The Company currently has only two directors, both of whom are executive
officers of the Company. There are currently no independent directors of the
Company.
INVESTMENT RESULTS
From time to time in the past, the Company has made temporary investments
of available funds in options and other high yield financial instruments which
bear significant risk of loss. Although the Company presently has no such
investments, as part of its investment policies, the Company's investment
portfolio may include option instruments and may include a concentrated
position in one or more securities. As a result of this, the Company's
financial results may fluctuate significantly and have larger fluctuations
than with a more diversified portfolio. In addition, the Company may invest
in short-sale transactions of trading securities. Short-sales can result in
off-balance sheet risk, as losses can be incurred in excess of the reported
obligation if market prices of the securities subsequently increase.
COMPETITION AND PRICING PRESSURES
The markets for certain of the Company's products and services are highly
competitive, including continuing pressure to hold prices. Certain of the
Company's current and prospective competitors may have significantly greater
financial, manufacturing and marketing resources and name recognition than the
Company. The Company believes that its ability to compete depends on product
design, quality and price, distribution and quality of service. There can be
no assurance that the Company will be able to compete successfully with
respect to these factors. See "Business--Competition".
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws may be deemed to have anti-takeover effects and may discourage or make
more difficult a takeover attempt that a stockholder might consider in its
best interest. The Board of Directors may issue shares of undesignated
preferred stock in the future without stockholder approval upon such terms as
the Board of Directors may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying
or preventing a change in control of the Company without further action by the
stockholders. The Company has no present plans to issue any additional shares
of preferred stock. See "Description of Capital Stock--Preferred Stock" and
"--Certain Effects of Authorized But Unissued Stock".
The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The application of Section 203 also could have the
effect of delaying or preventing a change of control of the Company. See
"Description of Capital Stock--Certain Provisions of Delaware Law".
<PAGE>
In addition, because any takeover of the Company would probably result in the
loss of the Company's NOLs, potential acquirors may be deterred from acquiring
the Company. See "--Limitations on Sales of Common Stock; Loss of NOLs".
LOSS OF SIGNIFICANT CUSTOMERS
L.E. Smith currently has many small to medium-sized customers and one
significant customer. Sales to its significant customer totaled approximately
34% and 28% of NBI's consolidated revenues for the years ended June 30, 1998
and 1997, respectively. The loss of this customer's business would have a
material adverse effect on the Company's business, results of operations and
financial position. However, the Company's management believes that its
relationship with this customer will continue into the foreseeable future, due
in part to the large number of different items this customer purchases from
L.E. Smith. In addition, L.E. Smith is continually focusing its sales efforts
on expanding its customer base to lessen the impact this customer has on its
business. See "Business--Significant Customers and Suppliers".
DEPENDENCE UPON SUPPLIERS; AVAILABILITY OF RAW MATERIALS
The Company currently depends upon third parties as the sole source of
supply for some of its products and for the materials used in the manufacture
of other products. The Company does not have long-term agreements with any of
its suppliers and is generally not a major customer to any of its suppliers
and therefore may not be able to obtain inventory at a cost or on the schedule
which it requires in the event of any supply shortage. If the manufacturing
of any of the Company's products is interrupted for any extended period, or if
the Company is not able to purchase and deliver sufficient quantities of its
products on a timely basis, there could be a material adverse effect on the
Company's business, financial condition and results of operations.
LABOR DISPUTES
The employees of L.E. Smith and NBI Properties are covered by collective
bargaining agreements which expire in September and November 1998,
respectively. The Company has completed collective bargaining negotiations
with the union representing the production and maintenance employees at its
L.E. Smith facility and has reached an agreement with that union regarding
wages and other terms and conditions of employment. The written contract is
currently in process of being reviewed. The terms of the agreement have been
voted on and approved by the union.
The Company expects to begin collective bargaining negotiations with the
union representing the service employees of NBI Properties in late October,
and expects that an agreement will also be reached with that union. If the
Company was unable to renew these agreements on a timely basis or on
reasonable terms, it could have a material adverse effect upon the Company's
business, results of operations and financial position.
LIABILITY INSURANCE
The Company has liability insurance policies that provide coverage for
liability claims arising out of the products it sells and the services it
provides. The Company has not been the subject of any material liability
claims; however, there can be no assurance that the Company's liability
insurance policies will cover any such claims, or that such policies can be
maintained at an acceptable cost. Any liability of the Company which is not
covered by such policies, or is in excess of the limits of liability of such
policies, could have a material adverse effect on the financial condition of
the Company.
CHANGING ECONOMIC CONDITIONS
Demand for certain of the Company's products and services may fluctuate
significantly based on numerous factors including inflation, general economic
conditions and the economic condition of the Company's customers. There can
be no assurance that the Company will not experience a decline in demand for
its products and services due to declines in general or customer economic
conditions. Any such decline may have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon
the continued contributions of its key senior management personnel, several of
whom would be difficult to replace. The Company's future operating results
also depend in significant part upon its ability to attract and retain
qualified personnel. Personnel that possess the
<PAGE>
requisite skills and experience to perform certain functions for the Company
have been in limited supply in the past, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. The
loss of any key employee, the failure of any key employee to perform
satisfactorily in his or her current position or the Company's inability to
attract and retain skilled employees as needed, could materially and adversely
affect the Company's business, operating results and financial condition. The
Company currently carries a $5.0 million key-man insurance policy on its CEO.
YEAR 2000 RISKS
The Company has completed a review and risk assessment of all technology
items used in its operations. The Company believes that the year 2000 problem
will pose no significant operational problems. Substantially all of the
machinery and equipment used by the Company's glass manufacturing and
children's paint manufacturing operations are manually controlled and
operated. In addition, the hotel operation is not significantly reliant on
computer technology, with the exception of its reservation system, which is
maintained and upgraded under a contract with Holiday Inns Franchising, Inc.
The Company expects the reservation system to be year 2000 compliant early in
fiscal 1999. The primary effect of the year 2000 issue is on the Company's
accounting systems.
Year 2000 compliance will primarily be accomplished through purchases of
new equipment and data processing hardware and software upgrades, with an
estimated aggregate cost of approximately $140,000, a significant portion of
which has already been purchased and most of which was previously planned and
necessitated by other technological needs of the Company. The upgrading or
replacement of equipment which is non-compliant, as well as the related
testing of such equipment is expected to be substantially completed during
fiscal 1999.
L.E. Smith currently has one customer of such significance that if such
customer were to experience year 2000 problems that resulted in the
cancellation or deferral of orders, it could materially adversely affect the
results of operations of the Company. The Company has discussed the year 2000
issue with this and other material customers and vendors and currently does
not anticipate any significant problems. In addition, the Company will
continue to review the status of the year 2000 issues with these customers and
vendors.
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Units offered hereby are estimated
to be $3,522,000 if the Minimum Offering Amount is sold, and $9,822,000 if the
Maximum Offering Amount is sold, after deducting estimated expenses of the
Offering of $178,000 payable by the Company and assuming no selected dealers
participate in the Offering. If any selected dealers participate in the
Offering, the net proceeds would be reduced by a maximum of 10% times the
amount of any Units sold by such selected dealers. If all of the Units were
sold by selected dealers at the maximum commissions rate, the net proceeds
from the sale of Units are estimated at $3,152,000 if the Minimum Offering
Amount is sold, or $8,822,000 if the Maximum Offering Amount is sold.
Substantially all of the net proceeds of the Minimum Offering Amount will
be used to pay an installment of $3.5 million, due on December 31, 1998, owed
by the Company for Federal income taxes relating to the years 1980 through
1988. Any net proceeds from sales of Units in excess of the Minimum Offering
Amount are intended to be used first for payment of approximately $1.0 million
of certain development costs in connection with the commercial real estate
project for the Company's subsidiary, NBI Development (this amount is an
approximation of the equity requirement anticipated to be imposed by a
permanent real estate lender). Any net proceeds in excess of such amount are
intended to be used for working capital. Thereafter, any net proceeds from
additional sales of Units are expected to be used to pay the remaining $1.8
million balance, due on December 31, 1999, owed by the Company for Federal
income taxes relating to the years 1980 through 1988. The Company may
temporarily invest a portion of the proceeds of this Offering in excess of the
minimum offering amount in investment securities, consistent with its
investment policies. See "Risk Factors -- Investment Results".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any dividends on the Common Stock in the
foreseeable future. In addition, the terms and conditions of the Preferred
Stock limit the Company's ability to pay dividends on the Common Stock. For a
discussion of the dividends payable on the Preferred Stock, see "Description
of Preferred Stock--Dividends".
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded over-the-counter under the symbol
NBII. The following table sets forth the high and low bid prices, as quoted
on the OTC Bulletin Board, for the common stock for the fiscal periods
specified. The quotations of the Company's common stock reflect inter-dealer
prices, without any retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal 1998 High Low
- -------------- -------- --------
<S> <C> <C>
First Quarter $ 0.75 $ 0.5625
Second Quarter $ 0.625 $0.53125
Third Quarter $ 0.875 $0.28125
Fourth Quarter $ 0.875 $0.78125
Fiscal 1997
- --------------
First Quarter $ 0.875 $ 0.5625
Second Quarter $ 0.875 $ 0.375
Third Quarter $ 1.00 $ 0.75
Fourth Quarter $0.90625 $ 0.75
</TABLE>
As of October 19, 1998, there were approximately 1,260 holders of record
of the Common Stock and the closing bid and asked prices were $.8125 and
$.96875, respectively.
There is no public trading market for the Preferred Stock or the
Warrants.
<PAGE>
CAPITALIZATION
The following table sets forth the Company's actual capitalization (i) at
June 30, 1998, and (ii) as adjusted to reflect the sale by the Company of the
Minimum Offering Amount of 370,000 Units, less estimated Offering expenses,
and the application of $3.5 million of the estimated net proceeds for the
payment of the amount due on December 31, 1998 to the IRS. This table assumes
that no commissions are paid to any selected brokers. See "Use of Proceeds."
<TABLE>
<CAPTION>
June 30,
1998
Proforma as
Adjusted for
June 30, Minimum
1998 Offering
Actual Amount
---------- ----------
<S> <C> <C>
Long-term debt $ 3,313 $ 3,313
---------- ----------
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized, issuable in series; no shares issued and
outstanding, actual; 370,000 shares issued and outstanding,
as adjusted, for Minimum Offering Amount; and
1,000,000 shares issued and outstanding, as adjusted, for
Maximum Offering Amount -- 4
Common Stock, $0.01 par value; 20,000,000 shares
authorized; 10,115,520 shares issued, 2,027,200 shares
held in treasury, and as adjusted(1) 101 101
Additional paid in capital 6,280 9,798
Treasury stock (868) (868)
Accumulated deficit (4,213) (4,213)
---------- ----------
Total stockholders' equity 1,300 4,822
---------- ----------
Total capitalization $ 4,613 $ 8,135
========== ==========
<FN>
_______________
(1) Excludes 960,500 shares of Common Stock issuable upon exercise of outstanding stock options at a weighted average
exercise price of $.68 per share, and 1,700,000 shares of Common Stock issuable upon exercise of outstanding warrants at an
exercise price of $.89 per share. See "Management--Stock Option Plan" and "Description of Capital Stock--Warrants".
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS IN THIS DISCUSSION CONTAIN BOTH HISTORICAL AND
"FORWARD-LOOKING" STATEMENTS, AS SUCH TERM IS DEFINED IN "THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995". THE FORWARD-LOOKING STATEMENTS ARE
BASED UPON CURRENT EXPECTATIONS AND THE ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED. FACTORS THAT MAY AFFECT SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THOSE SET FORTH UNDER THE CAPTION "RISK
FACTORS."
RESULTS OF OPERATIONS 1998 - 1997 COMPARISON
The Company reported net income of $172,000 in fiscal 1998, compared to
net income of $1,044,000 in fiscal 1997. The primary reasons for the decline
in net income were the absence of $354,000 of income from discontinued
operations in fiscal 1998, a net loss of $39,000 on investments recorded in
fiscal 1998 compared to a net gain of $601,000 included in fiscal 1997, and
the inclusion of an impairment of goodwill totaling $167,000 in fiscal 1998.
However, these items were partially offset by an extraordinary gain, net of
income taxes, of $290,000 recorded during fiscal 1998.
Sales revenues from continuing operations of $12.5 million for the year
ended June 30, 1998 reflected an increase of $822,000, or 7.03%, as compared
to fiscal 1997. The sales revenue growth was due to increased volume at L.E.
Smith, primarily resulting from a significant increase in orders from its
largest customer. This increase was partially offset by a significant decline
in revenues from Krazy Colors. Late in fiscal 1997, Krazy Colors transitioned
its sales force from an independent sales representative group, whose primary
customers were small specialty and gift shop retailers, to a new sales
representative group whose marketing focus is on the tier of retailers which
are smaller than the top 100 retailers but significantly larger than the
specialty and gift shop retailers on which the previous representative group
focused its efforts. However, during fiscal 1998, the Company experienced
unfavorable results from these efforts, as well as from the business'
inability to sustain long-term customers. This change in sales focus has
taken longer to implement than had initially been anticipated. The Company
has taken further steps to accelerate this transition including the assumption
of additional management responsibilities by the parent corporation.
Service and rental revenues from continuing operations totaled $2.2
million and $2.0 million, respectively, for the years ended June 30, 1998 and
1997. The increased revenue was primarily related to an increase in the
occupancy rate at the Belle Vernon Holiday Inn, resulting from the absence of
renovation construction activity which limited the number of available rooms
during the second quarter and part of the third quarter of fiscal 1997. In
addition, the hotel experienced an increase in average daily room rates in
fiscal 1998 compared to fiscal 1997, primarily because of the renovation
completed during fiscal 1997. The hotel also experienced a significant
increase in restaurant and bar business, due to increased occupancy and
increased sales and marketing efforts.
Total revenues are expected to increase moderately in fiscal 1999 as
compared to fiscal 1998, primarily due to a moderate increase in projected
revenues from L.E. Smith and a slight increase in expected revenues from the
hotel. Revenues from Krazy Colors are expected to remain relatively flat.
Because the Company is currently in the process of restructuring Krazy Colors'
operations, it expects a decline in Krazy Colors' revenues during the first
two quarters of fiscal 1999, anticipated to be offset by an increase in Krazy
Colors' revenues for the third and fourth quarters of fiscal 1999, when
compared to the same periods in fiscal 1998. The restructuring of Krazy
Colors' operations includes the assumption of additional management
responsibilities by the parent corporation, concentrating on direct sales and
limiting other sales and marketing activities, and temporarily laying off
production personnel until sales activity improves.
Cost of sales as a percentage of sales revenues for the years ended June
30, 1998 and 1997 was 72.1% and 71.1%, respectively. The resulting small
decline in gross margin was related to a significant decline in gross margin
from Krazy Colors, due to the decreased revenue volume. In addition, the
Company had slightly lower margins from L.E. Smith, primarily due to a change
in sales mix, with more sales of lower margin products, increased production
costs associated with the development of new products, and unusually high gas
costs incurred during the second fiscal quarter; however, this was partially
offset by manufacturing efficiencies realized due to the higher volume.
Cost of service as a percentage of service and rental revenue was 74.9%
and 75.2% for the years ended June 30, 1998, and 1997, respectively. The
slight improvement in related gross margin was primarily due to the increased
rooms revenue without a corresponding increase in related costs, as the costs
include a significant amount of fixed
<PAGE>
expenses. However, this was partially offset by increased depreciation
expense resulting from the renovations of the Belle Vernon Holiday Inn
completed during fiscal 1997.
Total cost of sales, service and rentals as a percentage of total
revenues was 72.6% in fiscal 1998 and is expected to increase slightly in
fiscal 1999. The increase is primarily related to a small increase in service
and rental costs at the hotel, as general costs increases are expected to
exceed savings resulting from cost reduction measures. In addition, the
Company expects a slight increase in the cost of sales at L.E. Smith; however,
this is expected to be offset by lower cost of sales projected for Krazy
Colors, due to cost reduction measures including temporarily laying off
production personnel until sales activity improves.
Marketing, general and administrative expenses totaled $3.4 million for
the year ended June 30, 1998, an increase of $178,000 compared to the previous
fiscal year. The increase included expenses incurred in connection with the
IRS negotiations, executive severance for L.E. Smith, a non-cash compensation
expense for extensions of certain executive stock options, and expenses
resulting from increased sales and marketing activities. However, these
increases were partially offset by savings resulting from lower payroll costs,
due to fewer executives, and credits related to a reduction of a reserve for
"incurred but not reported" health claims, as the Company converted to a
fully-insured health plan for its corporate and Krazy Colors employees
effective January 1, 1998. Included in marketing, general and administrative
expenses incurred in fiscal 1998 were payroll and related expenses of $1.4
million, commissions to sales representatives of $478,000, legal, accounting,
hotel management and other professional fees of $286,000, and advertising
costs of $175,000.
Total marketing, general and administrative expenses are expected to
increase slightly in fiscal 1999, compared to fiscal 1998, primarily due to
increased sales and marketing activities and general cost increases,
significantly offset by savings resulting from cost reduction measures at the
hotel and Krazy Colors. The cost reduction measures at Krazy Colors primarily
includes limiting sales and marketing activities to direct sales efforts until
sales activity improves.
During the third quarter of fiscal 1998, the Company recorded a non-cash
impairment loss of $167,000 related to a write-down of goodwill associated
with Krazy Colors. The revised carrying value of this asset was based upon
the estimated future benefits of the business. The impairment occurred
primarily due to the unfavorable results of a change in sales focus which was
implemented late in fiscal 1997.
The Company recorded a net loss on investments of $39,000 in fiscal 1998,
consisting of a net realized loss of $92,000 and a net unrealized gain of
$53,000. During fiscal 1997, the Company recorded a net gain on investments
of $601,000, consisting of a net realized gain of $419,000 and a net
unrealized gain of $182,000. As part of its investment policy, the Company's
investment portfolio may include investments in option instruments and may
include a concentrated position in one or more securities. As a result of
this, the financial results may fluctuate significantly and have larger
fluctuations than with a more diversified portfolio. In addition, the Company
may invest in short-sale transactions of trading securities. Short-sales can
result in off-balance sheet risk, as losses can be incurred in excess of the
reported obligation if market prices of the securities subsequently increase.
At June 30, 1998, the Company has no investment positions.
The Company recorded net other expense for the year ended June 30, 1998
totaling $33,000. This compared to net other income of $208,000 in fiscal
year 1997, which included income of $348,000, net of legal fees, related to
the recovery of a note receivable for which the Company had previously
established a reserve, partially offset by expenses of $126,000 for architect
fees related to hotel improvement projects that the Company has decided not to
pursue.
The Company recorded an income tax benefit from continuing operations of
$72,000 for the year ended June 30, 1998, which was net of state income tax
provisions of $118,000 primarily related to the Company's Pennsylvania
operations. In fiscal 1997, the Company recorded an income tax provision from
continuing operations of $105,000 which included state income tax provisions
of $123,000 primarily related to the Company's Pennsylvania operations. In
accordance with fresh start accounting, which was adopted as of April 30,
1992, and as a result of the Company's reorganization under Chapter 11 of the
U.S. Bankruptcy Code, future utilization of any income tax benefit from
pre-reorganization net operating loss carryforwards are not credited to the
income tax provision, but rather, reported as an addition to capital in excess
of par value. No pre-reorganization net operating loss carryforwards were
utilized during fiscal 1997; however, $28,000 of pre-reorganization net
operating loss carryforwards were utilized during fiscal 1998.
<PAGE>
DISCONTINUED OPERATIONS
There were no revenues and no income or loss from discontinued operations
for the year ended June 30, 1998. The Company reported net income from
discontinued operations in fiscal 1997 of $354,000, consisting primarily of a
gain on the disposition of NBI, Ltd. of $402,000, including a $316,000
translation gain recognized as a result of the substantial completion of the
company's liquidation.
EXTRAORDINARY GAIN
The entire outstanding principal balance on its IRS debt of $5,278,000
was due in full on October 1, 1997. Effective April 9, 1998, the Company and
the IRS entered into an amended payment agreement revising the payment terms
related to the Company's IRS debt. Under the new agreement, $3.5 million of
the IRS debt is due on or before December 31, 1998 and the remaining balance
of approximately $1.8 million is due on or before December 31, 1999. Provided
no event of default occurs prior to payment of the debt in full, NBI will not
be obligated to pay any past, current or future interest related to the debt.
Therefore, during the fourth quarter of fiscal 1998, the Company recorded a
net extraordinary gain of $290,000, consisting of forgiveness of accrued
interest recorded through March 31, 1998 totaling $439,000, less an income tax
provision of $149,000. The IRS debt continues to be collateralized by a
security interest in all of the capital stock of American Glass, Inc. and NBI
Properties, Inc.
FINANCIAL CONDITION
Total current assets of the Company increased $267,000 during fiscal year
1998 to $4.5 million at June 30, 1998. The increase in current assets was
primarily related to increased accounts receivable and inventories resulting
from the increase in sales and production volume at the glass manufacturing
company during fiscal 1998. However, this was partially offset by an overall
decrease of $124,000 in cash and cash equivalents experienced by the Company
during fiscal 1998 (see "Liquidity and Capital Resources").
Total assets of $12.2 million at June 30, 1998 reflected an increase of
$709,000 from June 30, 1997 and was primarily related to an increase in
property and equipment at L.E. Smith, because it is continually working on
capital improvement projects.
NBI Development is planning to begin construction on phase I of its
commercial real estate development project late in calendar 1998, with an
anticipated construction period of approximately ten months. The construction
costs will be capitalized during the construction period and are anticipated
to be approximately nine million dollars. The Company is currently in process
of seeking commercial financing to pay for these costs. (See "Liquidity and
Capital Resources".)
Current liabilities decreased $1.1 million to $7.4 million at June 30,
1998, primarily due to the reclassification of approximately $1.8 million of
the IRS debt to long-term liabilities during the fourth quarter of fiscal
1998, in accordance with an amended payment agreement (see also "Extraordinary
Gain" and "Liquidity and Capital Resources"). This decrease was partially
offset by an increase of $925,000 in short-term borrowings resulting primarily
from short-term borrowings used to fund capital improvements at L.E. Smith and
general working capital needs.
Stockholders' equity of $1.3 million at June 30, 1998 increased $275,000
from June 30, 1997, primarily reflecting net income of $172,000 for fiscal
1998, as well as a credit of $48,000 related to the non-cash compensation
expense recorded by the Company during fiscal 1998 for the extension of
certain executive stock options.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $124,000 during fiscal 1998. The
decline was primarily due to substantial capital improvements made at L.E.
Smith which were funded by cash on hand, cash flow from operations and
borrowings on its line of credit.
The Company had negative working capital of $2.9 million and $4.2 million
at June 30, 1998 and 1997, respectively. The increase of $1.3 million in
working capital was primarily related to the reclassification of approximately
$1.8 million of the IRS debt to long-term during the fourth quarter of fiscal
1998, partially offset by an increase in short-term borrowings primarily used
to fund capital improvements at L.E. Smith.
<PAGE>
Construction in progress totaled $312,000 at June 30, 1998 and consisted
primarily of various equipment refurbishments and a new computer system
installation at L.E. Smith. The Company estimates that it will cost
approximately $120,000 to complete the outstanding projects, all of which are
expected to be completed during fiscal 1999. The construction costs will
primarily be funded by short-term borrowings under L.E. Smith's existing line
of credit.
The entire outstanding principal balance on the IRS debt of $5,278,000
was due in full on October 1, 1997. Effective April 9, 1998, the Company and
the IRS entered into an amended payment agreement revising the payment terms
related to the Company's IRS debt. Under the new agreement, $3.5 million of
the IRS debt is due on or before December 31, 1998 and the remaining balance
of approximately $1.8 million is due on or before December 31, 1999. Provided
no event of default occurs prior to payment of the debt in full, NBI will not
be obligated to pay any past, current or future interest related to the debt.
In order to pay the IRS debt, management intends to obtain additional debt or
equity financing. The Company's ability to continue as a going concern is
dependent upon attainment of financing sufficient to pay off the IRS debt when
due. See also Report of Independent Certified Public Accountants and Notes 2
and 8 to the Consolidated Financial Statements.
The Company expects its other working capital requirements in the next
fiscal year to be met by existing working capital at June 30, 1998, internally
generated funds and, for L.E. Smith's requirements, short-term borrowings
under an existing line of credit.
TAX LOSS CARRYFORWARDS
As discussed in Note 8 to the accompanying consolidated financial
statements, the Company has approximately $62 million of tax loss
carryforwards. A valuation allowance of approximately $23 million has been
established for the net deferred tax assets arising from the tax loss
carryforwards because the Company has not been able to determine that it is
more likely than not that the net deferred tax assets will be realized.
YEAR 2000 COMPLIANCE
The Company has completed a review and risk assessment of all technology
items used in its operations. The Company believes that the year 2000 problem
will pose no significant operational problems. Substantially all of the
machinery and equipment used by the Company's glass manufacturing and
children's paint manufacturing operations are manually controlled and
operated. In addition, the hotel operation is not significantly reliant on
computer technology, with the exception of its reservation system, which is
maintained and upgraded under a contract with Holiday Inns Franchising, Inc.
The Company expects the reservation system to be year 2000 compliant early in
fiscal 1999. The primary effect of the year 2000 issue is on the Company's
accounting systems.
Year 2000 compliance will primarily be accomplished through purchases of
new equipment and data processing hardware and software upgrades, with an
estimated aggregate cost of approximately $140,000, a significant portion of
which has already been purchased and most of which was previously planned and
necessitated by other technological needs of the Company. The upgrading or
replacement of equipment which is non-compliant, as well as the related
testing of such equipment is expected to be substantially completed during
fiscal 1999.
L.E. Smith currently has one customer of such significance that if such
customer were to experience year 2000 problems that resulted in the
cancellation or deferral of orders, it could materially adversely affect the
results of operations of the Company. The Company has discussed the year 2000
issue with this and other material customers and vendors and currently does
not anticipate any significant problems. In addition, the Company will
continue to review the status of the year 2000 issues with these customers and
vendors.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". SFAS
<PAGE>
No. 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
value of plan assets that will facilitate financial analysis.
SFAS No. 130, 131 and 132 are all effective for financial statements for
fiscal years beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Management has not yet fully
evaluated the impact, if any, they may have on future financial statement
disclosures. However, results of operations and financial position will be
unaffected by implementation of these standards.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. Management believes the
adoption of this statement will not have a material impact on the Company's
financial statements.
<PAGE>
BUSINESS
OVERVIEW
NBI was incorporated in 1973, and until 1995 engaged only in the computer
technology and word processing systems industries. Management of NBI
determined in 1994 to discontinue most of its operations in those industries
and focus on the acquisition of new businesses. During fiscal 1997, NBI
completed the disposition of its remaining operations in the computer
industry. In January 1995, NBI acquired 80% of Krazy Colors, Inc., a small
children's paint manufacturer located in Las Vegas, Nevada, which
manufacturers roll-on, dot-on and tempura paints. The Company is considering
moving this operation to L.E. Smith's facilities in Pennsylvania during fiscal
1999. In August 1995, NBI acquired L.E. Smith Glass Company of Mount
Pleasant, Pennsylvania. L.E. Smith was founded in 1907 and is one of the few
remaining handmade pressed glass manufacturers in the United States,
manufacturing and selling an assortment of crystal and colored glass giftware
and lighting fixtures for the domestic consumer market. Also in August 1995,
NBI acquired an 80-room full service Holiday Inn in Belle Vernon,
Pennsylvania, which completed a $1 million renovation during fiscal 1997. In
January 1997, NBI acquired 88 acres of undeveloped land in Belle Vernon,
Pennsylvania, which it plans to develop as a three-stage mixed use retail
center.
DOMESTIC OPERATIONS
L.E. Smith Glass Company
- ---------------------------
In August 1995, American Glass, Inc., a wholly-owned subsidiary of the
Company, closed on its purchase of a majority of the assets, including the
name, of L.E. Smith Glass Company ("L.E. Smith", as previously defined) of
Mount Pleasant, Pennsylvania. Founded in 1907, L.E. Smith is one of the few
remaining handmade pressed glass manufacturers in the United States. The
company manufactures and sells an assortment of crystal and colored glass
giftware and lighting fixtures for the domestic consumer market. None of the
products manufactured by L.E. Smith contain lead. L.E. Smith produces its
products with highly skilled workers, utilizing manual and semi-automatic
machines to mold, press, and decorate glassware. L.E. Smith can be flexible
in the types of products it can make, which allows it to be responsive to
smaller customers. In addition, L.E. Smith has far greater flexibility in
designing and manufacturing those products with unusual shapes, sizes, and
weights than automated machine glassmakers. L.E. Smith maintains almost every
glass mold it has used for the past 90 years (in excess of 2,300 molds).
L.E. Smith sells its products through in-house sales managers and
manufacturer's representatives. The giftware products are sold primarily to
traditional and specialty retailers, manufacturers/wholesalers and the food
service market, as well as through an "on-site" company retail store. The
lighting fixture products are sold to manufacturers and retailers.
NBI Properties, Inc.
- ----------------------
In August 1995, the Company acquired 100% of the outstanding capital
stock of the Belle Vernon Motel Corporation now known as NBI Properties, Inc.
("NBI Properties", as previously defined). NBI Properties owns and operates
an 80-room full service Holiday Inn in Belle Vernon, Pennsylvania (the "Belle
Vernon Holiday Inn", as previously defined). The Company is licensed pursuant
to a license agreement with Holiday Inns Franchising, Inc. which expires in
August 2005, subject to renewal. The Holiday Inn hotel consists of
approximately 21,000 square feet and sits on approximately 5.8 acres of land
leased under an acquired land lease expiring in 2026 with an option to extend
for an additional 25-year term.
During fiscal year 1997, NBI Properties completed a significant
renovation of the Belle Vernon Holiday Inn. NBI Properties incurred
indebtedness of $1.0 million in order to complete such renovation, which is
secured by a mortgage on the hotel.
Krazy Colors, Inc.
- ---------------------
In January 1995, the Company acquired a majority interest in Krazy
Colors, Inc. ("Krazy Colors", as previously defined) a small children's paint
manufacturer currently located in Las Vegas, Nevada, which manufactures
roll-on and dot-on paints for children, as well as bulk tempera paints. Krazy
Colors distributes its products primarily through national and international
retail chains and toy distributors. Krazy Colors is subject to a royalty
agreement which provides for royalty payments to the minority shareholders
based upon gross margin performance. (See "Certain Transactions" and Note 13
to Consolidated Financial Statements).
<PAGE>
Late in fiscal 1997, Krazy Colors transitioned its sales force from an
independent sales representative group, whose primary customers were small
specialty and gift shop retailers, to a new sales representative group whose
marketing focus is on the tier of retailers which are smaller than the top 100
retailers but significantly larger than the specialty and gift shop retailers
on which the previous representative group focused its efforts. However,
during fiscal 1998, the Company experienced unfavorable results from these
efforts as well as from the business' inability to sustain long-term
customers. Therefore, the Company is currently in process of restructuring
Krazy Colors in order to reduce its overhead. In conjunction with this
restructuring, the Company is considering moving Krazy Colors' operations to
L.E. Smith's facilities in Pennsylvania.
NBI Development Corporation
- -------------------------------
In January 1997, the Company, through its wholly-owned subsidiary,
Willowbrook Properties, Inc. d/b/a, NBI Development Corporation ("NBI
Development", as previously defined) closed on the acquisition of a parcel of
property consisting of approximately 88 acres of farmland in Belle Vernon,
Pennsylvania. The acquisition cost was approximately $1.0 million, of which
$100,000 was paid in fiscal 1996 and the balance was paid in cash at the
closing. The property is situated along Route 51 in Belle Vernon and has
frontage for approximately 2,700 feet. NBI Development successfully obtained
a zoning variance to permit the development of a mixed use retail and
residential project for the property. The rezoned property has been appraised
at $2.2 million, which is approximately $1.0 million in excess of the
Company's carrying value of the property.
Phase I of the project is planned to be a mixed use retail center. NBI
Development recently entered into a development and a leasing agreement with
Michael Joseph Development Corporation, a well-respected local real estate
development company. NBI Development is currently in negotiations with a
number of prospective tenants for phase I, including a nationally prominent
grocery store which would be the primary anchor tenant. NBI Development is
currently seeking commercial financing to pay for the construction costs of
the center. The Company plans to begin construction on phase I of the project
late in calendar 1998, with an anticipated construction period of
approximately ten months from commencement. The construction costs are
anticipated to be approximately nine million dollars.
After the successful development of phase I, the Company contemplates the
development of two additional phases for the project. Currently, the second
phase is projected to be additional retail stores with a town center concept,
and the third phase may include residential property.
HISTORY OF THE COMPANY
NBI was incorporated in 1973 to develop and market a proprietary word
processing system. The Company was the first to introduce a software-based
word processing system and within a few years became known as a leading
provider of dedicated word processing and office automation systems. Because
of the declining interest in purchasing entire system solutions, it was
necessary to restructure the Company in October, 1989 and shift its focus from
manufacturing to customer service and support and into development and
marketing of word processing software products for personal computers.
To further its reorganization efforts, in February 1991, NBI filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of
Colorado. NBI emerged from Chapter 11 on February 3, 1992, the effective date
of the Plan.
In 1990, NBI formed its domestic systems integration division to
transition the existing customer base from its proprietary hardware platforms
to an open platform. Because of the low margins, intense competition and long
sales cycle, NBI closed this business in June 1994.
In August 1992, NBI sold its domestic customer service and support
division. As of June 30, 1995, the Company discontinued all computer software
development activities.
Late in fiscal 1994, NBI acquired the AlphaNet division which was a
network infrastructure business located in southern Ohio. AlphaNet's market
focus was on the physical cable layer of networks, including utilization of
fiberoptic technology. In August 1996, NBI decided to dispose of its AlphaNet
division and in fiscal 1997 completed the disposition. With the disposition
of the AlphaNet division, the Company discontinued all of its operations in
the computer industry segment.
<PAGE>
INTERNATIONAL OPERATIONS
NBI, Ltd. was a wholly-owned subsidiary of NBI, Inc. that sold integrated
document management solutions, workflow and COLD (Computer Output to Laser
Disk) to central and local government departments and commercial organizations
throughout the United Kingdom. Due to continuing losses incurred by this
subsidiary, NBI decided to sell the operation in fiscal 1995.
In April 1995, NBI, Ltd. completed a sale of certain assets of the
company, including its customer base. Under the terms of this agreement, NBI,
Ltd. retained certain assets and liabilities. NBI, Ltd. filed for voluntary
liquidation in the U.K. during fiscal 1996. As of June 30, 1997, the
liquidation of NBI, Ltd. was substantially complete. The gain on disposal of
NBI, Ltd., including a $316,000 translation gain recognized due to the
substantial completion of the company's liquidation, was included in income
from discontinued operations for the fiscal year ended June 30, 1997.
COMPETITION
The market segments in which the Company participates are extremely
competitive. Many of the Company's existing and potential competitors have
substantially greater financial, marketing and technological resources, as
well as established reputations for developing and distributing products and
providing services in the Company's markets. The Company expects that
existing and new competitors will continue to introduce products and provide
services that are competitive with those of the Company. There can be no
assurance the Company will be able to compete successfully in these markets.
L.E. Smith - L.E. Smith's main competition in giftware is from imports,
primarily from Europe, South America and the Orient. Most of the competitive
glass from overseas is twenty-four percent leaded crystal, even though L.E.
Smith's giftware is unleaded crystal, because foreign manufacturers are able
to produce leaded glass less expensively due to significantly fewer
environmental restrictions and lower labor costs. The main competition for
the glass lighting fixtures is also imports from Europe, South America and the
Orient. There are also a few domestic companies that have competing products
with certain portions of L.E. Smith's giftware and lighting fixtures product
lines. L.E. Smith is able to compete with other domestic and foreign glass
companies because it is one of only a few hand pressed glass manufacturers
remaining in the United States. The company produces a large variety of
unique designs using twelve different colors of glass, and has a solid
reputation for the quality and reliability of its products. Also, its
products are price competitive with those of other domestic manufacturers.
L.E. Smith can compete with foreign competitors because it has the flexibility
to meet shorter lead times without the restrictive minimum quantities required
by most foreign manufacturers.
Belle Vernon Holiday Inn - The hotel has limited competition from other
full-service hotels in a relatively wide-spread area. However, it does
compete with several limited-service hotels in the wide-spread area including
three hotels which opened approximately 300 new rooms during fiscal 1996. The
local market includes several non-competitive motels in a different class as
to price and amenities.
Krazy Colors - Krazy Colors' primary competitors are children's finger
paint, paint and crayon manufacturers. Krazy Colors' roll-on and dot-on
paints have a unique bottle design that allows children to use non-toxic,
washable paint with little cleanup. Because of the high procurement costs for
paint (primarily due to freight costs), the company decided late in fiscal
1995 to manufacture its own tempera paint for its roll-on and dot-on paints.
This enabled the company to more cost-effectively produce and package tempera
and finger paints under the Krazy Color label. The competitors for these
products are large, well-established companies with significantly better
distribution capabilities. Krazy Colors focuses the majority of its sales
efforts on its unique roll-on and dot-on paints.
NBI Development - There is some competition to the proposed retail center
to be developed by NBI Development in the surrounding area; however, there are
competitive advantages in favor of NBI Development. The advantages include
the significant property frontage on Route 51 in Belle Vernon, the lack of
significant competition in the immediate area and the projected ease of access
to the property. Among the close competitors is a concentration of three
centers, also in Rostraver Township, which are approximately four to five
miles from NBI Development's property. These centers include retail shops,
banks and restaurants, many of which are regionally or nationally prominent,
including a Wal-Mart Supercenter, Kmart, Foodland, Giant Eagle and Lowe's. If
the center is successful, it could result in competition from entities that
are better capitalized than NBI Development.
<PAGE>
SIGNIFICANT CUSTOMERS AND SUPPLIERS
L.E. Smith currently has many small to medium-sized customers and one
significant customer. Sales to its significant customer totaled approximately
34% and 28% of NBI's consolidated revenues for the years ended June 30, 1998
and 1997, respectively. The loss of this customer's business would have a
material adverse effect on NBI. L.E. Smith is focusing its sales efforts on
expanding its customer base to lessen the impact this customer has on its
business. The Company's management believes that its relationship with this
customer will continue into the foreseeable future, due in part to the large
number of different items this customer purchases from L.E. Smith.
L.E. Smith purchases a majority of its raw materials from only a few
vendors. Management believes that other suppliers could provide similar
materials on comparable terms.
SEASONAL VARIATIONS OF BUSINESSES
L.E. Smith and the Belle Vernon Holiday Inn typically have their
strongest revenue performance during the first fiscal quarter due to seasonal
variations in these businesses. Generally, the second and fourth fiscal
quarters' revenues from these operations are moderately lower than in the
first quarter, while the third fiscal quarter's revenue is usually
significantly lower than the other quarters. However, in fiscal 1998, L.E.
Smith received several large orders from its significant customer during the
historically slower quarters, which created a more consistent revenue stream
for the year. The Company is uncertain whether this trend will continue.
EMPLOYEES
As of July 31, 1998, the Company employed a total of 237 employees
including 194 full-time employees. Currently, 166 of the total employees are
covered by collective bargaining agreements, including 131 employees of L.E.
Smith who are covered by a collective bargaining agreement which expired on
September 1, 1998, and 35 employees of NBI Properties who are covered by a
collective bargaining agreement which expires on November 7, 1998.
The Company has completed collective bargaining negotiations with the
union representing the production and maintenance employees at its L.E. Smith
facility and has reached an agreement with that union regarding wages and
other terms and conditions of employment. The written contract is currently
in process of being reviewed. The terms of the agreement have been voted on
and approved by the union.
The Company expects to begin collective bargaining negotiations with the
union representing the service employees of NBI Properties in late October,
and expects that an agreement will also be reached with that union. If the
Company was unable to renew these agreements on a timely basis or on
reasonable terms, it could have a material adverse effect on the Company's
business.
PROPERTIES
NBI leases approximately 5,100 square feet of office space for
administrative personnel at its corporate headquarters in Longmont, Colorado,
under a lease expiring in October 2000. The Company also leases approximately
10,000 square feet of warehouse space in Las Vegas, Nevada for its Krazy
Colors manufacturing operation, under a lease expiring in December 1999. The
Company is considering moving Krazy Colors' manufacturing to L.E. Smith's
facilities in Pennsylvania during fiscal 1999. The Company believes it will
be able to sublease the Las Vegas warehouse space in the near future. The
Company believes its leased facilities are adequate to meet its needs for the
next several years and anticipates that it would encounter little difficulty
in locating alternative or additional suitable facilities should its
requirements change.
The Company acquired the building and improvements of the Belle Vernon
Holiday Inn Hotel in Belle Vernon, Pennsylvania as a result of its related
business acquisition in August 1995. The building consists of approximately
21,000 square feet and is on approximately 5.8 acres of land leased pursuant
to a land lease expiring in 2026, with an option to extend for an additional
25-year term. In connection with its franchise agreement, NBI Properties
completed approximately $1.1 million in renovations to the hotel during fiscal
1997.
In August 1995, the Company acquired the land and buildings held by L.E.
Smith, including a total of approximately 194,000 square feet of
manufacturing, warehousing and office space on approximately 11.1 acres of
land in Mount Pleasant, Pennsylvania. During fiscal 1997 and 1998, L.E. Smith
leased approximately 6,000 square
<PAGE>
feet of temporary warehouse space, under a lease expiring in December 1999, in
order to facilitate certain property improvement projects, and to accommodate
additional space requirements resulting from the growth of the Company.
In January 1997, NBI Development acquired 88 acres of undeveloped land in
southwestern Pennsylvania. The Company is pursuing commercial development of
the property and is currently exploring financing options to fund the project.
The property has been appraised at $2.2 million, which is approximately $1.0
million in excess of the Company's carrying value of the property. See
"Domestic Operations -- NBI Development Corporation".
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceeding.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ----------------- --- -------------------------------------------------
<S> <C> <C>
Jay H. Lustig 43 Chairman of the Board and Chief Executive Officer
Martin J. Noonan 46 Managing Director and Director
Marjorie A. Cogan 38 Chief Financial Officer and Secretary
Morris D. Weiss 39 Senior Vice President and General Counsel
</TABLE>
Jay H. Lustig. Mr. Lustig has been Chairman of the Board since February
1992 and Chief Executive Officer since October 1993, although he began acting
in the capacity of chief executive officer in September 1992. Mr. Lustig has
also been President of J.H.L. Holdings, an investment management firm since
1989, and President of Equibond, Inc. ("Equibond"), a securities broker-dealer
and member of the National Association of Securities Dealers, Inc., since
1995. Equibond will not participate in this Offering, and will not receive
any compensation of any kind in connection with this Offering. In addition,
he is Chairman of the Board of National Bancshares Corporation of Texas, a
four-bank holding company currently headquartered in Laredo, Texas.
Martin J. Noonan. Mr. Noonan has been with the Company for twelve years,
Managing Director since June 1993 with the responsibility for managing the
day-to-day activities within the Company, and a member of the Board of
Directors since April 1994. Mr. Noonan has also been Interim President of
L.E. Smith Glass Company since October 1997. In addition, he was General
Manager of the systems integration operation from June 1992 to June 1994, and
Director of Marketing from September 1986 to June 1992.
Marjorie A. Cogan. Ms. Cogan has been Chief Financial Officer of the
Company since October 1997, with responsibility for managing the accounting
and finance functions of the Company. She has also been Secretary of the
Company since May 1993 and was previously Corporate Controller of the Company
from May 1993 until October 1997. She has been with the Company for eleven
years in various accounting positions. Prior to joining NBI, Ms. Cogan was an
auditor with a Denver-based CPA firm for four years. Ms. Cogan graduated from
Regis University summa cum laude with a bachelor's degree in accounting and
business administration. Ms. Cogan obtained her CPA license in 1983.
Morris D. Weiss. Mr. Weiss has been Senior Vice President and General
Counsel since April 1997 with responsibilities for overseeing and managing the
legal affairs of the Company. Prior to joining the Company, Mr. Weiss was a
partner with the law firm of Weil, Gotshal & Manges, LLP from January 1994
until April 1997, and had been an associate at such firm since October 1985.
In addition, Mr. Weiss has been General Counsel of Equibond since April 1997,
and Senior Vice President and General Counsel of National Bancshares
Corporation of Texas since April 1997.
BOARD OF DIRECTORS AND COMMITTEES
The Company has standing audit, compensation and nominating committees,
each of which consists of Mr. Lustig and Mr. Noonan. The nominating committee
is responsible for the nomination of persons whose names shall appear on the
ballot for election of directors. The audit committee recommends engagement
of the Company's independent accountants, approves services performed by such
accountants, and reviews and evaluates the Company's accounting system of
internal controls. The compensation committee approves salaries and other
compensation arrangements for the officers of the Company; however, Mr. Lustig
does not vote on matters relating to his compensation.
The Company's Board of Directors met three times during fiscal year 1998.
Both directors participated by personally or telephonically attending, during
fiscal year 1998, all Board of Directors meetings.
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a fee of $1,000
per meeting attended, $500 per telephonic meeting, $500 per committee meeting
attended (except when attended in conjunction with a Board meeting) and
reimbursement of expenses incurred in attending meetings. This is the only
arrangement for com-pen-sation of directors. No directors' fees were incurred
during fiscal 1998, as all directors were also employees of the Company.
EXECUTIVE COMPENSATION
The following table shows all the compensation paid or to be paid by the
Company to its Chief Executive Officer (the "Named Executive Officer") during
the fiscal years ended June 30, 1998, 1997 and 1996. No executive officer was
paid more than $100,000 during any such year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
--------------------------------------------- -------------
SECURITIES
UNDERLYING
NAME, PRINCIPAL OPTIONS ALL OTHER
POSITION AND PERIOD SALARY ($) BONUS ($) OTHER ($) GRANTED (#) COMPENSATION ($)
- -------------------------------------- --------------------- ---------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Jay H. Lustig, Chief
Executive Officer
1998 $ 60,000 $ -- $ 6,475(1) 400,000(2) --
1997 60,000 22,000 -- -- --
1996 60,000 -- -- -- --
<FN>
_______________
(1) Value of personal use of the company vehicle.
(2) This represents options for which the exercise date was extended on January 13, 1998 to October 1, 2003,
with no change in the exercise price or other terms of the options. These options were originally granted under the
terms of his employment agreement and were scheduled to expire on October 1, 1998.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to the Named Executive Officer during the fiscal
year ended June 30, 1998.
<TABLE>
<CAPTION>
AGGREGATE OPTIONS EXERCISED IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of
Shares Number of Unexercised Options
Acquired Held at June 30, 1998
on Value -----------------------------------
Name Exercise Realized($) Exercisable Unexercisable
- ------------- -------------- ------------ -----------------------------------
<S> <C> <C> <C> <C>
Jay H. Lustig 25,000 $ 10,156 400,000(2) --
Value of Unexercised, In-the-Money
Options at June 30, 1998(1)
------------------------------------
Name Exercisable Unexercisable
- ------------- ------------------------------------
<S> <C> <C>
Jay H. Lustig $ 79,500 $ 0
<FN>
_______________
(1) Based on the closing price as of June 30, 1998, of the underlying shares of Common Stock
of $.96875 per share, less the per share exercise price of $.77 per share.
<PAGE>
(2) Includes 400,000 shares underlying options issued during fiscal 1994 in conjunction with
the Named Officer's employment agreement. During fiscal 1998, the expiration date of these
options was extended to October 1, 2003.
</TABLE>
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement effective October 1,
1993, with Jay H. Lustig (the "CEO Agreement"). Pursuant to the terms of the
CEO Agreement, Mr. Lustig became an employee and Chief Executive Officer of
the Company as of October 1, 1993. Under the terms of this agreement, the
Company pays Mr. Lustig an annual salary of $60,000.
Mr. Lustig's position as CEO of the Company is a part-time position to
which he is required to dedicate no less than one-third of normal executive
business hours. In addition to Mr. Lustig's salary, the CEO Agreement
provides that the Company will pay Mr. Lustig an annual bonus of 10% of the
Company's pre-tax profits, if any, derived from all sources, but only to the
extent such 10% figure exceeds Mr. Lustig's base salary. Mr. Lustig remains
eligible for such bonus for twelve months after his termination from the
position of CEO. The Company has accrued but not paid a $22,000 bonus under
the terms of this agreement for fiscal year 1997. No other amounts have been
paid or accrued under the terms of this agreement, since its inception.
In addition to the salary and bonus described above, the CEO Agreement
required that Mr. Lustig be granted a non-qualified stock option to purchase
400,000 shares of the Company's common stock at an exercise price of $.77 per
share. Such price was approximately 400% of certain historic trading levels
of the Company's common stock. This option was effective as of October 1,
1993, and contained a four year vesting at 25% per year with vesting
continuing as long as Mr. Lustig is CEO. As of October 1, 1997, 100% of the
stock options are vested. On January 13, 1998, the Company extended the
expiration date of these options to October 1, 2003.
The CEO Agreement runs for one year terms which automatically renew on
July 1, unless terminated in writing by a majority of the Board of Directors
prior to such renewal date. As there was no action to terminate the CEO
Agreement, it automatically renewed for an additional one year term on July 1,
1998.
Effective April 7, 1997, the Company entered into a consulting agreement
with Morris D. Weiss. The agreement is for an initial term of three years and
automatically renews for successive one year periods unless one of the parties
elects not to extend the agreement. The agreement provides for Mr. Weiss to
be paid an annual consulting fee of $75,000 and requires the Company to grant
Mr. Weiss a stock option on terms similar to those available to other senior
executives. During fiscal year 1998, Mr. Weiss was granted an option to
acquire 100,500 shares of common stock.
STOCK OPTION PLAN
General - The Company's Employee and Director Stock Option Plan (the
"Plan") was adopted for the purpose of granting employees and directors
options to purchase common stock so that they may have the opportunity to
participate in the growth of the Company and to provide them with an increased
incentive to promote the interests of the Company.
Administration of the Plan - The Plan is administered by the Board of
Directors (the "Board") or, if available, a committee of disinterested members
of the Board. The Board may from time to time adopt such rules and
regulations as it deems advisable for the administration of the Plan, and may
alter, amend or rescind any such rules and regulations in its discretion. The
Board has the power to interpret, amend or discontinue the Plan.
Grant of Options - Options may be granted under the Plan for a total of
2,000,000 shares of Common Stock. Of these, 1,100,000 were granted to
officers and directors in 1992, all of which have expired. Any additional
grants of options may be made only to employees of the Company and any parent
or subsidiary. The Board determines the terms of options granted under the
Plan, including the type of option (which can be incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified stock options), the exercise price, the
number of shares subject to the option, and the exercisability thereof. The
Board also determines, at the time of grant, the period during which the
option will be exercisable.
<PAGE>
Terms and Conditions of Options - The Board may impose on an option any
additional terms and conditions which it deems advisable and which are not
inconsistent with the Plan. The exercise price of any stock option granted
under the Plan must not be less than 100% or more than 150% of the fair market
value of a share of Common Stock on the date of grant, except that as to an
optionee who at the time an incentive stock option is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the exercise price of such incentive stock option must
be at least equal to 110% of the fair market value of the shares as of the
date prior to the date of the grant. In addition, no incentive stock option
can be granted to any employee where the aggregate fair market value of the
shares (determined at the date of such option grant) for which such incentive
stock options are exercisable for the first time in any calendar year exceeds
$100,000. In connection with a merger, sale of all of the Company's assets,
or other transaction which results in the replacement of the Company's Common
Stock with the stock of another corporation, the Board may terminate stock
options, accelerate the exercise date of stock options, or provide for the
assumption or replacement of stock options with comparable options of such
other corporation.
Exercise of Options - An optionee may exercise less than all of the
matured portion of an option, in which case such unexercised, matured portion
shall continue to remain exercisable, subject to the terms of the Plan, until
the option terminates.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock as of July 31, 1998, for (i) each director and
Named Executive Officer of the Company, (ii) all directors and executive
officers of the Company as a group, and (iii) each person known by the Company
to own beneficially 5% or more of the outstanding shares of Common Stock. All
beneficial ownership is sole and direct unless otherwise indicated.
Except as otherwise indicated, the address of each of the following
persons is c/o NBI, Inc., 1880 Industrial Circle, Suite F, Longmont, Colorado
80501.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
- ---------------------------------------------------------------------------------------------------------------------------
Name of Beneficial Owner Percent
- --------------------------
Number of Class
--------- ---------
<S> <C> <C>
Jay H. Lustig (2) 1,874,565 19.9%
Martin J. Noonan (3) 100,500 1.2
Hakatak Enterprises, Inc. (4) 928,645 11.5
Harry J. and Patricia S. Brown (5) 1,041,000 12.9
Transamerica Occidental Life Insurance Company (6) 445,029 5.5
All directors and executive officers as a group (4 persons)(7) 2,090,765 21.7
<FN>
__________________
(1) The persons named in this table have sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where applicable and except as otherwise indicated in
the other footnotes to this table. Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Includes 400,000 shares issuable upon exercise of options and 935,000 shares issuable upon exercise of warrants.
Also includes 324,565 shares owned indirectly by an investment partnership. Mr. Lustig has an ownership interest in this
partnership and controls the investment decisions of the partnership.
(3) Consists of 100,500 shares issuable upon exercise of options.
(4) The address of the beneficial owner is P.O. Box 1623, Pacific Palisades, CA 90272. Hakatak Enterprises, Inc. is
controlled by Tamir Hacker.
(5) The address of the beneficial owners is 16079 Mesquite Circle, Fountain Valley, CA 92708.
(6) The address of the beneficial owner is 1150 Olive Street, Los Angeles, California 90015.
(7) Includes 601,000 shares issuable upon exercise of options and 935,000 shares issuable upon exercise of warrants.
</TABLE>
<PAGE>
CERTAIN TRANSACTIONS
In February 1995, the Company entered into an agreement to acquire 80% of
the outstanding stock of Krazy Colors, effective as of January 1, 1995. Prior
to this agreement the Company's CEO, Jay H. Lustig, owned 55% of the
outstanding stock of Krazy Colors. Under the purchase agreement, the Company
paid $288,000 in cash for the stock, including $158,000 paid to NBI's CEO. In
addition, the sellers are eligible to receive continuing annual royalty
payments equal to a specified percentage of annual gross margin. Royalties
are calculated based upon gross margin in excess of $150,000 in any calendar
year and will be earned at the rate of twenty percent when the gross margin is
greater than $150,000 and less than or equal to $300,000, twenty-five percent
when the gross margin is greater than $300,000 and less than or equal to
$450,000, and thirty percent when the gross margin is greater than $450,000.
NBI's CEO will receive 55% of any such royalty payments. The Company has the
right to buy out the royalty interest after five years, at a price equal to
the higher of five times the average annual royalties paid for the preceding
five years or 3.6 times the highest annual royalty payment for any of the
preceding five years. No royalties were incurred by the Company during the
fiscal years ended June 30, 1998 and 1997. In conjunction with the purchase
agreement, the sellers were issued warrants to purchase a total of 1.7 million
shares of NBI's common stock, including warrants to purchase 935,000 shares
issued to the Company's CEO, at a price of $.89 per share. These warrants are
exercisable through December 31, 2002.
During fiscal years 1998 and 1997, the Company utilized Equibond, a
securities broker-dealer owned by the CEO, to execute certain transactions on
its behalf. However, NBI uses another unrelated company to act as custodian
and clearing firm for its investment assets. Compensation paid to Equibond in
connection with these transactions totaled $1,000 in the fiscal year ended
June 30, 1998 and $90,000 for the fiscal year ended June 30, 1997.
During fiscal 1998, the Company borrowed a total of $100,000 from its CEO
for working capital needs. The borrowings are subject to the terms of a
revolving line of credit note which provides for interest to be paid at the
rate of ten percent per annum. The entire principal amount outstanding is due
and payable in full on December 31, 1998. On September 1, 1998, the due date
of the note was extended to December 31, 1999.
The Company believes that these transactions were in its best interests,
were on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and were in connection with bona fide business
purposes of the Company. As a matter of policy, any future transactions
between the Company and any of its executive officers, directors or principal
stockholders will be subject to these same standards and will be approved by a
majority of the disinterested members of the Board of Directors.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.01 par value per share. As approved by its stockholders at
the annual meeting held on October 14, 1998, the Company has authorized for
issuance 5,000,000 shares of preferred stock, $0.01 par value per share. Also
approved by the stockholders at the annual meeting, the Company may, at any
time until the mailing of the proxy statement for the next annual meeting of
stockholders, effect a reverse stock split of the Company's Common Stock. The
proposed reverse stock split would be either 1 for 2.5 shares, 1 for 3 shares,
or 1 for 4 shares, at the discretion of the Board of Directors. The
description of capital stock contained herein does not reflect the adjustment
to the number of outstanding shares of Common Stock upon the completion of the
proposed reverse stock split.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Company's Certificate of Incorporation, upon completion of the
Offering there will be 9,884,480 shares of authorized and unissued Common
Stock and between 4,000,000 (if the Maximum Offering Amount is sold) and
4,630,000 (if the Minimum Offering Amount is sold) shares of preferred stock,
issuable in one or more classes, available for future issuance without
stockholder approval. These additional shares may be utilized for a variety
of corporate purposes including future public offerings to raise additional
capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common
Stock and preferred stock may be to enable the Board of Directors to issue
additional shares in such a way or upon such terms as could render more
difficult or discourage an attempt by a third party to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of the Company's management. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company.
The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued preferred stock. The Board of Directors may issue one or more
classes of preferred stock with more favorable voting, dividend, conversion,
and other terms, than the Preferred Stock. Such issuances could also, among
other things, have the effect of delaying, deferring or preventing a change in
control of the Company. However, any issuance of preferred stock with voting
rights could have the effect of further reducing or eliminating the Company's
NOLs. See "Risk Factors--Loss of NOLs."
Other than the Common Stock, Preferred Stock (including the Preferred
Stock to be issued as dividends) and Warrants to be registered, the Company
does not currently have any plans to issue additional shares of common stock
or preferred stock other than shares of Common Stock which may be issued upon
the exercise of options which have been granted or which may be granted in the
future to the Company's employees, non-employee directors and consultants, and
of outstanding warrants.
CERTAIN PROVISIONS OF DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by
more than 2,000 stockholders, and an "interested stockholder" are prohibited
for a three-year period following the date that such stockholder became an
interested stockholder, unless (i) the corporation by action of its
stockholders adopts an amendment to its Certificate of Incorporation or Bylaws
expressly electing not to be governed by the Delaware anti-takeover law (which
the Company has not adopted), (ii) the business combination was approved by
the board of directors of the corporation before the other party to the
business combination became an interested stockholder, (iii) upon consummation
of the transaction that made it an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock
owned by directors who are also officers or held in employee benefit plans in
which the employees do not have a confidential right to tender or vote stock
held by the plan) or (iv) the business combination was approved by the board
of directors of the corporation and ratified by holders of two-thirds of the
voting stock which the interested stockholder did not own. The three-year
prohibition also does not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corpo-rations' directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an "interested stockholder," transactions with an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested
<PAGE>
stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes a beneficial
owner of 15% or more of a Delaware corporation's voting stock.
COMMON STOCK PURCHASE WARRANTS
Each Warrant entitles the registered holder to purchase one (1) share of
Common Stock, par value $.01, at a purchase price of $1.20. The Warrants will
become exercisable and separately tradeable immediately upon issuance. The
Warrants will expire on December 31, 2004.
DESCRIPTION OF PREFERRED STOCK
The following is a summary of the terms of the Preferred Stock. This
summary is not intended to be com-plete and is subject to and qualified in its
entirety by refer-ence to the Certificate of Designation to be filed with the
Secretary of State of the State of Delaware amending the Company's Certificate
of Incorporation (the "Certificate of Designa-tion") and setting forth the
rights, preferences and limitations of the Preferred Stock, a form of which is
available from the Company.
The shares of the Preferred Stock, when issued and sold for the
consideration herein contemplated, will be duly and validly issued, fully paid
and nonassessable and the holders thereof will have no preemptive rights in
connection therewith. The Preferred Stock will not be subject to any sinking
fund or other obligation of the Company to redeem or retire the Preferred
Stock. Unless earlier redeemed by the Company, the Preferred Stock will have
a perpetual maturity. Any Preferred Stock redeemed or otherwise acquired by
the Company will, upon cancellation of such shares, have the status of
authorized but unissued preferred stock subject to reissuance by the Board of
Directors as Preferred Stock or as shares of preferred stock of any one or
more other series.
DIVIDENDS
Holders of the Preferred Stock will be entitled to cumulative dividends
from the date of original issue, accruing semi-annually, commencing June 30,
1999, and each December 31 and June 30 thereafter at the annual rate per share
of either (a) $1.00 in cash, or (b) .11 shares of Preferred Stock. The method
of payment of dividends is selected by each holder of Preferred Stock, and may
be changed annually by the holder subject to certain restrictions. Dividends
will be paid when and as declared by the Board of Directors out of funds
legally available for payment of dividends. To the extent that insufficient
funds are available to pay all dividends accrued as of each accrual date,
dividends will be paid first pro rata to all holders who have elected to
receive dividends payable in additional shares of Preferred Stock until all
such dividends accrued have been paid, and then pro rata to all holders who
have elected to receive dividends payable in cash (under such circumstances,
holders who have elected to receive dividends payable in additional shares of
Preferred Stock would have a priority over holders who elect to receive
dividends in cash). Accrued but unpaid dividends in any particular period will
continue to accrue and will be paid in future periods when sufficient
funds are available. The Preferred Stock is redeemable at the option of
the Company, in whole or in part, at the declining redemption prices set forth
herein. If the Preferred Stock has not been redeemed by December 31, 2004,
the dividend rate will thereafter increase to an annual rate per share of
either (a) $1.10 in cash, or (b) .12 additional shares of Preferred Stock, at
the option of the holder. See "Description of Preferred Stock--Optional
Redemption."
The Company will not issue any fractional shares of Preferred Stock in
payment of dividends, but will register the amount of fractional shares that
each holder is entitled to receive until the aggregate value of such
fractional interests equals one whole share, which will be issued with the
next payment of dividends. Any fractional share interests held on the date of
redemption of Preferred Stock by the Company will be paid in cash by the
Company to the holders thereof pro rata at the same rate as the redemption
price for whole shares.
In order to exercise the holder's option to receive either cash or stock
in payment of dividends on the Preferred Stock, each purchaser will make their
initial election on the Subscription Agreement. Subsequently, on an annual
basis, each holder of Preferred Stock will receive a form for election of
method of payment, together with a copy of the Company's most recent Annual
Report on Form 10-KSB, as filed with the Securities and Exchange Commission,
and any other information that the Company determines material in connection
with the holder's election. In order to make a change in the holder's payment
status, the holder will be required to execute and return the election form to
the Company within 30 days after the date the election form is sent by the
Company to the holder. If the holder does not return the form requesting a
change in payment status, the holder will be deemed to elect to retain the
same payment method last chosen by the holder until the next date that the
payment status may
<PAGE>
be changed. In the event that the Company is unable to issue additional
shares of Preferred Stock because it has not kept the registration statement
for such shares effective under the Securities Act of 1933, as amended, or
because it has not obtained or maintained the registration or qualification of
shares of Preferred Stock in one or more of the states in which such shares
are to be issued, the Company will be required to accrue dividends in cash on
the Preferred Stock affected thereby.
Holders of shares of Preferred Stock called for redemption on a
redemption date falling between a dividend payment record date and the
dividend pay-ment date shall, in lieu of receiving such dividend on the
dividend date fixed therefor, receive such dividend payment together with all
other accrued and unpaid dividends on the date fixed for redemption.
Unless full cumulative dividends on the Preferred Stock have been paid or
sufficient funds set aside therefor, divi-dends may not be paid or declared
and set aside for payment and other distribution may not be made on the Common
Stock or any other stock of the Company ranking junior to the Preferred Stock
as to dividends nor may any Common Stock or any other stock of the Company
ranking junior to the Preferred Stock as to dividends be redeemed, repurchased
or otherwise acquired for any consideration by the Company.
Under Delaware law, dividends or distributions to stockholders may be
made only from the surplus of the Company or, in certain situations, from the
net profits for the current fiscal year or the fiscal year before which the
dividend or distribution is declared. The Company's ability to pay dividends
on the preferred stock in the future will depend upon its financial results,
liquidity and financial condition. In addition, the Company may be restricted
under the terms of any new debt financing from payment of cash dividends on
the Preferred Stock. See "Risk Factors--Uncertainty of Payment of Dividends
on Preferred Stock."
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, before any distribution of assets is made to
holders of Common Stock or any other stock of the Company ranking junior to
the shares of Preferred Stock upon liquidation, dissolution or winding up, the
holders of Pre-ferred Stock shall receive a liquidation preference of $10 per
share and shall be entitled to receive all accrued and unpaid dividends
through the date of distribution. If, upon such a voluntary or involuntary
liquida-tion, dissolution or winding up of the Company, the assets of the
Company are insufficient to pay in full the amounts described above as payable
with respect to the Preferred Stock, the holders of the Preferred Stock will
share ratably in any such distributions of assets of the Company first in
proportion to their respective liquidation preferences until such preferences
are paid in full, and then in proportion to their respective amounts of
accrued but unpaid dividends. After payment of any such liquidation
preference and accrued dividends, the shares of Preferred Stock will not be
entitled to any further participation in any distribution of assets by the
Company.
A consolidation or merger of the Company with or into any other
corporation will not be deemed to be a liquidation, dissolution or winding up
of the Company.
OPTIONAL REDEMPTION
The shares of Preferred Stock (including Preferred Stock issued as
dividends) may be redeemed at the Company's option, out of funds legally
available therefor, on at least 30 but not more than 60 days notice, as a
whole or from time to time in part, at the following redemption prices per
share, plus in each case, an amount equal to accrued and unpaid dividends, if
any, up to but excluding the date fixed for redemption, whether or not earned
or declared.
If redeemed during the 12 month period beginning January 1 and ending
December 31:
Year Redemption Price
------ -----------------
1999 $ 11.00
2000 10.80
2001 10.60
2002 10.40
2003 10.20
2004 and thereafter 10.00
<PAGE>
If fewer than all of the shares of Preferred Stock are to be redeemed,
the shares to be redeemed shall be selected by lot or pro rata or in some
other equitable manner determined by the Board of Directors of the Company in
its sole discretion. On and after the date fixed for redemption, provided
that the redemption price (including any accrued and unpaid dividends to but
excluding the date fixed for redemption) has been duly paid or provided for,
dividends shall cease to accrue on the Preferred Stock called for redemption,
such shares shall no longer be deemed to be outstanding and all rights of the
holders of such shares as stockholders of the Company shall cease, except the
right to receive the monies payable upon such redemption, without interest
thereon, upon surrender of the certificates evidencing such shares.
VOTING RIGHTS
The holders of the Preferred Stock will have no voting rights except as
described below or as required by law. In exercising any such vote, each
outstanding share of Preferred Stock will be entitled to one vote, excluding
shares held by the Company or any affiliate of the Company, which shares shall
have no voting rights.
As long as any Preferred Stock is outstanding, the Company may not,
without the affirmative vote or consent of the holders of at least 50% (unless
a higher percentage shall then be required by applicable law) of the
outstanding shares of Preferred Stock, amend or repeal any provision of the
Company's Certificate of Incorpo-ration (including the Certificate of
Desig-nation) or Bylaws which would alter or change the preferences, rights,
privileges, or powers of, or the restrictions provided for the benefit of, the
Preferred Stock.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer and Trust, Inc. will act as transfer agent
and registrar for the Preferred Stock.
<PAGE>
PLAN OF DISTRIBUTION
The Company intends to offer the Units through its own officers and
employees, without the payment of any commissions or other compensation in
connection with such sales. Officers of the Company who are associated
persons of Equibond, including Jay Lustig, the Chief Executive Officer of the
Company, will be supervised, as required by the National Association of
Securities Dealers Regulation, Inc., by Equibond, although it will not
participate in the Offering. Any officers or employees of the Company who are
not associated persons of Equibond. will rely upon an exemption from
registration as a securities broker-dealer provided by Rule 3a4-1 of the
Securities and Exchange Commission. The Company reserves the right, however,
to engage one or more selected dealers who are members of the National
Association of Securities Dealers, Inc., to participate in the Offering. The
Company will pay no more than 10% of the purchase price per Unit in
commissions and expenses to any selected dealer who may be engaged by the
Company to participate in the Offering. It is not anticipated that any
selected dealer engaged by the Company will make a market for the Preferred
Stock or Warrants. The Minimum Offering Amount may include Units purchased by
the officers, directors or existing stockholders of the Company, or other
individuals affiliated with the Company, and such individuals or entities may
buy Units in this Offering without limit.
If the Minimum Offering Amount is not sold by December 31, 1998 (the
Initial Offering Expiration Date), the offering will terminate and all funds
held in the escrow account will promptly be returned to investors, provided
that the Company may, in its discretion, extend the Initial Offering
Expiration Date by up to 60 days if the Company has reason to believe that the
Minimum Offering Amount will be sold by the extended Initial Offering
Expiration Date and the extended Initial Offering Expiration Date would not
cause an event of default in the obligations of the Company to the IRS. If
the Minimum Offering Amount is sold by the Initial Offering Expiration Date,
the Offering may continue until the earliest to occur of (i) the sale of all
of the Units offered hereby; (ii) December 31, 1999, or (iii) such earlier
date as the Company shall determine, in its sole discretion (the Final
Offering Expiration Date). The Company will file a sticker supplement to this
Prospectus promptly following the Initial Offering Expiration Date advising of
the amount of Units sold as of that date and that the Company has paid or will
pay by the date due the initial installment of the IRS debt.
All subscription funds delivered prior to acceptance by the Company of
the Minimum Offering Amount will be held in an escrow account by Southern
California Bank as escrow agent. If the Minimum Offering Amount is accepted
by the Company prior to the Initial Offering Expiration Date, the Escrow Agent
will release the subscription funds held in the escrow account to the Company.
If the Minimum Offering Amount is not accepted by the Company prior to the
Initial Offering Expiration Date, the Escrow Agent will promptly return all
subscription funds to the subscribers, without interest or deduction.
Offerees who desire to purchase Units must complete and execute the
Subscription Agreement included as an exhibit to this Registration Statement
and provide it to the Company, together with payment in full for the Units
subscribed for, as further described below. The Company reserves the right to
reject any subscription in whole or in part. Any subscription which is not
accompanied by a completed and signed Subscription Agreement will be rejected.
Until accepted by the Company, each subscription shall constitute an offer to
purchase a specified number of Units.
Prior to the date of acceptance of subscriptions for the Minimum Offering
Amount:..........Subscribers must deliver funds for the entire amount
of Units subscribed for, to Southern California Bank. Funds may be delivered
by check payable to "SCB FBO NBI, Inc. Escrow No. 11781-GG", sent to the
attention of Gloria Garriott, Southern California Bank, 4100 Newport Place,
Suite 130, Newport Beach, California 92660, or by wire transfer sent in
accordance with the following wire transfer instructions:
Southern California Bank
Account No.: 1900307
ABA/Routing No.: 1222-2693-7
Escrow No.: 11781-GG
Wire sent from: (Name of Subscriber)
<PAGE>
After the date of acceptance of subscriptions for the Minimum Offering
Amount:........Subscribers must deliver funds for the entire amount of
Units subscribed for, to the Company. Funds may be delivered by check
payable to "NBI, Inc.", sent to the attention of Marjorie A. Cogan, Chief
Financial Officer, NBI, Inc., 1880 Industrial Circle, Suite F, Longmont,
Colorado 80501, or by wire transfer sent in accordance with the following wire
transfer instructions:
Norwest Bank Colorado, N.A.
Account No.: 1823506550
ABA/Routing No.: 102000076
Wire sent from: (Name of subscriber)
LEGAL MATTERS
The validity of the Preferred Stock offered hereby, along with certain
legal matters relating to this Offering will be passed upon for the Company by
Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, Colorado.
EXPERTS
The financial statements of NBI, Inc. for the two years ended June 30,
1998, included in this Prospectus and the Registration Statement of which it
is a part, have been audited by BDO Seidman LLP, independent certified public
accountants, as set forth in their report thereon (which contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern) appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of that firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of Preferred Stock offered by this Prospectus. This Prospectus does
not contain all the information set forth in the Registration Statement. For
further information, reference is made to the Registration Statement,
including the exhibits filed as a part thereof and otherwise incorporated
therein. Statements made in this Prospectus as to the contents of any
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement, and each such statement is qualified in all respects
by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Commission. The Registration Statement, including exhibits, as well as such
other reports, proxy statements and information filed by the Company may be
inspected, without charge, and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Reports, proxy and information
statements and other information filed electronically by the Company with the
Commission are available at the Commission's World Wide Web site at
http://www.sec.gov. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Independent Certified Public Accountants, BDO Seidman, LLP F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of NBI, Inc.
We have audited the accompanying consolidated balance sheet of NBI, Inc. and
subsidiaries as of June 30, 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for the years ended June 30, 1998
and 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NBI, Inc.
and subsidiaries at June 30, 1998, and the results of their operations and
their cash flows for the years ended June 30, 1998 and 1997 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company may not be able to meet the payment
terms of the IRS debt within the contractual terms of the agreement. This
condition raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Denver, Colorado
July 31, 1998
<PAGE>
NBI, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1998
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
- -------------
<S> <C>
Current assets:
Cash and cash equivalents $ 209
Accounts receivable, less allowance for
doubtful accounts of $69 1,375
Inventories 2,750
Other current assets 156
---------
Total current assets 4,490
Property, plant and equipment, net 7,436
Other assets 279
----------
$ 12,205
========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------
Current liabilities:
Short-term borrowings and current portion
of notes payable $ 1,846
Current portion of IRS debt and other income
taxes payable 3,527
Accounts payable 1,200
Accrued liabilities 796
---------
Total current liabilities 7,369
Long-term liabilities:
Income taxes payable 1,778
Notes payable 1,351
Deferred income taxes 223
Postemployment disabiity benefits 184
--------
Total liabilities 10,905
--------
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value (20,000,000 shares
authorized; 10,115,520 shares issued) 101
Capital in excess of par value 6,280
Accumulated deficit (4,213)
------
2,168
Less treasury stock, at cost (2,027,200 shares) (868)
-------
Total stockholders' equity 1,300
-------
$ 12,205
=========
<FN>
See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1998 and 1997
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues:
Sales $12,519 $11,697
Service and rental 2,174 1,972
-------- --------
14,693 13,669
------- --------
Costs and expenses:
Cost of sales 9,032 8,314
Cost of service and rental 1,629 1,483
Marketing, general and administrative 3,395 3,217
Impairment of goodwill 167 --
-------- --------
14,223 13,014
------- --------
Income from operations 470 655
------- --------
Other income (expense):
Interest income 5 17
Net gain (loss) on investments (39) 601
Other income (expense) (33) 208
Interest expense (593) (686)
-------- --------
(660) 140
------- --------
Income (loss) from continuing operations before
provision for income taxes and extraordinary gain (190) 795
Benefit (provision) for income taxes 72 (105)
-------- --------
Income (loss) before discontinued operations
and extraordinary gain (118) 690
Income from discontinued operations, net of
income tax benefit of $24 -- 354
Extraordinary gain, net of income taxes of $149 290 --
-------- --------
Net income $ 172 $ 1,044
======== ========
Income (loss) per common share - basic:
Income (loss) before discontinued operations
and extraordinary gain $ (.01) $ .09
Income from discontinued operations -- .04
Extraordinary gain .03 --
-------- --------
Net income $ .02 $ .13
======== ========
Income (loss) per common share - diluted:
Income (loss) before discontinued operations
and extraordinary gain $ (.01) $ .08
Income from discontinued operations -- .04
Extraordinary gain .03 --
-------- --------
Net income $ .02 $ .12
======== ========
<FN>
See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998 and 1997
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Foreign
Number of Stock Capital in Currency
Common (Par Value Excess of Accumulated Translation Treasury
Shares $.01) Par Value Deficit Adjustment Stock Total
-------- ---------- --------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996 10,001,270 $100 $6,181 $(5,429) $ 316 $(868) $ 300
Issued under
Employee Stock
Option Plan 3,750 -- 2 -- -- -- 2
Realized translation gain
from discontinued
operations -- -- -- -- (316) -- (316)
Other -- -- (5) -- -- -- (5)
Net income for the year
ended June 30, 1997 -- -- -- 1,044 -- -- 1,044
------ ---- ----- ------ ----- ----- ------
Balance June 30, 1997 10,005,020 100 6,178 (4,385) -- (868) 1,025
Issued under
Employee Stock
Option Plan 110,500 1 28 -- -- -- 29
Utilization of
pre-reorganization
net operating loss
carryforwards -- -- 28 -- -- -- 28
Compensation expense
related to stock
option extensions -- -- 48 -- -- -- 48
Other -- -- (2) -- -- -- (2)
Net income for the year
ended June 30, 1998 -- -- -- 172 -- -- 172
------ ----- ------ ----- ----- ------ ------
Balance June 30, 1998 10,115,520 $ 101 $ 6,280 $ (4,213) $ -- $ (868) $ 1,300
========== ====== ======== ========= ===== ======== ========
<FN>
See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 172 $ 1,044
Adjustments to reconcile net income to net cash
flow provided by operating activities:
Depreciation and amortization 738 591
Realized translation gain from discontinued operations -- (316)
Utilization of pre-reorganization net operating loss carryforwards 28 --
Provision for bad debts and returns 89 112
Provision for writedown of inventories 69 105
Provision for writedown of note receivable 10 --
Loss (gain) on sales of property and equipment 54 (9)
Impairment of goodwill 167 --
Net unrealized gain on trading securities (53) (182)
Compensation expense related to stock option extensions 48 --
Other (2) 7
Changes in assets -- decrease (increase):
Accounts receivable (226) 231
Inventory (349) (243)
Other current assets 22 586
Other assets (86) (11)
Changes in liabilities -- (decrease) increase:
Obligations for short-sale transactions (58) (200)
Accounts payable and accrued liabilities (259) (128)
Income tax related accounts 3 (88)
-------- --------
Net cash flow provided by operating activities 367 1,499
-------- --------
Cash flows from investing activities:
Proceeds from sales of property and equipment 2 23
Purchases of property and equipment (1,199) (2,868)
-------- --------
Net cash flow used in investing activities (1,197) (2,845)
-------- --------
<FN>
(continued on following page)
See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Cash flows from financing activities:
Collections on notes receivable $ 5 $ --
Proceeds from issuance of stock, net of offering costs -- (5)
Proceeds from borrowing 105 1,650
Proceeds from stock option exercises 29 2
Payments on notes payable (270) (208)
Net borrowings (payments) on line of credit 837 (595)
------ -------
Net cash flow provided by financing activities 706 844
------ -------
Net decrease in cash and cash equivalents (124) (502)
Change in cash and cash equivalents included
in net assets of discontinued operations -- 53
Cash and cash equivalents at beginning of year 333 782
------ -------
Cash and cash equivalents at end of year $ 209 $ 333
====== =======
Supplemental disclosures of cash flow information:
Interest paid $ 349 $ 663
====== =======
Income taxes paid $ 88 $ 163
====== =======
Noncash purchases of property, plant and equipment
included in accounts payable at end of year $ 190 $ 99
====== =======
<FN>
See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NBI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
1. Summary of Significant Accounting Policies
BUSINESS DESCRIPTION: The Company operates primarily in the glass
manufacturing and hotel operations industries. Both of these operations are
located in southwestern Pennsylvania. The Company also owns 80% of a small
children's paint manufacturing company in Las Vegas, Nevada. In January 1997,
the Company acquired 88 acres of undeveloped land in southwestern
Pennsylvania. The Company is pursuing commercial development of the property.
Previously, the Company operated primarily in the computer industry. Those
operations have been discontinued and reported separately (see Note 3).
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company, its wholly-owned subsidiaries, and its 80% owned
children's paint manufacturing subsidiary. All significant intercompany
accounts, transactions and profits have been eliminated. The Company records
the minority interest in consolidated net assets equal to the minority's
percentage ownership in the net assets of the subsidiary entity, to the extent
the minority interest is positive. At June 30, 1998, the minority interest in
the children's paint manufacturing subsidiary was a deficit balance and was
limited to zero, accordingly. The minority's share of income (losses) is
shown as a separate component of consolidated net income, if significant. In
addition, the minority's share of losses are recorded only until the minority
interest in the net asset of the subsidiary has been reduced to zero.
USE OF ESTIMATES: Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates or assumptions affect reported amounts of
assets, liabilities, revenue and expenses as reflected in the financial
statements. Actual results could differ from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Unless otherwise specified, the Company
believes the book value of financial instruments approximates their fair
value.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". SFAS No. 131
establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other postretirement benefits and requires
additional information on changes in the benefit obligations and fair value of
plan assets that will facilitate financial analysis.
SFAS No. 130, 131 and 132 are all effective for financial statements for
fiscal years beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Management has not yet fully
evaluated
<PAGE>
the impact, if any, they may have on future financial statement disclosures.
However, results of operations and financial position will be unaffected by
implementation of these standards.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. Management believes the
adoption of this statement will not have a material impact on the Company's
financial statements.
CASH: Cash and cash equivalents include investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less. The Company places its cash and temporary cash investments
with financial institutions. At times, such investments may be in excess of
federally insured limits.
INVESTMENTS IN SECURITIES: The Company's accounting policies for investments
in securities are as follows:
Trading securities: Trading securities are held for resale in anticipation of
short-term market movements. These types of securities, consisting of
marketable debt and equity securities, are stated at fair market value. Gains
and losses, both realized and unrealized, are included in net gain (loss) on
investments when incurred. All dividends, interest and discount or premium
amortization is included in interest income as earned. Cash flows from
purchases and sales of trading securities are classified as cash flows from
operating activities rather than from investing activities.
Securities held-to-maturity: Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at
amortized cost. Interest earned on securities classified as held-to-maturity,
including any discount or premium amortization, is included in interest income
as earned.
Available for Sale: Marketable equity securities and debt securities not
classified as either trading or held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair market
value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in net gain (loss) on investments and other income
(expense) when incurred. The cost of securities sold is based on the specific
identification method. Interest and dividends earned on securities classified
as available-for-sale, including any discount or premium amortization, are
included in interest income as earned.
The Company computes realized gains or losses based upon the specific
identification method.
INVENTORIES: Inventories are stated at the lower of cost (at standard which
approximates first-in, first-out method) or market and were comprised of the
following:
<TABLE>
<CAPTION>
June 30,
1998
(Amounts in thousands)
<S> <C>
Raw Materials $ 807
Work in Process 390
Finished Goods 1,539
Food and Beverage Inventory 14
------
$2,750
======
</TABLE>
LONG-TERM ASSETS: The Company applies SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets". Under SFAS No. 121, long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used are reported at the lower of the carrying amount or their
estimated fair market value. Long-lived assets and certain identifiable
intangibles to be disposed of are reported at the lower of the carrying amount
or their estimated fair market value less costs to sell.
<PAGE>
Identifiable intangible assets not covered by FAS No. 121 and goodwill not
identified with assets that are subject to an impairment loss under FAS No.
121 are accounted for in accordance with Accounting Principal Board ("APB")
Opinion No. 17. Under APB No. 17, the amortization periods of identifiable
assets and goodwill are continually evaluated to determine if the useful lives
should be revised. If the useful lives are changed, the unamortized cost
would be allocated to the remaining periods in the revised useful lives. In
addition, the Company periodically reviews the carrying values of its
identifiable intangible assets and goodwill by comparing them to their
estimated fair market value and expected future benefits of the assets to
determine if an impairment exists under APB No. 17.
PROPERTY, PLANT AND EQUIPMENT: Capital assets are recorded at cost and are
depreciated on a straight-line basis over the following lives:
<TABLE>
<CAPTION>
<s
<C> <C>
Asset Type Life
- ---------- ----
Land N/A
Buildings and building improvements 20-25 years
Machinery and equipment 3-15 years
Office and hotel furniture, fixtures 5-10 years
Construction-in-progress N/A
</TABLE>
TRANSLATION OF FOREIGN CURRENCIES: Accounts of foreign subsidiaries were
maintained in the currencies of the countries in which they operated and were
translated to U.S. dollars in conformity with generally accepted accounting
principles. Adjustments resulting from the translation of foreign currency
financial statements were deferred and classified as a separate component of
stockholders' equity.
The translation adjustment at June 30, 1996 was related to the Company's
foreign subsidiary, NBI Ltd. which filed for voluntary liquidation in the U.K.
during fiscal 1996 (see Note 3). Because this liquidation was substantially
complete at June 30, 1997, the translation adjustment was recorded as a
realized gain and included in the net gain from disposal of discontinued
operations.
STOCK OPTION PLAN: The Company applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option plan. Under APB Opinion No. 25, no compensation cost has been
recognized for stock options granted, as the option price equals or exceeds
the market price of the underlying common stock on the date of grant. SFAS
No. 123, "Accounting for Stock-Based Compensation" requires the Company to
provide pro forma information regarding net income as if compensation cost for
the Company's stock option plan had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. To provide the required
pro forma information, the Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing model.
REVENUE RECOGNITION: Revenue from sales of products from all operations is
recognized when title passes, generally when the goods are shipped, except for
goods shipped on consignment. Revenue is recognized from products shipped on
consignment when the consignee sells the goods. Service and rental revenue
from the hotel operations is recognized when provided.
ADVERTISING COSTS: The Company expenses the production costs of advertising
the first time the advertising takes place, except for costs related to the
production of new catalogs. These cost are capitalized and amortized over
three years, their expected period of future benefits. Included in other
current assets at June 30, 1998 were capitalized catalog advertising costs of
$65,000. These costs are net of accumulated amortization of $120,000.
The Company also has a contract for billboard advertising for the hotel.
These costs were capitalized and are being amortized over ten years, the life
of the contract. Included in other assets at June 30, 1998 were capitalized
billboard costs of $9,000, which are net of accumulated amortization of
$1,000. Advertising expense was $174,000 and $133,000 for the years ended
June 30, 1998 and 1997, respectively.
INCOME TAXES: The Company accounts for income taxes in conformity with FAS
109. Under the provisions of FAS 109, a deferred tax liability or asset (net
of a valuation allowance) is provided in the financial statements by
<PAGE>
applying the provisions of applicable tax laws to measure the deferred tax
consequences of temporary differences which result in net taxable or
deductible amounts in future years as a result of events recognized in the
financial statements in the current or preceding years.
NET INCOME (LOSS) PER SHARE: During fiscal 1998, NBI, Inc. adopted SFAS No.
128, which provides for the calculation of "Basic" and "Diluted" earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income (loss) available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution of securities that could share in
the earnings of an entity, similar to fully diluted earnings per share. (See
Note 16.)
RECLASSIFICATIONS AND ADJUSTMENTS: Certain items in the 1997 financial
statements have been reclassified to conform to the 1998 manner of
presentation.
2. Going Concern
As discussed in Note 8, $3.5 million of the Company's debt to the Internal
Revenue Service ("IRS") is due on December 31, 1998 and the balance of
approximately $1.8 million is due on December 31, 1999. This condition raises
substantial doubt about the Company's ability to continue as a going concern.
In order to pay such amount, management intends to obtain additional debt or
equity financing. The Company is currently pursuing various financing
alternatives; however there can be no assurance that the Company will be able
to obtain such financing. The Company's ability to continue as a going
concern is dependent upon attainment of financing sufficient to pay off the
IRS debt when due. The accompanying financial statements do not contain any
adjustments that might result from the outcome of this uncertainty.
3. Discontinued Operations
During April 1995, NBI, Ltd. completed a sale of certain assets of the company
including its customer base. NBI, Ltd. filed for voluntary liquidation in the
U.K. during fiscal 1996. As of June 30, 1997, the liquidation of NBI, Ltd.
was substantially complete.
On August 27, 1996, the Company decided to dispose of its AlphaNet division.
During fiscal 1997, the Company completed its disposition of this division
through a sale of certain assets and the assumption of certain liabilities of
the operation.
With the decision to dispose of its AlphaNet division, the Company
discontinued all of its operations in the computer industry segment.
Therefore, it separately reported the income from this segment as discontinued
operations for the years ended June 30, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
1998 1997
------ -----
(Amounts in thousands)
<S> <C> <C>
Revenues from discontinued operations $ -- $ 395
====== ======
Income from discontinued operations before
income taxes $ -- $ --
Income tax provision -- --
----- -----
Net income from discontinued operations $ -- $ --
----- -----
Gain (loss) on disposal
NBI, Ltd. $ -- 402
AlphaNet Division
(including loss from operations of $67,000
from August 27, 1996 through its disposition) -- (72)
Income tax benefit -- 24
----- ------
-- $ 354
----- ------
Net income from discontinued operations $ -- $ 354
===== ======
</TABLE>
<PAGE>
The gain on disposal of NBI, Ltd. included a $316,000 translation gain
recognized as a result of the substantial completion of the company's
liquidation. No federal or state income taxes were recorded related to the
gain on disposal of NBI, Ltd., as it was a foreign entity.
4. Investments in Securities and Obligations from Short-Sale Transactions
During the years ended June 30, 1998 and 1997, all of the Company's securities
were classified as trading securities; no securities were classified as
held-to-maturity or available-for-sale. The Company recorded a net realized
loss of $92,000 and a net unrealized gain of $53,000 on investments for the
year ended June 30, 1998. For the year ended June 30, 1997, a net realized
gain of $419,000 and a net unrealized gain of $182,000 were recorded.
As part of its investment policies, the Company's investment portfolio may
include option instruments and may include a concentrated position in one or
more securities. As a result of this, the financial results may fluctuate
significantly and have larger fluctuations than with a more diversified
portfolio. In addition, the Company may invest in short-sale transactions of
trading securities. Short-sales can result in off-balance sheet risk, as
losses can be incurred in excess of the reported obligation if market prices
of the securities subsequently increase. At June 30, 1998, the Company had no
investment positions.
5. Other Current Assets
Included in other current assets totaling $156,000 at June 30, 1998, was
restricted cash of $3,000, representing amounts held in trust for payments
under self insurance plans.
6. Property, Plant and Equipment
<TABLE>
<CAPTION>
June 30,
1998
----------
(Amounts in thousands)
<S> <C>
Land $ 1,269
Buildings 3,356
Machinery and equipment 3,851
Office and hotel furniture and fixtures 828
Construction in-progress 312
-----------
9,616
Accumulated depreciation (2,180)
-----------
$7,436
===========
</TABLE>
Total depreciation expense from continuing operations was $705,000 and
$552,000 for the years ended June 30, 1998 and 1997, respectively. The
Company estimates that it will cost approximately $120,000 to complete the
outstanding projects, all of which are expected to be competed during fiscal
1999. The Company is continually working on capital improvement projects at
the glass manufacturing facility.
7. Other Assets
Included in other assets of $279,000 at June 30, 1998, was $29,000 of goodwill
and other intangibles related to the acquisition of 80% of the outstanding
stock of Krazy Colors during fiscal 1995. The goodwill and other intangibles
are net of accumulated amortization totaling $265,000 at June 30, 1998.
Related amortization expense was $24,000 and $29,000 for the years ended June
30, 1998 and 1997, respectively. In addition, in accordance with APB No. 17,
the Company recorded a non-cash impairment loss of $167,000 during fiscal year
1998 related to a write-down of the Krazy Color's goodwill. The revised
carrying value of this asset was based upon the
<PAGE>
estimated future benefits of the business. The impairment occurred primarily
due to the unfavorable results of a change in sales focus which was
implemented late in fiscal 1997, as well as the business' inability to sustain
long-term customers.
8. Income Taxes
IRS Debt:
On April 28, 1998, the Company and the IRS entered into an amended payment
agreement, revising the payment terms related to NBI Inc.'s IRS debt of
$5,278,000. This agreement, effective April 9, 1998, revises the terms of the
agreement in principal with the IRS effective October 1, 1995 and the original
settlement agreement with the IRS dated June 12, 1991, as to NBI's federal tax
liabilities for the fiscal years ended June 30, 1980 through 1988. Under the
current agreement, $3,500,000 of the IRS debt is due on or before December 31,
1998, and the remaining balance of $1,778,000 is due on or before December 31,
1999. The IRS debt continues to be collateralized by a security interest in
all of the capital stock of American Glass, Inc. and NBI Properties, Inc.
Provided no event of default occurs prior to payment of the debt in full, NBI
will not be obligated to pay any past, current or future interest related to
the IRS debt. Therefore, during the fourth quarter of fiscal 1998, the
Company recorded a net extraordinary gain of $290,000, consisting of
forgiveness of accrued interest recorded through March 31, 1998 totaling
$439,000, less an income tax provision of $149,000.
In order to pay the newly restructured IRS debt, management intends to obtain
additional debt or equity financing. The Company is currently pursuing
various financing options; however there can be no assurances the Company will
be able to obtain such financing. The Company's ability to continue as a
going-concern is dependent upon satisfaction of the IRS debt. (See Note 2.)
Income Tax Provision and Deferred Income Taxes:
- -----------------------------------------------------
For the years ended June 30, 1998 and 1997, the benefit (provision) for income
taxes was included in the consolidated statements of operations as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(Amounts in thousands)
<S> <C> <C>
Continuing operations benefit (provision) $ 72 $ (105)
Discontinued operations benefit -- 24
Extraordinary gain (149) --
--------- --------
$ (77) $ (81)
========= ========
</TABLE>
The benefit (provision) for income taxes from continuing operations for the
years ended June 30, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
(Amounts in thousands)
<S> <C> <C>
Federal:
Current $ -- $ --
Deferred 121 (24)
------ ------
121 (24)
------ ------
State and other:
Current (110) (40)
Deferred 61 (41)
------ ------
(49) (81)
------ ------
Total $ 72 $(105)
====== ======
</TABLE>
In accordance with fresh-start accounting, which was adopted as of April 30,
1992, and as a result of the Company's reorganization under Chapter 11 of the
United States Bankruptcy Code, future utilization of any income
<PAGE>
tax benefit from pre-reorganization net operating losses are not credited to
the income tax provision, but rather, reported as an addition to capital in
excess of par value. The Company utilized $28,000 and no pre-reorganization
net operating loss carryforwards in fiscal 1998 and 1997, respectively.
The reconciliation of income taxes from continuing operations at the U.S.
federal statutory tax rate to the effective tax rate for the years ended June
30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(Amounts in thousands)
<S> <C> <C>
Federal tax benefit (expense) computed at 34% on
income (loss) from continuing operations before
provision for income taxes and extraordinary gain $ 65 $(270)
State taxes, net of federal benefit (78) (81)
Change in the balance of the valuation
allowance for deferred tax assets and other 85 246
----- ------
Income tax benefit (provision) from
continuing operations $ 72 $(105)
===== ======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1998 were as follows:
<TABLE>
<CAPTION>
1998
--------
(Amounts in thousands)
<S> <C>
Deferred tax assets:
Current
Deductible portion of IRS Settlement amount $ 915
Other 225
Noncurrent
Net operating loss carryforwards 20,886
Capital loss carryforwards 585
Tax basis in subsidiaries 570
Other - net 89
---------
Total deferred tax assets 23,270
Valuation allowance for deferred tax assets (22,725)
---------
Net deferred tax assets 545
---------
Deferred tax liabilities:
Noncurrent
Other 300
Basis difference in fixed assets assumed
with Belle Vernon Holiday Inn acquisition 468
---------
Total deferred tax liabilities 768
---------
Net deferred tax liability $ (223)
=========
</TABLE>
The net change in the valuation allowance was a decrease of $351,000 for the
year ended June 30, 1998, and a decrease of $184,000 for the year ended June
30, 1997. The valuation allowance of $22,725,000 at June 30, 1998 was
established because the Company has not been able to determine that it is more
likely than not that the net deferred tax assets will be realized.
The tax loss carryforward at June 30, 1998 is approximately $62,000,000, of
which approximately $18,000,000, $14,000,000, $14,000,000, $7,000,000,
$4,000,000, $3,000,000, $1,000,000 and $1,000,000 expire in fiscal years 2004,
2005, 2006, 2008, 2009, 2010, 2011 and 2012, respectively.
<PAGE>
9. Accrued Liabilities
<TABLE>
<CAPTION>
June 30,
1998
---------
<S> <C>
Accrued interest $ 23
Payroll and related benefits and taxes 365
Acquired liabilities under previously self-insured
health and other benefit plans 171
Other 237
---------
$ 796
=========
</TABLE>
10. Notes Payable and Short-term Borrowings
The following summarizes the Company's notes payable and short-term borrowings
outstanding at:
<TABLE>
<CAPTION>
June 30,
1998
(Amounts in thousands)
------------------------
<S> <C>
Revolving bank credit note of $2,000,000, due November 1, 1998, interest
at bank's prime rate (8.50% at June 30, 1998) plus 1/2% or less,
depending upon attainment of certain financial ratios as defined in the
agreement; collateralized by a first security interest in all accounts
receivable, inventories and personal property of the glass manufacturing
company. $1,490
8.75% bank note payable; payable in monthly installments of $8,333 plus
interest through July 1999; cross collateralized with the revolving credit
note above. 100
Bank note payable in monthly installments of $10,834 plus interest at
bank's prime rate (8.50% at June 30, 1998) plus 1/2% or less, depending
upon the attainment of certain financial ratios, commencing on June 1, 1997,
with the outstanding principal balance plus accrued interest due in full on
May 1, 2002. The note is cross-collateralized with the glass manufacturing
company's revolving bank credit note and 8.75% bank note payable. 520
Bank mortgage note of $1,000,000 obtained December 3, 1996 for hotel
renovations. Principal and interest at 8.85% is payable in monthly
installments of $8,983 beginning July 1, 1997. On July 1, 2002, the
interest rate changes to U.S. Treasury rate plus 2.7%. Note is due in
full on July 1, 2007 and is collateralized by a first security interest
in hotel assets. 979
Revolving line of credit from the Company's CEO; interest at ten percent;
outstanding principal and interest due in full on December 31, 1998. 100
Other 8
-------
Total notes payable and short-term borrowings $3,197
Less current portion 1,846
-------
Long-term portion of notes payable $1,351
=======
</TABLE>
<PAGE>
At June 30, 1998, the principal maturities of notes payable and short-term
borrowings for each of the five subsequent fiscal years ending June 30 are:
1999 - $1,846,000; 2000 - $152,000; 2001 - $154,000; 2002 - $157,000; and 2003
- - $31,000.
The glass manufacturing company's revolving bank credit note is subject to a
credit agreement which contains covenants requiring maintenance of a minimum
interest expense coverage ratio and a maximum leverage ratio. In addition, it
prohibits certain activities of the glass manufacturing company without the
bank's approval, including creation of debt or liens, sales of assets,
granting loans or making certain investments and participation in any mergers
or acquisitions. Also, the agreement limits the glass manufacturing company's
ability to pay dividends and the amount of dividends payable.
The hotel's bank mortgage note contains covenants requiring maintenance of a
minimum cash flow to debt service ratio and specifying the maximum amount of
capital expenditures that can be made in any year. In addition, it prohibits
certain activities of the hotel without the bank's approval, including the
creation of debts or liens, sales of assets and participation in any mergers
or acquisitions.
11. Postemployment Benefits
The Company provides health care, life insurance, and disability benefits for
eligible active employees. Prior to adoption of FAS No. 112, the Company
recognized and funded the cost of these benefits over the employees' working
lives, except for self-insured long-term disability costs which were
recognized monthly as the disability continued. FAS No. 112 requires the
Company to accrue the expected costs over the employee service period.
The Company's current health, life insurance and disability benefits are fully
insured. Accordingly, the Company has no further liability and no accrual is
needed. However, the Company previously had a disability benefit plan that
was self-insured, under which payments are still being made. In accordance
with FAS No. 112, the Company accrued the present value of the expected
payments discounted at 10%, as of July 1, 1994, of $271,000. The expected
payments were calculated based upon the earlier of the expected duration of
each individual's disability or the time remaining until the individual
reaches the age of 65, at which time the benefits cease. The total liability
outstanding at June 30, 1998, was $216,000, of which $184,000 is classified as
long-term.
12. Employee Benefit Plans
The Company has contributory savings and retirement 401(k) plans for a
majority of its employees. An employee may elect to contribute up to 15% of
their compensation during each plan year, subject to the maximum allowed by
the IRS. The Company's contributions to the union employees' plans are
governed by union labor contracts. The Company's contributions to its other
plans are determined by the Board of Directors. No liability exists for any
future contributions, except as may subsequently be determined by the Board of
Directors. The contributions expense for these plans totaled $62,000 and
$58,000 for the years ended June 30, 1998 and 1997, respectively.
13. Commitments and Contingencies
Lease Commitments:
The Company's hotel operations leases the land supporting its hotel, under an
operating lease expiring in the year 2026, with an option to extend for an
additional 25 years. The monthly lease payments are based upon 3% of room and
related revenue and 1% of other revenues of the hotel, with a minimum annual
rental of $8,000. Rent expense under this lease was $47,000 and $44,000, for
the years ended June 30, 1998 and 1997, respectively.
The Company also leases various office facilities and equipment. The office
facilities and equipment leases from continuing operations have expiration
dates that extend through December 2001. Total rental expense for continuing
operations was $155,000 and $138,000 for the years ended June 30, 1998 and
1997, respectively.
The future minimum rental commitments for continuing operations for the next
five fiscal years, under non-cancellable leases, are: 1999 - $146,000; 2000 -
$109,000; 2001 - $28,000, 2002 - $9,000; and 2003 - $8,000.
<PAGE>
Other Commitments and Contingencies:
In conjunction with NBI's acquisition of Krazy Colors, Inc. in February 1995,
the stock purchase agreement provided for continuing annual royalty payments
to the sellers, including NBI's CEO, based upon gross margin performance.
Royalties are calculated based upon gross margin in excess of $150,000 in any
calendar year and will be earned at the rate of twenty percent when the gross
margin is greater than $150,000 and less than or equal to $300,000,
twenty-five percent when the gross margin is greater than $300,000 and less
than or equal to $450,000, and thirty percent when the gross margin is greater
than $450,000. No royalties were incurred during the fiscal years ended June
30, 1998 and 1997. (See also Note 19.)
14. Stockholders' Equity
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At June 30, 1998, 10,115,520 shares were issued including 2,027,200 held in
treasury. Therefore, the Company had 8,088,320 shares issued and outstanding
at June 30, 1998.
In accordance with the provisions of the Company's fiscal 1992 Plan of
Reorganization, on February 3, 1997, the fifth anniversary of its effective
date, all of the new common stock held for unexchanged holders of NBI's old
common stock and convertible debentures reverted to the Company. As a result,
the Company received 23,164 shares of its common stock at no cost. These
shares are held in treasury.
In February 1995, the Company issued warrants to purchase 1.7 million shares
of its common stock at $.89 per share in conjunction with an acquisition.
These warrants are exercisable through December 31, 2002. As of June 30,
1998, no warrants had been exercised. (See also Note 19.)
15. Stock Options
The Employee Stock Option Plan was established pursuant to the Company's Plan
of Reorganization. At June 30, 1998, 885,750 shares were reserved under the
Employee Stock Option Plan. Options granted under this plan have an exercise
price of no less than fair market value and no more than 150% of fair market
value. The employee options are exercisable for a period of five years from
the date of the grant, unless previously forfeited. During fiscal 1998, the
Company extended 201,000 options held by certain executives for an additional
five years and recorded related noncash compensation expense of $48,000.
These options were fully vested prior to the extension date. Options vest
over four years at 25% per year with vesting continuing as long as the
optionee is employed by the Company. Options are forfeited by the optionee
three months following termination of employment with the Company. The
options granted under this plan prior to fiscal 1996 are intended to be
non-qualified stock options. Those issued subsequent to fiscal 1995 are
intended to be incentive stock options.
Options to purchase 150,000 shares of stock were outstanding at June 30, 1997,
that were issued to directors of the Company during fiscal 1993. These
options were not issued pursuant to an existing stock option plan and were
immediately exercisable on the grant date. All of these options were either
exercised or forfeited during fiscal 1998.
Options to purchase 400,000 shares of stock were issued to the Chief Executive
Officer during fiscal 1994. These options were not issued pursuant to an
existing stock option plan. These options vested over four years at 25% per
year and were fully vested as of October 1, 1997. During fiscal 1998, the
Company extended these options for an additional five years. No compensation
expense was recorded as a result of the extension because the exercise price
was greater than the fair market value of the stock on the extension date.
At June 30, 1998, 450,000 shares were reserved for options issued outside of
the Stock Option Plan.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Had compensation cost been
determined based upon the fair value at the grant date for the
<PAGE>
options, consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share for the years ended June 30, 1998 and 1997 would
have been reduced to the proforma amounts as follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
(amounts in thousands,
except per share data)
<S> <C> <C>
Net income - as reported $172 $1,044
==== ======
Net income - proforma $ 81 $1,011
==== ======
Net income per share - as reported $.02 $ .13
==== ======
Net income per share - proforma $.01 $ .13
==== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
grants issued or extended during fiscal 1996 through fiscal 1998: no dividend
yield; expected volatility of 43.35% to 45.61%; risk-free interest rate of
5.51% to 6.18%; and expected lives of 4 to 4.75 years.
During the initial phase-in period of SFAS 123, the above numbers do not
include the effect of options granted prior to July 1, 1995.
The following table summarizes, by number of shares, option transactions under
all plans:
<TABLE>
<CAPTION>
Employee Other Weighted-Average
Plan Options Total Exercise Price
--------- -------- ------ ------------------
<S> <C> <C> <C> <C>
Outstanding June 30, 1996 601,500 550,000 1,151,500 $ .65
Granted -- -- -- --
Exercised (3,750) -- (3,750) .38
Forfeited (27,250) -- (27,250) .67
--------- --------- ----------
Outstanding June 30, 1997 570,500 550,000 1,120,500 .66
Granted (1) 301,500 400,000 701,500 .63
Exercised (10,500) (100,000) (110,500) .26
Forfeited (1) (301,000) (450,000) (751,000) .65
--------- --------- ----------
Outstanding June 30, 1998 560,500 400,000 960,500 .69
========= ========= ==========
Options exercisable
at June 30, 1998 334,250 400,000 734,250 $ .68
========= ========= ==========
<FN>
(1) Amounts include options for 201,000 shares and 400,000 shares under the employee plan and
other, respectively, that were extended during fiscal 1998.
</TABLE>
<TABLE>
<CAPTION>
Employee Other
Plan Options
-------- --------
<S> <C> <C>
Weighted-average fair value of
options granted for the year
ended June 30, 1998 $ .26 $ --
======= =======
Weighted-average fair value of
options granted for the year
ended June 30, 1997 $ -- $ --
======= ======
</TABLE>
<PAGE>
The following table summarizes information about the stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Weighted-Average
Remaining
Exercise Number Number Contractual
Price Outstanding Exercisable Life
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ .38 216,000 212,250 4.15 years
$ .59 100,500 -- 4.42 years
$ .77 400,000 400,000 5.25 years
$ .88 244,000 122,000 2.45 years
------- -------
960,500 734,250
======= =======
</TABLE>
16. Income (Loss) Per Common Share
During the Company's second quarter of fiscal 1998, NBI, Inc. adopted SFAS No.
128 issued by the Financial Accounting Standards Board. SFAS No. 128 provides
for the calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
(loss) available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. Fiscal 1997's earnings
per share data has been restated to reflect the requirements of SFAS No. 128.
The following reconciles the numerators and denominators of the basic and
diluted earnings per common share computation for income (loss) before
discontinued operations and extraordinary gain for the years ended June 30,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------ -----
Basic Diluted Basic Diluted
------- ------- ------- ---------
(Amounts in thousands
except per share data)
<S> <C> <C> <C> <C>
Income (loss) before discontinued
operations and extraordinary gain $ (118) $ (118) $ 690 $ 690
======= ======= ====== ======
Weighted average number of common
shares outstanding 8,077 8,077 7,991 7,991
======= ======
Assumed conversions of stock options -- 211
------- ------
8,077 8,202
======= ======
Income (loss) per common share before
discontinued operations and
extraordinary gain $ (.01) $ (.01) $ .09 $ .08
======= ======= ====== ======
</TABLE>
Because the Company incurred a loss before discontinued operations and
extraordinary gain for the year ended June 30, 1998, none of its outstanding
options or warrants were included in the computation of diluted earnings per
share as their effect would be anti-dilutive.
For the year ended June 30, 1997, the Company's $.25 and $.38 stock options
were included in the computation of diluted earnings per share because their
exercise price was less than the average market price of the common stock
outstanding.
<PAGE>
The options and warrants outstanding at June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Number
Exercise Outstanding at
Price June 30, 1998
--------- ----------------
<S> <C> <C>
Stock optiions:
$ . 38 216,000
$ . 59 100,500
$ .77 400,000
$ .88 244,000
Warrants:
$ .89 1,700,000
---------
2,660,500
=========
</TABLE>
17. Segment Information
The Company operates primarily in the glass manufacturing and hotel operations
industries. Both of these operations are located in southwestern
Pennsylvania. Previously, the Company operated primarily in the computer
industry. Those operations have been discontinued and reported separately
(See Note 3). The segment information presented below excludes amounts
related to general corporate activities.
The Company's glass manufacturer sells its glass giftware primarily to
traditional and specialty retailers, manufacturers/wholesalers and the food
service market throughout the United States. L.E. Smith Glass Company
currently has one significant customer. Sales to this customer totaled
approximately 34% and 28% of NBI's consolidated revenues in fiscal 1998 and
1997, respectively. In addition, this customer constituted approximately 33%
of the Company's consolidated accounts receivable at June 30, 1998.
In addition, the glass manufacturer purchases a majority of its raw materials
from only a few vendors. Management believes that other suppliers could
provide similar materials on comparable terms.
As of June 30, 1998, approximately 70% of the Company's employees were covered
by collective bargaining agreements expiring in fiscal 1999.
<TABLE>
<CAPTION>
1998 1997
------ ------
(Amounts in thousands)
<S> <C> <C>
Revenue from continuing operations:
Glass manufacturing $12,233 $11,052
======== ========
Hotel operations $ 2,174 $ 1,972
======== ========
Children's paint manufacturing $ 286 $ 645
======== ========
Land development $ -- $ --
======== ========
Operating income (loss):
Glass manufacturing $ 1,391 $ 1,376
======== ========
Hotel operations $ 38 $ 5
======== ========
Children's paint manufacturing $ (447) $ (114)
======== ========
Land development $ (24) $ (7)
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------ ------
(Amounts in thousands)
<S> <C> <C>
Identifiable assets:
Glass manufacturing $7,751 $6,595
====== ======
Hotel operations $2,862 $2,919
====== ======
Children's paint manufacturing $ 290 $ 563
====== ======
Land development $1,183 $1,131
====== ======
Additions to property, plant and equipment:
Glass manufacturing $1,237 $ 701
====== ======
Hotel operations $ 38 $1,154
====== ======
Children's paint manufacturing $ 1 $ 41
====== ======
Land development $ 52 $1,105
====== ======
Depreciation and amortization:
Glass manufacturing $ 513 $ 405
====== ======
Hotel operations $ 181 $ 137
====== ======
Children's paint manufacturing $ 39 $ 41
====== ======
Land development $ -- $ --
====== ======
</TABLE>
18. Other Income and Expense
Included in other income and expense for the year ended June 30, 1997 was
income of $348,000, net of legal fees, related to the recovery of a note
receivable for which the Company had previously established a reserve,
partially offset by expenses of $126,000 for architect fees related to hotel
improvement projects that the Company has decided not to pursue.
19. Related Party Transactions
In February 1995, the Company entered into an agreement to purchase 80% of
the outstanding stock of Krazy Colors effective January 1, 1995. Prior to
this agreement, the Company's Chief Executive Officer ("CEO"), Jay H. Lustig,
owned 55% of the outstanding stock of the manufacturer. Subsequent to this
transaction, the CEO owns 11% of the stock in Krazy Colors, Inc. As a part of
the purchase agreement, the sellers are eligible to receive continuing annual
royalty payments based upon gross margin performance in excess of specified
amounts (see Note 13). NBI's CEO will receive 55% of any such royalty
payments. No royalties were incurred by the Company during fiscal years ended
June 30, 1998 or 1997. In addition, in conjunction with the purchase
agreement, the sellers were issued warrants to purchase 1.7 million shares of
the Company's common stock, including warrants to purchase 935,000 shares
issued to the Company's CEO, at a price of $.89 per share. All of the
warrants are still outstanding and are exercisable through December 31, 2002.
During fiscal 1998 and 1997, the Company utilized a stock brokerage firm,
which is 100% owned by its CEO, to execute certain transactions on its behalf.
However, NBI uses another unrelated company to act as custodian and clearing
firm for its investment assets. Gross revenues earned by the brokerage firm
related to investment transactions by NBI in fiscal 1998 and 1997, totaled
$1,000 and $90,000, respectively, on purchase and sale transactions totaling
$1,250,000 and $47,968,000 before fees, respectively.
<PAGE>
During fiscal 1998, the Company borrowed a total of $100,000 from its Chief
Executive Officer for working capital needs. This amount was included in
short-term borrowings at June 30, 1998. The borrowings are subject to the
terms of a revolving line of credit note which provides for interest to be
paid at the rate of ten percent per annum. The entire principal amount
outstanding is due and payable in full on December 31, 1998.
The Company believes that these transactions were in its best interests, were
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and were in connection with bona fide business
purposes of the Company.
20. Subsequent Event
On August 1, 1998, the Company entered into a development and a leasing
agreement with a real estate developer for phase I of its planned commercial
real estate project in Belle Vernon, Pennsylvania. The development agreement
provides for a development fee of $250,000 to be paid over the construction
period, with a minimum fee of $15,000 if the Company is unsuccessful in
obtaining adequate financing for the project. The leasing agreement requires
a leasing commission based upon the square footage of the space leased,
payable 50% upon execution of the lease and 50% upon tenant occupancy. In
addition, the leasing agreement provides for a sales commission based upon the
gross proceeds of the sale of an outparcel, payable upon closing of the sale.
<PAGE>
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer
to sell or the solicitation of an offer to buy any securities offered by this
Prospectus, nor does it constitute an offer to sell or a solicitation of an
offer to buy the Preferred Stock by any person in any jurisdiction in which
such an offer or solicitation is not authorized, or in which the individual
making such offer or solicitation is not qualified to do so, or to any
individual to whom it is unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information contained
herein is correct as of any time subsequent to the date hereof or that there
has been no change in the affairs of the Company since that date.
___________________________________
TABLE OF CONTENTS
Page
Prospectus Summary
Risk Factors
Use of Proceeds
Dividend Policy
Capitalization
Selected Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Business
Management
Principal Stockholders
Certain Transactions
Description of Capital Stock
Shares Eligible for Future Sale
Underwriting
Legal Matters
Experts
Available Information
Index to Financial Statements
Until __________, 199__ (25 days after the date of this Prospectus),
all dealers effecting transactions in this Preferred Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
1,000,000 UNITS
NBI, INC.
[ ] 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws and Certificate of Incorporation provide that the
Company shall, to the full extent permitted by the General Corporation Law of
the State of Delaware, as amended from time to time, indemnify all directors
and officers of the Company. Section 145 of the Delaware General Corporation
Law provides in part that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in defense or settlement of any threatened,
pending or completed action or suit by or in the right of the corporation, if
such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides)
such person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
standard of conduct. The indemnitee is presumed to be entitled to
indemnification and the Company has the burden of proof to overcome that
presumption. Where an officer or a director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director
actually or reasonably incurred.
The Certificate of Incorporation also provides that directors shall have
no personal liability to the Company or its stockholders for breach of
fiduciary duty as a director. This provision does not eliminate the liability
of a director (i) for a breach of the director's duty of loyalty to the
Company or its stockholders; (ii) for acts or omissions by the director not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for liability arising under Section 174 of the Delaware General
Corporation Law (relating to the declaration of dividends and purchase or
redemption of shares in violation of the Delaware General Corporation Law); or
(iv) for any transaction from which the director derived an improper personal
benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Company in connection with the sale of the Units being registered (all amounts
are estimated except the SEC Registration Fee).
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 3,658
Blue Sky Qualification Fees and Expenses (including legal fees) 20,000
Printing Expenses 10,000
Legal Fees and Expenses (other than blue sky) 111,000
Auditors' Fees and Expenses 15,000
Transfer Agent and Registrar Fees 10,000
Miscellaneous Expenses 8,342
--------
Total estimated expenses $178,000
========
</TABLE>
_____________
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Registrant has sold its securities
pursuant to the following transactions, all of which were exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Act").
In March 1996, the Company sold 1,500,000 shares of Common Stock to one
individual and one corporation for $.70 per share. These shares were issued
in a private offering pursuant to the exemption from registration contained in
Section 4(2) of the Act. The purchasers were sophisticated investors and were
familiar with the business and financial affairs of the Registrant. The
offerings were not made by means of any general solicitation, shares were
acquired without a view toward distribution thereof, and the purchasers
represented that they were able to bear the economic risk of their investment.
The shares were issued with an investment legend thereon and stop transfer
instructions were given to the Registrant's transfer agent.
ITEM 27. EXHIBITS.
Exhibit
Number Description of Exhibits
- -------- ---------------------------------------------------------------
1.1 Form of Selected Dealer Agreement.(6)
3.1 Amended and Restated Certificate of Incorporation of the
Company.(3)
3.2 Amended and Restated Bylaws of the Company.(3)
3.3 Form of Certificate of Designation of Series A Preferred Stock,
subject to approval of stockholders.(6)
4.1 Form of Series A Preferred Stock Certificate.(6)
4.2 Warrant Agreement and Form of Warrant.(6)
5.1 Form of Opinion of Ireland, Stapleton, Pryor & Pascoe, P.C. as
to the legality of issuance of the Company's Preferred
Stock.(6)
10.1 NBI, Inc. Employee and Director Stock Option Plan(1)
10.2 Form of NBI, Inc. Director Non-Qualified Stock Option
Agreement.(1)
10.3 Form of NBI, Inc. Chief Executive Officer Non-Qualified Stock
Option Agreement. (1)
10.4 Krazy Colors, Inc. Stock Purchase Agreement.(2)
10.5 Krazy Colors, Inc. Shareholder Agreement.(2)
10.6 Jay H. Lustig Warrant Certificate.(2)
10.7 Belle Vernon Motel Corporation Land Lease Agreement.(3)
10.8 Agreement between L.E. Smith Glass Company and The American
Flint Glass Workers' Union.(3)
10.9 Amended Payment Agreement with the Internal Revenue Service. (4)
10.10 Consulting Agreement between the Company and Morris D.
Weiss.(5)
<PAGE>
10.11 Revolving Line of Credit from Chief Executive Officer. (5)
11.1 Statement re: computation of per share earnings. See Item 22 -
Financial Statements herein.
21.1 Subsidiaries of Registrant - See Item 6 - Business, herein.
23.1 Consent of BDO Seidman, LLP.(6)
23.2 Consent of Ireland, Stapleton, Pryor & Pascoe, P.C. (see
Exhibit 5.1).(6)
25.1 Power of Attorney - See Page II-5.
99.1 Form of Subscription Agreement.(6)
_________________
(1) Incorporated by reference to Registration Statement No. 33-73334.
(2) Incorporated by reference to the Company's report on Form 10-QSB for
the quarter ended December 31, 1994.
(3) Incorporated by reference to the Company's report on Form 10-KSB for
the fiscal year ended June 30, 1995.
(4) Incorporated by reference to the Company's report on Form 10-QSB for
the quarter ended March 31, 1998.
(5) Incorporated by reference to the Company's report on Form 10-KSB for
the fiscal year ended June 30, 1998.
(6) Filed herewith.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant, 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:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by section 10(a)(3) of the Securities Act of
1933; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) that, 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
<PAGE>
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.
(3) that, 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 thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Longmont,
Colorado, on this 27th day of October, 1998.
NBI, INC.
By: /S/ JAY H. LUSTIG
----------------------
Jay H. Lustig
Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and/or officers of the Registrant, by virtue of
their signatures to this Registration Statement appearing below, hereby
constitute and appoint Jay H. Lustig or Marjorie A. Cogan, or either of them,
with full power of substitution, as attorney-in-fact in their names, places
and steads to execute any and all amendments to this Registration Statement in
the capacities set forth opposite their names and hereby ratify all that said
attorneys-in-fact may do by virtue hereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
AND ON THE DATES STATED.
Signatures Title Date
---------- --------- --------
/S/JAY H. LUSTIG Chief Executive Officer October 27, 1998
- ------------------------- and Chairman of the Board
Jay H. Lustig (Principal Executive Officer)
/S/MARJORIE A. COGAN Chief Financial Officer and October 27, 1998
- -------------------------- Secretary (Principal Financial
Marjorie A. Cogan and Accounting Officer)
/S/MARTIN J. NOONAN Director October 27, 1998
- --------------------------
Martin J. Noonan
Exhibit 1.1
NBI, INC.
a Delaware Corporation
A MINIMUM OF 370,000 UNITS AND
A MAXIMUM OF 1,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF SERIES A CUMULATIVE PREFERRED STOCK AND
TWO DETACHABLE COMMON STOCK PURCHASE WARRANTS, EXERCISABLE AT $1.20 PER SHARE
SELECTED DEALER AGREEMENT
Dated as of , 1998
________________________
________________________
________________________
Gentlemen:
NBI, Inc. (the "Company"), a Delaware corporation, has filed a
Registration Statement on Form SB-2 (SEC File No. 333-63053) (the
"Registration Statement") relating to the offering (the "Offering") by the
Company of a minimum of 370,000 Units and a maximum of 1,000,000 Units, each
Unit (a "Unit") consisting of one share of Series A Cumulative Preferred Stock
("Shares") and two detachable Common Stock Purchase Warrants, exercisable at
$1.20 per share (each a "Warrant"). The purchase price for a Unit shall be
$10.00 per Unit, $9.42 of which shall represent the purchase price for a Share
and $.29 of which shall represent the purchase price for each Warrant. The
minimum purchase by any investor shall be 10,000 Units ($100,000) which
minimum purchase amount may be waived by the Company in its sole discretion.
The Company intends to offer the Units through its own officers and
employees but has elected to engage you as a selected dealer (the "Selected
Dealer") to participate in the Offering on the terms and subject to the
provisions of this agreement (the "Agreement"). The offer and sale of Units
will be made in accordance with the Registration Statement (reference to which
shall be deemed to include the Prospectus included therein, any supplements
and amendments thereto, and all financial statements and exhibits that are
included therein). All capitalized terms not defined in this Agreement shall
have the meanings ascribed to them in the Registration Statement. For
purposes of this Agreement, a "Closing" shall refer to and mean any sale of
the Units being offered and payment of the funds on deposit with the escrow
account or otherwise, as referred to in Section 4 hereof; and "Closing Date"
shall refer to and mean the date of any Closing.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Selected Dealer
as of the date hereof, and as of the date of each Closing, if any, as follows:
a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") the Registration Statement, and
amendments thereto, on Form SB-2, including any related Prospectus, which
Registration Statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations of the Commission under the
Act (the "Rules and Regulations").
b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of the Registration
Statement or any part thereof and no proceedings for a stop order suspending
the qualification of the Registration Statement or any of the Company's
securities have been instituted or are pending or threatened. The
Registration Statement, at the time of filing thereof, conformed with the
requirements of the Act and the Rules and Regulations, and the Registration
Statement, at the time of filing thereof, did not contain any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
c) When the Registration Statement becomes effective and at all
times subsequent thereto up to each Closing Date, if any, and during such
longer period as a Prospectus may be required to be delivered in connection
with sales by the Company or the Selected Dealer, the Registration Statement
will contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and will conform to the
requirements of the Act and the Rules and Regulations; and at and through such
dates, neither the Registration Statement, nor any amendment thereof or
supplement thereto, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
d) The Company and each of its subsidiaries (individually, a
"Subsidiary" and collectively, the "Subsidiaries") have been duly organized
and is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation. Each of the Company and its
Subsidiaries is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations require such qualification or
licensing, except where the failure to be so qualified would not have a
material adverse effect on the Company and the Subsidiaries taken as a whole.
Each of the Company and the Subsidiaries has all requisite power and authority
(corporate and other), and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar matters)
necessary to own or lease its properties and conduct its business as described
in the Registration Statement. The disclosures in the Registration Statement
concerning the effects of federal, state, local and foreign laws, rules and
regulations on the Company's and the Subsidiaries' businesses as currently
conducted and as contemplated are correct in all respects and do not omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement under
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Dates, if any, based upon the
assumptions set forth therein. Neither the Company nor any Subsidiary is a
party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Registration
Statement. The Shares, Warrants and all other securities issued or issuable
by the Company conform or, when issued and paid for, will conform, in all
respects to the description thereof contained in the Registration Statement.
All issued and outstanding securities of the Company and the Subsidiaries have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission with respect thereto; and
none of such securities were issued in violation of the preemptive rights or
other similar rights of any holders of any security of either the Company or
any Subsidiary. The Shares and shares of Common Stock underlying the Warrants
(the "Warrant Shares") are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Shares, Warrants and Warrant Shares has been duly and validly taken; and
the certificates representing the Shares and Warrants, when delivered by the
Company, will be in due and proper form. Upon the issuance and delivery
pursuant to the terms hereof of the Shares and Warrants to be sold by the
Company hereunder and thereunder, the purchasers thereof will acquire good and
marketable title to such Shares and Warrants, free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against the Company or
any affiliate (within the meaning of the Rules and Regulations) of the
Company.
f) The consolidated financial statements of the Company and the
notes thereto included in the Registration Statement fairly present the
financial position, income, changes in stockholders' equity and the results of
operations of the Company at the respective dates and for the respective
periods to which they apply and such financial statements have been prepared
in conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved. The as
adjusted and/or pro forma financial information included in the Registration
Statement present fairly, in all material respects, the information shown
therein and have been properly compiled on the basis described therein. The
assumptions underlying such as adjusted and/or pro forma financial information
are reasonable and the adjustments made therein are appropriate to give effect
to the transactions or circumstances referred to therein. The financial
information set forth in the Registration Statement under the heading
"Capitalization" fairly presents, on the basis stated in the Registration
Statement, the information set forth therein and such financial information
has been derived from or compiled on a basis consistent with that of the
financial statements included in the Registration Statement.
g) The Company and each Subsidiary maintain insurance policies,
including, but not limited to, general liability, property, personal and
product liability insurance, and surety bonds which insure such entities,
their employees and patrons and such other persons to whom such entities may
become liable against such losses and risks generally insured against by
comparable businesses.
h) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or businesses of, the
Company or any Subsidiary which (i) questions the validity of the capital
stock of the Company or any Subsidiary, this Agreement or of any action taken
or to be taken by the Company pursuant to or in connection with this
Agreement, (ii) is required to be disclosed in the Registration Statement
which is not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects), or (iii)
would materially and adversely affect the condition, financial or otherwise,
earnings, business affairs, position, prospects, stockholders' equity, value,
operations, properties, businesses or results of operations of the Company and
Subsidiaries taken as a whole.
i) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Units, to enter into this Agreement and
to consummate the transactions provided for herein; and this Agreement has
been or will be duly and properly authorized, executed and delivered by the
Company. This Agreement constitutes or will constitute a legal, valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable
law), and none of the Company's issue and sale of the Units, execution or
delivery of this Agreement, its performance hereunder, its consummation of the
transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement conflicts with or will conflict
with, or results or will result in any breach or violation of any of the terms
or provisions of, or constitutes or will constitute a default under, or
results or will result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company or any Subsidiary pursuant to the terms of (i) the
articles of incorporation or by-laws of the Company or any Subsidiary, (ii)
any material contract of the Company that is required to be filed as an
exhibit to the Registration Statement or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company or any Subsidiary of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company, the Subsidiary or any of their
activities or properties.
j) The descriptions in the Registration Statement of
agreements, contracts and other documents are accurate and fairly present the
information required to be shown with respect thereto by Form SB-2; there are
no agreements, contracts or other documents which are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required; and the
exhibits which have been filed are complete and correct copies of the
agreements, contracts or other documents of which they purport to be copies.
2. Representations and Warranties of the Selected Dealer. The
Selected Dealer represents and warrants to, and covenants and agrees with, the
Company as of the date hereof, and as of the date of each Closing, if any, as
follows:
a) The Selected Dealer has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of its
organization, with all requisite corporate power and authority to conduct its
business and to perform the obligations contemplated herein.
b) This Agreement has been duly and validly authorized,
executed and delivered by the Selected Dealer and constitutes your valid,
binding and enforceable agreement, except to the extent that the
enforceability of this Agreement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally or by general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law), and the
indemnification provisions of this Agreement may be held to violate public
policy (under either state or federal law) in the context of the offer or sale
of Units.
c) The execution and delivery of this Agreement by the Selected
Dealer, and the performance of its obligations hereunder, will not result in a
violation of, be in conflict with or constitute a default under any agreement
or instrument to which its is a party or by which it or its properties are
bound, or any judgment, decree, order or, to its knowledge, any statute, rule
or regulation applicable to it.
d) The Selected Dealer is (and will continue to be during the
term of this Agreement) a member in good standing of the NASD and agrees to
abide by the Rules of Fair Practice of such association. The Selected Dealer
is properly registered or licensed as a broker or dealer under applicable
federal and state securities laws and regulations. The Selected Dealer, its
affiliates, and its or their officers and directors (or any other person
serving in a similar capacity) have not taken or failed to take any act, and
are not subject to any order or proceedings, that would make them ineligible
to serve as a Selected Dealer as contemplated by this Agreement.
3. Selected Dealer's Compensation.
a) The Company hereby appoints the Selected Dealer as its
non-exclusive agent to sell and to obtain purchasers for the Units at a price
of $10.00 per Unit on a "best efforts" basis. Selected Dealer acknowledges
and agrees that the Company, through its officers and employees, intends to
offer Units.
b) Subject to the effectiveness of the Registration Statement
in compliance with the provisions of the Act and the Rules and Regulations and
the availability for sale to the public, pursuant to law, of the Units and
subject to the fulfillment of all of the obligations of the Company and
compliance with all of the terms and conditions hereof by the Company and in
reliance upon the warranties, representations and covenants made by the
Company herein, the Selected Dealer accepts the foregoing non-exclusive agency
and agrees to use its best efforts during the term of this Agreement to sell
the Units when and as issuable at the public offering prices set forth above.
c) As compensation for the services of the Selected Dealer
herein, the Company shall allow the Selected Dealer, subject to the sale and
receipt of funds for at least 370,000 Units (including Units sold by or
through the Company or any other selected dealer), a sales commission of three
percent (3%) of the public offering price on all Units sold by or through the
Selected Dealer hereunder. Notwithstanding anything to the contrary contained
in this Section 3, it is specifically contemplated that the Company will
directly offer Units and may engage additional selected dealers to offer and
sell Units to the public. With respect to direct sales by the Company or
sales by any other selected dealers, the Selected Dealer shall not be entitled
to receive a commission or any other compensation.
d) The Company will pay and bear, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to the authorization of the Units and their issuance and
delivery to investors, any original issue taxes in connection therewith, all
transfer taxes, if any, incident to the initial sale of the Units to the
public, the fees and expenses of the Company's counsel and independent
accountants, all travel costs incurred by the Company's personnel in
connection with the offering, all cost and expenses incident to the
preparation, printing and filing under the Act of the Registration Statement
and any amendments or supplements thereto, the costs of printing, reproducing
and filing all exhibits to the Registration Statement, the cost of printing
and furnishing to the Selected Dealer such copies of the Registration
Statement and related documents as are reasonably requested by the Selected
Dealer, and the cost of qualifying the Units under state securities or blue
sky laws, including all filing fees and any other expenses and disbursements
incurred in connection with such qualification, all costs of any due diligence
informational meetings.
4. Escrow Account
a) Notwithstanding anything contained herein to the contrary,
unless at least 370,000 Units have been sold on or prior to December 31, 1998,
none of the Units will be sold to the public and the Offering will terminate
and all monies received on subscriptions will be promptly refunded to all
subscribers, without interest or deduction; provided that the Company may, in
its sole discretion, extend the Initial Offering Expiration Date by up to 60
days so long as the conditions to such extension described in the Registration
Statement under "Plan of Distribution" are satisfied. An escrow account (the
"Escrow Account") shall be established by the Company with Southern California
Bank for all monies to be received from the sale of securities being offered,
until the date of acceptance of subscriptions for the sale of the Minimum
Offering Amount. Such monies shall be deposited in full without any
deductions for commissions and/or expenses.
b) The Selected Dealer shall comply in all respects with the
requirements of Rules 10b-9 and 15c-2-4 of the rules and regulations made by
the Commission under the Securities Exchange Act of 1934, as amended. The
Selected Dealer shall promptly deposit the proceeds of the sale of the Units
in the Escrow Account for the benefit of the subscribers, until the Minimum
Offering Amount is sold, and the same shall be held in such Escrow Account
until the initial Closing Date, and upon such Closing Date the said funds,
shall be promptly transmitted to the Company, who shall at said time provide
such documents, certificates, receipts and any and all other papers or
instruments as counsel may reasonably deem necessary or appropriate under the
circumstances. Subsequent to the date of acceptance of subscriptions for the
sale of the Minimum Offering Amount, the Selected Dealer must deliver all
monies received from the sale of the securities directly to the Company.
5. Covenants of the Selected Dealer. The Selected Dealer covenants
and agrees with the Company that:
a) The Selected Dealer or a person acting on its behalf shall
furnish to each offeree, concurrently with making an offer to such offeree
(and its purchaser representative, if such a representative has been
selected), a copy of the Registration Statement or Prospectus, as it may have
been amended or supplemented by the Company.
b) The Selected Dealer will abide by, and take reasonable
precautions to insure compliance with, all provisions contained in the
Registration Statement and this Agreement regulating the terms and manner of
conducting the Offering.
c) The Selected Dealer will comply with all applicable
requirements of the Act and the Rules and Regulations relating to the Offering
contemplated hereby. The Selected Dealer shall not provide any information
regarding the Company, in writing or otherwise, other than the information
contained in the Registration Statement or such other information as is
specifically authorized by the Company for use by the Selected Dealer in
connection with the Offering.
d) The Selected Dealer will comply with all applicable
requirements of any state securities or "blue sky" law or rule or regulation
promulgated thereunder. The Selected Dealer will not offer or sell any of the
Units in any jurisdiction (i) prior to receiving written instructions from the
Company that offers may be made in such jurisdiction and (ii) except in
compliance with all applicable securities or "blue sky" laws.
6. Covenants of the Company. The Company covenants and agrees with
the Selected Dealer that:
a) The Company will use its best efforts to cause the
Registration Statement to become qualified and, during the term of this
Agreement, will advise the Selected Dealer immediately and, if requested by
the Selected Dealer, will confirm such advice in writing (i) when the
Registration Statement has become qualified and when any post-qualification
amendment thereto become qualified, or when any supplement to the Registration
Statement or any amended Registration Statement has been filed; (ii) of any
request by the Commission for any amendments or supplements to the
Registration Statement or for additional information; (iii) of the issuance by
the Commission of any order suspending or revoking the effectiveness of the
Registration Statement for the sale of the Units hereunder or of any order
preventing or suspending the use of any Prospectus or the institution of any
proceedings for any such purposes; (iv) of the happening of any event which
makes any statement in the Registration Statement untrue and which requires
the making of any changes in the such Registration Statement in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; and (v) of the refusal to qualify or the suspension
of the qualifications of the Units for offering or sale in any jurisdiction,
or of the institution of any proceedings for any of such purposes. The
Company will use its best efforts to prevent the issuance of any such order or
of any order preventing or suspending such use, to prevent any such refusal to
qualify or any such suspension, and to obtain as soon as possible a lifting of
any such order, the reversal of any such refusal and the termination of any
such suspension.
b) The Company will deliver to the Selected Dealer, without
charge, in such quantities as the Selected Dealer may reasonably request,
copies of each form of Registration Statement and Prospectus included therein.
The Company consents to the use of each form of Registration Statement or
Prospectus by the Selected Dealer in accordance with the Act and the Rules and
Regulations.
c) If, during such period of time as in the reasonable opinion
of the Selected Dealer a Prospectus relating to the Offering is required to be
delivered, any event occurs as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material fact,
or omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
or if it is necessary at any time after the date of effectiveness of the
Registration Statement to amend or supplement the Registration Statement or
Prospectus to comply with the Act, the Company will forthwith notify the
Selected Dealer thereof and prepare and file with the Commission and furnish
and deliver to the Selected Dealer and to others whose names and addresses are
designated by the Selected Dealer, all at the cost of the Company, a
reasonable number of the amended or supplemented Prospectuses or Registration
Statements which as so amended or supplemented will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances when it is delivered to a purchaser, and which will comply in
all respects with the Act.
d) The Company will use its best efforts promptly to do and
perform all things to be done and performed by it hereunder prior to the
completion of the Offering contemplated hereby and to satisfy all conditions
which it is required to satisfy prior to the delivery by it of the Units being
offered.
e) Prior to the completion of the Offering, the Company will
cooperate with the Selected Dealer in such investigations as the Selected
Dealer may make or cause to be made of the properties, business and operations
of the Company in connection with the offering of the Units and will make
available to the Selected Dealer in connection therewith such information in
its possession as the Selected Dealer may reasonably request.
7. Conditions of Obligations of the Selected Dealer. The Selected
Dealer's obligation to act as a non-exclusive agent of the Company hereunder
and to find purchasers for the Units being offered and to arrange for payment
to the Company for the Units purchased by or through it is subject to the
accuracy of and compliance with the representations and warranties on the part
of the Company herein as of the date hereof and as of the date of each
Closing, to the performance by the Company of its obligations and covenants
hereunder, and to the following further conditions:
a) No stop order or other action suspending the qualification
of the Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been taken or, to the
knowledge of the Company, shall be contemplated by the Commission; and
b) The Units being offered shall be qualified or an appropriate
exemption from such qualification shall be available in such states as may be
required under the securities laws of applicable states and any such
qualification shall be in effect and not subject to any stop order or other
proceeding on the date of qualification and on the date of each Closing.
8. Indemnification
a) The Company agrees to indemnify and hold harmless the
Selected Dealer and each person, if any, who controls the Selected Dealer
within the meaning of the Act against any losses, claims, damages or
liabilities to which such Selected Dealer or such controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise
out of or are based solely upon (i) any untrue statement of any material fact
contained in the Registration Statement, Prospectus or any amendment or
supplement thereto, or (ii) the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Selected Dealer and each such controlling
person for any legal or other expenses reasonably incurred by such Selected
Dealer or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding, or
(iii) any violation of the Act or the Rules or Regulation by the Company in
connection with any direct sale of Units or other securities by the Company.
This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
The Selected Dealer agrees to indemnify and hold harmless the
Company, its officers, employees, agents and affiliates against any losses,
claims, damages or liabilities to which such Selected Dealer or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any breach or violation of
any representation, warranty, covenant or other agreement contained in this
Agreement, by the Selected Dealer or such controlling person or (ii) any
violation of the Act or the Rules or Regulation by the Selected Dealer in
connection with any sale of Units or other securities of the Company by the
Selected Dealer. The Selected Dealer or such controlling person will
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding. This indemnity agreement
will be in addition to any liability which the Company or Selected Dealer may
otherwise have.
b) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) shall be available to any party
who shall fail to give notice as provided in this Section 8(b) if the party to
whom notice was not given was unaware of the proceeding to which such notice
would have related and was prejudiced by the failure to give such notice. In
case any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated
in writing by the Selected Dealer in the case of parties indemnified pursuant
to Section 8(a). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with written consent or if there is a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
c) If the indemnification provided for in this Section 8 is
unavailable to hold harmless an indemnified party under Section 8(a) above in
respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Selected Dealer on the other from the offering of the Units. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Selected Dealer on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof), as well
as any other relevant equitable considerations. No party shall be liable for
contribution with respect to any claim or action settled without its consent
which shall not be unreasonably withheld.
9. Notices. Whenever in this Agreement it shall be required that
notice or demand be given or served by either party hereto, such notice or
demand shall be in writing and shall be delivered personally (including,
receipted delivery service such as Federal Express) or forwarded by registered
or certified mail, postage prepaid, addressed as follows:
To Selected Dealer:
To Company: NBI, Inc.
1880 Industrial Circle, Suite F
Longmont, CO 80501
Attn: Marjorie A. Cogan
With a copy to:
NBI, Inc.
701 Brickell Ave, Suite 2100
Miami, FL 33131
Attn: Morris D. Weiss
or elsewhere, as the respective parties hereto may from time to time designate
in writing. Any notice given by certified or registered mail shall be deemed
to have been given not later than forty-eight (48) hours after having been
deposited in the United States mail.
10. Termination. This Agreement may be terminated (i) by either
party upon five (5) days prior written notice; provided, however, that any
such termination shall not affect the rights and obligations of the parties
pursuant to Section 8 hereof or the right of the Selected Dealer to receive
compensation pursuant to Section 3 hereof, for the sale of Units the proceeds
of which were deposited into the Escrow Account prior to termination of the
Agreement but for which Closing did not occur until subsequent to termination;
or (ii) in the event that the Company has not completed the sale of at least
370,000 Units by the Initial Offering Expiration Date (as such date may be
extended as described in the Registration Statement).
11. Successors. This Agreement has been and is made solely for the
benefit of the Selected Dealer and the Company and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. The term "successors" shall not
include any purchaser of the Units merely because of such purchase.
12. Expenses. If either party is compelled to incur any expenses,
including reasonable attorneys' fees, in connection with any action or
proceeding instituted by either party by reason of any default or alleged
default of the ether party hereunder, the party prevailing in such action or
proceeding shall be entitled to recover its reasonable expenses, including
attorneys' fees, from the other party.
13. Resolution of Disputes. Except as herein-after otherwise
provided, any controversy or claim arising out of or relating to this
Agreement or breach thereof shall be resolved by arbitration before a retired
judge of the Superior Court of the State of Colorado for the County of
Boulder (the "Superior Court") in the following manner:
a) The arbitration shall begin by one party serving a complaint and
a demand for arbitration upon the other parties. The party serving the demand
shall include with the demand a list of five retired judges of the Superior
Court from the then available list of retired judges willing to act as private
judges. The responding party shall then have ten days to select the
arbitrator from the list of five. If the selected arbitrator is unavailable,
the responding party may choose another name; with the process repeated until
the list of five is exhausted. If none of the five judges is available, the
responding party may select a judge from the list of available retired judges.
b) The arbitration shall take place in Boulder, Colorado at a time
and place selected by the arbitrator.
c) The parties shall evenly divide the cost of the arbitrator's
fees. The arbitrator shall have the power, as part of any award, to include
these fees as an element of recovery.
d) Should the arbitrator at any time prior to the commencement of
the arbitration hearing become incapacitated or otherwise unable to fulfill
his or her duties, the parties agree to seek a mutually agreeable replacement.
e) Except as set forth by that procedure, the arbitrator's award
shall be considered final, and not subject to appeal or collateral attack.
f) This section shall only operate to require arbitration of claims
for money damages. Should a party wish to seek injunctive or other
non-monetary relief, those claims shall be brought in a court of competent
jurisdiction.
14. Miscellaneous.
a) This Agreement contains the entire agreement of the parties
hereto with respect to the matters covered hereby.
b) 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.
c) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Colorado. Subject to the provisions of Section
13 of this Agreement, any action relating to this Agreement or the
transactions contemplated hereby shall be brought in the federal or state
courts of the State of Colorado, County of Boulder.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
Selected Dealer in accordance with its terms.
Very truly yours,
NBI, INC., a Delaware corporation
By:____________________________
Name:
Title:
The foregoing Selected Dealer Agreement
is hereby confirmed and accepted as
of the date first above written.
____________________________________________
By:_____________________________________
Name:
Title:
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF
SERIES A CUMULATIVE PREFERRED STOCK
OF
NBI, INC.
A DELAWARE CORPORATION
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
NBI, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that, pursuant to the authority contained in Article Fourth of its Certificate
of Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors has
adopted the following resolution creating a series of its Preferred Stock
designated as Series A Cumulative Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of the
Corporation be, and hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof, are as follows:
BE IT RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock,
$.01 par value per share, of the Corporation, to be designated "Series A
Cumulative Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock"), consisting of 2,000,000 shares, and to the extent that the
voting powers, designations, preferences, limitations, restrictions and
relative rights of the Series A Preferred Stock are not stated and expressed
in the Certificate of Incorporation, does hereby fix and herein state and
express such voting powers, designations, preferences, limitations,
restrictions and relative rights as follows (all terms used herein which are
defined in the Certificate of Incorporation shall be deemed to have the
meanings provided therein):
1. DESIGNATION AND AMOUNT. THE SHARES OF SUCH SERIES SHALL BE
DESIGNATED AS "SERIES A CUMULATIVE PREFERRED STOCK" AND THE NUMBER OF SHARES
CONSTITUTING SUCH SERIES SHALL BE 2,000,000. SUCH NUMBER OF SHARES MAY BE
DECREASED BY RESOLUTION OF THE BOARD OF DIRECTORS; PROVIDED, THAT NO DECREASE
SHALL REDUCE THE NUMBER OF SHARES OF SERIES A PREFERRED STOCK TO A NUMBER LESS
THAN THE NUMBER OF SHARES OF SERIES A PREFERRED STOCK THEN OUTSTANDING OR
RESERVED FOR ISSUANCE.
<PAGE>
2. DIVIDENDS.
(a) Payment of Dividends. The holders of Series A Preferred Stock
shall be entitled to receive, out of the assets of the Corporation legally
available for distribution to holders of the Corporation's Series A Preferred
Stock, whether such assets are capital, surplus, or earnings (hereinafter
called the "Available Funds"), cumulative dividends from the date of original
issue, accruing semi-annually, commencing June 30, 1999, and each December 31
and June 30 thereafter, at the annual rate per share of either (a) $1.00 in
cash, or (b) .11 shares of Series A Preferred Stock. The method of payment of
dividends shall be selected by the holder of each share of Series A Preferred
Stock, and may be changed annually by the holder thereof in accordance with
the provisions of Section 2(c) hereof. Dividends will be paid when and as
declared by the Board of Directors. The Corporation will not issue any
fractional shares of Series A Preferred Stock in payment of dividends, but
will register the amount of fractional shares that each holder is entitled to
receive until the aggregate value of such fractional interests equals one
whole share, which will be issued with the next payment of dividends. Any
fractional share interests held on the date of liquidation of the Corporation
or redemption of Series A Preferred Stock by the Corporation will be paid in
cash by the Corporation to the holders thereof pro rata at the same rate as
the redemption price or liquidation preference for whole shares. To the
extent that insufficient funds are available to pay all dividends accrued as
of each accrual date, dividends will be paid first pro rata to all holders who
have elected to receive dividends payable in additional shares of Series A
Preferred Stock until all such dividends accrued have been paid, and then pro
rata to all holders who have elected to receive dividends payable in cash. If
all shares of Series A Preferred Stock have not been redeemed by December 31,
2004, the dividend rate will thereafter increase to an annual rate per share
of either (a) $1.10 in cash, or (b) .12 additional shares of Preferred Stock,
with the method of payment selected at the option of the holder.
(b) Restrictions on Dividends. Notwithstanding anything to the
contrary contained in Section 2(a) of this Certificate of Designation, so long
as any shares of Series A Preferred Stock shall be outstanding, the
Corporation shall not, without the prior approval of the holders of at least
fifty (50%) of the outstanding shares of Series A Preferred Stock, (i) declare
or pay a dividend on, (ii) make any distribution to the holders of, or (iii)
repurchase, redeem or make provisions for the purchase or redemption (whether
directly or through a subsidiary) of any class or series of stock of the
Corporation ranking junior to the Series A Preferred Stock. In addition, so
long as there exists any accrued and unpaid dividends on any shares of Series
A Preferred Stock, the Corporation shall not declare or pay any dividends to
the holders of Common Stock of the Corporation.
(c) Election of Dividend Payment Method. In order to exercise the
holder's option to receive either cash or stock in payment of dividends on the
Series
<PAGE>
A Preferred Stock, each holder of Series A Preferred Stock will receive
a form for election of method of payment, together with a copy of the
Corporation's most recent Annual Report on Form 10-KSB, as filed with the
Securities and Exchange Commission, and any other infor-ma-tion that the
Corporation determines material in connection with the holder's election. In
order to make a change in the holder's payment status, the holder will be
required to execute and return the election form to the Corporation within 30
days after the date the election form is sent by the Corporation to the
holder. If the holder does not return the form requesting a change in payment
status, the holder will be deemed to elect to retain the same payment method
last chosen by the holder until the next date that the payment status may be
changed. In the event that the Corporation is unable to issue additional
shares of Series A Preferred Stock because it has not kept the registration
statement for such shares effective under the Securities Act of 1933, as
amended, or because it has not obtained or maintained the registration or
qualification of shares of Series A Preferred Stock in one or more of the
states in which such shares are to be issued, the Corporation will be required
to accrue dividends in cash on the Series A Preferred Stock affected thereby.
(d) Right to Vote Upon Default in Payment of Dividends. Upon a
default in payment of dividends by the Corporation for eight quarterly
dividends, whether consecutive or not, the holders of shares of Series A
Preferred Stock shall have the right to vote upon and elect two directors of
the Corporation. For this purpose, each share of Series A Preferred Stock
will have one vote per share, and the candidates for election by the holders
of the Series A Preferred Stock who receive the highest number of votes of
Series A Preferred Stock will be elected.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, or the sale, conveyance, lease,
exchange or transfer of all or substantially all the property or assets of the
Corporation, whether voluntary or involuntary ("Liquidation"), the holders of
each share of Series A Preferred Stock shall be entitled to receive out of the
Available Funds, before any sums shall be paid or any assets distributed among
the holders of shares of Common Stock and any other class of stock of the
Corporation ranking junior to the Series A Preferred Stock, an amount or value
(such amount or value as described immediately below is hereinafter called the
"Series A Preference Price") equal to $10 per share plus all accrued and
unpaid dividends through the date of distribution. IF the Available Funds
shall be insufficient to permit the payment in full to all holders of the
Series A Preferred Stock the full amounts to which they shall be entitled by
reason of such Liquidation of the Corporation, then there shall be paid to the
holders of the Series A Preferred Stock in connection with such Liquidation of
the Corporation, an amount equal to the product derived by multiplying the
amount of Available Funds times a fraction, the numerator of which shall be
the full amount to
<PAGE>
which the holders of the Series A Preferred Stock shall be
entitled by reason of such Liquidation of the Corporation and the denominator
of which shall be the total amount which would have been distributed by reason
of such Liquidation of the Corporation with respect to the Series A Preferred
Stock then outstanding had the Corporation possessed sufficient assets to pay
the maximum amount which the holders of all such stock would be entitled to
receive in connection with such Liquidation of the Corporation.
The holder of any shares of Series A Preferred Stock shall not
be entitled to receive any payment of the full balance owed for such shares
under this Section 3 until such holder shall cause to be delivered to the
Corporation (i) the certificate(s) representing such shares of Series A
Preferred Stock (or an affidavit of lost certificate and such other
documentation or assurances as are required by applicable law, in a form
reasonably acceptable to the Corporation) and (ii) transfer instrument(s)
satisfactory to the Corporation and sufficient to transfer such shares of
Series A Preferred Stock to the Corporation free of any adverse interest. No
interest shall accrue on any payment upon Liquidation after the due date
thereof.
After the Series A Preference Price shall have been paid in
full to the holders of the Series A Preferred Stock, or funds necessary for
such payment shall have been set aside by the Corporation in trust for the
account of holders of the Series A Preferred Stock and available for such
payment, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of Common Stock and any
other class of stock of the Corporation ranking junior to the Series A
Preferred Stock, and the holders of shares of the Series A Preferred Stock
shall not be entitled to any further participation in any distribution of
assets by the Corporation.
(b) Property. Whenever the distribution provided for in this
Section 3 shall be paid in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
4. REDEMPTION.
(a) Optional Redemption. The Corporation may at any time after
issuance, redeem any or all shares of the Series A Preferred Stock, pro rata
among the holders of the Series A Preferred Stock, by giving notice to such
holders of the date set for redemption (the "Redemption Date").
(b) Redemption Price. The redemption price for the Series A
Preferred Stock shall be the amount determined by reference to the following
schedule, plus any dividends in arrears on the Series A Preferred Stock to be
<PAGE>
redeemed (the "Redemption Price"): if redeemed during the 12 month period
beginning January 1 and ending December 31:
Year Redemption Price
1999 $11.00
2000 10.80
2001 10.60
2002 10.40
2003 10.20
2004 and thereafter 10.00
(c) Partial Redemption. Any partial redemption shall be selected
by lot or pro rata among the holders of the Series A Preferred Stock according
to their respective ownership of Series A Preferred Stock, or in some other
equitable manner determined by the Board of Directors of the Corporation in
its sole discretion.
(d) Termination of Dividend Rights. From and after the close of
business on any Redemption Date, unless there shall have been a default in
payment of the applicable Redemption Price, all rights of the holders of the
shares to be redeemed on such date as holders of such shares (except the right
to receive the applicable Redemption Price plus accrued dividends without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever.
(e) Notice and Manner of Redemption.
(1) AT LEAST THIRTY (30) BUT NO MORE THAN SIXTY (60) DAYS
PRIOR TO THE DATE FOR ANY REDEMPTION OF SERIES A PREFERRED STOCK, WRITTEN
NOTICE SHALL BE MAILED, POSTAGE PREPAID, TO EACH HOLDER OF RECORD (AT THE
CLOSE OF BUSINESS ON THE BUSINESS DAY NEXT PRECEDING THE DAY ON WHICH NOTICE
IS GIVEN) OF THE SERIES A PREFERRED STOCK, AT THE ADDRESS LAST SHOWN ON THE
RECORDS OF THE CORPORATION FOR SUCH HOLDER OR GIVEN BY THE HOLDER TO THE
CORPORATION FOR THE PURPOSE OF NOTICE, NOTIFYING SUCH HOLDER OF THE REDEMPTION
TO BE EFFECTED, SPECIFYING THE REDEMPTION DATE, THE REDEMPTION PRICE AND THE
PLACE AT WHICH PAYMENT MAY BE OBTAINED, AND CALLING UPON SUCH HOLDER TO
SURRENDER TO THE CORPORATION, IN THE MANNER AND AT THE PLACE DESIGNATED, HIS
OR HER CERTIFICATE OR CERTIFICATES REPRESENTING THE SHARES TO BE REDEEMED (A
"REDEMPTION NOTICE"). ON OR AFTER EACH REDEMPTION DATE, EACH HOLDER OF SERIES
A PREFERRED STOCK TO BE REDEEMED SHALL SURRENDER TO THE CORPORATION THE
CERTIFICATE OR CERTIFICATES REPRESENTING SUCH SHARES, IN THE MANNER AND AT THE
PLACE DESIGNATED IN THE REDEMPTION NOTICE, AND THEREUPON THE REDEMPTION PRICE
OF SUCH SHARES SHALL BE
<PAGE>
PAYABLE TO THE ORDER OF THE PERSON WHOSE NAME APPEARS
ON SUCH CERTIFICATE OR CERTIFICATES AS THE OWNER THEREOF AND EACH SURRENDERED
CERTIFICATE SHALL BE CANCELLED.
(2) ON OR PRIOR TO ANY REDEMPTION DATE, THE CORPORATION SHALL
DEPOSIT THE APPLICABLE REDEMPTION PRICE FOR ALL OUTSTANDING SHARES OF SERIES A
PREFERRED STOCK TO BE REDEEMED WITH A BANK OR TRUST COMPANY HAVING AGGREGATE
CAPITAL AND SURPLUS IN EXCESS OF $50,000,000 AS A TRUST FUND FOR THE BENEFIT
OF THE RESPECTIVE HOLDERS OF SUCH SHARES. SIMULTANEOUSLY, THE CORPORATION
SHALL DEPOSIT IRREVOCABLE INSTRUCTION AND AUTHORITY TO SUCH BANK OR TRUST
COMPANY TO PAY, ON AND AFTER THE REDEMPTION DATE, THE REDEMPTION PRICE TO THE
HOLDERS OF THE SERIES A PREFERRED STOCK TO BE REDEEMED UPON SURRENDER OF THEIR
CERTIFICATES THEREFOR. THE BALANCE OF ANY MONIES DEPOSITED BY THE CORPORATION
PURSUANT TO THIS PARAGRAPH REMAINING UNCLAIMED AT THE EXPIRATION OF ONE YEAR
FOLLOWING THE APPLICABLE REDEMPTION DATE SHALL THEREAFTER BE RETURNED TO THE
CORPORATION, PROVIDED THAT THE STOCKHOLDER TO WHOM SUCH MONIES WOULD BE
PAYABLE HEREUNDER SHALL BE ENTITLED, UPON PROOF OF ITS OWNERSHIP OF THE STOCK
TO BE REDEEMED AND PAYMENT OF ANY BOND REQUESTED BY THE CORPORATION, TO
RECEIVE SUCH MONIES BUT WITHOUT INTEREST FROM THE REDEMPTION DATE.
5. CANCELLATION AND RE-DESIGNATION OF PREFERRED STOCK ON
REDEMPTION.
(a) Upon redemption of the Series A Preferred Stock pursuant to the
terms of Section 4 hereof, all certificates of Series A Preferred Stock
surrendered for redemption shall be appropriately cancelled on the books of
the Corporation, and all of the shares so redeemed represented by all
certificates of the Series A Preferred Stock shall be deemed to be cancelled.
(b) Upon such redemption, the existing designation, rights and
preferences of the Series A Preferred Stock so redeemed shall terminate and
such shares shall become undesignated Preferred Stock.
6. SERIES A PREFERRED STOCK VOTING RIGHTS. EXCEPT AS OTHERWISE
PROVIDED IN SECTIONS 2(D) AND 10 OF THIS CERTIFICATE OF DESIGNATION OR AS
REQUIRED BY LAW, THE SHARES OF SERIES A PREFERRED STOCK SHALL BE NON-VOTING
SHARES.
7. REISSUANCE OF THE SERIES A PREFERRED STOCK. ANY SHARES OF THE
SERIES A PREFERRED STOCK ACQUIRED BY THE CORPORATION BY REASON OF REDEMPTION,
PURCHASE, CONVER-SION OR OTHERWISE MAY BE REISSUED AT ANY TIME BY THE
CORPORATION IN ITS DISCRETION.
8. COMMON STOCK. ALL RIGHTS ACCRUING TO THE OUT-STANDING SHARES
OF THE CORPORATION NOT EXPRESSLY PROVIDED FOR TO THE CONTRARY HEREIN SHALL BE
VESTED IN THE COMMON STOCK. NO SHARE OR SHARES OF THE SERIES A PREFERRED
STOCK SHALL BE CONVERTIBLE INTO COMMON STOCK.
<PAGE>
9. NO IMPAIRMENT. THE CORPORATION SHALL NOT, BY AMENDMENT OF ITS
CERTIFICATE OF INCORPORATION OR THROUGH ANY REORGANIZATION, TRANSFER OF
ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE, OR SALE OF SECURITIES OR
ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE OF
PERFORMANCE OF ANY OF THE TERMS IN THIS CERTIFICATE OF DESIGNATION TO BE
OBSERVED OR PERFORMED BY THE CORPORATION.
10. AMENDMENTS AND CHANGES. AS LONG AS ANY OF THE SERIES A PREFERRED
STOCK SHALL BE ISSUED AND OUTSTANDING, THE CORPORATION SHALL NOT, WITHOUT
FIRST OBTAINING THE APPROVAL (BY VOTE OR WRITTEN CONSENT, AS PROVIDED BY LAW)
OF THE HOLDERS OF GREATER THAN 50% OF THE SHARES OF SERIES A PREFERRED STOCK
THEN OUTSTANDING, AMEND OR REPEAL ANY PROVISION OF, OR ADD ANY PROVISION TO
THE CORPORATION'S CERTIFICATE OF INCORPORATION (INCLUDING THIS CERTIFICATE OF
DESIGNATION) OR BYLAWS WHICH WOULD ALTER OR CHANGE THE PREFERENCES, RIGHTS,
PRIVILEGES, OR POWERS OF, OR THE RESTRICTIONS PROVIDED FOR THE BENEFIT OF, THE
SERIES A PREFERRED STOCK, OR WHICH WOULD AUTHORIZE THE ISSUANCE OF ANY CLASS
OF SHARES HAVING SENIORITY OVER THE SERIES A PREFERRED STOCK.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Designation, Preferences and Rights of Series A Cumulative Preferred Stock to
be duly executed by its President and attested to by its Secretary on this
______ day of October, 1998.
NBI, Inc.
By:_________________________________
Jay H. Lustig, President
ATTEST:
__________________________
Marjorie A. Cogan, Secretary
Exhibit 4.1: Form of Series A Preferred Stock Certificate
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
September 14, 1975
NUMBER SHARES
NBI, INC.
20,000,000 SHARES COMMON STOCK 5,000,000 SHARES PREFERRED STOCK
$.01 PAR VALUE $.01 PAR VALUE
THIS CERTIFIES THAT __________________ IS THE REGISTERED HOLDER OF:
Shares of the Series A Cumulative Preferred Stock of
NBI, INC.
HEREINAFTER DESIGNATED "THE CORPORATION", TRANSFERABLE ON THE SHARE REGISTER
OF THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ASSIGNED.
This certificate and the shares represented thereby shall be held subject
to all of the provisions of the Articles of Incorporation and the By-laws of
said Corporation, a copy of each of which is on file at the office of the
Corporation and made a part hereof as fully as though the provisions of said
Articles of Incorporation and By-laws were imprinted in full on this
certificate, to all of which the holder of this certificate, by acceptance
hereof, assents and agrees to be bound.
Any shareholder may obtain from the principal office of the Corporation,
upon request and without charge, a statement of the number of shares
constituting each class or series of stock and the designation thereof, and a
copy of the rights, preferences, privileges, and restrictions granted to or
imposed upon the respective classes or series of stock and upon the holders
thereof by said Articles of Incorporation and the By-laws.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
DATED:
------------------- --------------
SECRETARY PRESIDENT
Exhibit 4.2
NBI, INC.
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement"), dated as of _________ __,
1998, is between NBI, Inc., a Delaware corporation (the "Company") and
__________________, as Warrant Agent.
R E C I T A L S:
WHEREAS, the Company proposes to issue and deliver warrant certificates
(the "Warrant Certificates") evidencing warrants (the "Warrants") to acquire
common stock of the Company ('Common Stock"), in connection with an offering
by the Company of up to 1,000,000 units (the "Units") each consisting of (a)
one share of Series A Cumulative Preferred Stock and (b) two Common Stock
Purchase Warrants, each of which entitles the holders thereof to purchase one
share of Common Stock. The Units have been issued and sold in a public
offering pursuant to a Registration Statement on Form SB-2, as filed with the
Securities and Exchange Commission on September __, 1998, amended on
____________, and declared effective on __________, 1998 (the "Registration
Statement"), and a Prospectus dated ____________, 1998, filed as a part of
such Registration Statement (references to which shall be deemed to include
any and all supplements and amendments there to, which Prospectus is referred
to herein as the "Prospectus"). Certain of the terms of the Warrants are
described in the Warrant Certificates. This Agreement describes certain
additional terms applicable to the Warrants.
NOW, THEREFORE, in consideration of the foregoing and for the purpose of
defining the terms and provisions of the Warrants and the respective rights
and obligations thereunder of the Company, the Warrant Agent (as hereinafter
defined) and the record holders from time to time of the Warrants, the Company
and the Warrant Agent hereby agree as follows:
ARTICLE
Definitions
SECTION 1.1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Act" means the Securities Act of 1933, as amended, or any similar
federal statute enacted hereafter, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect from time to time.
"Affiliate" of any person means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For purposes of
<PAGE>
this definition, "control," when used with
respect to any person means the power to direct the management and policies of
such person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Common Stock" means the common stock, $.01 par value, of the Company,
and any other capital stock of the Company into which such common stock may be
converted or reclassified or that may be issued in respect of, in exchange for
or in substitution for, such common stock by reason of any stock splits, stock
dividends, distributions, mergers, consolidations or other like events.
"Company" means NBI, Inc., a Delaware corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" or "Holders" means each registered holder of a Warrant
Certificate and each holder of Common Stock issued pursuant to a Warrant
Certificate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Purchase Price" means the exercise price of each Warrant, designated as
$1.20 per share of Common Stock, subject to adjustment as provided in Article
IV hereof.
"Transfer Agent" means _________________________, ______________, or any
duly appointed successor transfer agent for the Common Stock.
"Warrant Agent" means ____________________________, __________________,
or the successor or successors of such initial warrant agent appointed in
accordance with the terms hereof.
"Warrant Holders" means all of the holders of Warrants Certificates
issued under this Agreement.
"Warrant Stock" means the shares of Common Stock, issuable or issued upon
the exercise of the Warrants.
SECTION 1.2. Certain Other Defined Terms:
"Prospectus" Preamble
"Units" Preamble
"Warrant Certificates" Preamble
"Warrants" Preamble
<PAGE>
ARTICLE II
Original Issue of Warrants
SECTION 2.1. Form of Warrant Certificates. The Warrant Certificates
shall be issued in registered form only and substantially in the form attached
hereto as Exhibit A, shall be dated the date of countersignature thereof by
the Warrant Agent (whether upon initial issuance, registration of transfer,
exchange or replacement) and shall bear the legend set forth in Exhibit A,
together with such other legends and endorsements typed, stamped, printed,
lithographed or engraved thereon as the Company may deem appropriate and as
are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation pursuant
thereto or with any rule or regulation of any securities exchange on which the
Warrants may be listed, or to conform to customary usage.
Pending the preparation of definitive Warrant Certificates, temporary
Warrant Certificates may be issued, which may be printed, lithographed,
typewritten, mimeographed or otherwise produced, and which will be
substantially of the tenor of the definitive Warrant Certificates in lieu of
which they are issued.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary
Warrant Certificates shall be exchangeable for definitive Warrant Certificates
upon surrender of the temporary Warrant Certificates to the Warrant Agent,
without charge to the Holder. Until so exchanged the temporary Warrant
Certificates shall in all respects be entitled to the same benefits under this
Agreement as definitive Warrant Certificates.
SECTION 2.2. Execution and Delivery of Warrant Certificates. The
Warrant Certificates shall be executed on behalf of the Company by its
Chairman, President, Chief Executive Officer, Chief Financial Officer or any
Vice President, either manually or by facsimile signature printed thereon.
The Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company whose signature shall have been placed upon any of the
Warrant Certificates shall cease to be the Chairman, President, Chief
Executive Officer, Chief Financial Officer or a Vice President of the Company
before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may, nevertheless, be countersigned by the Warrant
Agent and issued and delivered with the same force and effect as though such
person had not ceased to be such officer of the Company.
ARTICLE III
Certain Terms of Exercise of Warrants
SECTION 3.1. Method of Exercise. In order to exercise a Warrant or
to sell a Warrant to the Company, the Holder thereof must surrender the
Warrant Certificate evidencing such Warrant to the Company, with one of the
forms on the reverse of or attached
<PAGE>
to the Warrant Certificate duly executed,
together with payment in cash or check payable to the Company for the full
amount of the exercise price.
If fewer than all of the Warrants represented by a Warrant Certificate
are surrendered, such Warrant Certificate shall be surrendered and, subject to
the provisions of Article V, a new Warrant Certificate of the same tenor and
for the number of Warrants that were not surrendered shall be signed by the
Company. The Warrant Agent shall countersign the new Warrant Certificate,
register it in such name or names as may be directed in writing by the Holder
and deliver the new Warrant Certificate to the person or persons entitled to
receive the same.
Upon surrender of a Warrant Certificate and payment of the Purchase Price
in conformity with the foregoing provisions, the Company shall cause the
Transfer Agent to issue to the Holder of such Warrant Certificate appropriate
evidence of ownership of any shares of Warrant Stock or other securities or
property (including any money) to which the Holder is entitled, registered or
otherwise placed in, or payable to the order of, such name or names as may be
directed in writing by the Holder, and shall deliver such evidence of
ownership and any other securities or property (including any money) to the
person or persons entitled to receive the same, together with an amount in
cash in lieu of any fraction of a share as provided in Section 4.4.
ARTICLE IV
Adjustments
SECTION 4.1. Adjustment of Exercise Price and Number of Shares of
Common Stock. The number and kind of shares purchasable upon the exercise of
Warrants and the Purchase Price shall be subject to adjustment from time to
time as follows:
(a) Stock Splits, Combinations, etc. In case the Company shall
hereafter (i) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Common Stock or of capital
stock of any other class), (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares, or (iv) issue by reclassification of its shares of Common
Stock any shares of capital stock of the Company, the Purchase Price and
number of shares of Common Stock underlying the Warrant (if applicable) in
effect immediately prior to such action shall be adjusted so that the Holder
of any Warrant thereafter exercised shall be entitled to receive the number of
shares of capital stock of the Company which such Holder would have owned
immediately following such action had such warrant been exercised immediately
prior thereto. An adjustment made pursuant to this paragraph shall become
effective immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an
adjustment made pursuant to this paragraph, the Holder of any Warrant
thereafter exercised shall become entitled to receive shares of two or more
classes of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive) shall determine the allocation of the
adjusted Purchase Price between or among shares of such classes of capital
stock.
<PAGE>
(b) Reclassification, Combinations, Mergers, etc. In case of any
reclassification or change of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than as set forth in paragraph (a) above and
other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value or as a result of a
subdivision or combination)) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, then, as a condition of such reclassification, change,
consolidation, merger, sale or conveyance, the Company or such a successor or
purchasing corporation, as the case may be, shall forthwith make lawful and
adequate provision whereby the holder of such Warrant then outstanding shall
have the right thereafter to receive on exercise of such Warrant the kind and
amount of shares of stock and other securities and property receivable upon
such reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock issuable upon exercise of such
Warrant immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article IV. The above provisions of this
paragraph (b) shall similarly apply to successive reclassifications and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. This provision shall not limit the rights of the
Holders as specified in the Warrant Certificate to exercise the Warrants prior
to any of the events described herein.
(c) Other Adjustments. In the event that at any time, as a result of
an adjustment made pursuant to this Article IV, the Holders shall become
entitled to receive any securities of the Company other than shares of Common
Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Purchase Price applicable to such exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares
of Common Stock contained in this Article IV.
SECTION 4.2. Notice of Adjustment. Whenever the number of shares of
Common Stock or other stock or property issuable upon the exercise of each
Warrant or the Purchase Price is adjusted, as herein provided, the Company
shall cause the Warrant Agent promptly to mail by first class mail, postage
prepaid, to each Holder notice of such adjustment or adjustments and shall
deliver to the Warrant Agent a certificate of a firm of independent public
accountants selected by the Board of Directors of the Company (who may be the
regular accountants employed by the Company) setting forth the number of
shares of Common Stock or other stock or property issuable upon the exercise
of each Warrant or the Purchase Price after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the
same from time to time to any Holder desiring an inspection thereof during
reasonable business hours. The Warrant Agent shall not
<PAGE>
at any time be under
any duty or responsibility to any Holders to determine whether any facts exist
that may require any adjustment of the number of shares of Common Stock or
other stock or property issuable on exercise of the Warrants or the Purchase
Price, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such adjustment or the
validity or value (of the kind or amount) of any shares of Common Stock or
other stock or property which may be issuable on exercise of the Warrants.
The Warrant Agent shall not be responsible for any failure of the Company to
make any cash payment or to issue, transfer or deliver any shares of Common
Stock or stock certificates or other common stock or property upon the
exercise of any Warrant.
SECTION 4.3. Statement on Warrants. Irrespective of any adjustment
in the number or kind of shares issuable upon the exercise of the Warrants or
the Purchase Price, Warrants theretofore or thereafter issued may continue to
express the same number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
SECTION 4.4. Fractional Interest. The Company shall not be required
to issue fractional shares of Common Stock on the exercise of Warrants. If
more than one Warrant shall be presented for exercise in full at the same time
by the same Holder, the number of full shares of Common Stock which shall be
issuable upon such exercise shall be computed on the basis of the aggregate
number of shares of Common Stock acquirable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall direct its Transfer Agent to pay
an amount in cash calculated by it to equal the then current market value per
share multiplied by such fraction computed to the nearest whole cent. The
Holders, by their acceptance of the Warrant Certificates, expressly waive any
and all rights to receive any fraction of a share of Common Stock or a stock
certificate representing a fraction of a share of Common Stock.
ARTICLE V
Warrant Transfer Books
SECTION 5.1. Warrant Transfer Books. The Warrant Certificates shall
be issued in registered form only. The Company shall cause to be kept at the
office of the Warrant Agent a register in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration of Warrant Certificates and of transfers or exchanges of Warrant
Certificates by the Warrant Agent as herein provided.
At the option of the Holder thereof and except as provided herein,
Warrant Certificates may be exchanged at such office upon payment of the
charges hereinafter provided. Whenever any Warrant Certificates are so
surrendered for exchange, the Company shall execute, and the Warrant Agent
shall countersign and deliver, the Warrant Certificates that the Holder making
the exchange is entitled to receive.
All Warrant Certificates issued upon any registration of transfer or
exchange of Warrant Certificates shall be the valid obligations of the
Company, evidencing the same
<PAGE>
obligations, and entitled to the same benefits
under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
Every Warrant Certificate surrendered for registration of transfer or
exchange shall (if so required by the Company or the Warrant Agent) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Warrant Agent, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be required of a Holder for any registration of
transfer or exchange of Warrant Certificates. The Company may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Warrant
Certificates.
Any Warrant Certificate when duly endorsed in blank shall be deemed
negotiable. The Holder of any Warrant Certificate duly endorsed in blank may
be treated by the Company, the Warrant Agent and all other persons dealing
therewith as the absolute owner thereof for any purpose and as the person
entitled to exercise the rights represented thereby, or to the transfer
thereof on the register of the Company maintained by the Warrant Agent, any
notice to the contrary notwithstanding; but until such transfer on such
register, the Company and the Warrant Agent may treat the registered Holder
thereof as the owner for all purposes.
ARTICLE VI
Warrant Holders
SECTION 6.1. No Voting Rights. Prior to the exercise of the
Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to
any rights of a stockholder of the Company, including, without limitation, the
right to receive dividends or subscription rights, the right to vote, to
consent, to exercise any preemptive right, to receive any notice of meetings
of stockholders for the election of directors of the Company or any other
matter or to receive any notice of any proceedings of the Company, except as
may be specifically provided for herein.
SECTION 6.2. Right of Action. All rights of action in respect of
this Agreement are vested in the Holders of the Warrants, and any Holder of
any Warrant, without the consent of the Warrant Agent or the Holder of any
other Warrant, may, on such Holder's own behalf and for such Holder's own
benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company suitable to enforce, or otherwise in respect
of, such Holder's rights hereunder, including the right to exercise, exchange
or surrender for purchase such Holder's Warrants in the manner provided in
this Agreement.
ARTICLE VII
Warrant Agent
SECTION 7.1. Nature of Duties and Responsibilities Assumed. The
Company hereby appoints the Warrant Agent to act as agent of the Company as
set forth in this
<PAGE>
Agreement. The Warrant Agent hereby accepts the appointment
as agent of the Company and agrees to perform that agency upon the terms and
conditions herein set forth, by all of which the Company and the Holders of
Warrants, by their acceptance thereof, shall be bound. The Warrant Agent
shall not by countersigning Warrant Certificates or by any other act hereunder
be deemed to make any representation as to validity or authorization of the
Warrants or the Warrant Certificates (except as to its countersignature
thereon) or of any securities or other property delivered upon exercise or
tender of any Warrant, or as to the number of kind or amount of stock or other
securities or other property deliverable upon exercise of any Warrant or the
correctness of the representations of the Company made in such certificates
that the Warrant Agent receives. The Warrant Agent shall not have any duty to
calculate or determine any adjustments with respect to the Purchase Price or
the kind and amount of shares or other securities or any property receivable
by Holders upon the exercise or tender of Warrants required from time to time,
and the Warrant Agent shall have no duty or responsibility in determining the
accuracy or correctness of any such calculation. The Warrant Agent shall not
(a) be liable for any recital or statement of fact contained herein or in the
Warrant Certificates or for any action taken, suffered or omitted by it in
good faith in the belief that any Warrant Certificate or any other document or
any signature is genuine or properly authorized, (b) be responsible for any
failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in the Warrant Certificates, (c) be
liable for any act or omission in connection with this Agreement except for
its own gross negligence or willful misconduct, or (d) have any responsibility
to determine whether a transfer of a Warrant complies with federal or state
securities laws. The Warrant Agent is hereby authorized to accept
instructions with respect to the performance of its duties hereunder from the
Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Treasurer or the Secretary of the Company (as
identified in a certificate signed by the Secretary of the Company) and to
apply to any such officer for instructions (which instructions will be
promptly given in writing when requested) and the Warrant Agent shall not be
liable for any action taken or suffered to be taken by it in good faith in
accordance with the instructions of any such officer, except for its own
negligence or willful misconduct, but in its discretion the Warrant Agent may
in lieu thereof accept other evidence of such or may require such further or
additional evidence as it may deem reasonable.
The Warrant Agent may execute and exercise any of the rights and powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents, employees or selected firms which are licensed
securities broker-dealers, provided reasonable care has been exercised in the
selection and in the continued employment of any such attorney, agent or
employee. The Warrant Agent shall not be under any obligation or duty to
institute, appear in or defend any action, suit or legal proceeding in respect
hereof, unless first indemnified to its satisfaction, but this provision shall
not affect the power of the Warrant Agent to take such action as the Warrant
Agent may consider proper, whether with or without such indemnity. The
Warrant Agent shall promptly notify the Company in writing of any claim made
or action, suit or proceeding instituted against or arising out of or in
connection with this Agreement.
The Company will perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all such further acts,
instruments and assurances as may
<PAGE>
reasonably be required by the Warrant Agent
in order to enable it to carry out or perform its duties under this Agreement.
The Warrant Agent shall act solely as agent of the Company hereunder.
The Warrant Agent shall not be liable except for the failure to perform such
duties as are specifically set forth herein, and no implied covenants or
obligations shall be read into this Agreement against the Warrant Agent, whose
duties and obligations shall be determined solely by the express provisions
hereof.
SECTION 7.2. Right to Consult Counsel. The Warrant Agent may at any
time consult with legal counsel satisfactory to it (who may be legal counsel
for the Company), and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder for any action taken, suffered
or omitted by it in good faith in accordance with the opinion or advice of
such counsel.
SECTION 7.3. Compensation and Reimbursement. The Company agrees to
pay to the Warrant Agent from time to time compensation for all services
rendered by it hereunder as the Company and the Warrant Agent may agree from
time to time, and to reimburse the Warrant Agent for reasonable expenses and
disbursements incurred in connection with the execution and administration of
this Agreement, and further agrees to indemnity the Warrant Agent for, and
hold it harmless against, any loss, liability or expenses incurred without
negligence, bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder.
SECTION 7.4. Warrant Agent May Hold Company Securities. The Warrant
Agent and any stockholder, director, officer or employee of the Warrant Agent
may buy, sell or deal in any of the Warrants or other securities of the
Company or its Affiliates or become pecuniarily interested in transactions in
which the Company or its Affiliates may be interested, or contract with or
lend money to the Company or its Affiliates or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other person.
SECTION 7.5. Resignation and Removal; Appointment of Successor. (a)
No resignation or removal of the Warrant Agent and no appointment of a
successor warrant agent shall become effective until the acceptance of
appointment by the successor warrant agent as provided herein. The Warrant
Agent may resign its duties and be discharged from all further duties and
liability hereunder (except liability arising as a result of the Warrant
Agent's own negligence or willful misconduct) after giving at least 30 days'
prior written notice to the Company. In the event that the Warrant Agent does
not cure a breach of its duties or obligations hereunder within ten days of
the Company's written notice of such breach, the Company may remove the
Warrant Agent upon written notice, and the Warrant Agent shall thereupon in
like manner be discharged from all further duties and liabilities hereunder,
except as aforesaid. The Warrant Agent shall, at the Company's expense, cause
to be mailed (by first class mail, postage prepaid) to each Holder of a
Warrant at his last address as shown
<PAGE>
on the register of the Company maintained
by the Warrant Agent a copy of said notice of resignation or notice of
removal, as the case may be. Upon such resignation or removal, the Company
shall appoint in writing a new warrant agent. If the Company shall fail to
make such appointment within a period of 30 days after it has been notified in
writing of such resignation by the resigning Warrant Agent or after such
removal, then the resigning Warrant Agent or the Holder of any Warrant may
apply to any court of competent jurisdiction for the appointment of a new
warrant agent. Any new warrant agent, whether appointed by the Company or by
such a court, shall be a corporation doing business under the laws of the
United States or any state thereof, in good standing and having a combined
capital and surplus of not less than $50,000,000. The combined capital and
surplus of any such new warrant agent shall be deemed to be the combined
capital and surplus as set forth in the most recent annual report of its
condition published by such warrant agent prior to its appointment, provided
that such reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority. After
acceptance in writing of such appointment by the new warrant agent, it shall
be vested with the same powers, rights, duties and responsibilities as if it
had been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall give notice thereof to the resigning or removed
Warrant Agent. Failure to give any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or validity of
the resignation of the Warrant Agent or the appointment of a new warrant
agent, as the case may be.
(b) Any corporation into which the Warrant Agent or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Warrant Agent or any new warrant agent shall be a party or any corporation to
which the Warrant Agent transfers substantially all of its corporate trust or
shareholder series business shall be a successor Warrant Agent under this
Agreement without any further act, provided that such corporation (i) would be
eligible for appointment as successor to the Warrant Agent under the
provisions of Section 7.5(a) or (ii) is a wholly-owned subsidiary of the
Warrant Agent. Any such successor Warrant Agent shall promptly cause notice
of its succession as Warrant Agent to be mailed (by first class mail, postage
prepaid) to each Holder at such Holder's last address as shown on the register
maintained by the Warrant Agent pursuant to Section 5.1.
ARTICLE VIII
Covenants of the Company
SECTION 8.1. Reservation of Common Stock for Issuance on Exercise of
Warrants; Listing. The Company covenants that it will at all times reserve
and keep available, free from preemptive rights, out of its authorized but
unissued Common Stock, solely for the purpose of issuance upon exercise of
Warrants as herein provided, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon such issuance, be duly and validly issued and fully paid and
nonassessable, and that upon issuance
<PAGE>
such shares shall be listed on each
national securities exchange (including NASDAQ/NMS), if any, on which any
other shares of outstanding Common Stock of the Company are then listed.
ARTICLE X
Miscellaneous
SECTION 10.1. Money and Other Property Deposited with the Warrant
Agent. Any moneys, securities or other property which at any time shall be
deposited by the Company or on its behalf with the Warrant Agent pursuant to
this Agreement shall be and are hereby assigned, transferred and set over to
the Warrant Agent in trust for the purpose for which such moneys, securities
or other property shall have been deposited; but such moneys, securities or
other property need not be segregated from other funds, securities or other
property except to the extent required by law. The Warrant Agent shall
distribute any money deposited with it for payment and distribution to the
Holders by mailing by first-class mail a check in such amount as is
appropriate, to each such Holder at the address shown on the Warrant register
maintained pursuant to Section 5.1, or as it may be otherwise directed in
writing by such Holder, upon surrender of such Holder's Warrants. Any money
or other property deposited with the Warrant Agent for payment and
distribution to the Holders that remains unclaimed for two years, less one
day, after the date the money was deposited with the Warrant Agent shall be
paid to the Company upon its request therefor.
SECTION 10.2. Payment of Taxes. The Company will pay all taxes and
other governmental charges that may be imposed on the Company or on the
Warrants or on any securities deliverable upon exercise of Warrants with
respect thereto, provided that the Company shall not be responsible for any
taxes payable by any Holder of Warrants. The Company will not be required,
however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
or other securities underlying the Warrants or payment of cash or other
securities underlying the Warrants or payment of cash or other property to any
person other than the Holder of a Warrant Certificate surrendered upon the
exercise thereof and in case of such transfer or payment, the Warrant Agent
and the Company shall not be required to issue any stock certificate or
security or pay any cash or distribute any property until such tax or charge
has been paid or it has been established to the Warrant Agent's and the
Company's satisfaction that no such tax or other charge is due.
SECTION 10.3. Surrender of Certificates. Any Warrant Certificate
surrendered for exercise or purchased or otherwise acquired by the Company
shall, if surrendered to the Company, be delivered to the Warrant Agent, and
all Warrant Certificates surrendered or so delivered to the Warrant Agent
shall promptly be canceled by such Warrant Agent and shall not be reissued by
the Company. The Warrant Agent shall destroy such canceled Warrant
Certificates and deliver its certificate of destruction to the Company unless
the Company shall otherwise direct.
<PAGE>
SECTION 10.4. Mutilated, Destroyed, Lost and Stolen Warrant
Certificates. If (a) any mutilated Warrant Certificate is surrendered to the
Warrant Agent or (b) the Company and the Warrant Agent receive evidence to
their satisfaction of the destruction, loss or theft of any Warrant
Certificate, and there is delivered to the Company and the Warrant Agent such
security or indemnity as may be reasonably required by them to save each of
them harmless, then, in the absence of notice to the Company or the Warrant
Agent that such Warrant Certificate has been acquired by a bona fide
purchaser, the Company shall execute and upon its written request the Warrant
Agent shall countersign and deliver, in exchange for any such mutilated
Warrant Certificate or in lieu of any such destroyed, lost or stolen Warrant
Certificate, a new Warrant Certificate of like tenor and for a like aggregate
number of Warrants.
Upon the issuance of any new Warrant Certificate under this Section 10.4,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and other
expenses (including the reasonable fees and expenses of the Warrant Agent and
of counsel to the Company in connection therewith).
Every new Warrant Certificate executed and delivered pursuant to this
Section 10.4 in lieu of any destroyed, lost or stolen Warrant Certificate
shall constitute an original contractual obligation of the Company, whether or
not the destroyed, lost or stolen Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefits of this Agreement
equally and proportionately with any and all other Warrant Certificates duly
executed and delivered hereunder.
The provisions of this Section 10.4 are exclusive and shall preclude (to
the extent lawful) all other rights or remedies with respect to the
replacement of mutilated, destroyed, lost or stolen Warrant Certificates.
SECTION 10.5. Miscellaneous Rights. The rights of Holders upon the
occurrence of the events set forth in this Agreement are cumulative. If more
than one such event shall occur and the periods following the occurrence of
such events and prior to the closing of the transactions that are the subject
of such events overlap, each Holder may exercise such rights arising therefrom
as such Holder may elect without any condition imposed upon such exercise not
contained in this Agreement.
Neither the Company nor any of its Affiliates involved in any proposed
transactions that is the subject of such an event shall have any obligation to
the Holders to consummate any such proposed transaction once an agreement or
agreement in principle or decision to proceed with respect thereto is reached,
whether on the terms first proposed or as revised, or to include any Holder
in, or apprise any Holder of, any negotiations or discussions concerning any
such proposed transaction among the prospective parties thereto, except as
expressly provided herein.
SECTION 10.6. Notices. (a) Except as otherwise provided in Section
10.6(b), any notice, demand or delivery authorized by this Agreement shall be
sufficiently given or made when mailed if sent by first-class mail, postage
prepaid, addressed to any Holder of a Warrant
<PAGE>
at such Holder's address shown
on the register maintained by the Warrant Agent pursuant to Section 5.1 and to
the parties as follows:
If to the Company: NBI, Inc.
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
Attention: Jay H. Lustig, Chief Executive Officer
If to the Warrant Agent:
or such address as shall have been furnished to the party given or making such
notice, demand or delivery.
(b) Any notice required to be given by the Company to the Holders shall
be made by mailing by registered mail, return receipt requested, to the
Holders at their respective addresses shown on the register of the Company
maintained by the Warrant Agent. The Company hereby irrevocably authorizes
the Warrant Agent, in the name and at the expense of the Company, to mail any
such notice upon receipt thereof from the Company. Any notice that is mailed
in the manner herein provided shall be presumed to have been duly given when
mailed.
SECTION 10.7. Persons Benefiting. This Agreement shall be binding upon
and inure to the benefit of the Company and the Warrant Agent, and their
respective successors, assigns, beneficiaries, executors and administrators,
and the Holders from time to time of the Warrants. Nothing in this Agreement
is intended or shall be construed to confer upon any person, other than the
Company, the Warrant Agent and the Holders of the Warrants, any right, remedy
or claim under or by reason of this Agreement or any part hereof.
SECTION 10.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together constitute one and the same instrument.
SECTION 10.9. Amendments. The Company may, without the consent of the
Holders of the Warrants, by supplemental agreement or otherwise, make any
changes or corrections in this Agreement that it shall have been advised by
counsel (a) are required to cure any ambiguity or to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein or (b) add to the covenants and agreements of the Company for
the benefit of the Holders, or surrender any rights or power reserved to or
conferred upon the Company in this Agreement; provided that, in the case of
(a) or (b), such changes or corrections shall not adversely affect the
interests of the Holders in any material respect. The Warrant Agent shall at
the request of the Company and without need of independent inquiry as to
whether such supplemental agreement is permitted by the terms of this Section
10.9, join with the Company in the execution and delivery of any such
<PAGE>
supplemental agreements, unless it affects the Warrant Agent's own rights,
duties or immunities hereunder in which case such party may, but shall not be
required to, join in such execution and delivery.
SECTION 10.10. Termination. This Agreement (other than the Company's
obligations with respect to Warrants previously exercised or surrendered for
purchase under Article III, and with respect to indemnification under Section
7.3) shall terminate and be of no further force and effect on the Expiration
Date.
SECTION 10.11. Applicable Law. THIS AGREEMENT AND EACH WARRANT ISSUED
HEREUNDER AND ALL RIGHTS ARISING HEREUNDER SHALL BE GOVERNED BY THE LAW OF THE
STATE OF DELAWARE APPLICABLE TO CONTRACTS AND INSTRUMENTS EXECUTED AND TO BE
PERFORMED ENTIRELY IN SUCH STATE.
SECTION 10.12. Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
NBI, INC.
a Delaware corporation
By:_____________________________
Name:___________________________
Title:___________________________
_________________________________
as Warrant Agent
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT A
NBI, INC.
COMMON STOCK PURCHASE WARRANT
DATED: __________ ___, 1998
_______________
Holder: _____________________ Warrant No:______
Number of Warrants: ______________
_______________
THIS CERTIFIES THAT Holder is the owner of the number of Warrants set
forth above of NBI, Inc., a Delaware corporation (hereinafter called the
"Company"). Each Warrant entitles the registered holder (the "Holder") to
purchase one share (collectively, "Warrant Shares") of Common Stock of the
Company ("Common Stock") at an exercise price per share of $1.20 (the
"Purchase Price"), at any time during the period commencing on the date of
issuance hereof until 2:00 p.m., Mountain Standard Time, on December 31, 2004
(the "Expiration Date"). This Warrant is issued in connection with an
offering by the Company of up to 1,000,000 Units, each consisting of (a) one
share of Series A Cumulative Preferred Stock and (b) two Common Stock Purchase
Warrants, each of which entitles the holders thereof to purchase one share of
Common Stock. The Units have been issued and sold in a public offering
pursuant to a Registration Statement on Form SB-2, as filed with the
Securities and Exchange Commission on September __, 1998, amended on
____________, and declared effective on __________, 1998 (the "Registration
Statement"), and a Prospectus dated ____________, 1998, filed as a part of
such Registration Statement (references to which shall be deemed to include
any and all supplements and amendments thereto, which Prospectus is referred
to herein as the "Prospectus").
The Purchase Price and number of shares of Common Stock of the
Corporation purchasable upon exercise of each Warrant evidenced hereby shall
be subject to adjustment from time to time as set forth in the Warrant
Agreement (the "Warrant Agreement"), dated as of __________, 1998, by and
between the Corporation and __________________, as Warrant Agent (the "Warrant
Agent"). To the extent of any inconsistencies between this Warrant and the
Warrant Agreement, the Warrant Agreement shall control.
The Warrants evidenced hereby are issued under and subject to the terms
and provisions contained in the Warrant Agreement, to all of which the
Warrantholder by acceptance hereof consents. A copy of the Warrant Agreement
is on file at the corporate office of the Corporation.
<PAGE>
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached
hereto duly executed (with a signature guarantee as provided hereon) and
simultaneous payment of the Purchase Price at the principal office of the
Corporation. Payment of such price shall be made in cash, by certified or
official bank check or any combination thereof.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the shares of Warrant Stock as to which the Warrants evidenced hereby shall
not have been exercised. These Warrants may be exchanged at the office of the
Warrant Agent by surrender of this Warrant Certificate properly endorsed for
one or more new Warrants of the same aggregate number of shares of Warrant
Stock as evidenced by the Warrant or Warrants exchanged. No fractional
securities shall be issued upon the exercise of rights to purchase hereunder,
but the Corporation shall pay the cash value of any fraction upon the exercise
of one or more Warrants. These Warrants are transferable at the office of the
Warrant Agent in the manner and subject to the limitations set forth in the
Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Corporation.
NBI, INC.
By:____________________________
Name:
Title:
Dated: _____________ __, 1998
ATTEST: [Seal]
_____________________________
Name:
Title:
<PAGE>
NBI, INC.
COMMON STOCK PURCHASE WARRANT
PURCHASE FORM
NBI, INC. (the "Corporation")
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
Attention: Marjorie Cogan
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _________ shares of common stock of NBI, Inc. (the "Corporation")
(the "Warrant Stock") provided for therein, and requests that certificates for
the Warrant Stock be issued in the name of:
__________________________________________
(Please print or Type Name, Address and Social Security Number)
__________________________________________
__________________________________________
and, if said number of shares of Warrant Stock shall not be all the Warrant
Stock purchasable hereunder, that a new Warrant Certificate for the balance of
the Warrant Stock purchasable under the within Warrant Certificate be
registered in the name of the undersigned Warrantholder or his assignee as
below indicated and delivered to the address stated below.
Dated:_________________
Name of Warrantholder
or Assignee: _________________________
(Please Print)
Address: _________________________
_________________________
Signature: _________________________
Note: The above signature must correspond with the name as it appears upon
the face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank, trust company or savings and loan
association, having an office or correspondent in the United States or by a
member firm of a registered securities exchange or the National Association of
Securities Dealers, Inc.)
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase ______________ shares of Warrant Stock represented by
the within Warrant Certificate unto, and requests that a certificate for such
Warrant be issued in the name of:
_____________________________________
(Name and Address of Assignee Must be Printed or Typewritten)
_____________________________________
_____________________________________
hereby irrevocably constituting and appointing _______________ as attorney to
transfer said Warrants on the books of the Corporation, with full power of
substitution in the premises and, if said number of shares of Warrant Stock
shall not be all of the Warrant Stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the Warrant
Stock purchasable under the within Warrant Certificate be registered in the
name of the undersigned Warrantholder and delivered to such Warrantholder's
address as then set forth on the Corporation's books.
Dated:_______________ ____________________________
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon
the face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever.
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank, trust company or savings and loan
association having an office or correspondent in the United States or by a
member firm of a registered securities exchange or the National Association of
Securities Dealers, Inc.)
Exhibit 5.1
October 27, 1998
NBI, Inc.
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
Gentlemen:
This opinion is furnished in connection with the Form SB-2 Registration
Statement to be filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), with respect to authorization
and issuance of 1,550,000 shares (the "Shares") of $.01 par value Series A
Cumulative Preferred Stock of NBI, Inc, of which up to 1,000,000 shares are to
be issued in connection with this offering and up to 550,000 shares are to be
issued upon payment of dividends in kind.
We are general counsel to the Company and have examined such corporate
records, certificates and other documents and such questions of law as we
consider necessary or appropriate for the purposes of this opinion. On the
basis of such examination, it is our opinion that (1) the Company is validly
existing as a corporation under the laws of the State of Delaware, and (2) the
Shares will be duly authorized upon filing of the amendment to the Certificate
of Incorporation authorizing the Shares with the Secretary of State of
Delaware and, upon issuance, delivery and payment therefor as contemplated by
the Registration Statement, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under "Legal Matters" in the
related Prospectus. In giving this consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7
of the Act or the rules and regulations promulgated thereunder.
IRELAND, STAPLETON, PRYOR & PASCOE, P.C.
By:/s/John G. Lewis
----------------------
John G. Lewis, Vice President
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT
NBI, Inc.
Longmont, Colorado
We hereby consent to the use in the Prospectus, constituting a part of this
Registration Statement, of our report dated July 31, 1998, relating to the
financial statements of NBI, Inc., which is contained in that Prospectus. Our
report 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
BDO Seidman, LLP
Denver, Colorado
October 27, 1998
Exhibit 99.1
SUBSCRIPTION AGREEMENT
NBI, Inc.
1880, Industrial Circle, Suite F
Longmont, Colorado 80501
Ladies and Gentlemen:
The undersigned hereby subscribes for and irrevocably agrees to purchase
the number of units ("Units") set forth below, each Unit consisting of one
share of Series A Cumulative Preferred Stock of NBI, Inc. (the "Company") and
two Common Stock Purchase Warrants of NBI, Inc. The undersigned has received
a copy of the Prospectus dated October __, 1998 relating to the offering of
Units prior to delivery of this Subscription Agreement.
Under penalty of perjury, the undersigned certifies that (A) the taxpayer
identification number shown in this Subscription Agreement is correct and (B)
the undersigned is not subject to backup withholding because (i) the
undersigned has not been notified that he, she or it is subject to backup
withholding as a result of a failure to report all interest and dividends or
(ii) the Internal Revenue Service has notified the undersigned that he, she or
it is no longer subject to backup withholding. (If the undersigned has been
notified that he, she or it is subject to backup withholding and the Internal
Revenue Service has not advised the undersigned that backup withholding has
been terminated, strike out item (B).)
The undersigned hereby agrees to be bound by all of the terms and
conditions of the Prospectus and this Subscription Agreement. If the
undersigned is a corporation, partnership, benefit plan or IRA, the
undersigned certifies that it has all requisite authority to acquire the Units
hereby subscribed for and to enter into this Subscription Agreement. The
officer, partner or fiduciary of the subscribing entity has been duly
authorized by all requisite action on the part of such entity to execute these
documents on its behalf; such authorization has not been revoked and is still
in full force and effect.
Prior to the date of acceptance of subscriptions for the minimum offering
amount of 370,000 Units ($3,700,000), subscription funds will be held in an
escrow account as provided in the Prospectus. If the minimum offering amount
is not sold by the Company by the Initial Offering Expiration Date of December
31, 1998, or such later date as the offering is extended by the Company as
provided in the Prospectus, the offering will terminate and all funds held in
the escrow account will be promptly returned to investors, without interest or
deduction.
(This is not an offer of securities in any jurisdiction in which such offer is
- ------------------------------------------------------------------------------
not registered or qualified.)
- --------------------------------
<PAGE>
NBI, INC.
Subscription Agreement
Signature Page
Account Registration: Date:________________
_________________________________________________________
Name in Which Shares and Warrants should be registered
Check appropriate designation Mailing address and telephone
if joint ownership: and fax numbers for Corporate Records:
__ Joint Tenants with Right __________________________________
of Survivorship __________________________________
__ Tenants in Common Telephone:_________________________
__ Community Property Fax:______________________________
Investment amount: $_________ _______ shares of Preferred Stock
(Number of Units times $10 per Unit) _______ Warrants
Initial Election for Payment of Dividends: (check below whether you wish to
-------------------------------
receive payment of dividends in shares of preferred stock or cash)
- ----------------------------------------------------------------------------
Payment in shares of Preferred Stock: ___ Payment in Cash:___
REMINDER: AS PROVIDED IN THE PROSPECTUS, IN THE EVENT THE COMPANY HAS
INSUFFICIENT FUNDS TO PAY ALL ACCRUED DIVIDENDS, INVESTORS WHO ELECT PAYMENT
IN ADDITIONAL SHARES OF PREFERRED STOCK WILL RECEIVE THEIR DIVIDENDS PRIOR TO
THE INVESTORS WHO ELECT TO RECEIVE THEIR DIVIDENDS IN CASH.
___________________________ ___________________________
Signature of Subscriber Signature of Co-Subscriber (if any)
___________________________ ___________________________
Print name of individual subscriber Print name of individual
and name and title of signing officer co-subscriber and name and title
of corporation, partnership, other of signing officer of corporation,
entity, custodial or trustee subscriber partnership, other entity, custodial
or trustee co-subscriber
_________________________ ______________________
Soc. Sec. or Tax ID# Soc. Sec. or Tax ID#
of Subscriber of Co-Subscriber
(PLEASE SEE ATTACHED INSTRUCTIONS ON PAYMENT AND DELIVERY OF FUNDS)
<PAGE>
INSTRUCTIONS FOR PAYMENT
PRIOR TO INITIAL CLOSING DATE
Subscribers must deliver Subscription Agreements, together with funds
for the entire amount of Units subscribed for, to Southern California Bank.
Funds may be delivered by check payable to "SCB FBO NBI, Inc. Escrow No.
11781-GG", sent to the attention of Gloria Garriott, Southern California Bank,
4100 Newport Place, Suite 130, Newport Beach, California 92660, or by wire
transfer sent in accordance with the following wire transfer instructions:
Southern California Bank
Account No.: 1900307
ABA/Routing No.: 1222-2693-7
Escrow No.: 11781-GG
Wire sent from: (Name of Subscriber)
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INSTRUCTIONS FOR PAYMENT
AFTER INITIAL CLOSING DATE
Subscribers must deliver Subscription Agreements, together with funds for
the entire amount of Units subscribed for, to the Company. Funds may be
delivered by check payable to "NBI, Inc.", sent to the attention of Marjorie
A. Cogan, Chief Financial Officer, NBI, Inc., 1880 Industrial Circle, Suite F,
Longmont, Colorado 80501.
