UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-19598-D
NANOPIERCE TECHNOLOGIES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Nevada 84-0992908
------ ----------
(State of other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
----------------------
(Address and zip code of principal executive office)
Registrant's telephone number, including area code: (303) 592-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class) Name of Each Exchange On Which Registered
---------------- -----------------------------------------
Common Stock, $0.0001 Par Value NASDAQ:BB
Berlin Exchange: NPI
Indicate by check mark whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
As of the close of trading on September 23, 1999, there were 30,894,614 common
shares outstanding, 17,130,333 of which were held by non-affiliates. The
aggregate market value of the common shares held by non-affiliates, based on the
average closing bid and asked prices on September 23, 1999, was approximately
$6,166,919.
Transitional Small Business Disclosure Yes __ No __X_
<PAGE>
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Nanopierce Technologies, Inc. (the "Company") is a Nevada corporation that
was incorporated on June 22, 1996, as Sunlight Systems, Ltd. From June 22, 1996
through November 1996 the Company engaged in limited activities as a dealer and
distributor of sun tunnels. This business, however, was discontinued and
substantially all assets were sold in November of 1996. From that time until
February 1998, the Company was generally inactive and reported no significant
operating revenues.
On February 26, 1998, the Company acquired the intellectual property rights
related to the Company's patented Particle Interconnect Technology (the "PI
Technology") from Particle Interconnect Corporation ("PI Corp"), a Colorado
Corporation, a wholly owned subsidiary of Intercell Corporation ("Intercell"), a
Colorado Corporation. In exchange for the assets of PI Corp the Company issued
7,250,000 shares of its common stock and 100 shares of the Company's Series A
Preferred Stock (convertible into 7,250,000 common shares) to Intercell. The
Company acquired the PI Technology in order to pursue a more focused, strategic
application and development of the PI Technology.
The PI Technology utilizes 10 patents, 2 patent applications pending and 2
Patent disclosure documents in preparation, all of which are owned by the
Company. Generally, the patents and patent applications relate to hard
particles treated with a conductive material such as copper or nickel which is
electrically deposited to a foundation such as a socket, connector or conductor
to make superior electrical connections and conductivity. The PI Technology can
be used on many different bases, whether flexible, rigid, metallic or
non-metallic.
The Company plans to market the PI Technology and products using the PI
Technology through two different but concurrent marketing efforts. The first
part of its marketing strategy involves the generation of revenues through the
formation of joint ventures or strategic relationships with, or by licensing the
PI Technology to, established manufacturers. The second part of the strategy
involves the sale of products utilizing or incorporating the PI Technology
through joint ventures with small volume users of the technology. Eventually,
if warranted, the Company may undertake direct marketing of products utilizing
the PI Technology. The development of applications utilizing the PI Technology
presents a long-range opportunity for the Company to maximize the
commercialization of its technology.
THE PI TECHNOLOGY
The PI Technology begins with metallized, treated diamond or other hard
particles, which have been closely screened to a specified size. The particles
are tightly classified in sizes ranging from 5 microns to 125 microns, depending
upon the end-product application. These electrically conductive particles are
attached onto contact sites using standard electroplating processes. The
embedded particles create a surface with many points that provide numerous
parallel electrical paths by penetrating through an oxide without requiring the
wiping action of conventional contacts. The Company believes that its
non-wiping, oxide penetrating PI Technology is capable of penetrating surface
contamination and oils to create an effective and reliable electrical contact.
The particles concentrate any applied contact force into a very small area
or point. This gives the particle the force per square inch required to pierce
oxides and other contaminants on most surfaces without requiring large amounts
of force on the connector contact. Reliable connections can be made with PI
Technology with as little as 10 grams of force per contact. This low-level of
force is sufficient to drive the particles into the mating surface (for example
an I/O pad on a silicon die) and provide low contact resistance. Moreover, the
diamond particles do insignificant damage to the mating surface. This provides
very long remate life with very little degradation of the connection.
2
<PAGE>
These particles can be applied to many different substrates- flexible,
rigid, metallic and non-metallic. This wide range of substrates, coupled with
the low contact force, gives the PI Technology the capability to make reliable
connectors out of materials that could collapse if subjected to normal required
contact forces.
The Company has designated and is commercializing its PI Technology as the
Nanopierce Connection System (NCS).
SALES AND MARKETING STRATEGY
The Company intends to adopt and implement a two-part approach to the
commercial exploitation of its PI Technology. The first part of its strategy
involves the generation of royalty or other revenues through forming strategic
relationships with, or licensing the PI Technology to, established companies in
the markets in which the Company plans to compete. The Company believes that
the licensing of its technology to major industry partners will provide for
faster implementation and adoption of the PI Technology and will help establish
"brand" recognition for the PI Technology.
Commencing in January 1999, the Company successfully introduced its
technology to applications in the manufacturing of smart cards and smart labels.
Of particular significance to manufacturers of contactless smart cards and smart
labels is their desire to obtain a secure, efficient connection between the
microprocessor chip and the radio antenna in what are known as combicards or
dual interface smart cards, contactless smart cards and contactless smart
labels.
Smart Cards are plastic, flexible credit card size devices embedded with a
powerful microchip, designed to store and process information. The microchip is
connected to the circuits, which make the card function. Reliable connections
in flexible applications are crucial to the card's operation. Smart Cards, which
are "Electronic Purses", are used as: Phone Cards, Health Cards, ID Cards, Pay
TV Cards, Meter Cards, GSM Cards, Bank Cards, Transport Tickets, Access Control
Cards and Automatic Dispenser Cards.
A smart label is a paper thin identification label with a programmable
integrated circuit inside and an antenna connected to it. It communicates
through radio frequency signals with a fixed position or hand held reader/writer
over distances more than one meter. Smart Labels collect the energy to operate
from a radio frequency field emitted by a fixed or handheld reader device;
therefore they do not need a battery, contactless smart cards operates on the
same principle. Its substrate is paper or plastic yielding a paper-thin
flexible label, which can be self-adhesive and be printed on. Uses for
contactless smart labels include: labels applied to shipping/courier parcels; as
airline baggage tags; as retail labels applied directly by the manufacturer to
the product, identifying the manufacturer, product type, production lot and a
digital signature to prove genuineness, as labels for inventory control; and as
labels for rental services, i.e. libraries, video stores, etc.
The market for smart cards and smart labels is poised for explosive growth.
However, there is a critical bottleneck holding the industry back: the lack of a
cost effective and reliable system for electrical connection of the microchip to
the contacts plate and/or antenna. The industry cannot satisfy the market
demands for cost effective and reliable contactless smart cards and smart labels
with current technologies. The Company believes it has the solution for the
industry, using its PI Technology in the Nanopierce Connection System ("NCS").
The Company is strategically positioned to become a major participant in
the large and growing smart card/smart label market. Current technologies
cannot satisfy the cost and reliability demands of this market. NCS can meet
cost and reliability demands because it provides single step low-cost
manufacturing procedures; it provides reliable connection on flexible
substrates; and is thin enough to be used in the manufacturing of smart labels.
3
<PAGE>
As previously stated, commencing in the Spring of 1999, the Company
implemented its strategic business plan by forming strategic alliances intended
to result in joint ventures to develop applications for its technology in the
smart card/ smart label industry. In that regard, it successfully concluded
three such strategic alliances with participants in the industry.
MULTITAPE GMBH & CO., KG AGREEMENT
- ----------------------------------
On April 15, 1999, the Company entered into an Application Development
Agreement with Multitape, GmbH & Co., KG, of Paderborn, Germany to develop the
application of its technology on chip module substrate tapes manufactured by
Multitape. Multitape is a major supplier of chip module substrate tapes to
numerous card manufacturers including virtually all of the largest card
manufacturers in the world. Should the tests prove successful to the
satisfaction of the Company and Multitape, a more formal arrangement will be
entered into between the Company and Multitape to commercially exploit the
opportunity.
MEINEN, ZEIGEL & CO. AGREEMENT
- ------------------------------
On May 17, 1999, the Company entered in a Technology Cooperation Agreement
with Meinen, Zeigel & Co., Munich, Germany to develop applications of its
technology for dual interface smart card modules and the qualification and
industrialization of a chip module embedding process on Meinen, Zeigel & Co.
equipment. Meinen, Zeigel & Co. is a developer, manufacturer and supplier of
equipment used in the production of smart cards. Many of the world's largest
smart card manufacturers utilize Meinen, Zeigel & Co. equipment to produce
standard smart cards, contactless smart cards and dual interface cards. It is
likely that Meinen, Zeigel & Co. will design new equipment based around the new
manufacturing process enabled by adoption of the Company's technology. Adoption
of the Company's technology by the industry will enable equipment manufacturers,
specifically Meinen, Zeigel & Co., to design less expensive, more efficient,
higher throughput, simpler production equipment. The Company contemplates
entering into a formal joint venture agreement with Meinen, Ziegel & Co. to
further implement the commercial exploitation of its technology.
ORGA KARTENSYSTEMES, GMBH AGREEMENT
- -----------------------------------
On June 11, 1999, the Company entered into a Technology Development
Agreement with ORGA Kartensystemes, GmbH, one of the world's largest smart card
manufacturers. ORGA Kartensystemes, GmbH of Flintbek, Germany, is working with
the Company relating to the application of NCS to the design and manufacture of
dual interface smart cards, particularly as it relates to the connection of the
antenna to the chip modules. If all testing and qualifications standards are
met, the Company contemplates entering into a formal joint venture or direct
licensing of ORGA Kartensystemes, GmbH relating to the application of its
technology and dual interface smart cards.
CIREXX CORPORATION AGREEMENT
- ----------------------------
In addition to the Application Development Agreements described above, the
Company has also entered into an Agreement-In-Principle to form a joint venture
or limited liability partnership with Cirexx Corporation, Santa Clara,
California. The proposed joint venture or limited liability partnership will be
organized to commercially exploit NCS in all applications. Cirexx Corporation is
a world leader in the quick turn prototype design and production manufacturer of
high technology, digital, RF, and analog flexible circuits and mixed
technologies.
SCHLUMBERGER SYSTEMES, S.A.
- ---------------------------
The Company has entered into a Confidential Disclosure Agreement with
Schlumberger Systems, S.A. effective July 8, 1999. The Company is in the
process of exchanging information with Schlumberger Systemes, S.A. relating to
the application of its technology to dual interface smart cards and other
applications.
4
<PAGE>
TAIKO DENKI, LTD. PROPOSAL
- --------------------------
In addition to the strategic alliances described above, the Company is in
discussions with other companies in the smart card industry relating to
possible application of its technology to their product lines. Further, the
Company is expanding the scope of its strategic business activities to now
embrace potential applications of NCS in the connector market. The Company is
currently in discussions with Taiko Denki, Ltd., one of Japan's leading
connector manufacturers relating to the application of its technology to the
connector products of Taiko Denki, Ltd. The Company has submitted a formal
Proposal to Taiko Denki, Ltd. relating to the formation of a strategic business
relationship.
For more detailed information, see the Application Development Agreements
and the Agreement-In-Principle, which are included in this Report on Form 10-KSB
as exhibits.
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of approximately
$9,500 for the year ended June 30, 1999. No research and development expense
was incurred during the year ended June 30, 1998. The Company hopes to avoid
incurring substantial research and development expenditures by entering into
joint ventures for the development of future PI products.
COMPETITION
Competition in the electronic connector market is fierce. The principal
competitive factors are product quality, performance, price and service. While
the Company is unaware of any competitors using diamond as an interconnect
material, the Company and its licensees face competition from well-established
firms with other interconnect technologies. However, most of these competitors
apply their technologies to very narrow markets or applications and most have
had only limited success in mass commercialization of their technologies.
The Company will face competition from the development of existing and
future competing technologies. There currently exists approximately 28
different technologies that can be used to create interconnect solutions,
including dendrite crystals, gold dot technology, anisotropic technology
(technologies using materials whose behavior differs in the up/down and
left/right diversion), elastomerics (rubber-like synthetic materials) and Z-axis
conductive adhesives. These technologies currently are produced by materials
and chemical suppliers, flexible and rigid printed circuit board manufacturers,
as well as electronics manufacturers who produce their own materials and
interconnect systems. Many of these competitors have substantially greater
financial and other resources than the Company. The Company believes that each
existing technology currently has unacceptable limitations with regard to
electrical/mechanical performance, manufacturability or cost as compared to the
PI Technology. However, there are no assurances that the Company or the PI
Technology can successfully compete with current or future technologies.
INTELLECTUAL PROPERTY
The Company will rely on a combination of patents, patent applications,
trademarks, copyrights and trade secrets to establish and protect its
proprietary rights in the PI Technology and its application. The Company
currently owns 10 U.S. patents (which expire from February 14, 2006 to October
15, 2013) and 2 patent applications relating to the PI Technology.
Prior to the Company's acquisition of the PI Technology, the inventor of
the PI Technology or companies controlled by him granted the following exclusive
and nonexclusive licenses to pursue the patents and patent applications relating
to the PI Technology: (i) an exclusive license to Exatron Automatic Test
Equipment Inc. ("Exatron") for use in the field of sockets in the automated
handling and testing of integrated circuits and a non-exclusive license for
other applications; (ii) an exclusive license to Micro Module Systems, Inc. for
use in the field of certain Multi-Chip Module thin film bases, except attached
or associated products including integrated circuits, socket, lids, heat sinks,
5
<PAGE>
housings and printed circuit boards; (iii) a non-exclusive license to
Johnson-Matthey Semiconductor Packagings, Inc. for use in the field of
laminate-based base products; (iv) a non-exclusive license to Multiflex, Inc.
for use in the filed of the laminate-based bases and metal bases; and (v) a
non-exclusive license to Myers Consulting, Inc. for use in the field of
laminate-based bases, metal bases, and wafer or semi-conductor products. These
licenses have indefinite terms and, provided certain conditions are met, can be
terminated by either party by written notice. The Company retains the right to
exclude all other companies from using its patented technology without a
license. Consequently, the Company may license such other companies as it
chooses, provided the licensees are consistent with the exclusive licenses
previously granted and other licensing restrictions that may appear in the
prior licenses.
All but two of the foregoing license agreements have been idle since their
acquisition by the Company and therefore these agreements have not produced any
royalty fees for the Company. Royalties under the one active agreement is being
held in an escrow account and maintenance payments on one license were being
held in a reserve account, outside of the Company's control, pending the
resolution of certain legal issues.
In December 1998, MicroModule Systems, Inc. terminated all of its business
operations and sold its assets to an industry associate. As a result of this,
the Company has terminated the license of MicroModule Systems, Inc.
There can be no assurance that patents will be issued from any of the
pending applications, or that any claims allowed from existing or pending
patents will be sufficiently broad enough to protect the Company's PI
Technology. While the Company intends to vigorously protect its intellectual
property rights, there can be no assurance that any patents held by the Company
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. Litigation may
be necessary to enforce the Company's patents, patent applications, trade
secrets, licenses and other intellectual property rights, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business and results of operations regardless of the final outcome of the
litigation. Despite the Company's efforts to maintain and safeguard its
proprietary rights, there can be no assurances that the Company will be
successful in doing so or that the Company's competitors will not independently
develop or patent technologies that are substantially equivalent or superior to
the Company's technologies.
The semiconductor and interconnect industries are characterized by
uncertain and conflicting intellectual property claims. The Company has in the
past and may in the future become aware of the intellectual property rights of
others that it may be infringing, although it does not believe that it is
infringing any third party proprietary rights at this time. To the extent that
it deems necessary, the Company may license the right to use certain technology
patented by others in certain products that it manufactures. There can be no
assurance that the Company will not in the future be notified that it is
infringing other patent and/or intellectual property rights of third parties.
In the event of such infringement, there can be no assurance that a license to
the technology in question could be obtained on commercially reasonable terms,
if at all, that litigation will not occur or that the outcome of such litigation
will not be adverse to the Company. The failure to obtain necessary licenses or
other rights, the occurrence of litigation arising out of such claims or an
adverse outcome from such litigation could have a material adverse effect on the
Company's business. In any event, patent litigation is expensive, and the
Company's operating results could be materially adversely affected by any such
litigation, regardless of its outcome.
The Company intends to protect its trade secrets and proprietary
technology, in part, through confidentiality and non-competition agreements.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's trade
6
<PAGE>
secrets will not otherwise become known to or independently developed by others.
In addition, the laws of some foreign countries do not offer protection of the
Company's proprietary rights to the same extent, as do the laws of the United
States.
GOVERNMENT REGULATION
The Company believes that it is in substantial compliance with all material
federal and state laws and regulations governing its limited operations.
Compliance with federal and state environmental laws and regulations did not
have a material effect on the Company's capital expenditures, earnings or
competitive position during the year ended June 30, 1999.
EMPLOYEES
As of June 30, 1999, the Company had 3 employees. Messrs. Metzinger and
Neuhaus have signed Employment Agreements with the Company. (See- Item 9-
"Directors and Officers of the Company") None of the Company's employees are
represented by a labor union or are subject to a collective bargaining
agreement.The Company believes that its relations with its employees are
excellent.
ITEM 2. PROPERTIES
PRINCIPAL EXECUTIVE OFFICES
The Company currently maintains its executive and administrative office in
space provided by Intercell Corporation, its parent company at 370 Seventeenth
Street, Suite 3580, Denver, Colorado 80202. The Company also has a small
laboratory facility located at 770 Maroonglenn Court, Colorado Springs, Colorado
80906, which is the residence of Dr. Herbert J. Neuhaus, Executive Vice
President and a Director of the Company. The Company uses such facility without
any rental expense. The Company owns no real property.
ITEM 3. LEGAL PROCEEDINGS
The Company and Louis DiFrancesco, the inventor of the PI Technology, are
involved in litigation relating to the Company's ownership of its intellectual
property and the rights as to whom should receive royalty payments from
licenses. The parties are currently negotiating a settlement to the litigation.
Management believes a settlement is near completion.
Other than the above mentioned lawsuit, to the knowledge of the management
of the Company, there are no material legal proceedings pending or threatened
(other than routine litigation incidental to business) to which the Company (or
any officer, director, affiliate of beneficial owner of more than 5% of the
Company's voting securities) is party or to which property of the Company is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no meetings of security holders during the period covered by
this report.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is presently traded on the over-the-counter market on the
OTC Bulletin Board maintained by the National Association of Securities Dealers,
Inc. (the "NASD") The NASDAQ symbol for the Common Stock is "NPCT". The common
stock of the Company is also traded on the Berlin Exchange under the symbol
"NPI".
The following table sets forth the range of high and low bid quotations for
the Common Stock of each full quarterly period during the fiscal year or
equivalent period for the fiscal periods indicated below. Prior to February
1998, there was no meaningful market with reliable quotations for the common
stock of the Company. The quotations were obtained from information published
by the NASD and reflect interdealer prices, without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C>
1998 FISCAL YEAR . ASK BID
March 31, 1998 $ 1.65 $ 1.60
June 30, 1998 2.437 2.187
1999 FISCAL YEAR
September 30, 1998 $ 0.718 $ 0.781
December 31, 1998 0.32 0.33
March 31, 1999 0.66 0.70
June 30, 1999 0.42 0.47
</TABLE>
As of June 30, 1999, there were approximately 104 holders of record of the
Company's Common Stock.
DIVIDEND POLICY
While there currently are no restrictions prohibiting the Company from
paying dividends to its shareholders, the Company has not paid any cash
dividends on its Common Stock in the past and does not anticipate paying any
dividends in the foreseeable future. Earnings, if any, are expected to be
retained to fund future operations of the Company. There can be no assurance
that the Company will pay dividends at any time in the future.
8
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
The Company made the following unregistered sales of its securities from
July 1, 1998 through June 30, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DATE TITLE OF SECURITIES # OF SHARES CONSIDERATION PURCHASER
- ---- ------------------- ----------- ------------- ---------
7/1/98 . Common Stock 186,500 Investor Relations Putter Consulting
7/1/98 Common Stock 24,500 Investor Relations Kathy Knight-
McConnell
7/1/98 Common Stock 6,250 Investor Relations Hans Kast
7/1/98 Common Stock 6,250 Investor Relations Roger L. Smothers
Series B Preferred Stock 500 $ 500,000 Hirsch
8/19/98 Common Stock 17,730 Series B Conversion Hirsch
Series B Preferred Stock 250 $ 250,000 Hirsch
9/8/99 Common Stock 134,146 Series B Conversion Hirsch
10/26/98 Common Stock 71,023 Series B Conversion Hirsch
11/3/98 Common Stock 90,992 Series B Conversion Hirsch
11/4/98 Common Stock 94,697 Series B Conversion Hirsch
12/18/98 Common Stock 252,016 Series B Conversion Hirsch
6/3/99 Common Stock 70,000 $ 50,000 Investors
6/3/99 Common Stock 100,000 Investor Relations Harold Engel, Jr.
6/17/99 Common Stock 52,500 Exercise Option Thomas Vander Stel
6/30/99 Common Stock 6,235,000 Series A Conversion Intercell Corporation
6/30/99 Common Stock 4,650,000 Repayment of Loan Intercell Corporation
Shares
6/30/99 Common Stock 752,550 Dividend Shares on Intercell Corporation
Series A Preferred
Shares
6/30/99 Common Stock 144,000 Investor Relations Stock Enterprises
6/30/99 Common Stock 250,000 Consulting Services Bert Roosen
6/30/99 Common Stock 30,000 Investors Relations Chad Beemer
6/30/99 Common Stock 10,000 Interest on Rose & Richard Gram
Promissory Note
6/30/99 Common Stock 5,000 Interest on SBR Partnership
Promissory Note
</TABLE>
EXEMPTION FROM REGISTRATION CLAIMED. All of the sales by the Company of its
unregistered securities were made by Registrant in reliance upon Section 4(2) of
the Securities Act of 1933, as amended. All of the individuals who purchased
the unregistered securities were all known to the Company and its management,
through pre-existing business relationships, as long standing business
associates, friends, employees, relatives or members of the immediate family of
management. All purchasers were provided access to all material information,
which they requested, and all information necessary to verify such information
and were afforded access to management of the Company in connection with their
purchases. All purchasers of the unregistered securities acquired such
securities for investment and not with a view toward distribution acknowledging
such intent to the Company. All certificates or agreements representing such
securities that were issued contained restrictive legends, prohibiting further
transfer of the certificates or agreements representing such securities, without
such securities either being first registered or otherwise exempt from
registration in any further resale or disposition.
9
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this Form 10-KSB contains "forward-looking
statements" within the meaning of the private Securities Litigation Reform Act
of 1995. These are statements that do not relate strictly to historical or
current facts. Such forward-looking statements involve known and unknown risks
and uncertainties. In this regard, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences are
discussed below. These risks and uncertainties include, without limitation:
- The rate of market development and acceptance of the interconnect
technology the industry within which the Company is concentrating its
business activities;
- The unpredictability of the Company's sales cycle;
- The limited revenues and significant operating losses generated to date;
- The possibility of significant ongoing capital requirements;
- The loss of any significant customer;
- The ability of the Company to compete successfully with the other
providers of interconnect technologies. See "Description of Business -
Competition";
- The ability of the Company to secure additional financing as and when
necessary;
- The ability of the Company to retain the services of its key management,
and to attract new members of the management team;
- The ability of the Company to effect and retain appropriate patent,
copyright and trademark protection of its products;
For the purposes of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995,
readers are urged to review the list of certain important factors set forth in
"Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995".
The Company undertakes no obligation to release publicly any revisions to
the forward-looking statements or to reflect events or circumstances after the
date of this Report.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement is
effective for fiscal years beginning after June 15, 2000. Currently, the
Company does not have any derivative financial instruments and does not
participate in hedging activities. Therefore, management believes that SFAS No.
133 will not have an impact on its financial statements.
10
<PAGE>
RESULTS OF OPERATIONS:
The Company's revenues were $0 and $1,519 for the years ended June 30, 1999
and 1998, respectively. The revenues in 1998 were derived from oil and gas
leases. The Company recognized an impairment loss of $171,970 on its investment
in oil and gas property in February 1998.
General and administrative expenses increased $1,939,559, or 165%, to
$3,114,558 for the year ended June 30, 1999 from $1,174,999 for the year ended
June 30, 1998. This increase is mainly due to an increase in public relation
fees from $147,000 for the year ended June 30, 1998 to $1,960,951 for the year
ended June 30, 1999. This increase is due in large part to the issuance of
4,500,000 shares of the Company's common stock, valued at $1,500,000, by the
Company to Intercell. Intercell had used its shares of the Company's common
stock to pay the expenses of a public relations firm in January 1999, on behalf
of the Company, and at that time, the Company agreed to replace the shares in
the future. Legal expenses were $201,091 for the year ended June 30, 1999
compared to none for the year ended June 30, 1998. The increase was due to the
litigation involving Mr. DiFrancesco (See Item 3 - Legal Proceedings). Travel
expenses increased from $80,917 in the year ended June 30, 1998 to $101,869 in
the year ended June 30, 1999, which can be attributed to several overseas trips
by management in order to develop relationships with several European companies
that have resulted in the signing of agreements with such companies.
Total other income (expense) was an expense of ($24,881) in 1999, as
compared to income of $36,146 in 1998. The change is primarily due to a $37,528
gain on the sale of marketable securities in 1998, and a $20,249 increase in
interest expense in 1999.
The Company experienced net losses of $3,139,439 and $1,137,334 for the
years ended June 30, 1999 and 1998, respectively. The increase can be
attributed to the significant increase in general and administrative expenses.
The Company, in the Spring of 1999, signed various agreements with
companies both overseas and in the United States. The agreements are to apply
the Company's NCS technology to various products, mainly in the smart card
industry (See Item 1 - Sales & Marketing Strategy). Management is pursuing the
development of further similar agreements both nationally and internationally
with companies not only in the smart card business, but other industries, as
well. Further, the Company is working to advance the agreements already in
place (see Item 1 - Sales and Marketing Strategy). In connection with these
agreements the Company incurred research and development expenses of
approximately $9,500 for the year ended June 30, 1999 and incurred no such
expenses during the year ended June 30, 1998. Such expenses were incurred in
order to perform tests of the Company's NCS technology.
LIQUIDITY AND CAPITAL RESOURCES:
During the year ended June 30, 1999, cash used in operating activities was
$944,034. Operations were primarily funded by $660,000 and $250,000 of cash
proceeds received from the issuance of Series B Preferred stock and common
stock, respectively. As described in the following paragraph, certain preferred
shares were converted to common stock during the year ended June 30, 1999.
Intercell, the holder of the Series A Preferred Shares, elected to convert
in full its 100 preferred shares into 7,250,000 common shares. It further
elected at that time to take the accrued dividend related to the Series A
Preferred shares in 752,550 shares of the Company's restricted common stock,
rather than cash. The Series B Preferred Shares were converted in full in
February 1999. A total of 2,974,687 shares were issued during the year ended
June 30, 1999 in connection with the conversions of the Series B Preferred
shares.
The independent auditors' report on the Company's financial statements as
of June 30, 1999, and for each of the years in the two year period ended June
30, 1999, includes a "going concern" explanatory paragraph, that describes
11
<PAGE>
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to the factors prompting the explanatory paragraph
are discussed below and also in Note 2 to the Notes to the Financial Statements.
The Company, at this time, does not recognize any revenues from the
agreements it has signed. Further, the Company's current operations are not
generating positive cash flow and the Company's current cash reserves are not
sufficient to fund the Company's strategic business plan over the next 12
months. To address the current cash flow problem, the Company is in discussions
with investment bankers and financial institutions attempting to raise funds to
support current and future operations. Further, the Company, as mentioned
above, is in talks with various companies to develop agreements applying its
technology to their products and advancing those agreements it has already
executed.
The Company does not currently have any plans to add or sell significant
capital and equipment during the year ending June 30, 2000. The Company does
intend to add one to three employees to administrative and application areas,
contingent upon the receipt of funding.
YEAR 2000 CONVERSION:
The Company recognizes the need to ensure its operations will not be
adversely impacted by the Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company has established processes for evaluating and
managing the risks and cost associated with this problem, including
communicating with suppliers, dealers, and other with which it does business to
coordinate Year 2000 conversion. The total cost of compliance and its effect on
the Company's future results of operations is being determined as part of the
detailed conversion planning process.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and related financial information required to be
filed are indexed on page F-1 and are incorporated herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
12
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND AGE POSITION PERIOD
Paul H. Metzinger (60) Director, President, Chief December 1998 to present
Executive Officer and Chief
Financial Officer
Dr. Herbert J. Neuhaus (40) Director, Executive Vice January 1999 to present
President of Technology &
Marketing
Kristi J. Kampmann (26) Secretary February 1998 to present
Thomas W. Vander Stel (38) Former Chief Financial February 1998 to December
Officer 1998
Gilbert Olachea (42) Former President & Chief May 1998 to December 1998
Executive Officer
</TABLE>
The directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The Board of
Directors elects the officers at its annual meeting immediately following the
shareholders, annual meeting and hold office until they resign or are removed
from office. There are no family relationships that exist between any director,
executive officer, significant employee or person nominated or chosen by the
Company to become a director or executive officer. The Company has not
established an executive committee of the Board of Directors or any committee
that would serve similar functions such as an audit, incentive compensation or
nominating committee.
BIOGRAPHICAL INFORMATION ON OFFICERS AND DIRECTORS AND SIGNIFICANT EMPLOYEES
PAUL H. METZINGER. Mr. Metzinger was President and Chief Executive Officer
of the Company from February 26, 1998 to May 6, 1998 and has served in that same
capacity from December 1, 1998 to present. He has been a director of the
Company since February 26,1998. Mr. Metzinger has been the Chief Financial
Officer of the Company since January 1, 1999. In addition, he serves as the
President and Chief Executive Officer and a Director of Intercell Corporation.
Prior to becoming a director and officer of the Company, Mr. Metzinger served as
Intercell's General Counsel and practiced securities law in Denver, Colorado for
over 32 years. Mr. Metzinger received his J.D. degree in 1967 from Creighton
University Law School and his L.L.M. from Georgetown University in 1969.
HERBERT J. NEUHAUS, PH.D. Dr. Neuhaus has been the Executive Vice
President of Marketing and Technology and a Director of the Company since
January 1, 1999. Dr. Neuhaus previously served as the Managing Director of
Particle Interconnect Corporation from August 18, 1997 to November 1, 1997.
From August 1989 to August 1997, he was associated with Electronic Material
Venture Group in the new Business Development Department of Amoco Chemical
Company, Naperville, Illinois. While associated with Amoco chemical Company he
held among other positions: Business Development Manger/Team Leader; Project
Manager --High Density Interconnect; Product Manager MCM Products and as a
research scientist.
13
<PAGE>
During his tenure with Amoco, his professional efforts and responsibilities
were directed towards the identification, analysis and development of new market
opportunities for Amoco's electronic materials products, the development of new
applications for such products, including multichip module products, polyamide
coatings and processes for multichip module applications.
Dr. Neuhaus received his Ph.D. degree in Physics from the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1989 and his BS in Physics
from Clemson University, Clemson, South Carolina in 1980.
Dr. Neuhaus is associated with numerous professional associations and has
served with such associations in the capacity of project leader of the technical
chair for conferences.
KRISTI J. KAMPMANN. Ms. Kampmann has been Secretary of the Company since
February 1998. In addition, she has served as the Secretary of Intercell, since
July 28, 1999. Since June 1997, she has been the administrative assistant to
the Chief Executive Officer, Chief Financial Officer and the Executive Vice
President of Technology & Marketing and paralegal for both the Company and
Intercell. From April 1996 to June 1997, she served as a paralegal and
administrative assistant for Paul H. Metzinger, P.C. Ms. Kampmann graduated
from the Denver Paralegal Institute in 1996. Ms. Kampmann received a B.A. from
the University of Minnesota in Morris in 1995, majoring in Political Science
with a minor in Business Management. She currently is attending the University
of Colorado at Denver, where she is completing work on an M.B.A.
PRIOR MANAGEMENT
THOMAS W. VANDER STEL. Mr. Vander Stel served as the Chief Financial
Officer and Vice President of Operations of the Company from February 1998 to
December 31, 1998 and Chief Financial Officer, Secretary and Treasurer of
Intercell from February 1998 to November 31, 1998. From October 1992 until
January 1998, Mr. Vander Stel served as Chief Financial Officer and Vice
President for TVX, Inc., a high technology manufacturer of security systems.
GILBERT OLACHEA. Mr. Olachea served as the President and Chief Executive
Officer and a Director of the Company from May 6, 1998, until his resignation on
December 1, 1998. Previously he was President, Chief Executive Officer and a
director of Sigma 7 Corporation, from December 11, 1997 to December 1, 1998.
From July 1993 to September 1, 1997, Mr. Olachea served as Vice President
Corporate Marketing and Communications of Amkor Electronics.
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer ("CEO") and any other
executive officer whose total annual salary and bonus exceeded $100,000 for the
fiscal year ended June 30, 1999 and 1998 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
<S> <C> <C> <C> <C>
NAME & PRINCIPAL YEAR SALARY BONUS OTHER ANNUAL
POSITION ($) ($) COMPENSATION ($)
Paul H. Metzinger, 1999 $ 150,000 $ -0- $ -0-
Director, President 1998 $ -0- $ -0- $ -0-
& CEO(1)
Dr Herbert J. Neuhaus, 1999 $ 150,000 $ -0- $ -0- $ -0- 750,000
Director, Executive 1998 $ -0- $ -0- $ -0- $ -0- -0-
Vice President of
Technology &
Marketing(2)
LONG TERM COMPENSATION
--------------------------------------------------------------
AWARDS PAYOUTS
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NAME & PRINCIPAL YEAR RESTRICTED SECURITIES LTIP ALL OTHER
POSITION STOCK UNDERLYING PAYOUTS COMPENSATION
AWARDS ($) OPTIONS (#) ($) ($)
Paul H. Metzinger,
Director, President 1999 $ -0- 500,000 $ -0- $ -0-
& CEO(1) 1998 $ -0- 1,500,000 $ -0- $ -0-
Dr Herbert J. Neuhaus, 1999 $ -0- 750,000 $ -0- $ -0-
Director, Executive 1998 $ -0- -0- $ -0- $ -0-
Vice President of
Technology &
Marketing(2)
</TABLE>
_______________
1 Paul Metzinger served as President and Chief Executive Officer from February
26, 1998 to May 6, 1998, during that time period he did not receive monetary
compensation for his services. Mr. Metzinger was re-appointed President & Chief
Executive Officer on December 1, 1998. He is compensated pursuant to a written
Employment Agreement, dated January 1, 1999 at an annual salary of $150,000.00.
2 Dr. Neuhaus was appointed Executive Vice President of Technology and Marketing
on January 6, 1999. He is compensated pursuant to a written Employment
Agreement, dated January 6, 1999 at an annual salary of $100,000.00. As of
April 1999, in accordance with his Employment Agreement, Dr. Neuhaus's annual
salary was increased to $150,000; such difference has not been paid to date and
is instead being accrued by the Company with Dr. Neuhaus's agreement.
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain
non--monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
15
<PAGE>
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than 10% of the cash compensation paid to each such executive
officer, is not included in such table.
OPTION/SAR GRANTS TABLE
The following table provides information relating to the grant of stock
options to the Company's executive officers during the fiscal year ended June
30, 1999.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES OF STOCK
--------------------------------------- PRICE APPRECIATION FOR
OPTION TERM
---------------------------
NAME OPTIONS/ % OF TOTAL EXERCISE
---- SARS GRANTED OPTIONS/ OR BASE
IN FISCAL SARS PRICE EXPIR-
YEAR (#) GRANTED TO ($/SH) ATION 5%($) 10%($)
-------- EMPLOYEES ------ DATE ----- ------
IN FISCAL -----
YEAR
----
<S> <C> <C> <C> <C> <C> <C>
Paul H.
Metzinger 500,000 38.5% $ 0.52 3/12/09 163,513 414,373
Dr. Herbert
J. Neuhaus 500,000 38.5% $ 0.20 1/6/09 62,889 159,374
250,000 19.2% $ 0.52 3/12/09 81,756 207,186
Kristi J.
Kampmann 50,000 3.9% $ 0.52 3/12/09 16,351 41,437
-------
1,300,000
</TABLE>
_______________
l Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the 10-year option term. The numbers are
calculated based on the requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth, which may or may not occur.
2 Computed based on the average closing bid and asked prices on the date of
grant.
3 Options granted to Paul H. Metzinger and Kristi J. Kampmann were immediately
exercisable on the date of grant, March 12, 1999. The 500,000 share option and
the 250,000 share option granted to Dr. Neuhaus on January 6, 1999 and March 12,
1999, respectively, each vest at a rate of 15,000 shares per month.
4 Based on a total of 1,300,000 options granted to employees in the fiscal year
ended June 30, 1999.
16
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
The following table provides information relating to the exercise of stock
options during the fiscal year ended June 30, 1999 by the Company's executive
officers and the 1999 fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SAR
OPTIONS/SARS AT FY-- END
AT FISCAL YEAR(1) ($)(1)
<S> <C> <C> <C> <C>
SHARES
NAME ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
---- EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
------------ ----------- ------------- -------------
Paul H. Metzinger 0 0 2,000,000/0 $ 385,000/0
Dr. Herbert J. Neuhaus 0 0 110,000/640,000 18,375/104,125
Thomas W. Vander Stel(2) 52,500 $ 25,500 0/0 0/0
Kristi J. Kampmann 0 0 100,000/0 6,000/0
<FN>
_______________
(1) The average of the closing bid and asked price of the Common Stock on June 30,
1999 ($0.445) was used to calculate the option value.
(2) Mr. Vander Stel resigned as an Officer of the Company on December 31, 1999.
Mr. Vander Stel exercised his option on June 7, 1999, using a cashless exercise.
The option was fully vested and represented 150,000 common shares with an
exercise price of $0.3250, expiring on February 26, 2008. Mr. Vander Stel
received 52,500 restricted common shares and paid for these shares with the
remaining 97,500 common shares.
</TABLE>
EMPLOYMENT AGREEMENTS
On January 1, 1999, the Company entered into an employment agreement (the
"Employment Agreement") with Paul H. Metzinger to serve as President and Chief
Executive Officer of the Company ( an "Employee"). The Employment Agreement is
for a period of 4 years beginning January 1, 1999 and expiring December 31,
2002. Any extension or renewal of the Employment Agreement must occur at least
forty-five days prior to the end of the initial term or any renewal term and
absent mutual agreement of the parties, the failure to conclude such extension
or renewal by such date shall be deemed notice to the Company and the Employee,
that the relevant Employment Agreement shall not be extended. Under such
Employment Agreement, Mr. Metzinger will receive an annual salary of $150,000
(each referred to as an "Annual Salary") for the year, $165,000 for the second
year and $181,500 for the third year and $200,000 for the fourth year. The
Employee also is entitled to participate in the Company's bonus and stock option
plans and participate in the customary employee benefits programs maintained by
the Company, including health, life and disability insurance to the extent
provided to other senior executives of the Company.
On January 6, 1999 the Company entered into a certain employment agreement
(the "Employment Agreement") with Dr. Herbert J. Neuhaus to serve as Executive
Vice President of Technology and Marketing of the Company ( an "Employee"). The
Employment Agreement is for a period of 1 year beginning January 1, 1999. Any
extension or renewal of the Employment Agreement must occur at least three
months prior to the end of the initial term or any renewal term and absent
mutual agreement of the parties, the failure to conclude such extension or
17
<PAGE>
renewal by such date shall be deemed notice to the Company and the Employee,
that the relevant Employment Agreement shall not be extended. Under such
Employment Agreement, Dr. Neuhaus will receive an annual salary of $100,000
(each referred to as an "Annual Salary") for the year, with a provision for a
$50,000 raise if certain conditions are met. On April 15, 1999, such
conditions were deemed satisfied and his salary was increased to $150,000 per
year. If the Board subsequently extends an Employment Agreement, the
Employee's Annual Salary will increase by the amount, if any, in which the
Consumer Price Index increased during the previous year. The Employee also is
entitled to participate in the Company's bonus and stock option plans and
participate in the customary employee benefits programs maintained by the
Company, including health, life and disability insurance to the extent provided
to other senior executives of the Company.
The Company or an Employee may terminate the Employment Agreement at any
time with or without cause. In the event the Company terminates an Employment
Agreement for cause or the Employee terminates his Employee Agreement without
cause, all of such Employee's rights to compensation would cease upon the date
of his termination. If the Company terminates an Employment Agreement without
cause, the Employee terminates his Employment Agreement for cause, or in the
event of a change in control, the Company will pay to the Employee all
compensation and other benefits that would have accrued and/or been payable to
the Employee during the full term of the Employment Agreement.
A change of control is considered to have occurred when, as a result of any
type of corporate reorganization, execution of proxies, voting trusts or similar
arrangements, a person or group of persons (other than incumbent officers,
directors and principal shareholders of the Company) acquires sufficient control
to elect more than a majority of the Company's Board of Directors, acquires 50%
or more of the voting shares of the Company, or the Company adopts a plan of
dissolution of liquidation. The Employment Agreement also include a noncompete
and nondisclosure provisions in which each Employee agrees not to compete with
or disclose confidential information regarding the Company and its business
during the term of the Employment Agreement and for a period of one year
thereafter.
COMPENSATION PURSUANT TO PLANS
STOCK OPTION PLANS. The Company has one Stock Option Plan titled the
Nanopierce Technologies, Inc. 1998 Compensatory Stock Option Plan. The Company
has reserved 5,400,000 shares of common stock for issuance under the Plan.
During the fiscal year ended June 30, 1999, the Company granted options to
purchase 1,375,000 shares of common stock to directors, officers, employees and
consultants of the Company and its subsidiaries. As of June 30, 1999, 4,875,000
options are outstanding.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of Common Stock as of June 30, 1999 on fully
diluted basis, by (a) each person known by the Company to own beneficially 5% or
more of the outstanding shares of Common Stock, (b) the Company's directors,
Chief Executive Officer and executive officers whose total compensation exceeded
$100,000 for the last fiscal year, and (c) all directors and executive officers
of the Company as a group.
18
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES % OF OUTSTANDING 7
- ------------------------------------ ---------------- ------------------
<S> <C> <C>
Paul H. Metzinger, President
Chief Executive Officer and Director
370 17th Street, Suite 3580
Denver, CO 80202 3,407,151 (1) 9.71%
Cheri L. Perry/Metzinger
3236 Jellison Street
Wheat Ridge, CO 80033 3,407,151 (2) 9.71%
Dr. Herbert J. Neuhaus, Executive Vice President
of Technology & Marketing and Director
770 Marroonglen Court
Colorado Springs, CO 80096 750,000 (3) 2.12%
Kristi J. Kampmann, Secretary
370 17th Street, Suite 3580
Denver, CO 80202 119,580 (4) 0.03%
Zenith Petroleum Corporation
6354 S. Dexter St.
Denver, CO 80121 1,300,000 (5) 3.71%
Intercell Corporation
370 17th Street, Suite 3580
Denver, CO 80202 12,237,550 (6) 34.89%
All officers and directors as a group (3 persons) 4,276,731 (7) 11.86%
<FN>
_______________
(1) Consists of 990,251 shares owned indirectly & beneficially through his wife,
Cheri L. Metzinger, 416,900 owned directly or record and beneficially; 1,000,000
shares subject to a presently exercisable option expiring February 26, 2008;
500,000 shares subject to a presently exercisable option expiring February 27,
2008 and 500,000 shares subject to a presently exercisable option expiring March
12, 2009.
(2) Consists of 990,251 shares owned directly, of record and beneficially;
416,900 shares owned indirectly and beneficially through her husband, Paul H.
Metzinger and beneficial ownership of 2,000,000 shares subject to options held
by her husband.
(3) Consists of 500,000 shares subject to an option (75,000 shares presently
exercisable) expiring January 6, 2009 and 250,000 shares subject to an option
(45,000 shares presently exercisable) expiring March 12, 2009.
(4) Consists of 19,580 shares held directly, of record and beneficially and
50,000 shares subject to a presently exercisable option expiring February 26,
2008 and 50,000 shares subject to a presently exercisable option expiring March
12, 2009.
(5) Consists of 450,000 shares held directly, of record and beneficially and
850,000 shares subject to a presently exercisable option expiring February 26,
2008.
(6) Consists of 12,237,550 shares held directly, of record and beneficially.
Intercell Corporation is the parent of the Company, Paul H. Metzinger is the
President, Chief Executive Officer, a director and a shareholder of Intercell
Corporation, but he disclaims beneficial ownership of the shares held by
Intercell Corporation.
(7) Based on 29,734,614 shares of common stock issued and outstanding on June
30,1999 and assuming exercise of all 4,875,000 presently exercisable options and
exercise of 470,000 outstanding warrants, there would be 35,079,614 shares
outstanding. Mr. Metzinger's and his wife's stock ownership are not duplicated
in this computation.
</TABLE>
19
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended June 30, 1999, Paul H. Metzinger, President & Chief
Executive Officer, a Director and a major shareholder of the Company loaned the
Company $130,577. This amount is represented by a demand, unsecured Corporate
Promissory Note in the amount of $130,577, dated April 1, 1999. The Note bears
interest at the rate of 8% per annum. As of June 30, 1999 no payments had been
made on such note.
In addition, a former affiliate and a shareholder of the Company made
certain loans to the Company amounting to $66,836. Cheri L. Metzinger, wife of
Paul H. Metzinger, acquired such Note from such shareholder by paying the face
amount of the Notes. The Company issued a demand unsecured Corporate Promissory
Note in the amount of $66,836, dated March 31, 1999, bearing interest at the
rate of 10% per annum to Cheri L. Metzinger. As of June 30, 1999, the Company
had made no payments to Mrs. Metzinger.
As previously stated, effective April 1999, the Employment Agreement of Dr.
Herbert J. Neuhuas increased his compensation to $150,000 a year. Due to lack
of sufficient operating funds, Dr. Neuhaus agreed to accrue the difference
between what he was formerly paid and the monthly amount based upon a $150,000
annual compensation. As of June 30, 1999, $10,417 has been accrued.
During 1999 and 1998, various inter-company advances were made between
Intercell and the Company to provide operating capital and financing for the
respective operations of the two companies. As of June 30, 1999, the Company
was owed $69,182 by Intercell.
As previously stated, options were granted to each of Paul H. Metzinger,
Dr. Herbert J. Neuhaus and Kristi J. Kampmann, officers and directors of the
Company, during the fiscal year ended June 30, 1999.
On February 26, 1998, Intercell transferred all of the assets of PI Corp.
(valued at $1,000,000) to the Company in exchange for 7,250,000 shares of Common
Stock and 100 shares of Series A Preferred Stock. See Item 1. As a result of
such transaction, Intercell acquired approximately 75% of then-outstanding
shares of Common Stock on a fully diluted basis. Intercell currently owns
approximately 34.89 % of the outstanding shares of Common Stock on a fully
diluted basis. See Item 11.
Paul H. Metzinger, the President and Chief Executive Officer of Intercell
and PI Corp., and his wife, Cheri L. Metzinger, abstained from voting, as
shareholders of the Company, on the transaction. See Item 11. As part of the
transaction, Mr. Metzinger received a ten-year option to purchase 1,000,000
shares of Common Stock at an exercise price of $0.3250 per share. Mr. Metzinger
subsequently received an additional ten-year option to purchase 500,000 shares
of Common Stock at an exercise price of $0.3250 per share.
After the sale, Paul Metzinger was appointed the sole Director of the
Company until additional directors could be appointed. In addition, he was
nominated and elected President and Chief Executive Officer of the Company.
Mr. Metzinger currently serves as the Company's President and Chief Executive
Officer. See Item 9.
On April 14, 1998, 50,000 shares of Common Stock were issued to Lumenaria,
LLC for consulting services rendered to the Company and valued at $90,000.
Lumenaria, LLC is wholly-owned by Paul H. Metzinger. See Item 10.
Except as disclosed herein, to the best of the Company's management's
knowledge, there are no other arrangements or transactions from which related
parties may receive a benefit. See also Notes to Financial Statements.
All of the foregoing numbers of shares of Common Stock or per share amounts
have been restated to reflect the one-for-three reverse stock split that
occurred on February 27, 1998.
20
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report.
Exhibits. The following is a complete list of exhibits filed as part of this
Form 10-K. Exhibit numbers correspond to the numbers in the Exhibit Table
of Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
2 Agreement dated February 26, 1998, by and among the registrant,
Particle Interconnect Corporation and Intercell Corporation (3)
2.02 Application and Development Agreement, dated April 15, 1999, by and
among the registrant and Multitape & Co., Gmbh, KG. (1)
2.03 Technology Cooperation Agreement, dated May 17, 1999, by and among the
registrant and Meinen, Zeigel & Co. (1)
2.04 Technology Development Agreement, dated June 11, 1999, by and among the
registrant and ORGA Kartensysteme, GmbH. (1)
2.05 Agreement-In-Principle, dated May 18, 1999, by and among the registrant
and Cirrex Corporation. (1)
4.01 The Articles of Incorporation of the Company (2)
4.02 Amendment to the Articles of Incorporation of the Company (2)
4.03 Certificate of Designation of Rights and Preferences of the Series A
Preferred Stock (3)
4.04 Certificate of Designation of Rights and Preferences of the Series B
Preferred Stock (4)
4.05 Certificate of Designation of Rights and Preferences of the Series C
Preferred Stock (4)
4.06 Form of Common Stock Certificate (2)
4.07 The By-laws of the Company (2)
10.01 Employment and Non-Disclosure, Non-Competition Agreement, dated
January 1, 1999, between Paul H. Metzinger and the registrant (1)
10.02 Employment and Non-Disclosure, Non-Competition Agreement, dated
January 6, 1999, between Dr. Herbert J. Neuhaus and the registrant (1)
11 Statement regarding Computation of Per Share Earnings (1)
27 Financial Data Schedule (1)
___________________
(1) Filed herewith
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended June 30, 1998.
(3) Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 26, 1998.
(4) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 23, 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NANOPIERCE TECHNOLOGIES, INC., (a Nevada corporation)
Date: September 24, 1999 By
/s/ Paul H. Metzinger
---------------------------------
Paul H. Metzinger, Director, Chief
Executive Officer, President & Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the dates indicated.
Date: September 24, 1999 By
/s/ Paul H. Metzinger
---------------------------------
Paul H. Metzinger, Director, Chief
Executive Officer, President & Chief
Financial Officer
Date: September 24, 1999
By
/s/ Hebert J. Neuhaus
---------------------------------
Herbert J. Neuhaus, Director &
Executive Vice President of
Technology & Marketing
<PAGE>
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
Page
----
Independent auditors' report F-2
Financial statements:
Balance sheet - June 30, 1999 F-3
Statements of operations - years ended June 30, 1999 and 1998 F-4
Statements of shareholders' equity - years ended
June 30, 1999 and 1998 F-5 to F-8
Statements of cash flows - years ended June 30,
1999 and 1998 F-9 to F-10
Notes to financial statements F-11 to F-21
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ------------------------------
Board of Directors
Nanopierce Technologies, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Nanopierce Technologies, Inc.
(the Company) as of June 30, 1999, and the related statements of operations,
shareholders' equity and cash flows for each of the years in the two-year period
ended June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of June 30,
1999, and the results of its operations and its cash flows for each of the years
in the two-year period ended June 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company reported a net loss of $3,139,439 for the year
ended June 30, 1999, and a deficit of $4,984,915 as of June 30, 1999. These
factors raise 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 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
September 15, 1999
F-2
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
BALANCE SHEET
JUNE 30,1999
ASSETS
Current assets:
Cash $ 641
Prepaid expenses and deposits 11,691
-------
Total current assets 12,332
Note receivable (Note 4) 10,000
Marketable securities 948
Intellectual property rights, net of accumulated
amortization of $134,315 865,685
-------
$ 888,965
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 5):
Related party $ 197,414
Other 83,513
Accounts payable and accrued expenses:
Related parties (Note 6) 4,015
Other 201,944
-------
Total liabilities (all current) 486,886
-------
Commitments and contingencies (Note 9)
Shareholders' equity (Notes 6 and 7):
Preferred stock, $0.0001 par value; 5,000,000
shares authorized:
Series A; no shares issued and outstanding
Series B; maximum of 75,000 shares issuable; no
shares issued and outstanding
Series C; maximum of 700,000 shares issuable; no
shares issued and outstanding;
Common stock, $0.0001 par value; 45,000,000 authorized
shares; 29,734,614 shares issued and outstanding 2,973
Additional paid-in capital 5,452,255
Accumulated other comprehensive income 948
Deficit (4,984,915)
Receivable from Intercell Corporation (Note 6) (69,182)
---------
Total shareholders' equity 402,079
---------
$ 888,965
=========
See notes to financial statements.
F-3
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues from oil and gas properties (Note 8) $ 1,519
--------- -------
General and administrative expenses:
Related party (Note 6) $ 1,624,303 354,642
Other 1,490,255 820,357
--------- ----------
3,114,558 1,174,999
--------- ---------
Loss from operations (3,114,558) (1,173,480)
--------- ---------
Other income (expense):
Interest and other income 714 3,964
Gain on sale of marketable securities 37,528
Interest expense:
Related party ( 10,330) ( 4,720)
Other ( 15,265) ( 626)
----------- ----------
( 24,881) 36,146
----------- ----------
Net loss (3,139,439) (1,137,334)
Series A and B preferred stock dividends (Note 7) ( 160,633) ( 60,417)
--------- ----------
Net loss applicable to common shareholders $ (3,300,072) $ (1,197,751)
========= ==========
Net loss per share, basic and diluted, applicable to
common shareholders $ ( 0.23) $ ( 0.18)
========= ==========
Weighted average number of common shares
outstanding 14,457,613 6,621,757
========== ==========
<FN>
See notes to financial statements.
</TABLE>
F-4
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Accumulated other
Preferred stock Common stock Additional comprehensive
--------------- ------------
Shares Amount Shares Amount paid-in-capital income
------ ------ ------ ------ --------------- --------------
Balances, July 1, 1997 3,833,407 $ 1,150 $ 686,229 $ 38,283
1 for 3 reverse stock split ( 768) 768
Common stock issued for services 1,041,593 105 550,219
Common stock and series A
preferred stock issued for
purchase of intellectual
property rights 100 $ 500,000 7,250,000 725 499,275
Common stock issued for cash 100 1 199
Net loss
Other comprehensive loss -
change in unrealized gain
on securities ( 36,792)
Comprehensive loss
----- ------- --------- ------ -------- ------
Balances, June 30, 1998 100 500,000 12,125,100 1,213 1,736,690 1,491
Common stock issued for services 762,500 76 556,199
Shares of series B
preferred stock issued
for cash 75,000 660,000
Shares of Series B preferred
stockconverted to
common stock (75,000) (660,000) 2,974,687 297 659,703
Shares of Series A preferred
stock converted to common
stock ( 100) (500,000) 7,250,000 725 499,275
(continued)
F-5
<PAGE>
<S> <C> <C> <C> <C>
Receivable Total
Accumulated from Comprehensive shareholders'
deficit Intercell loss equity
----------- --------- ------------ -----------
Balances, July 1, 1997 $( 487,092) $ 238,570
1 for 3 reverse stock split
Common stock issued for services 550,324
Common stock and series A preferred
stock issued for purchase of
intellectual property rights 1,000,000
Common stock issued for cash 200
Net loss (1,137,334) $ (1,137,334) (1,137,334)
Other comprehensive loss - change
in unrealized gain on securities ( 36,792) ( 36,792)
---------
Comprehensive loss $ (1,174,126)
--------- --------- ========= ---------
Balances, June 30, 1998 (1,624,426) 614,968
Common stock issued for services 556,275
Shares of series B preferred stock
issued for cash 660,000
Shares of Series B preferred stock
converted to common stock
Shares of Series A preferred stock
converted to common stock
(continued)
</TABLE>
F-6
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
(continued)
<TABLE>
<CAPTION>
Accumulated other
Preferred stock Common stock Additional comprehensive
------------------ --------------
Shares Amount Shares Amount paid-in-capital income
------ ------ ------ ------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for
accrued dividends on Series
B preferred stock 97,277 10 24,893
Common stock issued for
accrued dividends on Series
A preferred stock 752,550 75 196,072
Common stock issued to
Intercell to replace
Nanopierce stock issued
for services by Intercell 4,650,000 465 1,529,535
Common stock issued for cash 1,070,000 107 249,893
Net loss
Shares issued on exercised
stock option 52,500 5 (5)
Receivable from Intercell
Other comprehensive loss -
change in unrealized gain
on securities ( 543)
Comprehensive loss
------ ------ ---------- ----- --------- ----
Balances June 30, 1999 29,734,614 $2,973 $5,452,255 $ 948
====== ====== ========== ===== ========= =====
F-7
<PAGE>
Receivable Total
Accumulated from Comprehensive Shareholders
deficit Intercell income equity
<S> <C> <C> <C> <C>
Common stock issued for
accrued dividends on Series
B preferred stock ( 24,903)
Common stock issued for
accrued dividends on Series
A preferred stock ( 196,147)
Common stock issued to Intercell
to replace Nanopierce stock issued
for services by Intercell 1,530,000
Common stock issued for cash 250,000
Net loss (3,139,439) $(3,139,439) (3,139,439)
Shares issued on exercised stock
option
Receivable from Intercell $ ( 69,182) ( 69,182)
Other comprehensive loss - change
in unrealized gain on securities ( 543) ( 543)
---------
Comprehensive loss $(3,139,982)
--------- ------- ========= ---------
Balances June 30, 1999 $(4,984,915) $ ( 69,182) $ 402,079
========= ======= =======
<FN>
See notes to financial statements.
</TABLE>
F-8
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
Cash flows from operating activities:
Net loss $ (3,139,439) $ (1,137,334)
--------- ---------
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization expense 100,000 34,315
Amortization of discount on note
receivable ( 346) ( 3,640)
Provision for losses on notes receivable 37,835
Gain on sale of marketable securities ( 37,528)
Impairment of oil and gas properties 171,970
Expenses incurred in exchange for
common stock 2,086,275 550,324
Changes in operating assets and liabilities:
Increase in prepaid expenses and deposits ( 11,367)
Increase (decrease) in accounts payable and
accrued expenses:
Related parties ( 142,732) 115,247
Other 194,922 7,022
Increase in receivables from Intercell ( 69,182)
Decrease in other assets 3,766
--------- ---------
Total adjustments 2,195,405 841,476
--------- ---------
Net cash used in operating activities ( 944,034) ( 295,858)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of marketable securities 37,528
Payments received on note receivable 1,250 12,500
Increase in notes receivable ( 10,000)
--------- --------
Net cash provided by (used in) investing activities( 8,750) 50,028
--------- --------
Cash flows from financing activities:
Proceeds from notes payable:
Related party 53,414 144,000
Other 93,513
Payments on note payable ( 10,000)
Proceeds from issuance of Series B
preferred stock 660,000
Proceeds from issuance of common stock 250,000 200
--------- --------
Net cash provided by financing activities 953,414 237,713
--------- --------
Net increase (decrease) in cash 630 ( 8,117)
Cash, beginning 11 8,128
--------- --------
Cash, ending $ 641 $ 11
========= ========
(continued)
F-9
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
(CONTINUED)
1999 1998
---- ----
Supplemental disclosure of cash flow information:
Cash paid for interest $ 9,498 $ -
========= =========
Supplemental schedule of non-cash investing and
financing activities:
Conversion of Series A and B preferred
stock to common stock $ 1,160,000
=========
Intellectual property rights acquired by
issuance of:
7,250,000 shares of common stock $ 500,000
100 shares of Series A preferred stock 500,000
---------
$1,000,000
=========
Common stock issued for accrued
preferred stock dividends $ 221,050
=========
See notes to financial statements.
F-10
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
1. BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
BUSINESS:
Nanopierce Technologies, Inc. (the Company) is engaged in the design,
development and licensing of products using its intellectual property, the PI
Technology. The PI Technology consists of patents, pending patent
applications, patent applications in preparation, trade secrets, trade names,
and trademarks. The PI Technology improves electrical, thermal and mechanical
characteristics of electronic products. The Company has designated and is
commercializing its PI Technology as the Nanopierce Connection System (NCS)
and markets the PI Technology to companies in various industries for a wide
range of applications. The Company has not recognized any royalty revenue
through June 30, 1999, pending the resolution of litigation regarding its
license agreements (Note 9).
ORGANIZATION:
In February 1998, the Company acquired the PI Technology from Particle
Interconnect Corporation, a subsidiary of Intercell Corporation (Intercell).
In exchange for the PI Technology, the Company issued to Intercell 7,250,000
shares of its common stock, and 100 shares of its Series A voting preferred
stock (converted to 7,250,000 shares of common stock during the year ended June
30, 1999). As a result of this transaction, Intercell became the majority
owner of the Company's outstanding common stock. At June 30, 1999 Intercell
owns approximately 42% of the outstanding common stock of the Company. Prior
to the acquisition of the PI Technology, Particle Interconnect Corporation
primarily incurred expenses related to the research and development of the PI
Technology, but had no revenue-producing activities or any other significant
ongoing business activities.
REVERSE STOCK SPLIT:
In February 1998, the Company effected a one-for-three reverse stock split of
its common stock. All references in the financial statements to number of
shares and per share amounts have been restated to reflect the reverse stock
split.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
F-11
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
1. BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's receivables and payables to related parties are
not practicable to estimate due to the related party nature of the underlying
transactions. Management believes that the carrying amounts of the Company's
other financial instruments approximates their fair values primarily because of
the short-term maturities of these instruments.
INTELLECTUAL PROPERTY:
The PI Technology was acquired upon the issuance of 7,250,000 shares of common
stock and 100 shares of Series A preferred stock of the Company and was valued
at the estimated fair value of the PI Technology at the date of acquisition
based on a written cash offer for Particle Interconnect from an outside third
party. This third party is a manufacturer in a field which uses the
intellectual property. The intellectual property is being amortized using the
straight-line method over 10 years. The 10-year period is based on the
estimated useful life, limited by the remaining average patent protection
period. At each balance sheet date, management assesses whether there has been
an impairment in the carrying value of long-lived assets. In performing this
assessment, management considers current market analysis and appraisal of the
PI Technology, along with projected operating information. Based on its
evaluation, management does not believe that there has been any impairment
through June 30, 1999.
MARKETABLE SECURITIES:
Marketable securities consist of approximately 23,700 shares of common stock of
Intercell. These securities are classified as available-for-sale and are
carried at fair value based upon quoted market prices. Unrealized gains and
losses are computed on the basis of specific identification and are reported as
a separate component of comprehensive income included as a separate item in
shareholders' equity. Realized gains, realized losses, and declines in value,
judged to be other-than-temporary, are included in other income (expense).
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred. Research and
development expense was approximately $9,500 and $0 for the years ended June 30,
1999 and 1998, respectively.
STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock- Based Compensation, allows companies to choose whether to account for
employee stock-based compensation on a fair value method, or to continue
accounting for such compensation under the intrinsic value method prescribed in
Accounting Principles Board opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). The Company has chosen to continue to account for employee
stock-based compensation using APB 25.
F-12
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
1. BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
INCOME TAXES:
Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statement
of operations in the period that includes the enactment date.
COMPREHENSIVE INCOME:
During the year ended June 30, 1999, the Company adopted SFAS No. 130,
Reporting Comprehensive Income, which establishes new rules for the reporting
and display of comprehensive income and its components. SFAS No. 130 requires
unrealized gains and losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in shareholders' equity, to be
included in comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
LOSS PER SHARE:
SFAS No. 128, Earnings per Share, requires dual presentation of basic and
diluted earnings or loss per share (EPS) with a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Loss per share of common stock is computed based on the average number of common
shares outstanding during the year. Stock options, warrants, and convertible
preferred stock are not considered in the calculation, as the impact of the
potential common shares would be to decrease loss per share. Therefore, diluted
loss per share is equivalent to basic loss per share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT:
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. Currently, the Company does not have any derivative
financial instruments and does not participate in hedging activities; therefore,
management believes that SFAS No. 133 will not impact the Company's financial
statements.
F-13
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
1. BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
RECLASSIFICATIONS:
Certain amounts reported in the 1998 financial statements have been reclassified
to conform with the 1999 presentation.
2. GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS:
The Company's financial statements for the year ended June 30, 1999 have been
prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course
of business. For the year ended June 30, 1999, the Company reported a net
loss of $3,139,439 and a deficit of $4,984,915. The Company has not
recognized any revenues from its PI technology and the Company has
experienced difficulty and uncertainty in meeting its liquidity needs. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
To address its current cash flow concerns, the Company is in discussions with
investment bankers and financial institutions attempting to raise funds to
support current and future operations. This includes attempting to raise
additional working capital through the sale of additional capital stock or
through the issuance of debt. Currently, the Company does not have a revolving
loan agreement with any financial institution, nor can the Company provide any
assurance that it will be able to enter into any such agreement in the future,
or be able to raise funds through a further issuance of debt or equity in the
Company.
The Company believes that if financing can be completed, adequate funding may
then be available to support operations for the next twelve months. The
Company also believes that sales of its products and technology license rights
may provide sufficient funds to meet the Company' s capital requirements.
3. RISK CONSIDERATIONS:
BUSINESS RISK:
The Company is subject to risks and uncertainties common to technology-based
companies, including rapid technological change, dependence on principle
products and third party technology, new product introductions and other
activities of competitors, dependence on key personnel, and limited operating
history.
F-14
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
3. RISK CONSIDERATIONS (CONTINUED):
YEAR 2000 CONVERSION:
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of the operational systems.
The Company has established processes for evaluating and managing the risks and
costs associated with this problem. Management believes the total cost of
compliance, and its effect on the Company's future results of operations will be
insignificant.
4. NOTES RECEIVABLE:
At June 30, 1999, the Company has a $10,000, 8%, note receivable from a third
party. The note is unsecured and is due on demand.
In connection with a sale of assets in 1996, the Company received a $60,000
non-interest bearing note receivable. Interest was imputed on the note at
10%. At June 30, 1998, the outstanding balance of the note and the
unamortized balance of the discount were $45,000 and $6,261, respectively.
During the year ended June 30, 1999, the Company received only one scheduled
payment, and collection efforts have been unsuccessful. Therefore, at June 30,
1999, the Company has fully reserved the net outstanding balance of the note
and recorded a loss of approximately $38,000.
5. NOTES PAYABLE:
RELATED PARTIES:
At June 30, 1999, notes payable to related parties consist of two unsecured
promissory notes. One note is due to an officer of the Company in exchange for
$130,577 advanced to the Company. This note bears interest at 8% and is due
on demand. The second note for $66,837 is due to an affiliate of an officer of
the Company, bears interest at 10%, and is due on demand.
At June 30, 1999, accounts payable and accrued expenses, related parties,
consist of $4,015 of accrued interest expense.
OTHER:
Notes payable, other, consist of two unsecured notes payable with outstanding
balances of $68,513 and $15,000 at June 30, 1999, and bear interest at 8% and
10% respectively. Both notes are due on demand.
F-15
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
6. RELATED PARTY TRANSACTIONS:
RECEIVABLE FROM INTERCELL:
At June 30, 1998, the Company had a $146,747 payable to Intercell. During 1999,
Intercell paid $124,303 of the Company's expenses on behalf of the Company, and
the Company advanced $340,232 of cash to Intercell. As a result, the Company
has a receivable from Intercell at June 30, 1999 of $69,182, which is
collateralized by common stock of the Company owned by Intercell. Intercell has
advised the Company that it does not currently have the funds to repay the
receivable. Therefore, this receivable balance is classified as a reduction of
shareholders' equity at June 30, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES:
Related party general and administrative expenses during the years ended June
30, 1999 and 1998 consist of the following:
1999 1998
---- ----
Expenses paid by Intercell:
Salaries and benefits $ 25,794 $ 96,307
Legal 33,434 80,917
Travel 7,121 24,733
Other 57,954 13,587
------- -------
124,303 215,544
Marketing services in exchange
for common stock 1,500,000
Management services, to affiliates
of certain minority shareholders:
In exchange for common
stock (Note 7) 81,858
In exchange for cash 57,240
--------- -------
$1,624,303 $ 354,642
========= =======
In June 1999, Intercell entered into an arrangement whereby a third party
provided marketing services on behalf of the Company in exchange for 4,500,000
shares of Company common stock owned by Intercell. The Company issued 4,500,000
shares of common stock to Intercell as reimbursement. These shares were valued
at $1,500,000, the market value of the common stock at the date of the
transaction.
During 1999, the Company also issued 150,000 shares of common stock to
Intercell, which were valued at $30,000, the market value of the common stock at
the date of the transaction, in satisfaction of a portion of the payable due to
Intercell.
F-16
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
7. SHAREHOLDERS' EQUITY:
PREFERRED STOCK:
SERIES A PREFERRED STOCK:
The Company issued 100 shares of its Series A voting preferred stock to
Intercell in February 1998. On June 30, 1999, Intercell converted all of the
Series A voting preferred stock into 7,250,000 shares of the Company's common
stock. Intercell also converted accrued dividends of $196,147 on the Series A
preferred stock into 752,550 shares of common stock.
SERIES B AND SERIES C PREFERRED STOCK:
In July 1998, the Company executed a securities purchase agreement with a third
party buyer (Buyer) pursuant to which the Buyer agreed to acquire 150,000 shares
of Series B preferred stock (Series B) and 700,000 shares of Series C preferred
stock (Series C) at $10 per share at specified closing dates. The agreement was
for a two-year period and would have allowed the Company to issue to the Buyer
up to $8,500,000 of preferred stock. In addition, the Company would have issued
warrants to the Buyer on each closing date.
Through September 1998, the Company issued 75,000 shares of Series B at $10 per
share, resulting in net proceeds of $660,000 (net of $90,000 of issuance costs).
The balance due on the remaining closings was canceled by mutual consent of the
Company and the Buyer.
All of the Series B shares were converted into 2,974,687 shares of the Company's
common stock during the year ended June 30, 1999. The Company also issued
97,277 shares of the Company's common stock as consideration for accrued
dividends of $24,903 due on the Series B preferred stock.
COMMON STOCK:
During the years ended June 30, 1999 and 1998, the Company issued shares of
common stock in exchange for services. The shares were issued for the
following services valued at the quoted market price of the Company's common
stock at the date the services were performed:
<TABLE>
<CAPTION>
1999 1998
---- ----
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Third parties, investment-
related services 762,500 $ 556,275 525,000 $294,608
Marketing services 4,500,000 1,500,000
Affiliates, management services 420,000 81,858
Employee compensation 96,593 173,858
--------- ---------- --------- -------
5,262,500 $2,056,275 1,041,593 $550,324
========= ========== ========= ========
</TABLE>
Subsequent to year end, the Company issued 1,175,000 shares of common stock
primarily to third parties for services rendered.
F-17
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
7. SHAREHOLDERS' EQUITY (CONTINUED):
STOCK OPTIONS AND WARRANTS:
The Company has established a Compensatory Stock Option Plan (the Option Plan)
and has reserved 5,400,000 shares of common stock for issuance under the Option
Plan. Vesting provisions are determined by the Board of Directors. All stock
options expire 10 years from the date of grant.
A summary of the Option Plan is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ -------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of
Year 5,400,000 $ .34
Granted 1,375,000 .39 5,400,000 $ .34
Forfeited (1,750,000) .33
Exercised ( 150,000) .33
---------- ------------- --------- ---------
Outstanding, end of year 4,875,000 $ .37 5,400,000 $ .34
========= ============= ========= =========
Options exercisable at
end of year 4,245,000 $ .38 5,400,000 $ .34
Weighted-average fair value of
options granted during the
year at market $ .35 $ .01
</TABLE>
F-18
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
7. SHAREHOLDERS' EQUITY (CONTINUED):
STOCK OPTIONS AND WARRANTS (CONTINUED):
The following table summarizes information about stock options outstanding as of
June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------- -------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
prices exercisable life (years) price exercisable price
-------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
0.20- 0.33 3,900,000 8.78 $ 0.31 3,475,000 $ 0.32
0.45 - 0.52 875,000 9.80 0.52 670,000 0.51
1.60 - 1.60 100,000 2.77 1.60 100,000 1.60
--------- ---- ------ --------- -----
4,875,000 8.79 0.37 4,245,000 0.38
========= ==== ===== ========= =====
</TABLE>
During 1999, options to purchase 1,300,000 shares of the Company's common stock
at exercise prices ranging from $.20 to $.52 per share were granted to three
employees of the Company, two of whom are directors of the Company. The
exercise prices were based on the estimated market value of the Company's common
stock at the date of grant and expire through 2009.
During 1998, options to purchase 400,000 shares of the Company's common stock,
at exercise prices ranging from $.05 to $.10 per share, were granted to two
employees and a director of the Company. The exercise prices were based on the
estimated market value of the Company's common stock at the date of grant and
expire through 2008.
ACCOUNTING FOR STOCK-BASED COMPENSATION UNDER SFAS NO. 123:
The Company applies APB 25 for its employee-based stock-compensation plans. Had
compensation cost for the Company's stock plan been determined based on fair
value at the grant dates for awards under the plan consistent with the method
prescribed under SFAS No. 123, the Company's net loss and net loss per share
would have changed to the pro forma amounts indicated below:
F-19
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
7. SHAREHOLDERS' EQUITY (CONTINUED):
STOCK OPTIONS AND WARRANTS (CONTINUED):
ACCOUNTING FOR STOCK-BASED COMPENSATION UNDER SFAS NO. 123 (CONTINUED):
1999 1998
---- ----
Net loss, as reported $ (3,139,439) (1,137,334)
Net loss, pro forma (3,491,439) (1,167,334)
Net loss, per share, as reported ( 0.23) ( 0.18)
Net loss, per share, pro forma ( 0.24) ( 0.19)
The fair value of options granted during 1999 and 1998 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1999 1998
---- ----
Expected dividend yield 0% 0%
Expected stock price volatility 82.5% 15%
Risk-free interest rate 6.0% 5.85%
Expected life of options 6.5 years 9.6 years
WARRANTS:
At June 30, 1999, the following warrants to purchase common stock were
outstanding:
Number of common Purchase Expiration
shares covered by warrants price date
-------------------------- --------- ----------
300,000 0.25 February 24, 2003
70,000 2.81 July 22, 2003
50,000 0.50 September 9, 2000
50,000 3.52 July 22, 2001
8. IMPAIRMENT OF OIL AND GAS PROPERTIES:
The Company was originally formed in 1985 to invest in and develop oil and
gas properties. The Company's remaining investment in an oil and gas property
produced only minimal revenues during the year ended June 30, 1998, and
management determined that the investment was probably not recoverable.
Therefore, the Company recognized an impairment loss of $171,970 in February
1998. The impairment loss is included in general and administrative expense in
the accompanying statement of operations.
F-20
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
9. LICENSE AGREEMENTS:
The Company has several license agreements with third parties which allow the
third parties to utilize defined aspects of the intellectual property rights in
return for royalty fees. All but one license agreement has been idle since the
Company acquired the property rights, and therefore these agreements have not
produced any royalty fees for the Company. With regard to all current
licensees, the Company is involved in litigation with a third party who is
asserting ownership of the rights to the related royalty revenues. Royalties
under this agreement through June 30, 1999, total approximately $71,000. These
monies are being held in an escrow account, outside of the Company's control,
until the litigation is resolved. The company has not recognized, and does not
expect to recognize, any royalty revenue until it can determine the ultimate
outcome of this matter. In the opinion of management, the ultimate disposition
of this matter will not have a material impact on the Company's operations or
the further development of the PI technology.
10. INCOME TAXES:
The Company did not incur income tax expense for the years ended June 30,
1999 and 1998. The reconciliation between taxes computed at the statutory
federal tax rate of 34% and the effective tax rate for the years ended June
30, 1999 and 1998 is as follows:
1999 1998
---- ----
Expected income tax benefit $ (1,067,000) $ ( 383,000)
Increase in valuation allowance 1,067,000 383,000
--------- -------
$ - $ -
========= =======
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets at June 30, 1999 are as follows:
Deferred tax assets:
Net operating loss $ 1,564,000
Allowances 13,000
Intellectual property rights 4,000
---------
1,581,000
Less valuation allowance (1,581,000)
---------
Net deferred taxes $ -
=========
As of June 30,1999, the Company has net operating loss carryforwards of
approximately $4,600,000, which expire between 2010 and 2019. The Company's
net operating loss carryforwards may be subject to annual limitations which
could reduce or defer the utilization of the losses as a result of an
ownership change as defined in Section 382 of the Internal Revenue Code.
F-21
<PAGE>
APPLICATION DEVELOPMENT AGREEMENT
This Application and Development Agreement is made on March ___, 1999 by
and between Nanopierce Technologies, Inc. (hereinafter "Nanopierce") and
Multitape GmbH & Co. KG, (hereinafter "Multitape").
1. Nanopierce is the owner of certain patented and patentable intellectual
property, inventions and trade secrets relating to a particle interconnect
technology, known as Nanopierce Connection System (hereinafter "NCS").
2. Multitape is the owner of certain patented and patentable intellectual
property, inventions and trade secrets relating to the design and manufacture of
Chip Module Substrate Tape (hereinafter "Module Tape) for Dual Interface Smart
Cards (hereinafter "CombiCards").
3. Nanopierce and Multitape have had discussions relating to the application
of NCS to the design and manufacture of Module Tape for CombiCards particularly
as it relates to connection of the antenna to the chip module. Nanopierce and
Multitape believe that they can benefit from the integration of NCS into the
current and future designs of Module Tape for CombiCards designed, developed,
manufactured and sold by Multitape.
4. Nanopierce and Multitape believe that their respective intellectual
properties and trade secrets can be integrated to design, develop, manufacture
and market new versions of Module Tape for CombiCards and derivative products,
which will provide significant improvements in performance and reliability and
achieve substantial cost reductions in the manufacturing of CombiCards.
5. Nanopierce and Multitape are willing to cooperate in the development of
Module Tape utilizing NCS for CombiCards and derivative products. Nanopierce and
Multitape agree to share, on a confidential basis, all information necessary to
accomplish such objective and concurrent with the execution of this Agreement,
agree to execute and deliver a Confidential Disclosure Agreement substantially
similar to EXHIBIT A.
6. All intellectual properties, including patents, patent applications,
disclosed patentable information, trademarks, trade names, trade secrets and
similar intangible rights owned by Nanopierce or by Multitape prior to the
execution of this Agreement shall remain the sole and exclusive property or
right of such party. All intellectual property and technology created by
Nanopierce in the development and application of NCS to the Module Tape for
CombiCards shall remain the exclusive property of Nanopierce. All intellectual
property and technology created by Multitape in the development of Module Tape
for CombiCards shall remain the exclusive property of Multitape.
7. Multitape shall provide to Nanopierce samples of its Module Tape for
CombiCards and antennas to allow Nanopierce an opportunity to review, assess and
advise Multitape about technical improvements, enhancements, refinements and
specifications issues and to apply NCS to the samples.
8. Nanopierce shall within a mutually agreed time provide Multitape with
technology demonstration vehicles suitable for testing.
9. Multitape shall within a mutually agreed time perform or otherwise secure
industry accepted CombiCard testing of the demonstration vehicles and shall
provide to Nanopierce the test results.
10. When Nanopierce and Multitape jointly agree that the Module Tape for
CombiCards utilizing NCS and any other improvement provided by Nanopierce are
suitable for commercial production and sale, then the parties agree to negotiate
the terms and conditions of a mutually acceptable license or other form of
agreement.
<PAGE>
11. The parties agree to enter into a Definitive Agreement relating to this
Application Development Agreement, if necessary; and, to enter into and execute
all other licenses, documents or instruments necessary, essential or appropriate
to effect the intent and purposes of this Agreement.
12. This Agreement shall be binding upon the representatives, successors and
assigns of the parties. This Agreement cannot be assigned or changed except in
writing and executed by both parties.
13. The parties represent that they are competent and fully authorized to
enter into and execute this Agreement as a valid, binding and enforceable
obligation of the parties.
NANOPIERCE TECHNOLOGIES, INC. MULTITAPE GMBH & CO. KG
By: ____________________________ By: _________________________
Paul H. Metzinger, President
& Chief Executive Officer
By: ____________________________
Herbert J Neuhaus,
Executive Vice President of Technology
and Marketing
<PAGE>
TECHNOLOGY COOPERATION AGREEMENT
CONNECTION TECHNOLOGY FOR DUAL INTERFACE SMART CARDS
1. PREAMBLE
Meinien, Zeigel & Co. is a developer, manufacturer and supplier of the equipment
for the production of smart cards. Complete production lines, tooling and
handling modules, inscription and coding systems, as well as highly modern
systems for quality security and inspection, are also offered by Meinen, Zeigel
& Co.
Nanoopierce Technologies, Inc. is a technology company which offers a special
connection system technology (Nanopierce Connection System "NCS") for electronic
parts to different markets, like the connector market, the smart card market and
others.
Both parties to this Agreement ("Agreement") shall cooperate to find and offer
solutions for the production of Dual Interface (Combi) smart cards.
2. AGREEMENT PARTNERS
Herewith the Agreement Partners are defined as follows:
Nanopierce Technologies, Inc.
370 17th Street, Suite 3580
Denver, CO 80202
Hereinafter referred to as Nanopierce, and
Meinen, Ziegel & Co. GmbH
Friedrich-Bergius-Strae 12
D-85635 Hohenkirchen/Germany
hereinafter referred to as Meinen, Ziegel & Co.
For Agreement Partners can be defined and/or admitted to this Agreement, subject
to consent of both parties hereto.
Instead of Agreement Partners, the words "project partners" and/or "partners"
can be used.
3. TERM, VALIDITY AND THE AREA OF COVERAGE OF THE AGREEMENT
The term of the present Agreement shall be effective and valid for 2 years from
the date of the last signing Agreement Partner.
The results of marketing studies (examination and influence of competitive
products) will be evaluated after one year.
The area covered by this Agreement extends to all countries all over the world.
4. SUBJECT OF THE AGREEMENT
The NCS developed by Nanopierce was principally the starting and focus point
leading to this Agreement. Application of NCS allows chip modules to be
connected with etched or printed coils inside plastic card bodies (PVC, PET,
etc).
Meinen, Zeigel & Co. develops and sells equipment for application of the above
mentioned NCS through its worldwide sales network.
<PAGE>
The cooperation of both Agreement Partners hereto is the Subject of the
Agreement and refers to the following tasks:
(a) production of samples of Dual Interface Smart Card Modules. Nanopierce
will cooperate with tape module and chip module manufacturers and will provide
Meinen, Ziegel & Co. with samples of chip modules
(b) qualification and industrialization of the chip module embedding process
on Meinen, Zeigel & Co. equipment
(c) modification of a semi automatic system (Module 380) for the sample
production
(d) modification of a fully automatic system (Model 385) for the first
volume production
Meinen, Zeigel & Co. and Nanopierce reserve the right to cancel item (c) and/or
(d) if the first results shows the impossibility of a successful implementation
of the chipmodule embedding process or if the chipmodule embedding process does
not show likelihood of being cost effective and competitive.
5. RIGHTS AND DUTIES
It is a duty of Meinen, Ziegel & Co. to cooperate with Nanopierce in realization
of the tasks listed under point 4.
It is a duty of Nanopierce to cooperate with Meinen, Ziegel in realization of
the tasks listed under point 4.
Both Agreement Partners are obliged to act in a fair manner, searching for
unanimous decisions and solutions aimed at fulfillment of the customers'
requirements to their full satisfaction.
Both Agreement Partners want, if the test and qualification results are
successful, to commercialize the results of this cooperation, whereby each
partner focuses on and benefits from its own domain (Nanopierce - connection
systems and Meinen, Zeigel & Co - equipment).
Essentially, the following marketing methods shall be employed:
- - Direct information through sales organization
- - Trade fairs
- - Presentations and publications
- - Support from the system partners (e.g. semiconductors manufacturers)
The introduction of the commercial products or services resulting from the
cooperation shall be carefully planned, so as not to irritate the market
unnecessarily and not to alert the competition.
5.1 DIRECT INFORMATION
Customers shall be addressed directly through available contacts and channels.
Using its present database system of customers and/or potential clients (approx.
800 worldwide), Meinen, Ziegel & Co. is able to penetrate the market quickly and
efficiently with the required information.
The primary focus of the direct information campaign shall be concentrated on
the markets, in which the first applications with greater card volumes of Dual
Interface Smart Cards are already registered and likely to develop (South East
Asia - Korea, Japan and eventually South America -Brasilia).
5.2 INTERNATIONAL PRESENTATIONS AND PUBLICATIONS
Nanopierce and Meinen, Ziegel & Co. will concentrate on advertising and
professional publication in the trade press, aiming at drawing attention to the
<PAGE>
Smart Card branch in general and focusing on potential customers, in particular,
to the services and products available on the market resulting from the
Cooperation Agreement.
For this purpose, Meinen, Ziegel & Co. has at its disposal not only its own
information channels but also the corresponding facilities of DataCard.
5.3 TRADE FAIRS AND PRESENTATIONS
Participation in trade fairs is an important and efficient method for a
successful information campaign. Meinen, Ziegel & Co. participates in most
important fairs with its own booth. Nanopierce will jointly participate with
Meinen, Ziegel & Co. in such activities to the extent required or desired.
6. SCHEDULE
The schedule outlined below is a likely model. The final and binding schedule
will be, to a certain degree, subject to the resources allocated to this project
by Meinen, Ziegel & Co. The support of Meinen, Ziegel & Co. by Nanopierce in the
chipmodule embedding process is a very important factor and is the commitment of
Nanopierce.
The following time periods refer to the actual starting date of the cooperation
(May 99):
(a) Production of the first Dual Interface Smart Card
Chip Modules (dummy modules or tapes for qualification) 3-4 weeks
after (a)
(b) start of the world wide marketing
7. PATENTS AND TRADE-MARK RIGHTS
Trademark, Tradenames, Intellectual Properties and other rights of Nanopierce
and Meinen, Ziegel & Co. protecting respectively their prior proprietary rights,
remain unaffected and the exclusive property of each party.
Common inventions are to be registered commonly, and under the names of both
Agreement Partners.
8. WITHDRAWAL
AN AGREEMENT PARTNER HAS THE RIGHT OF IMMEDIATE WITHDRAWAL, UPON WRITTEN NOTICE,
FROM THIS TECHNOLOGY COOPERATION AGREEMENT IN THE CASE OF ONE OF THE FOLLOWING
CIRCUMSTANCES APPLYING:
- - Insolvency of one of the Agreement Partners or non-acceptance on account
of inability to pay
- - Substantial changes in the management of an agreement partner of else
changes in control of an Agreement Partner.
Withdrawal is to be effected by means of registered mail and shall be effective
on delivery of the mall.
9. CHANGES
All changes and supplements to this Agreement, including deviation from any
other written documentation, which may be signed by the Agreement Partners, are
subject to being in writing only.
10. OTHERS
In case individual parts of this Agreement are or may become legally
ineffective, all other parts remain effective nevertheless.
<PAGE>
The ineffective part is to be supplemented by an effective part, which is to be
economically as close as possible to the ineffective part.
This Technology Cooperation Agreement is subject to German Law. Legal domicile
is Munich.
The validity of this agreement becomes effective with signature of the last
signing Agreement Partner.
Denver, Colorado, USA, Hohenkirchen, Germany
__________________________ ____________________________
Paul H. Metzinger Markus Ziegel
President & CEO Financial Director, CFO
<PAGE>
APPLICATION DEVELOPMENT AGREEMENT
This Application and Development Agreement is made on June ___, 1999 by and
between Nanopierce Technologies, Inc. (hereinafter "Nanopierce") and ORGA
Kartensysteme GmbH (hereinafter "ORGA").
1. Nanopierce is the owner of certain patented and patentable intellectual
property, inventions and trade secrets relating to a particle interconnect
technology, known as Nanopierce Connection System (hereinafter "NCS").
2. ORGA is the owner of certain patented and patentable intellectual
property, inventions and trade secrets relating to the design and manufacture of
Smart Cards including Dual Interface Smart Cards (hereinafter "DISC").
3. Nanopierce and ORGA have had discussions relating to the application of
NCS to the design and manufacture of DISC particularly as it relates to
connection of the antenna to the chip module. Nanopierce and ORGA believe that
they can benefit from the integration of NCS into the current and future designs
of DISC designed, developed, manufactured and sold by ORGA.
4. Nanopierce and ORGA believe that their respective intellectual properties
and trade secrets can be integrated to design, develop, manufacture and market
new versions of DISC and derivative products, which will provide significant
improvements in performance and reliability and achieve substantial cost
reductions in the manufacturing of DISC.
5. Nanopierce and ORGA are willing to cooperate in the development of DISC
and derivative products utilizing NCS. Nanopierce and ORGA agree to share, on a
confidential basis, all information necessary to accomplish such objective and
have executed and delivered a Confidential Disclosure Agreement, attached hereto
as EXHIBIT A to protect such rights.
6. All intellectual properties, including patents, patent applications,
disclosed patentable information (INCLUDING SPECIFICALLY AND IN ADDITION ALL
--------------------------------------------
DISCLOSURES OF A NEW CONNECTION SYSTEM USING NCS FOR A CHIP TO ANTENNA
-----------------------------------------------------------------------------
CONNECTION MADE BY NANOPIERCE TO ORGA UNDER THE NON-DISCLOSURE AGREEMENT, DATED
-----------------------------------------------------------------------------
MARCH 23, 1999), trademarks, trade names, trade secrets and similar intangible
- ----------------
rights owned by Nanopierce or by ORGA prior to the execution of this Agreement
shall remain the sole and exclusive property or right of such party. All
intellectual property and technology created by Nanopierce in the development
and application of NCS to DISC shall remain the exclusive property of
Nanopierce. All intellectual property and technology created by ORGA in the
development of DISC shall remain the exclusive property of ORGA.
THE PARTIES AGREE TO GRANT EACH OTHER A ROYALTY FREE LICENSE TO ITS INTELLECTUAL
- --------------------------------------------------------------------------------
PROPERTY AND TECHNOLOGY CREATED UNDER THIS AGREEMENT; COMMERCIAL USE OF JOINT
- --------------------------------------------------------------------------------
INVENTIONS IS SUBJECT TO CONSULTATIONS BETWEEN THE PARTIES WITH THE INTENT BEING
- --------------------------------------------------------------------------------
TO CONDUCT SUCH ACTIVITIES PURSUANT TO SECTION 10.
- ---------------------------------------------------------
7. ORGA shall directly or through Multitape GmbH & Co., KG provide to
Nanopierce samples of its DISC modules and antennas to allow Nanopierce an
opportunity to review, assess and advise ORGA about technical improvements,
enhancements, refinements and specifications issues and to apply NCS to the
samples.
8. Nanopierce shall within a mutually agreed time provide ORGA and Multitape
GmbH & Co., KG with technology demonstration vehicles suitable for testing.
<PAGE>
9. ORGA shall directly or in cooperation with Multitape GmbH & Co., KG
within a mutually agreed time perform or otherwise secure industry accepted DISC
testing of the demonstration vehicles and shall provide to Nanopierce the test
results.
10. When Nanopierce and ORGA jointly agree that the DISC utilizing NCS and
any other improvement provided by Nanopierce are suitable for commercial
production and sale, the parties agree to negotiate the terms and conditions of
a mutually acceptable agreement and venture or arrangement to exploit the
business opportunity for DISC and other applications should the parties desire
to expand their mutual business activities. THE PARTIES AGREE THAT IF SUCH AN
---------------------------------
ARRANGEMENT OR VENTURE IS FORMED THAT EACH SHALL GRANT SUCH VENTURE OR
-------------------------------------------------------------------------------
ARRANGEMENT A ROYALTY FREE LICENSE ON ITS INTELLECTUAL PROPERTY AND TECHNOLOGY
-------------------------------------------------------------------------------
DEVELOPED UNDER THIS AGREEMENT.
---------------------------------
11. THIS AGREEMENT SHALL COMMENCE AND BECOME EFFECTIVE WHEN SIGNED AND DATED
------------------------------------------------------------------------
BY THE LAST SIGNING PARTY AND SHALL ENDURE FOR A PERIOD OF TWELVE (12) MONTHS.
- --------------------------------------------------------------------------------
THE AGREEMENT SHALL BE EXTENDED AUTOMATICALLY FOR PERIODS OF TWELVE (12) MONTHS
- --------------------------------------------------------------------------------
EACH, UNLESS ONE OF THE PARTIES GIVES NOTICE OF TERMINATION TO THE OTHER PARTY
- --------------------------------------------------------------------------------
SIX (6) MONTHS PRIOR TO THE END OF SUCH INITIAL OR SUBSEQUENT PERIOD.
- --------------------------------------------------------------------------------
BOTH PARTIES ARE ENTITLED TO TERMINATE THIS AGREEMENT WITH IMMEDIATE EFFECT FOR
- --------------------------------------------------------------------------------
CAUSE. CAUSE FOR TERMINATION SHALL INCLUDE, WITHOUT LIMITATION, INSOLVENCY,
- --------------------------------------------------------------------------------
COMPOSITION OR BANKRUPTCY PROCEEDINGS, CHANGE-IN-CONTROL OR OTHER FUNDAMENTAL
- --------------------------------------------------------------------------------
CHANGES IN THE ECONOMIC SITUATION BY EITHER PARTY OR ONGOING BREACHES OF THIS
- --------------------------------------------------------------------------------
AGREEMENT BY EITHER PARTY.
- -----------------------------
12. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
------------------------------------------------------------------------
UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS OF
- --------------------------------------------------------------------------------
APRIL 11, 1980 (THE "CONVENTION"). IF A COURT SHOULD COME TO THE CONCLUSION
- --------------------------------------------------------------------------------
THAT PROBLEMS ARISING DURING IMPLEMENTATION OF THIS AGREEMENT ARE NOT DEALT WITH
- --------------------------------------------------------------------------------
BY THE CONVENTION, THE LAWS OF THE FEDERAL REPUBLIC OF GERMANY SHALL BE APPLIED
- --------------------------------------------------------------------------------
IN ADDITION.
- -------------
13. ALL DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
------------------------------------------------------------------------
REFERRED TO SENIOR MANAGEMENT OF THE PARTIES. IF RESOLUTION IS NOT POSSIBLE
----------------------------------------------------------------------------
WITHIN THIRTY (30) DAYS FROM THE DATE THE DISPUTE HAS BEEN REFERRED TO SENIOR
-----------------------------------------------------------------------------
MANAGEMENT, EITHER PARTY IN ACCORDANCE WITH THE FOLLOWING PROVISIONS MAY SUBMIT
------------------------------------------------------------------------------
THE DISPUTE TO ARBITRATION.
- ------------------------------
ALL DISPUTES ARISING IN CONNECTION WITH THE AGREEMENT SHALL BE FINALLY SETTLED
- --------------------------------------------------------------------------------
<PAGE>
UNDER THE RULES OF CONCILIATION AND ARBITRATION OF THE INTERNATIONAL CHAMBER OF
- --------------------------------------------------------------------------------
COMMERCE BY ONE OR MORE ARBITRATORS APPOINTED IN ACCORDANCE WITH ITS RULES. THE
- --------------------------------------------------------------------------------
PLACE OF ARBITRATION SHALL BE THE HAGUE, NETHERLANDS AND THE PROCEEDINGS SHALL
- --------------------------------------------------------------------------------
BE HELD IN THE ENGLISH LANGUAGE.
- -------------------------------------
14. The parties agree to enter into a Definitive Agreement relating to this
Application Development Agreement, if necessary; and, to enter into and execute
all other licenses, documents or instruments necessary, essential or appropriate
to effect the intent and purposes of THIS AGREEMENT AND THE VENTURE OR
------------------------------------
ARRANGEMENT DESCRIBED IN SECTION 10.
-------------------------------
15. This Agreement shall be binding upon the representatives, successors and
assigns of the parties. This Agreement cannot be assigned or changed except in
writing and executed by both parties.
16. The parties represent that they are competent and fully authorized to
enter into and execute this Agreement as a valid, binding and enforceable
obligation of the parties.
NANOPIERCE TECHNOLOGIES, INC. ORGA KARTENSYSTEME GMBH
By: ____________________________ By: _________________________
Paul H. Metzinger, President
& Chief Executive Officer
Dated: June ___, 1999 Dated: June ___, 1999
<PAGE>
May 10, 1999
Mr. Robert Menges
President
Cirexx Corporation
3391 Keller Street
Santa Clara, CA 95054
RE: LETTER OF INTENT
Dear Mr. Menges:
In accordance with our discussions of May 6, 1999, I am submitting this letter
to you as an expression of our Agreement-In-Principle to form a joint venture or
limited liability partnership to exploit the Nanopierce Connection System
("NCS") of Nanopierce Technologies, Inc. through and in conjunction with the
contributions of Cirexx Corporation.
We propose the following as the substantive terms of a definitive agreement
between Nanopierce Technologies, Inc. and Cirexx Corporation.
1. Parties. Nanopierce Technologies, Inc., a Nevada Corporation, and Cirexx
- -- --------
Corporation, a California Corporation.
2. Legal Entity. A joint venture organized under the laws of the State of
- -- -------------
California or, if more suitable, upon advice of counsel, a limited liability
partnership organized under the laws of the State of California. The latter
type of organization is our preference.
3. Principal Offices. The principal offices of the venture would be 3391
- -- ------------------
Keller Street, Santa Clara, CA 95054, telephone: 408-988-3980. We think it
- --
important that the principal offices be located in Silicon Valley.
- --
4. Managing Partner. Cirexx Corporation would be the Managing Partner of
- -- -----------------
the venture.
- --
5. Ownership. The ownership of the venture would be equal between the
- -- ----------
parties with all rights being equal, without exception.
- --
6. Business Purpose. The business purpose of the venture shall be the
- -- -----------------
commercial exploitation of NCS in all applications, approved in writing by the
- --
partners, in all markets currently served by Cirexx Corporation or in the future
developed by Cirexx Corporation.
7. Contributions. Nanopierce Technologies, Inc. shall provide the venture
- -- --------------
with such rights to the intellectual property and know-how relating to NCS and
with such assistance as is necessary, essential or appropriate to effect the
intents and purposes of the venture and to promote the commercial application of
<PAGE>
NCS to the services and products of the venture. Subject to Paragraph 9, Cirexx
Corporation shall provide property, plant, equipment, personnel and such support
at its facilities, as may be required to promote the commercial application of
NCS to the services and products of the venture. Each party shall initially
bear their own costs.
8. Exclusivity. The venture shall have exclusive rights to use and license
- -- ------------
NCS for all applications, which have been jointly approved by written
instrument, by the partners in all markets currently served by Cirexx
Corporation or in the future developed by Cirexx Corporation.
9. Contractual Exclusivity. Cirexx Corporation shall have contractual
- -- ------------------------
exclusivity by a way of a first right of refusal, to render such services to the
- --
venture, as shall be approved by the parties and required to commercially
exploit NCS. Cirexx Corporation shall provide such services, at its cost, plus
an agreed premium with the intent being to maximize the profitability of the
venture.
10. Term. The initial term of the venture shall be five (5) years, unless
- --- -----
earlier terminated, in writing by the partners.
11. Business Plan. Nanopierce Technologies, Inc. and Cirexx Corporation
- --- --------------
shall agree upon a Business Plan to exploit the commercial opportunity of NCS
- ---
utilizing the marketing strength and customer base of Cirexx Corporation.
- --
12. Publicity. Nanopierce Technologies, Inc. is a publicly held corporation
- --- ----------
required to promptly disseminate disclosure of material contracts and
information relating to it. Cirexx Corporation agrees that upon execution of
this letter, in form and content acceptable to both parties, that Nanopierce
Technologies, Inc. may provide public disclosure of the formation of the joint
venture with Cirexx Corporation. Cirexx Corporation shall likewise have the
right to publicly disclose the venture to its customer base in such manner, as
it deems appropriate. Nanopierce Technologies, Inc. and Cirexx Corporation
shall jointly approve all public information relating to the formation and
operation of the joint venture.
13. The initial efforts of the venture shall be directed to the Boeing
Phantom Works Flex Circuit USAT30-203 Statement of Work and possible application
of NCS to chip module substrate tapes in conjunction with the smart card
business activities of Nanopierce Technologies, Inc.
<PAGE>
If this proposal is acceptable to you, please indicate your approval and
acceptance by counter-signing below. Obviously we welcome any comments,
revisions, suggestions or changes you may propose for discussion. It would be
our understanding that upon acceptance of this Letter of
Intent/Agreement-In-Principle, both parties would then instruct their attorneys
to prepare definitive documentation to implement this Agreement-In-Principle.
We look forward to your prompt response and the opportunity to pursue this
promising business association.
Sincerely,
NANOPIERCE TECHNOLOGIES, INC. Approved and Accepted this
____ day of May, 1999.
Paul H. Metzinger
President & Chief Executive Officer CIREXX CORPORATION
Cc: Dr. Herbert J. Neuhaus
By: ________________________
Roger Menges, President
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made and entered into as of January
1, 1999, by and between Nanopierce Technologies, Inc. (the "Corporation"), a
Nevada corporation, and Paul H. Metzinger, an individual with his principal
business address at 370 Seventeenth Street, Suite 3580, Denver, Colorado 80202
(the "Executive");
1. EMPLOYMENT AND TERM.
(a) Employment. The Company hereby employs Executive and Executive hereby
accepts such employment, in the capacity of President and Chief Executive
Officer of the Corporation to act in accordance with the terms and conditions
hereinafter set forth.
(b) Term. Executive's employment hereunder shall be for an initial term of
four years (the "Initial Term") commencing on January 1, 1999 (the "Effective
Date") and terminating on December 31, 2002, subject to the extension or earlier
expiration of the Initial Term as provided in this Agreement. Within
forty-five (45) days of December 31, 2002 the Corporation's Board of Directors
(the "Board") shall review Executive's performance under this Agreement and, in
its sole discretion, renew the Agreement for a term of one year (a "Renewal
Term") commencing on the first day immediately following the Expiration Date (as
defined below). The board shall provide Executive written notice of its
decision to renew or not renew this Agreement at least 30 days prior to the date
of this Agreement expires under the Initial Term of any Renewal Term (the
"Expiration Date"). If the Board fails to provide Executive with such written
notice, within the time period set forth above, the Agreement shall terminate on
the Expiration Date of the Initial Term or Renewal Term, as the case may be.
Whenever the word "Term" is used in this Agreement is shall refer to either the
Initial Term or the Renewal Term, as the case may be.
(c) Location of Employment. Effective upon the date of this Agreement, and
through the Initial Term the Corporation shall maintain an office for Executive
at 370 Seventeenth Street, Suite 3580, Denver, Colorado 80202, or such other
location upon which the Corporation and Executive shall mutually agree at which
location Executive shall carry out his duties.
2. DUTIES.
(a) During the period of employment as provided in Paragraph 1(b) hereof,
Executive shall serve as President and Chief Executive Officer of the
Corporation, and shall have all powers and duties consistent with such position
subject to the direction of the Board. Such duties shall include, without
limitation, the following:
(i) Chief Executive Officer and president. The Chief Executive Officer and
President's primary duties and responsibilities consist of the following:
establishing, with the primary advice of the Chief Financial Officer and Chief
Operations Officer the Corporation's business plan and strategy. This Officer
will primarily be responsible for dealing with the Corporation's securities,
intellectual property and other counsel, Corporation's auditors, transfer
agencies, investment banking firms, banks, financial institutions, the
Securities and Exchange Commission, the National Association of Securities
Dealers and other regulatory authorities. In addition, the Chief Executive
Officer and President will be responsible for dealing with persons of similar
position on major corporate transactions, acquisitions, reorganizations and
similar types of activities.
(b) Executive shall devote substantially his entire professional time,
attention and energy exclusively to the business and affairs of the Corporation
and its subsidiaries, as its business and affairs now exist and as they
hereafter may be changed, and shall not during the term of his employment
hereunder be engaged in any other business activity whether or not such business
<PAGE>
activity is pursued for gain or profit. The foregoing shall not be
construed as preventing Executive from (a) managing his personal investments or
investing his assets in such form or manner as will not require any significant
services on his part in the operation of the affairs of the businesses or
entities in which such investments are made, provided Executive shall not invest
in any business competitive with the Corporation and its affiliates, except
those companies whose securities are listed on a national securities exchange or
quoted daily in the Over-the-Counter Market listing of the The Wall Street
Journal; or (B) preclude Executive from continuing to serve on the board of
directors of any business corporation or any charitable organization on which he
now serves and which has been disclosed to the Corporation in writing or,
subject to the prior approval of the Board, from accepting employment to
additional board of directors, provided that such activities do not materially
interfere with the performance of Executive's duties hereunder.
(c) Executive further agrees that during the term of his employment under
this Agreement he will engage in no business or other activities, directly or
indirectly, which are or may be competitive with or which might place him in a
competing position to that of the Corporation and its affiliates without
obtaining the prior written consent of the Board, including, without limitation,
the solicitation or acceptance of consulting work from clients of the
Corporation and its affiliates for whom he has performed services by virtue of
this Agreement or who he has met in connection with his employment under this
Agreement.
3. COMPENSATION.
(a) Base Salary. For services performed by Executive for the Corporation
pursuant to this Agreement during the first year January 1, 1999 to December 31,
1999, the Corporation shall pay Executive a base salary at the rate of
$150,000.00 per year (the "Base Salary"), payable in accordance with the
Corporation's normal payroll practices but in no event less than once a month.
Any compensation paid to Executive under any additional compensation or
incentive plan of the Corporation, or that may be otherwise authorized from time
to time by the Board, shall be in addition to the base salary to which Executive
shall be entitled under this Agreement.
(b) Salary Adjustments. The Corporation shall pay Executive the following
base annual salary for each of the remaining three years of the Initial Term as
follows:
January 1, 2000 to December 31, 2000 $165,000
January 1, 2001 to December 31, 2001 $181,500
January 1, 2002 to December 31, 2002 $200,000
(c) Tax Withholding. The Corporation shall provide for the withholding of
any taxes required to be withheld by federal, state and local law with respect
to any payment in cash, shares of capital stock or other property made by or on
behalf of the corporation to or for the benefit of Executive under this
Agreement or otherwise. The Corporation may, at its option: (I) withhold such
taxes from any cash payments owing to the Corporation to Executive, including
any payments owing under any other provision of this Agreement, (ii) require
Executive to pay to the Corporation in cash such amount as may be required to
satisfy such withholding obligations or (iii) make other satisfactory
arrangements with Executive to satisfy such withholding obligations.
4. BENEFITS. In addition to the base Salary, Executive shall also be
entitled to the following:
(a) Participation in Benefit Plans. Executive shall be entitled to
participate in the various retirement, welfare, fringe benefit, group long-term
disability plans and other executive perquisite plans, programs and arrangements
of the Corporation available for senior executive level officers of the
Corporation. Executive and his dependents, at Executive's request shall be
enrolled in the Corporation's health, life, disability and other insurance plans
and programs immediately upon his commencement of employment hereunder.
<PAGE>
(b) Vacation and Sick Leave. Executive shall be entitled to two weeks of
vacation during each calendar year during which this Agreement is in effect, or
such greater period as the Board may approve, and to paid holidays given by the
Corporation to its domestic employees generally, without reduction in salary or
other benefits. Executive shall also be entitled to sick leave according to the
sick leave policy, which the Corporation may adopt from time to time.
(c) Basic Stock Option. Executive shall be eligible for grants of stock
options in accordance with the Corporation's 1998 Stock Option Plan or such
other stock option plan developed by the Board.
(d) Expenses. The Corporation shall reimburse Executive, upon proper
accounting, for reasonable business expenses and disbursements incurred by him
in the course of the performance of his duties under this Agreement and in
accordance with the Corporation's policies as in effect from time to time.
(e) Proration of Benefits. Any payments or benefits hereunder, in any
year during which Executive is employed by the Corporation for less than the
entire year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such year
during which Executive is employed by the Corporation.
5. INDEMNIFICATION AND INSURANCE. Executive shall be entitled to the
maximum indemnification provided by the Bylaws and the Articles of Incorporation
of the Corporation for officers and employees of the Corporation. Executive's
rights under this Paragraph shall continue without time limit so long as he may
be subject to any such liability, whether or not the Term of employment has
ended. The Corporation shall obtain and maintain, in effect, officers and
directors liability insurance in an amount not less than $1,000,000 without time
limit so long as Executive may be subject to any such liability, whether or not
the Term of employment has ended.
6. REPRESENTATIONS AND WARRANTIES OF EXECUTIVE. Executive hereby
represents and warrants to the Corporation that (a) Executive's execution and
delivery of this Agreement and his performance of his duties and obligations
hereunder will not conflict with, or cause a default under, or give any party a
right to damages under, or to terminate, any other agreement to which Executive
is a party or by which he is bound, and (b) there are no agreements or
understandings that would make unlawful Executive's execution or delivery of
this Agreement or his employment hereunder.
7. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation
hereby represents and warrants to Executive as follows:
(a) The Corporation is duly organized and established as a
corporation under the laws of the State of Nevada and has all requisite power
and authority to enter into this agreement and to perform its obligations
hereunder. The consummation of the transactions contemplated by this Agreement
will neither violate nor be in conflict with any agreement or instrument to
which the Corporation is a party or by which it is bound.
(b) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action on the part of the Corporation and are valid, legal
and binding obligations of the Corporation, enforceable in accordance with their
terms except as may be limited by the laws of general application relating to
bankruptcy, insolvency, moratorium or other similar laws relating to or
affecting the enforcement or creditors' rights, and rules of law governing
specific performance, injunctive relief or other equitable remedies.
8. TERMINATION.
(a) Cause. The Corporation may terminate Executive's employment at any
time for Cause (as defined herein), by reason of Disability (as defined herein),
or without Cause; provided, however, that for any reason constituting Cause,
Executive is given (x) reasonable notice ("Notice of Termination for Cause")
setting forth the reasons for the Corporation's intention to terminate for Cause
<PAGE>
and the effective date of such termination (which effective date may be the date
of such notice), (y) an opportunity for Executive, together with his counsel, to
be heard before the Board within two weeks of such notice and (z) within five
(5) business days after Executive's hearing before the Board, written notice to
Executive from the Board of its good faith determination that the reasons
specified in the Notice of Termination for Cause constitute Cause under this
Paragraph 8(a), and that Executive's employment is terminated effective as of
the date specified in the Notice of Termination for Cause. Executive's rights
to receive his salary and benefits hereunder shall not be affected during the
period between the receipt of the Notice of Termination for Cause and the
determination, if any, by the Board that the reasons specified in such notice
constituted Cause. For purposes of this Agreement, "Cause" means:
(i) Executive commits a breach of any material term of this Agreement, or
any material obligation of the Corporation, and such breach constitutes gross
negligence or willful misconduct and, if such breach is capable of being cured,
Executive Fails to cure such breach within 30 days of notice of such breach;
(ii) Executive is convicted of, or pleads guilty or nolo contendere to a
felony;
(iii) Executive's commission of any act that would cause any license of the
Corporation or its subsidiaries or affiliates to be revoked, suspended, or not
be renewed after proper application;
(iv) gross negligence in the performance of Executive's duties and
responsibilities;
(v) refusal of Executive to follow proper and achievable written direction
of the Board, provided that this shall not be Cause if Executive in good faith
believes the direction to be illegal, unethical or immoral and so notifies the
Board;
(vi) material fraud or dishonesty with regard to the Corporation (other
than good faith expense account disputes); or
(vii) continuous refusal to attempt to perform Executive's
responsibilities and duties after written notice.
(b) Good Reason. Executive may terminate his employment at any time for
any of the following reasons (each of which is referred to herein as "Good
Reason") by giving the Corporation notice of the effective date of such
termination (which effective date may be the date of such notice):
(i) the Corporation commits a breach of any material term of this
Agreement and, if such breach is capable of being cured, the Corporation fails
to cure such breach within 30 days of receipt of notice of such breach; or
(ii) a material change of position, duties or the assignments of duties
materially inconsistent with Executive's position as Executive Officer of the
Corporation.
(c) Change in Control. Executive may, at his option, terminate his
employment upon a "Change in Control." For purposes of this Agreement, "Change
of Control" shall mean:
(i) the obtaining by any party of fifty percent (50%) of more of the
voting shares of the Corporation pursuant to a "tender offer" for such shares as
provided under Rule 14d-2 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or any subsequent comparable federal rule or
regulation governing tender offers; or
(ii) individuals who were members of the Board immediately prior to
any particular meeting of the Corporation's shareholders which involves a
contest for the election of directors fail to constitute a majority of the
members of the Board following such election; or
<PAGE>
(iii) the Corporation's executing an agreement concerning the sale of
substantially all of its assets to a purchaser which is not a subsidiary; or
(iv) the Corporation's adoption of a plan of dissolution or liquidation;
(v) the Corporation's executing an agreement concerning a merger of
consolidation involving the Corporation in which the Corporation is not the
surviving corporation or if, immediately following such merger or consolidation,
less than fifty percent (50%) of the surviving corporation's outstanding voting
stock is held by persons who are stockholders of the Corporation immediately
prior to such merger of consolidation.
(d) Executive's Rights to Terminate. Executive may, at his option,
terminate his employment hereunder for any reason upon 60 days' prior written
notice to the Corporation.
(e) Death. This Agreement shall terminate automatically upon Executive's
death.
(f) Disability. The term "Disability" as used in connection with
termination of the employment of Executive shall mean the inability of Executive
to substantially perform his material duties hereunder due to physical or mental
disablement which continues for a period of six (6) consecutive months, during
the term of employment (during which six (6) month period Executive's salary and
benefits shall continue) as determined by an independent qualified physician
mutually acceptable to the Corporation and Executive (or his personal
representative). Notwithstanding the above, in the event of Disability,
Executive shall be entitled to participate in and be covered by the
Corporation's group health plan until Executive is able to obtain health
insurance on substantially the same terms and conditions as provided in the
Corporation's group health plan; provided, however, that if the Corporation's
group health plan does not allow Executive and his dependents to continue
coverage, then the Corporation and Executive agree to negotiate a mutually
satisfactory alternative to provide Executive with the benefits intended by this
Paragraph 8(f).
(g) Without Cause. The Corporation may, at its option, terminate
Executive's employment without Cause at any time upon written notice to
Executive.
(h) Date of Termination. For purposes of this Agreement, the term "Date
of Termination" shall mean the date that any party gives notice, through action
or otherwise, that it intends to terminate this Agreement pursuant to the terms
hereof or the date, if any, specified by the terminating party in such notice as
the effective date of termination; provided, however, with respect to
termination for Cause, the Date of Termination shall be the date of receipt by
Executive of written notice form the Board as required by Paragraph 8(a) hereof.
In addition, where Executive gives notice to terminate this Agreement and the
effective date of termination is other than the date the Corporation receives
notice of termination, the Corporation reserves the right to accelerate the
Termination Date to the date Executive notified the Corporation of his intent to
terminate this Agreement.
9. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
(a) Without cause or for Good Reason. If the Corporation shall terminate
Executive's employment without Cause or if Executive shall terminate his
employment for Good Reason, this Agreement shall terminate without further
obligation to Executive hereunder, other that the obligation (i) to continue to
pay Executive in accordance with the Corporation's normal payroll payment
procedures his Base Salary from the Date of Termination at the rate in effect on
the Date of Termination through the next anniversary of the Effective Date; and
(ii) to continue to provide Executive with the benefits set forth in Paragraph
4(a) through the next anniversary of the Effective Date.
(b) Voluntary. If Executive terminates his employment for other than Good
Reason (a "Voluntary Termination"), this Agreement shall terminate without
<PAGE>
further obligation to Executive hereunder, other than the obligation (i) to
continue to pay Executive in accordance with the Corporation's normal payroll
payment procedures his Base Salary through the Date of Termination at the rate
in effect on the Date Termination; and (ii) to continue to provide Executive
with benefits of the type described in Paragraph 4(a) through the day preceding
the Date of Termination.
(c) Cause. If Executive's employment shall be terminated by the Corporation
for "Cause" the Corporation shall continue to pay Executive his Base Salary
through the Date of Termination at the rate in effect upon the Date of
Termination. Thereafter, the Corporation shall have no further obligation to
Executive.
(d) Death. If Executive's employment is terminated by reason of Executive's
death, the corporation shall pay to Executive's heirs or estate, the Base Salary
at the rate in effect on the day preceding death through the next anniversary of
the Effective Date, in one lump sum, payable within sixty days of the date of
death.
(e) Disability. If Executive's employment is terminated by reason of
Disability, the Corporation shall (i) continue in accordance with the
Corporation's normal payroll payment procedures to pay Executive his Base Salary
form the Date of Termination at the rate in effect on the Date of Termination,
through the next anniversary of the Effective Date; provided, however, that if
an event or condition is determined to be the cause of Disability, by an
independent qualified physician acceptable to Executive and the Corporation, and
such event or condition occurs at any time in the last six months of the Term,
then the Corporation shall continue to pay Executive his Base Salary in
accordance with the Corporation's normal payroll procedures for a period of Six
(6) months beyond the Term; and (ii) continue to provide Executive with benefits
of the type described in Paragraph 4(a) through the next anniversary of the
Effective Date; provided, however, that if the Corporation's group health plan
does not allow Executive and his dependents to continue coverage, then the
Corporation and Executive agree to negotiate a mutually satisfactory alternative
to provide Executive with the benefits intended by this Paragraph 9(e).
(f) Change of Control. If Executive terminates his employment within 90 days
following a Change of Control, the Corporation shall (i) continue in accordance
with the Corporation's normal payroll payment procedures to pay Executive his
Base Salary at the rate in effect on the Date of Termination through the next
anniversary of the Effective Date; and (ii) continue to provide Executive with
benefits of the type described in Paragraph 4(a) through the day preceding the
Date of Termination.
10. NON-COMPETITION. Executive acknowledges and recognizes the highly
competitive nature of the Corporation and its affiliates and Executive
accordingly covenants and agrees, that at all times for a period of twelve (12)
consecutive months subsequent to the end of the Term or the Date of Termination,
whichever occurs earlier, as follows:
(a) Executive will not directly or indirectly own, manage, operate,
finance, join control or participate in the ownership, management, organization
, financing or control of, or be connected as an officer, director, employee,
partner, principal, agent, representative, consultant or otherwise with any
business or enterprise engaged in a business the same as or substantially
similar to the business of the Corporation and its affiliates except as a holder
of fewer that 5% of the outstanding shares or other equity interests of a
company whose shares or other equity interests are registered under Section 12
of the Exchange Act.
(b) Executive will not directly or indirectly induce any employee of the
Corporation or any of its affiliates to engage in any activity in which
Executive is prohibited from engaging by subparagraph (a) above or to terminate
their employment with the corporation or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who was employed
by the Corporation or any of its affiliates unless such person shall have been
terminated without cause or ceased to be employed by any such entity for a
period of at least 12 months.
<PAGE>
(c) Executive will not use or permit his name to be used in connection
with any business or enterprise engaged in the business the same as or similar
to Corporation or its affiliates or any other business engaged in by Corporation
or any of its affiliates.
(d) Executive will not use the name of the Corporation or any name
similar thereto, but nothing in this clause shall be deemed, by implication, to
authorize or permit use of such name after expiration of such period.
(e) Executive will not make any statement or take any action intended to
impair the goodwill or the business reputation of the Corporation or any of is
affiliates, or to be otherwise detrimental to the interests of the Corporation
or any of its affiliates, including any action or statement intended, directly
or indirectly, to benefit a competitor of the Corporation or any of its
affiliates, except as may be required by applicable law or by a local, state or
federal regulatory agency.
(f) Executive will not (a) disclose any customer lists or any part
thereof to any person, firm, corporation, association or other entity for any
reason or purpose whatsoever; (b) assist in obtaining any of the Corporation's
customers for any other similar business; (c) encourage any customer to
terminate, change or modify its relationship with the Corporation; or (d)
solicit or divert or attempt to solicit or divert the Corporation's customers.
(g) The Corporation shall have the right, subject to applicable law, to
inform any other third party that the Corporation reasonably believes to be, or
to be contemplating participating with Executive or receiving from Executive
properties of the Corporation in violation of this Agreement and of the rights
of the Corporation hereunder, and that participation by any such third party
with Executive in activities in violation of this Paragraph 10 may give rise to
claims by the Corporation against such third party;
(h) Executive and the Corporation agree that in light of the specialized
nature of the industry and the national-customer base of the Corporation's
business, that the restrictions set forth in this Paragraph 10 shall apply to
Executive within the territory of the United States of America. It is expressly
understood and agreed that although Executive and the Corporation consider the
restriction contained in the Paragraph 10 to be reasonable, if a final judicial
determination is made by a court of competent jurisdiction that the time or
territory or any other restriction contained in this Agreement is an
unenforceable restriction against Executive, the provisions of this Agreement
shall not be rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such maximum intent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein; provided, however that the provisions of
this Paragraph 10 shall not apply if Executive is terminated without Cause or
Executive terminates for Good Reason.
(i) The failure of Executive to abide by the provisions of this
Paragraph 10 shall be deemed a material breach of this Agreement. The primary
purpose of the covenant not to compete is the Corporation's legitimate interest
in protecting its economic welfare and business goodwill. The Corporation and
the Executive further agree that this covenant shall in no way be construed as a
mere limitation on competition nor shall it be construed as a restraint on
Executive's right to engage in a common calling.
11. PROPRIETARY INFORMATION. Executive agrees that at all times during
the Term of this Agreement and after Executive is no longer employed by the
Corporation, Executive shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit on any
person, firm, association or company other than the Corporation, any Proprietary
Information. "Proprietary Information" means information relating to the
properties, prospects, products, services or operations of the Corporation or
any direct or indirect affiliate thereof that is not generally known, is
proprietary to the Corporation or such affiliate and is made known to Executive
<PAGE>
or learned or acquired by Executive while in the employ of the Corporation,
including, by way of illustration, but not limitation, information concerning
trade secrets, processes, structures, formulae, data and know-how, improvements,
inventions, product concepts, techniques, marketing plans, strategies,
forecasts, customer lists and information about the Corporation's employees
and/or consultants (including, without limitation, the compensation, job
responsibility and job performance of such employees and/or consultants).
However, Proprietary Information shall not include (i) at the time of disclosure
to Executive such information that was in the public domain or later entered the
public domain other than as result of a beach of an obligation herein; or (ii)
subsequent to disclosure to Executive, Executive received such information form
a third party under no obligation to maintain such information in confidence,
and the third party came into possession of such information other than as a
result of a breach of an obligation herein. All materials or articles of
information of any kind furnished to Executive by the Corporation or developed
by Executive in the course of his employment thereunder are and shall remain the
sole property of the Corporation; and if the Corporation requests the return of
such information at any time during, upon or after the termination of
Executive's employment hereunder, Executive shall immediately deliver the same
to the Corporation.
12. OWNERSHIP OF PROPRIETARY INFORMATION. Executive agrees that all
Proprietary Information shall be the sole property of the Corporation and its
assigns, and the Corporation and its assigns shall be the sole owner of all
licenses and other rights in connection with such proprietary Information. At
all times during the Term of this Agreement and after Executive is no longer
employed by the Corporation, Executive will keep the strictest confidence and
trust all Proprietary Information and will not use or disclose such Proprietary
Information, or anything relating to such information, without the prior written
consent of the Corporation, except as many be necessary in the ordinary course
of performing his duties under this Agreement.
13. DOCUMENTS AND OTHER PROPERTY. All materials or articles of
information of any kind furnished to Executive in the course of his employment
hereunder are and shall remain the sole property of the Corporation; and if the
Corporation requests the return of such information at any time during, upon or
after the termination of Executive's employment hereunder, Executive shall
immediately deliver the same to the Corporation. Executive will not, without
the prior written consent of the Corporation, retain any documents, data or
property, or any reproduction thereof of any description, belonging to the
Corporation or pertaining to any Proprietary Information.
14. THIRD-PARTY INFORMATION. The Corporation from time to time receives
from third parties confidential or proprietary information subject to a duty on
the Corporation's part to maintain the confidentiality of such information and
to use it only for certain limited purposes ("Third-party Information"). At all
times, until after the later of (a) the Expiration Date, (b) the fifth
anniversary of the Date of Termination or (c) the period of time the Corporation
must maintain the Third-Party Information as confidential, Executive will hold
Third-Party Information in the strictest confidence and will not disclose or use
Third-Party Information except as permitted by the agreement between the
Corporation and such third party.
15. INTELLECTUAL PROPERTY. Any and all improvements, inventions, designs,
ideas, works of authorship, copyrightable works, discoveries, trademarks,
copyrights, trade secrets, formulae, processes, techniques, know-how, and data,
whether or not patentable (collectively "Products"), made or conceived or
reduced to practice or learned by Executive, either along or jointly with
others, during the period of Executive's employment (whether or not during
normal working hours) that are related to or useful in the actual or anticipated
business of the Corporation, or result from tasks assigned Executive by the
Corporation or result from Executive's use of premises or equipment owned,
leased, or contracted for by the Corporation (a) during the period of this
Agreement, or (b) within a period of one year after the Date of Termination,
which may be directly or indirectly useful in, or relate to, the business of the
Corporation, shall be promptly and fully disclosed by Executive to the Board
and, if such intellectual property was made, developed or created pursuant to
Executive's employment hereunder, such intellectual property shall be the
<PAGE>
Corporation's exclusive property as against Executive, and Executive shall
promptly deliver to an appropriate representative of the Corporation as
designated by the Board all papers, drawings, models, data and other material
relating to any invention made, developed or created by him as aforesaid.
Executive shall, at the request of the Corporation and without any payment
therefor, execute any documents necessary or advisable in the opinion of the
Corporation's counsel or direct issuance of patents or copyrights to the
Corporation with respect to such Products as are to be the Corporation's
exclusive property as against Executive or to vest in the Corporation title to
such Products as against executive. The expense of securing any such patent or
copyright shall be borne by the Corporation. Executive shall be compensated, in
accordance with the Corporation's "Creative Awards" standard policy, for all
Products created or developed by the Executive either prior to his employment
(if delivered to the Corporation) or during the term of his Employment.
16. EQUITABLE RELIEF. Executive acknowledges that, in view of the nature
of the business in which the Corporation is engaged, the restrictions contained
in paragraphs 10 through 15, inclusive (the "Restrictions") are reasonable and
necessary in order to protect the legitimate interest of the Corporation, and
that any violation thereof would result in irreparable injuries to the
Corporation, and Executive therefor further acknowledges that, if Executive
violates, or threatens to violate, any of the Restrictions, the Corporation
shall be entitled to obtain from any court of competent jurisdiction, without
the posting of any bond or other security, preliminary and permanent injunctive
relief as well as damages and an equitable accounting of all earnings, profits
and other benefits arising from such violation, which rights shall be cumulative
and in addition to any other rights or remedies in law or equity to which the
Corporation may be entitled.
17. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the successors and
assigns of the Corporation. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation or otherwise) to all or a
significant portion of its assets, by agreement in form and substance
satisfactory to Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform this Agreement if no such succession had taken place.
Regardless whether such agreement is executed, this Agreement shall be binding
upon any successor of the Corporation in accordance with the operation of law
and such successor shall be deemed the "Corporation," for purposes of this
Agreement.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first-class
certified mail, return receipt requested, postage prepaid, addressed as follows:
(a) if to the Board or the Corporation, to:
Nanopierce Technologies, Inc.
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
Attention: President
(b) if to Executive:
Paul H. Metzinger
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
Such addresses may be changed by written notice sent to the other party at
the last recorded address of that party.
19. ARBITRATION OF ALL DISPUTES.
(a) Any controversy or claim arising out of or relating to this Agreement or
the breach thereof (including the arbitrability of any controversy or claim),
shall be settled by arbitration in the City of Denver in accordance with the
laws of the State of Colorado by three arbitrators, one of whom shall be
<PAGE>
appointed by the Corporation, one by Executive and the third of whom shall be
appointed by the first two arbitrators. If the first two arbitrators cannot
agree on the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the American Arbitration Association. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this paragraph 19. The cost of any arbitration proceeding hereunder shall be
borne equally by the Corporation and Executive. The award of the arbitrators
shall be binding upon the parties. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
(b) If it shall be necessary or desirable for Executive to retain legal
counsel and incur other costs and expenses in connection with the enforcement of
any or all of his rights under this Agreement, and provided that Executive
substantially prevails in the enforcement of such rights, the Corporation shall
pay (or Executive shall be entitled to recover from the Corporation, as the case
may be) Executive's reasonable attorneys' fees and costs and expenses in
connection with the enforcement of his rights including the enforcement of any
arbitration award.
20. NO ASSIGNMENT. Except as otherwise expressly provided herein, this
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.
21. EXECUTION IN COUNTERPARTS. This Agreement may be executed by parties
hereto in two or more counterparts, each of which shall be deemed to be an
original, but all such counterparts shall constitute one and the same
instrument. The facsimile signature of any party to this Agreement shall be
considered an original signature of such person.
22. JURISDICTION AND GOVERNING LAW. Jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of
Colorado, and this Agreement shall be construed and interpreted in accordance
with and governed by the laws of the State of Colorado, other than the conflict
of laws provisions of such laws.
23. SEVERABILITY. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement.
24. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties hereof, and supersedes all other oral or written agreements or
understandings between them regarding the subject matter hereof. No change,
alteration or modification hereof may be made except in a writing, signed by
each of the parties hereto.
25. HEADINGS DESCRIPTIVE. The headings of the several paragraphs of this
Agreement are inserted for convenience only and shall not in any way affect the
meaning or construction of any of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
NANOPIERCE TECHNOLOGIES, INC.
By: ________________________________
Herbert J. Neuhaus,
Executive Vice President of
Technology & Marketing
EXECUTIVE
By: _________________________________
Paul H. Metzinger
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made and entered into as of January
1, 1999, by and between Nanopierce Technologies, Inc. (the "Corporation"), a
Nevada corporation, and Herbert J. Neuhaus, an individual with his principal
business address at 770 Maroonglenn Court, Colorado Springs, CO 80906 (the
"Executive");
Employment and Term.
Employment. The Company hereby employs Executive and Executive hereby accepts
such employment, in the capacity of Executive Vice President of Technology and
Marketing of the Corporation to act in accordance with the terms and conditions
hereinafter set forth.
Term. Executive's employment hereunder shall be for an initial term of one year
(the "Initial Term") commencing on January 1, 1999 (the "Effective Date") and
terminating on December 31, 1999, subject to the extension or earlier expiration
of the Initial Term as provided in this Agreement. Within forty-five (45) days
of December 31, 1999 the Corporation's Board of Directors (the "Board") shall
review Executive's performance under this Agreement and, in its sole discretion,
renew the Agreement for a term of one year (a "Renewal Term") commencing on the
first day immediately following the Expiration Date (as defined below). The
board shall provide Executive written notice of its decision to renew or not
renew this Agreement at least 30 days prior to the date of this Agreement
expires under the Initial Term of any Renewal Term (the "Expiration Date"). If
the Board fails to provide Executive with such written notice, within the time
period set forth above, the Agreement shall terminate on the Expiration Date of
the Initial Term or Renewal Term, as the case may be. Whenever the word "Term"
is used in this Agreement is shall refer to either the Initial Term or the
Renewal Term, as the case may be.
Location of Employment. Effective upon the date of this Agreement, and through
the Initial Term the Corporation shall maintain an office for Executive at 370
Seventeenth Street, Suite 3580, Denver, Colorado 80202, or such other location
upon which the Corporation and Executive shall mutually agree at which location
Executive shall carry out his duties.
Duties.
During the period of employment as provided in Paragraph 1(b) hereof, Executive
shall serve as Executive Vice President of Technology and Marketing of the
Corporation, and shall have all powers and duties consistent with such position
subject to the direction of the Board. Such duties shall include, without
limitation, the following:
(i) Executive Vice President of Technology & Marketing. The primary duties and
responsibilities of the Executive Vice President of Technology and Marketing
consist of the following: the development and implementation of an overall
strategy and business plan for the Corporation with particular emphasis focused
upon the identification and acquisition of additional businesses; primary
responsibility for all aspects of the implementation of the Corporation's
technologies; responsibility for the development and implementation of a
marketing plan for the Corporation's technologies; and such further
responsibilities as are delegated to Executive by the President and Chief
Executive Officer of the Corporation.
Executive shall devote substantially his entire professional time, attention and
energy exclusively to the business and affairs of the Corporation and its
subsidiaries, as its business and affairs now exist and as they hereafter may be
changed, and shall not during the term of his employment hereunder be engaged in
any other business activity whether or not such business activity is pursued for
gain or profit. The foregoing shall not be construed as preventing Executive
from (a) managing his personal investments or investing his assets in such form
<PAGE>
or manner as will not require any significant services on his part in the
operation of the affairs of the businesses or entities in which such investments
are made, provided Executive shall not invest in any business competitive with
the Corporation and its affiliates, except those companies whose securities are
listed on a national securities exchange or quoted daily in the Over-the-Counter
Market listing of the The Wall Street Journal; or (B) preclude Executive from
continuing to serve on the board of directors of any business corporation or any
charitable organization on which he now serves and which has been disclosed to
the Corporation in writing or, subject to the prior approval of the Board, from
accepting employment to additional board of directors, provided that such
activities do not materially interfere with the performance of Executive's
duties hereunder.
Executive further agrees that during the term of his employment under this
Agreement he will engage in no business or other activities, directly or
indirectly, which are or may be competitive with or which might place him in a
competing position to that of the Corporation and its affiliates without
obtaining the prior written consent of the Board, including, without limitation,
the solicitation or acceptance of consulting work from clients of the
Corporation and its affiliates for whom he has performed services by virtue of
this Agreement or who he has met in connection with his employment under this
Agreement.
Compensation.
Base Salary. For services performed by Executive for the Corporation pursuant
to this Agreement during the first year January 1, 1999 to December 31, 1999,
the Corporation shall pay Executive a base salary at the rate of $100,000.00 per
year (the "Base Salary"), payable in accordance with the Corporation's normal
payroll practices but in no event less than once a month. Any compensation paid
to Executive under any additional compensation or incentive plan of the
Corporation, or that may be otherwise authorized from time to time by the Board,
shall be in addition to the base salary to which Executive shall be entitled
under this Agreement.
Salary Adjustments. On the earlier of the date that the Corporation (i) obtains
an executed Agreement-In-Principle or similar document with Michael Werle of
Francois Droz or (ii) is in receipt of the net proceeds from the first $500,000
tranche of the financing provided by Cofima Finanz, A.G. then the base salary
shall be increased to $150,000 per year for the balance of the Initial Term,
payable in accordance with the Corporation's normal payroll policies.
Tax Withholding. The Corporation shall provide for the withholding of any taxes
required to be withheld by federal, state and local law with respect to any
payment in cash, shares of capital stock or other property made by or on behalf
of the corporation to or for the benefit of Executive under this Agreement or
otherwise. The Corporation may, at its option: (I) withhold such taxes from any
cash payments owing to the Corporation to Executive, including any payments
owing under any other provision of this Agreement, (ii) require Executive to pay
to the Corporation in cash such amount as may be required to satisfy such
withholding obligations or (iii) make other satisfactory arrangements with
Executive to satisfy such withholding obligations.
4. Benefits. In addition to the base Salary, Executive shall also be
entitled to the following:
Participation in Benefit Plans. Executive shall be entitled to participate in
the various retirement, welfare, fringe benefit, group long-term disability
plans and other executive perquisite plans, programs and arrangements of the
Corporation available for senior executive level officers of the Corporation.
Executive and his dependents, at Executive's request shall be enrolled in the
Corporation's health, life, disability and other insurance plans and programs
immediately upon his commencement of employment hereunder, unless provision is
made otherwise. Until the Corporation and Executive agree otherwise, the
Corporation shall pay to or on behalf of the Executive the insurance premiums on
the policy currently in effect issued to MicroLink Technologies Corp.
<PAGE>
Vacation and Sick Leave. Executive shall be entitled to two weeks of vacation
during each calendar year during which this Agreement is in effect, or such
greater period as the Board may approve, and to paid holidays given by the
Corporation to its domestic employees generally, without reduction in salary or
other benefits. Executive shall also be entitled to sick leave according to the
sick leave policy, which the Corporation may adopt from time to time.
Basic Stock Option. Executive shall be eligible for grants of stock options in
accordance with the Corporation's 1998 Stock Option Plan or such other stock
option plan developed by the Board. Executive shall be granted an option for
Five Hundred Thousand (500,000) shares, exercisable at $0.20 per share, vesting
at the rate of Fifteen Thousand (15,000) shares per month. Such option shall
have a term of ten (10) years beginning January 1, 1999 and shall be registered
under the Corporation's S-8 Stock Option Plan.
Expenses. The Corporation shall reimburse Executive, upon proper accounting,
for reasonable business expenses and disbursements incurred by him in the course
of the performance of his duties under this Agreement and in accordance with the
Corporation's policies as in effect from time to time.
(e) Proration of Benefits. Any payments or benefits hereunder, in any year
during which Executive is employed by the Corporation for less than the entire
year shall, unless otherwise provided in the applicable plan or arrangement, be
prorated in accordance with the number of days in such year during which
Executive is employed by the Corporation.
(f) Additional Consideration. The Corporation and Executive agree that the
additional consideration set forth in the Letter Agreement between the
Corporation and Executive dated December 18, 1998, as amended January 14, 1999
remains in full force and effect.
5. Indemnification and Insurance. Executive shall be entitled to the
maximum indemnification provided by the Bylaws and the Articles of Incorporation
of the Corporation for officers and employees of the Corporation. Executive's
rights under this Paragraph shall continue without time limit so long as he may
be subject to any such liability, whether or not the Term of employment has
ended. The Corporation shall obtain and maintain, in effect, officers and
directors liability insurance in an amount not less than $1,000,000 without time
limit so long as Executive may be subject to any such liability, whether or not
the Term of employment has ended.
6. Representations and Warranties of Executive. Executive hereby
represents and warrants to the Corporation that (a) Executive's execution and
delivery of this Agreement and his performance of his duties and obligations
hereunder will not conflict with, or cause a default under, or give any party a
right to damages under, or to terminate, any other agreement to which Executive
is a party or by which he is bound, and (b) there are no agreements or
understandings that would make unlawful Executive's execution or delivery of
this Agreement or his employment hereunder.
7. Representations and Warranties of the Corporation. The Corporation
hereby represents and warrants to Executive as follows:
(a) The Corporation is duly organized and established as a
corporation under the laws of the State of Nevada and has all requisite power
and authority to enter into this agreement and to perform its obligations
hereunder. The consummation of the transactions contemplated by this Agreement
will neither violate nor be in conflict with any agreement or instrument to
which the Corporation is a party or by which it is bound.
(b) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action on the part of the Corporation and are valid, legal
and binding obligations of the Corporation, enforceable in accordance with their
terms except as may be limited by the laws of general application relating to
bankruptcy, insolvency, moratorium or other similar laws relating to or
affecting the enforcement or creditors' rights, and rules of law governing
specific performance, injunctive relief or other equitable remedies.
<PAGE>
Termination.
(a) Cause. The Corporation may terminate Executive's employment at any time
for Cause (as defined herein), by reason of Disability (as defined herein), or
without Cause; provided, however, that for any reason constituting Cause,
Executive is given (x) reasonable notice ("Notice of Termination for Cause")
setting forth the reasons for the Corporation's intention to terminate for Cause
and the effective date of such termination (which effective date may be the date
of such notice), (y) an opportunity for Executive, together with his counsel, to
be heard before the Board within two weeks of such notice and (z) within five
(5) business days after Executive's hearing before the Board, written notice to
Executive from the Board of its good faith determination that the reasons
specified in the Notice of Termination for Cause constitute Cause under this
Paragraph 8(a), and that Executive's employment is terminated effective as of
the date specified in the Notice of Termination for Cause. Executive's rights
to receive his salary and benefits hereunder shall not be affected during the
period between the receipt of the Notice of Termination for Cause and the
determination, if any, by the Board that the reasons specified in such notice
constituted Cause. For purposes of this Agreement, "Cause" means:
(i) Executive commits a breach of any material term of this Agreement, or
any material obligation of the Corporation, and such breach constitutes gross
negligence or willful misconduct and, if such breach is capable of being cured,
Executive Fails to cure such breach within 30 days of notice of such breach;
Executive is convicted of, or pleads guilty or nolo contendere to a felony;
Executive's commission of any act that would cause any license of the
Corporation or its subsidiaries or affiliates to be revoked, suspended, or not
be renewed after proper application;
(iv) gross negligence in the performance of Executive's duties and
responsibilities;
(v) refusal of Executive to follow proper and achievable written direction of
the Board, provided that this shall not be Cause if Executive in good faith
believes the direction to be illegal, unethical or immoral and so notifies the
Board;
(vi) material fraud or dishonesty with regard to the Corporation (other than
good faith expense account disputes); or
(vii) continuous refusal to attempt to perform Executive's responsibilities and
duties after written notice.
(b) Good Reason. Executive may terminate his employment at any time for any of
the following reasons (each of which is referred to herein as "Good Reason") by
giving the Corporation notice of the effective date of such termination (which
effective date may be the date of such notice):
(i) the Corporation commits a breach of any material term of this
Agreement and, if such breach is capable of being cured, the Corporation fails
to cure such breach within 30 days of receipt of notice of such breach; or
(ii) a material change of position, duties or the assignments of duties
materially inconsistent with Executive's position as Executive Officer of the
Corporation.
(c) Change in Control. Executive may, at his option, terminate his employment
upon a "Change in Control." For purposes of this Agreement, "Change of Control"
shall mean:
(i) the obtaining by any party of fifty percent (50%) of more of the voting
shares of the Corporation pursuant to a "tender offer" for such shares as
provided under Rule 14d-2 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or any subsequent comparable federal rule or
regulation governing tender offers; or
<PAGE>
(ii) individuals who were members of the Board immediately prior to any
particular meeting of the Corporation's shareholders which involves a contest
for the election of directors fail to constitute a majority of the members of
the Board following such election; or
(iii) the Corporation's executing an agreement concerning the sale of
substantially all of its assets to a purchaser which is not a subsidiary; or
the Corporation's adoption of a plan of dissolution or liquidation;
(v) the Corporation's executing an agreement concerning a merger of
consolidation involving the Corporation in which the Corporation is not the
surviving corporation or if, immediately following such merger or consolidation,
less than fifty percent (50%) of the surviving corporation's outstanding voting
stock is held by persons who are stockholders of the Corporation immediately
prior to such merger of consolidation.
(d) Executive's Rights to Terminate. Executive may, at his option,
terminate his employment hereunder for any reason upon 60 days' prior written
notice to the Corporation.
(e) Death. This Agreement shall terminate automatically upon Executive's
death.
(f) Disability. The term "Disability" as used in connection with
termination of the employment of Executive shall mean the inability of Executive
to substantially perform his material duties hereunder due to physical or mental
disablement which continues for a period of six (6) consecutive months, during
the term of employment (during which six (6) month period Executive's salary and
benefits shall continue) as determined by an independent qualified physician
mutually acceptable to the Corporation and Executive (or his personal
representative). Notwithstanding the above, in the event of Disability,
Executive shall be entitled to participate in and be covered by the
Corporation's group health plan until Executive is able to obtain health
insurance on substantially the same terms and conditions as provided in the
Corporation's group health plan; provided, however, that if the Corporation's
group health plan does not allow Executive and his dependents to continue
coverage, then the Corporation and Executive agree to negotiate a mutually
satisfactory alternative to provide Executive with the benefits intended by this
Paragraph 8(f).
(g) Without Cause. The Corporation may, at its option, terminate
Executive's employment without Cause at any time upon written notice to
Executive.
(h) Date of Termination. For purposes of this Agreement, the term "Date
of Termination" shall mean the date that any party gives notice, through action
or otherwise, that it intends to terminate this Agreement pursuant to the terms
hereof or the date, if any, specified by the terminating party in such notice as
the effective date of termination; provided, however, with respect to
termination for Cause, the Date of Termination shall be the date of receipt by
Executive of written notice form the Board as required by Paragraph 8(a) hereof.
In addition, where Executive gives notice to terminate this Agreement and the
effective date of termination is other than the date the Corporation receives
notice of termination, the Corporation reserves the right to accelerate the
Termination Date to the date Executive notified the Corporation of his intent to
terminate this Agreement.
Obligations of the Corporation Upon Termination.
(a) Without cause or for Good Reason. If the Corporation shall terminate
Executive's employment without Cause or if Executive shall terminate his
employment for Good Reason, this Agreement shall terminate without further
obligation to Executive hereunder, other that the obligation (i) to continue to
pay Executive in accordance with the Corporation's normal payroll payment
procedures his Base Salary from the Date of Termination at the rate in effect on
the Date of Termination through the next anniversary of the Effective Date; and
(ii) to continue to provide Executive with the benefits set forth in Paragraph
4(a) through the next anniversary of the Effective Date.
<PAGE>
(b) Voluntary. If Executive terminates his employment for other than Good
Reason (a "Voluntary Termination"), this Agreement shall terminate without
further obligation to Executive hereunder, other than the obligation (i) to
continue to pay Executive in accordance with the Corporation's normal payroll
payment procedures his Base Salary through the Date of Termination at the rate
in effect on the Date Termination; and (ii) to continue to provide Executive
with benefits of the type described in Paragraph 4(a) through the day preceding
the Date of Termination.
(c) Cause. If Executive's employment shall be terminated by the Corporation
for "Cause" the Corporation shall continue to pay Executive his Base Salary
through the Date of Termination at the rate in effect upon the Date of
Termination. Thereafter, the Corporation shall have no further obligation to
Executive.
(d) Death. If Executive's employment is terminated by reason of Executive's
death, the corporation shall pay to Executive's heirs or estate, the Base Salary
at the rate in effect on the day preceding death through the next anniversary of
the Effective Date, in one lump sum, payable within sixty days of the date of
death.
(e) Disability. If Executive's employment is terminated by reason of
Disability, the Corporation shall (i) continue in accordance with the
Corporation's normal payroll payment procedures to pay Executive his Base Salary
form the Date of Termination at the rate in effect on the Date of Termination,
through the next anniversary of the Effective Date; provided, however, that if
an event or condition is determined to be the cause of Disability, by an
independent qualified physician acceptable to Executive and the Corporation, and
such event or condition occurs at any time in the last six months of the Term,
then the Corporation shall continue to pay Executive his Base Salary in
accordance with the Corporation's normal payroll procedures for a period of Six
(6) months beyond the Term; and (ii) continue to provide Executive with benefits
of the type described in Paragraph 4(a) through the next anniversary of the
Effective Date; provided, however, that if the Corporation's group health plan
does not allow Executive and his dependents to continue coverage, then the
Corporation and Executive agree to negotiate a mutually satisfactory alternative
to provide Executive with the benefits intended by this Paragraph 9(e).
(f) Change of Control. If Executive terminates his employment within 90 days
following a Change of Control, the Corporation shall (i) continue in accordance
with the Corporation's normal payroll payment procedures to pay Executive his
Base Salary at the rate in effect on the Date of Termination through the next
anniversary of the Effective Date; and (ii) continue to provide Executive with
benefits of the type described in Paragraph 4(a) through the day preceding the
Date of Termination.
10. Non-Competition. Executive acknowledges and recognizes the highly
competitive nature of the Corporation and its affiliates and Executive
accordingly covenants and agrees, that at all times for a period of twelve (12)
consecutive months subsequent to the end of the Term or the Date of Termination,
whichever occurs earlier, as follows:
(a) Executive will not directly or indirectly own, manage, operate,
finance, join control or participate in the ownership, management, organization
, financing or control of, or be connected as an officer, director, employee,
partner, principal, agent, representative, consultant or otherwise with any
business or enterprise engaged in a business the same as or substantially
similar to the business of the Corporation and its affiliates except as a holder
of fewer that 5% of the outstanding shares or other equity interests of a
company whose shares or other equity interests are registered under Section 12
of the Exchange Act.
(b) Executive will not directly or indirectly induce any employee of the
Corporation or any of its affiliates to engage in any activity in which
Executive is prohibited from engaging by subparagraph (a) above or to terminate
their employment with the corporation or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who was employed
<PAGE>
by the Corporation or any of its affiliates unless such person shall have been
terminated without cause or ceased to be employed by any such entity for a
period of at least 12 months.
(c) Executive will not use or permit his name to be used in connection
with any business or enterprise engaged in the business the same as or similar
to Corporation or its affiliates or any other business engaged in by Corporation
or any of its affiliates.
(d) Executive will not use the name of the Corporation or any name
similar thereto, but nothing in this clause shall be deemed, by implication, to
authorize or permit use of such name after expiration of such period.
(e) Executive will not make any statement or take any action intended to
impair the goodwill or the business reputation of the Corporation or any of is
affiliates, or to be otherwise detrimental to the interests of the Corporation
or any of its affiliates, including any action or statement intended, directly
or indirectly, to benefit a competitor of the Corporation or any of its
affiliates, except as may be required by applicable law or by a local, state or
federal regulatory agency.
(f) Executive will not (a) disclose any customer lists or any part
thereof to any person, firm, corporation, association or other entity for any
reason or purpose whatsoever; (b) assist in obtaining any of the Corporation's
customers for any other similar business; (c) encourage any customer to
terminate, change or modify its relationship with the Corporation; or (d)
solicit or divert or attempt to solicit or divert the Corporation's customers.
(g) The Corporation shall have the right, subject to applicable law, to
inform any other third party that the Corporation reasonably believes to be, or
to be contemplating participating with Executive or receiving from Executive
properties of the Corporation in violation of this Agreement and of the rights
of the Corporation hereunder, and that participation by any such third party
with Executive in activities in violation of this Paragraph 10 may give rise to
claims by the Corporation against such third party;
(h) Executive and the Corporation agree that in light of the specialized
nature of the industry and the national-customer base of the Corporation's
business, that the restrictions set forth in this Paragraph 10 shall apply to
Executive within the territory of the United States of America. It is expressly
understood and agreed that although Executive and the Corporation consider the
restriction contained in the Paragraph 10 to be reasonable, if a final judicial
determination is made by a court of competent jurisdiction that the time or
territory or any other restriction contained in this Agreement is an
unenforceable restriction against Executive, the provisions of this Agreement
shall not be rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such maximum intent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein; provided, however that the provisions of
this Paragraph 10 shall not apply if Executive is terminated without Cause or
Executive terminates for Good Reason.
(i) The failure of Executive to abide by the provisions of this
Paragraph 10 shall be deemed a material breach of this Agreement. The primary
purpose of the covenant not to compete is the Corporation's legitimate interest
in protecting its economic welfare and business goodwill. The Corporation and
the Executive further agree that this covenant shall in no way be construed as a
mere limitation on competition nor shall it be construed as a restraint on
Executive's right to engage in a common calling.
11. Proprietary Information. Executive agrees that at all times during
the Term of this Agreement and after Executive is no longer employed by the
Corporation, Executive shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit on any
person, firm, association or company other than the Corporation, any Proprietary
<PAGE>
Information. "Proprietary Information" means information relating to the
properties, prospects, products, services or operations of the Corporation or
any direct or indirect affiliate thereof that is not generally known, is
proprietary to the Corporation or such affiliate and is made known to Executive
or learned or acquired by Executive while in the employ of the Corporation,
including, by way of illustration, but not limitation, information concerning
trade secrets, processes, structures, formulae, data and know-how, improvements,
inventions, product concepts, techniques, marketing plans, strategies,
forecasts, customer lists and information about the Corporation's employees
and/or consultants (including, without limitation, the compensation, job
responsibility and job performance of such employees and/or consultants).
However, Proprietary Information shall not include (i) at the time of disclosure
to Executive such information that was in the public domain or later entered the
public domain other than as result of a beach of an obligation herein; or (ii)
subsequent to disclosure to Executive, Executive received such information form
a third party under no obligation to maintain such information in confidence,
and the third party came into possession of such information other than as a
result of a breach of an obligation herein. All materials or articles of
information of any kind furnished to Executive by the Corporation or developed
by Executive in the course of his employment thereunder are and shall remain the
sole property of the Corporation; and if the Corporation requests the return of
such information at any time during, upon or after the termination of
Executive's employment hereunder, Executive shall immediately deliver the same
to the Corporation.
12. Ownership of Proprietary Information. Executive agrees that all
Proprietary Information shall be the sole property of the Corporation and its
assigns, and the Corporation and its assigns shall be the sole owner of all
licenses and other rights in connection with such proprietary Information. At
all times during the Term of this Agreement and after Executive is no longer
employed by the Corporation, Executive will keep the strictest confidence and
trust all Proprietary Information and will not use or disclose such Proprietary
Information, or anything relating to such information, without the prior written
consent of the Corporation, except as many be necessary in the ordinary course
of performing his duties under this Agreement.
13. Documents and Other Property. All materials or articles of
information of any kind furnished to Executive in the course of his employment
hereunder are and shall remain the sole property of the Corporation; and if the
Corporation requests the return of such information at any time during, upon or
after the termination of Executive's employment hereunder, Executive shall
immediately deliver the same to the Corporation. Executive will not, without
the prior written consent of the Corporation, retain any documents, data or
property, or any reproduction thereof of any description, belonging to the
Corporation or pertaining to any Proprietary Information.
14. Third-Party Information. The Corporation from time to time receives
from third parties confidential or proprietary information subject to a duty on
the Corporation's part to maintain the confidentiality of such information and
to use it only for certain limited purposes ("Third-party Information"). At all
times, until after the later of (a) the Expiration Date, (b) the fifth
anniversary of the Date of Termination or (c) the period of time the Corporation
must maintain the Third-Party Information as confidential, Executive will hold
Third-Party Information in the strictest confidence and will not disclose or use
Third-Party Information except as permitted by the agreement between the
Corporation and such third party.
15. Intellectual Property. Any and all improvements, inventions, designs,
ideas, works of authorship, copyrightable works, discoveries, trademarks,
copyrights, trade secrets, formulae, processes, techniques, know-how, and data,
whether or not patentable (collectively "Products"), made or conceived or
reduced to practice or learned by Executive, either along or jointly with
others, during the period of Executive's employment (whether or not during
normal working hours) that are related to or useful in the actual or anticipated
business of the Corporation, or result from tasks assigned Executive by the
Corporation or result from Executive's use of premises or equipment owned,
leased, or contracted for by the Corporation (a) during the period of this
<PAGE>
Agreement, or (b) within a period of one year after the Date of Termination,
which may be directly or indirectly useful in, or relate to, the business of the
Corporation, shall be promptly and fully disclosed by Executive to the Board
and, if such intellectual property was made, developed or created pursuant to
Executive's employment hereunder, such intellectual property shall be the
Corporation's exclusive property as against Executive, and Executive shall
promptly deliver to an appropriate representative of the Corporation as
designated by the Board all papers, drawings, models, data and other material
relating to any invention made, developed or created by him as aforesaid.
Executive shall, at the request of the Corporation and without any payment
therefor, execute any documents necessary or advisable in the opinion of the
Corporation's counsel or direct issuance of patents or copyrights to the
Corporation with respect to such Products as are to be the Corporation's
exclusive property as against Executive or to vest in the Corporation title to
such Products as against executive. The expense of securing any such patent or
copyright shall be borne by the Corporation. Executive shall be compensated, in
accordance with the Corporation's "Creative Awards" standard policy, for all
Products created or developed by the Executive either prior to his employment
(if delivered to the Corporation) or during the term of his Employment.
16. Equitable Relief. Executive acknowledges that, in view of the nature
of the business in which the Corporation is engaged, the restrictions contained
in paragraphs 10 through 15, inclusive (the "Restrictions") are reasonable and
necessary in order to protect the legitimate interest of the Corporation, and
that any violation thereof would result in irreparable injuries to the
Corporation, and Executive therefor further acknowledges that, if Executive
violates, or threatens to violate, any of the Restrictions, the Corporation
shall be entitled to obtain from any court of competent jurisdiction, without
the posting of any bond or other security, preliminary and permanent injunctive
relief as well as damages and an equitable accounting of all earnings, profits
and other benefits arising from such violation, which rights shall be cumulative
and in addition to any other rights or remedies in law or equity to which the
Corporation may be entitled.
17. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the successors and
assigns of the Corporation. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation or otherwise) to all or a
significant portion of its assets, by agreement in form and substance
satisfactory to Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform this Agreement if no such succession had taken place.
Regardless whether such agreement is executed, this Agreement shall be binding
upon any successor of the Corporation in accordance with the operation of law
and such successor shall be deemed the "Corporation," for purposes of this
Agreement.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first-class
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Board or the Corporation, to:
Nanopierce Technologies, Inc.
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
Attention: President
if to Executive:
Herbert J. Neuhaus
770 Maroonglenn Court
Colorado Springs, CO 80906
Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.
<PAGE>
Arbitration of All Disputes.
(a) Any controversy or claim arising out of or relating to this Agreement or
the breach thereof (including the arbitrability of any controversy or claim),
shall be settled by arbitration in the City of Denver in accordance with the
laws of the State of Colorado by three arbitrators, one of whom shall be
appointed by the Corporation, one by Executive and the third of whom shall be
appointed by the first two arbitrators. If the first two arbitrators cannot
agree on the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the American Arbitration Association. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this paragraph 19. The cost of any arbitration proceeding hereunder shall be
borne equally by the Corporation and Executive. The award of the arbitrators
shall be binding upon the parties. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
(b) If it shall be necessary or desirable for Executive to retain legal
counsel and incur other costs and expenses in connection with the enforcement of
any or all of his rights under this Agreement, and provided that Executive
substantially prevails in the enforcement of such rights, the Corporation shall
pay (or Executive shall be entitled to recover from the Corporation, as the case
may be) Executive's reasonable attorneys' fees and costs and expenses in
connection with the enforcement of his rights including the enforcement of any
arbitration award.
20. No Assignment. Except as otherwise expressly provided herein, this
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.
21. Execution in Counterparts. This Agreement may be executed by parties
hereto in two or more counterparts, each of which shall be deemed to be an
original, but all such counterparts shall constitute one and the same
instrument. The facsimile signature of any party to this Agreement shall be
considered an original signature of such person.
22. Jurisdiction and Governing Law. Jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of
Colorado, and this Agreement shall be construed and interpreted in accordance
with and governed by the laws of the State of Colorado, other than the conflict
of laws provisions of such laws.
23. Severability. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement.
24. Entire Agreement. This Agreement embodies the entire agreement of the
parties hereof, and supersedes all other oral or written agreements or
understandings between them regarding the subject matter hereof, except as
specifically set forth otherwise in the Letter Agreements, dated December 18,
1998 and January 19, 1999 between the Corporation and the Executive. No change,
alteration or modification hereof may be made except in a writing, signed by
each of the parties hereto.
25. Headings Descriptive. The headings of the several paragraphs of this
Agreement are inserted for convenience only and shall not in any way affect the
meaning or construction of any of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
NANOPIERCE TECHNOLOGIES, INC.
By: ________________________________
Paul H. Metzinger,
Chief Executive Officer & President
EXECUTIVE
By: _________________________________
Herbert J. Neuhaus
<PAGE>
EXHIBIT 11
NANOPIERCE TECHNOLOGIES, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Years ended June 30,
1999 1998
---- ----
<S> <C> <C>
Net loss $ (3,139,439) $ (1,137,334)
Dividends on Series A and B preferred stock ( 160,633) ( 60,417)
--------- ---------
Net loss applicable to common shareholders $ (3,300,072) $ (1,197,751)
========= =========
Weighted average number of common shares outstanding 14,457,613 6,621,757
Common equivalent shares representing shares issuable upon
exercise of outstanding options and warrants - -
---------- ---------
14,457,613 6,621,757
========== =========
Basic and diluted loss per share applicable
to common shareholders $ ( .23) $ ( .18)
========= =========
<FN>
Stock options and warrants are not considered in the
calculation as the impact of the potential common shares would be to decrease
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Nanopierce
Technologies, Inc.'s financial statements as of June 30, 1999 and is qualified
in its equity by referencing to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 641
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,332
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 888,965
<CURRENT-LIABILITIES> 486,886
<BONDS> 0
0
0
<COMMON> 2,973
<OTHER-SE> 399,106
<TOTAL-LIABILITY-AND-EQUITY> 888,965
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,114,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,881
<INCOME-PRETAX> (3,139,439)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,139,439)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,139,439)
<EPS-BASIC> ( .23)
<EPS-DILUTED> ( .23)
</TABLE>
